Vietnam’s aviation market, along with that of Indonesia, has always been seen as a shining star in Southeast Asia due to its vast population of 97 million people and a country that stretches 1,650km from north to south. During the pandemic, its domestic aviation capacity had already recovered to 2019 levels by June 2020, although its international air capacity had the agonizing wait until Q1 2022 when borders reopened.
As of November 2023, compared to 2019 Vietnam is -12% for total seat capacity, with -11% for domestic capacity, and -12% for international capacity. However, that positive snapshot in time doesn’t deliver the whole picture for Vietnam’s aviation market - one of international air capacity growing and then leveling off, whilst its domestic air capacity is in decline.

International Air Capacity Leveling Off

Analyzing international air recovery first, it undeniably experienced a surge after the borders reopened, peaking in July and August 2023 at 1.95 million seats, before leveling off to 1.9 million seats in November 2023. A similar peak of seats over the summer months and a slight decline towards the year-end is seen in 2019, too.

In terms of bright spots for international destinations, Japan-Vietnam seat capacity is seeing an uplift of 11% vs 2019 and capacity to other destinations is recovering well:

•    Korea is just -12%, 
•    Taiwan -4%,
•    Cambodia -5%, 
•    India (as we have commented previously) is seeing an enormous +435% growth vs 2019. 

The increase in seat capacity between Japan and Vietnam is mirrored by the number of international arrivals to Japan from Vietnam from January to October 2023, which has surpassed 2019 levels by 16%. The flow is, however, very much one-sided, with the number of Japanese arriving in Vietnam at -40% of 2019 levels.

The flow is more reciprocal between Vietnam and Korea, with the Korean Ministry of Justice reporting that Vietnam is the second most popular outbound destination for Koreans to travel to, whilst Vietnamese are the fifth largest source market into Korea.

Although Vietnam initially struggled with its international arrivals after the borders reopened, in November 2023 its visitor arrivals reached -32% vs 2019. 

The one country holding back Vietnam’s international air capacity growth is unsurprisingly, China. In November 2019 Vietnam-China accounted for 12% of the total market share of international airline routes, but in November 2023, its seat capacity recovery is still -48% down on 2019, with just a 7% share of total seats. However, the fact that Vietnam is only -12% down overall for international air capacity without the full recovery of Chinese seat capacity bodes well.

The Domestic Slowdown

There has always been a seasonality to the ebb and flow on international airline routes, with Tet (the Lunar New Year) and summer months seeing peaks, but 2023’s domestic air capacity has been much more volatile than previous years.

What’s interesting is that in November 2023, many airlines reduced their domestic seats by a significant number vs November 2022, which exceeded November 2019 levels by 13%.

So which destinations are seeing their seat capacity decrease vs 2022? Largely those favored as domestic leisure travel destinations: 

•    Phu Quoc (-31%), 
•    Nha Trang (-24%), 
•    Dalat (-29%), Haiphong (-22%) 
•    and Vinh (-21%). 

Whilst Hanoi (-14%) and Ho Chi Minh City (-13%)  have both seen a decline in their seat capacity, their decline is not as marked - and Da Nang has remained remarkably stable at -5%.

The decline appears to be more marked after coming out from summer 2023 - one airline executive commented: “We’ve seen the peak travel season of summer 2023 ending very early. By the end of July, demand decreased significantly, unlike previous years, in which demand lasted late into August, even early September".

The Civil Aviation Authority of Vietnam (CAAV) has also reported that from Jan-Sep 2023, the number of domestic air passengers carried was 65.2 million, -4% YoY.

Nearly all domestic airlines in Vietnam have cut their domestic supply in comparison to 2022 - Vietnam Airlines reduced the number of domestic seats by around 321k from November 2022 vs 2023, Vietjet a much more modest 41k, Bamboo around 256k, whilst the much smaller Vietravel Airlines decreased their seats by -1k.

What are the reasons for this domestic aviation slowdown? One is of course, a slowing economy - Vietnam has seen a cutting of its 2023 GDP growth forecasts from heavyweights such as the Asian Development Bank from 6.5% to 5.8%, with manufacturing companies forced to roll out layoffs and cut hours, amid weakened global demand.

The other reason could be a recalibration of demand addressing an optimistic over-expansion of airlines: Bamboo Airways being a case in point. A relative newcomer to the industry, it started flying in 2019 and quickly announced its desire to operate long-haul flights to Europe, as well as operating domestic routes. In 2021, it made that dream a reality, launching flights to London Gatwick, followed by Frankfurt and Australian routes.

However, those long-haul dreams came back to reality in September 2023 when rumors first surfaced that employees’ salaries were going unpaid, and later in October the airline announced that it would stop operating flights using its B787s, cutting Frankfurt, London, Sydney and Melbourne from its network. A new General Director was appointed, who noted that the airline needed to undergo “the most extensive, strategic, and far-reaching restructuring project ever undertaken in Vietnamese aviation history”.

It announced a restructuring that would see it focus on narrow-body aircraft and jets, operating key domestic routes such as Hanoi, Ho Chi Minh City, and Da Nang, as well as some of the more popular intra-Southeast Asian international routes.

Is There Still Potential for Growth?

All of the above has not stopped other Vietnamese airlines from pursuing aggressive expansion plans. Vietjet raised $100 million USD for fleet expansion in October 2023, Vietnam Airlines is signing an agreement to purchase 50 B737 MAX jets, Vietravel Airlines announced that it would increase its fleet to 20 aircraft by 2025/ 2026. And even Bamboo Airways is not down and out - they aim to bring their fleet size back to 50 in an undisclosed timeframe.

Their optimism about the potential for growth in the aviation industry in Vietnam seems to be well-founded. The national aviation strategy will see 33 airports in the country by 2050, and the aim is for 95% of the population to be able to reach at least one airport within a 100km radius. Large-scale airport constructions are underway, with Long Thanh Airport located near Ho Chi Minh City finally starting construction in August 2023 and expected to be complete by 2025. Ho Chi Minh City’s existing airport, Tan Son Nhat International Airport, will build a third terminal to boost its capacity and Hanoi’s Noi Bai International Airport will undergo upgrades, whilst a second Hanoi airport is expected to be built in 2026-2030.

Whilst the domestic aviation scene is undergoing a shake-down in 2023, there is no doubt that this will be a temporary blip, as airport capacity grows and with it, a population with a demand for air travel in a country that has no high-speed rail service as a feasible alternative. The litmus test will be the Tet festival of 2024 - and to see if that domestic appetite for travel has started to pick up once more.

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