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Private airlines plan for flights abroad

Update: August, 13/2012 - 10:11

Although they are newcomers to the aviation industry, private airlines in Viet Nam hope to spread their wings on international routes.

Three private airlines, Vietjetair, Air Speed Up (Indochina Airlines) and Mekong Aviation, were established in the 2007-08 period.

VietJet Air is making preparations to open international routes, and its first foreign destinations would likely be South Korea and Japan, two markets with potential and stability. The airline expects to launch the first flights at the end of this year.

Mekong Air has also announced that it plans to operate more domestic and international flights. For now, though, the carrier's initial legal capital of VND200 billion (US$9.6 million) allows it to operate only domestic flights.

To expand to international markets, the airline signed a strategic agreement with the Export and Import Joint Stock Commercial Bank, which would contribute and raise the legal capital to VND600 billion.

However, Vietnamese private airlines should prepare for fierce competition in the global market.

For routes such as Ha Noi and HCM City to Singapore, Vietnamese private airlines have the ability to operate but they may find it difficult to compete with well-established airlines such as Singapore Airlines, Tiger Airways, Jetstar Asia, Lion Air and Silk Air.

The Bangkok – HCM City and Ha Noi routes is another popular route, but the situation is the same: many well-known airlines, including Thai Airways, Thai AirAsia, Lufthansa, Turkish Airlines and Tunisia Airlines, fly those routes.

In addition, domestic private airlines do not have the necessary conditions to reach long-distance markets.

One CEO in the domestic aviation industry said that costs needed to fly to international destinations were too high relative to the private airlines' financial potential.

Although the Government has signed a bilateral air-service agreement with 56 countries and territories, both state-run and private airlines are still not qualified to fully exploit air-service opportunities.

Viet Jet Aviation Joint-Stock Company, trading as VietJet Air, is a low-cost airline and the first privately owned airline to be established in the country. Indochina Airlines was originally licensed in May 2008 as Air Speed Up.

Set up in 2009, Mekong Aviation Joint Stock Company, doing business as Mekong Air, operates scheduled passenger flights from its base at Phu Quoc Airport and secondary hubs at Noi Bai International Airport and Tan Son Nhat International Airport.

Among the private airlines, VietJet Air has charter capital of VND500 billion – the amount required for an airline to participate in international routes right at the time when it is established.

In the first year of operation, VietJet Air realised its target of operating 5,000 flights and carried over 700,000 to 800,000 passengers on its six A320 planes.

Gold trading floor needed

Experts have recommended that a national trading floor be set up to help stabilise the local gold market and create price parity between domestic and global markets.

They said the future national trading floor should be put under the control of the Government and list the codes of gold commodities, including the stock codes, so that that both domestic and foreign investors can participate in transactions.

Experts have said that a gold trading floor would bring positive results and act as a bridge between local and global markets. It could eliminate illegally gold trading floors, which have expanded recently.

An official gold floor would also help prevent dollar outflows, speculation, price manipulation and gold smuggling, as well as meet domestic demand.

Current gold management policies have made gold price fluctuations difficult to predict.

The world gold price is expected to increase strongly to the year-end and may reach nearly $1,700 per ounce. However, domestic gold investors are still worried about risks in participating in the market because of the gap between global and domestic gold prices.

Although illegal gold trading floors have been banned for two years, they continue to flourish in the country, attracting many investors.

Market observers said that trading on these floors was done via the internet and often allowed investors to make transactions with a high average ratio of 1:100.

To become a member of a gold trading floor, people only have to have a copy of an identity card or several dozen US dollars for the membership registration fee. Some trading floors offer very attractive conditions to investors.

However, only 5 per cent of investors can break even or earn money with trading deals.

These illegal gold trading activities can involve cheating, and the Government can not collect taxes on them.

The Viet Nam National Financial Supervisory Committee has conducted a survey of the level of household income, capital accumulation, and investment in Ha Noi, which showed that more than 31 per cent of households had gold reserves and 92 per cent said they wanted to keep gold for fear of inflationary pressure.

This kind of reliance on gold influences the volume of smuggling. As many as 20-40 tonnes of gold are smuggled into Viet Nam every year to meet market demand, and the growing demand for US dollars to import gold has made it difficult to control foreign currency.

Experts recommend that a state-owned national gold office be set up, with trading floors in Ha Noi and HCM City. They should be run according to international practice.

They also suggested that the central bank remove gold import and export quotas to avoid causing differences in domestic and international prices, and allow commercial banks to mobilise and trade gold through accounts in order to maintain a balance in the market and reduce risks.

Mobile number portability

The Ministry of Information and Telecommunication plans to launch mobile number portability beginning from 2014.

Mobile number portability (MNP) allows mobile-phone customers to retain their numbers when changing mobile network operators.

Customers would be able to keep their number when they change service providers, geographical positions or services.

The plan aims to provide customers with more options and create a healthy competitive climate among telecommunications companies that would help improve services.

Additionally, the plan allows telecommunications government bodies to expand the mobile market and introduce e-commerce.

In Viet Nam, mobile telecommunications services account for up to 90 per cent of the domestic telecom market.

According to the General Statistics Office, as of June, the country had 135.9 million phone subscribers, of which 120.7 million were mobilephone subscribers.

Meanwhile, the country has six mobilephone service providers, Viettel, MobiFone, VinaPhone, SFone, Vietnammobile and Gtel-Beeline. However, 90 per cent of the market is occupied by Viettel, MobiFone and VinaPhone.

However, to successfully carry out the MNP service, the telecom sector must build a model responsible for managing customers' changing of service providers.

In addition, State management agencies will have to actively support the MNP plan with proper policies.

Foreign bank ownership

The central bank has shown no

sign of increasing the foreign-ownership ratio of shares of weak commercial banks, which are eligible for restructuring.

In the plan on credit institution restructuring, a possible increase was suggested.

The restructuring plan for the 2011-2015 period allows foreign credit institutions to buy or merge with Vietnamese banks, and increase foreign-ownership ratios at weak banks that are subject to restructuring.

Foreign investors are seen as the most financially capable investors in the market, at a time when the country needs large amount of money to supplement domestic capital sources, which are becoming exhausted.

However, the central bank has had no specific plans to seek foreign investors to join the bank debt-trading market.

For many managers of foreign banks, the bank market is an attractive investment sector, so they are keeping a wait-and see attitude, particularly about the next move by the Government.

Governor of the State Bank of Viet Nam, Nguyen Van Binh, told Dau Tu newspaper that extending the foreign-ownership threshold at Vietnamese banks was an important solution to the credit institution reshuffling.

However, he said the benefits to the country would be doubtful if this was not managed well.

According to Binh, the national economy is experiencing dark days, when bank stocks have become quite cheap. Thus, the banking sector could fall into the hands of foreigners if the ceiling on the foreign-ownership ratio is lifted.

He said it would be better to create a healthier banking sector, which would then force foreign banks to pay reasonable prices to buy banks. In addition, this would ensure benefits for domestic investors. — VNS

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