March 17, 2019

Bamboo Airways has ambitious plans

Bamboo Airways operated its inaugural flight earlier this year — and the carrier has big ambitions in the fast-growing Vietnamese aviation market. William Barnes reports from Hanoi

While US President Donald Trump was in Hanoi in February for his historic meeting with North Korean leader Kim Jong-un, he attended a signing ceremony between Bamboo Airways and Boeing related to the purchase of 10 B-787-9 aircraft, adding to the 20 aircraft originally ordered in June 2018.

Already in March 2018 Bamboo signed a memorandum of understanding (MOU) for up to 24 A321neo aircraft, and the company has announced an “orientation” target of 60 leased or owned A320s and 40 B-787s by 2022.

Bamboo’s parent is FLC Group, which invests in hotels, resorts and golf courses, as well as financial services and mining.

FLC Chairman Trinh Van Quyet recently told local media that the airline will establish routes between foreign cities and leisure destinations within Vietnam, bypassing when it can the main hub airports of Hanoi and Ho Chi Minh (HCM).

In terms worthy of Trump himself, the executive told French media last August: “We will be huge, right when we launch … we will make a profit as soon as we start flying.”

That launch date came around on 16 January with a flight from HCM to Hanoi.

As of late March, Bamboo was operating a half-dozen leased Airbus aircraft, a mixture of older A319s and A320s, plus an A321neo from lessor GE Capital Aviation Services (Gecas), previously on lease to Nordic low-cost carrier Primera Air that went bust last October.

Bamboo already serves 14 domestic destinations.

Flights to Japan, South Korea and Singapore are planned for this year.

Bamboo is betting on demand from the country’s burgeoning middle class for air travel, in a country that is 1,650km (1,025 miles) in length from the Chinese border to the Gulf of Thailand, with much of the land in between being hilly and densely forested.

The Hanoi-HCM route is already the world’s sixth-busiest.

In 2000 there were only five million passengers using Vietnamese airports, but by 2018 the number had jumped to 105 million, half of whom travelled on local airlines, according to a report in the Vietnam Investment Review, published during Trump’s visit.

The carrier seems keen on US routes, hoping to exploit both the strength of the Vietnamese diaspora and American curiosity about the country.

The US Federal Aviation Administration (FAA) recently said that Vietnam was compliant with international standards, permitting local airlines to fly into the US and codeshare with American airlines.

Quyet told Reuters that Bamboo’s first B-787 could be delivered by the third quarter of 2020, but that the carrier aims to launch initial US flights by early 2020, if not before, with either leased aircraft or early deliveries from Boeing if possible.

“Direct flights will … push tourism (and) … facilitate bilateral trade and investment.”

Boeing was giving Bamboo “huge support,” Quyet added.

FLC Group was confident enough to sign $8.6 billion in orders for 44 aircraft from Airbus and Boeing even before obtaining a licence late last year — but the fledgling carrier faces daunting challenges.

Bamboo jumped rather late into a rapidly expanding industry, but hopes that market momentum and its commitment to initially operate an ambitious 37 routes within the country will carry it forward.

Some analysts have voiced concern about the strength of financial backing from the FLC Group, whose key tourist resort business has helped the company grow rapidly since its founding in 2008 to revenues of half a billion dollars in 2017.

Tough market

FLC has said that it has put up a third of the money raised so far, with the balance coming from foreign investors.

Analysts have also suggested that Bamboo may have overestimated the potential for locking customers into flight-and-hotel packages in an era of increasingly independent travel.

Company executives maintain, however, that an ambitious launch plan was necessary because the window of opportunity for a Vietnam startup was closing.

Bamboo was established in July 2018, when Deputy Prime Minister Trinh Dinh Dung officially signed the necessary documentation based on the proposal from the Ministry of Planning and Investment.

The first flight was pencilled in for October, but was eventually pushed to January.

State controlled Vietnam Airlines held almost 75% of the domestic market in 2012.

With deregulation and competition from Vietjet Air, Jetstar Pacific and Vasco, however, this has shrunk to more like 50%.

And it looks certain to fall further with Bamboo — and potentially Vietnam AirAsia — arriving on the scene.

Laws restricting foreign ownership of local airlines will soon be eased, lifting a foreign partner’s permitted maximum share from 30% to 49% in a move likely to increase interest in Vietnam’s aviation sector.

Vietjet appears to be attempting to capture some of the early fizz of Malaysia-based low-cost pioneer AirAsia, which placed orders for 100 B-737max aircraft during former US President Obama’s visit to Hanoi in 2016.

While Trump was in Hanoi, Vietjet signed an order for yet another 100 B-737max aircraft.

The order had previously been announced in 2018.

The point Bamboo executives have made to industry experts and journalists is that, by acting now, they will be well-positioned with a network eventually covering most of the countries’ 25 commercial airports, of which 10 are ready to receive international flights.

Executives have been less keen to describe precisely what kind of airline Bamboo is.

There have been few attempts to claim a competition-busting position as a low-cost airline.

It appears simply that Bamboo will aim to be competitive in price while hoping that geographic spread, unique routes (eventually) and business tie-ins will enable it to avoid a profit-sapping price war.

Quyet himself has said that Bamboo is expected to be a hybrid carrier, combining full-service and low-cost models.