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Malaysia's AirAsia again tries to take off in Vietnam

Protections stymie discount carrier's bids at entering lucrative market

Jets from Vietjet Air, above, and Vietnam Airlines at Vietnam's Tan Son Nhat International Airport

HANOI -- After failing three times, Malaysian discount air carrier AirAsia is once again trying to crack the growing, but well-protected, Vietnamese airline market

Vietnam closely guards its airline market, dominated by state-run Vietnam Airlines and local discount carrier Vietjet Air, but growth potential is such that it is attracting yet another bid by AirAsia, its fourth since 2005.

AirAsia's latest strategy is to team with Thien Minh Group, a pioneering local travel agency founded in 1994 by Tran Trong Kien, the current chief executive officer. TMG, whose Buffalo Tours is one of the best known travel brands in the country, also operates hotels and a travel booking website. The company also began offering seaplane flights four years ago.

AirAsia CEO Tony Fernandes is said to have first met TMG's Kien in late 2015. The two have since explored ways to collaborate in Vietnam. Determined not to repeat AirAsia's previous failed attempts, the two companies carefully studied strategic options as well as how to integrate the companies' different corporate cultures, Kien said.

The companies plan to jointly set up a low-cost carrier in Vietnam, with the first flight planned for spring 2018. Deploying medium-range passenger aircraft, such as the Airbus A320 and A321, the venture will target domestic and international routes not served by Vietnam Airlines or Vietjet Air.

Kien said there are still niche routes where they see strong demand, such as direct flights between Tokyo and Nha Trang.

Failed attempts

AirAsia first attempted to enter the Vietnamese market in 2005 through a proposal to support Vietnam's Pacific Airlines, predecessor to Jetstar Pacific Airlines, but lost to rival Qantas Airways. The next bid, in 2007, was a proposed joint venture with a state-owned shipbuilder that was rejected by the government. Its most recent deal, this time to acquire 30% of Vietjet Air in 2010, was signed by the two companies but again grounded by the government.

Vietnam's heavily protected airline market has so far resisted outside penetration by foreign newcomers.

However, it still remains attractive to AirAisa, which is determined to grab a piece of the market owing to the large growth potential compared to other Southeast Asian countries, according to an executive at a Japanese airline company.

Tourism booming

Driving growth in the Vietnamese airline market is the country's tourism, which started to take off in 2007 after the country joined the World Trade Organization. International visitors in particular increased sharply in the past few years, aided by cheap flights from low-cost carriers.

In 2016, the number of foreign visitors to Vietnam exceeded 10 million for the first time. The country now expects the figure to double by 2020. Chinese tourists are leading the tourism boom, flocking in large numbers to seaside resorts such as Danang and Nha Trang.

Vietnam is also expected to experience an increased visitor inflow in 2017 as it hosts meetings of the Asia-Pacific Economic Cooperation forum in locations around the country.

Areas with casinos, such as Ho Chi Minh City and Phu Quoc island, are also expected to see an increase in tourists, as the ban on casino use by locals was lifted in March.

Cut-rate competition

Since its launch in December 2011, Vietjet Air grew rapidly thanks to its low fares, stealing market share from Vietnam Airlines, which had previously monopolized the market but had a reputation for poor service. In little less than six years from its debut, Vietjet Air's domestic market share is now almost the same as its state-owned rival.

The competition that has ensued has helped lower fares and raise the quality of service in the industry. If AirAsia's latest attempt succeeds, competition is expected to heat up, much to the delight of travelers.

For now, the fate of AirAsia's bid remains unclear, but the government is thought to be reluctant to add further to Vietnam Airline' difficulties.

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