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Business

AirAsia plans joint venture in Vietnam for regional expansion

KUALA LUMPUR (NewsRise) - AirAsia, Asia's largest budget airline by fleet, plans to establish a low-cost carrier in Vietnam with local partners as it seeks to expand its regional foot print by tapping into one of the world's fastest-growing aviation markets.

The company is partnering Gumin Company, a firm controlled by Vietnamese businessman Tran Trong Kien, to form the joint venture, AirAsia said in a stock exchange filing. Under the pact, Gumin and Tran will together hold a 70% stake in the joint venture Hai Au Aviation with AirAsia owning the remainder 30%.

The joint venture will apply for a license to run air transportation business and seek other necessary permits from the Vietnamese authorities, and aims to begin operations by early 2018, AirAsia said.

AirAsia is the latest to join a clutch of foreign companies to invest and expand into one of the fastest-growing Southeast Asian economies that the World Bank predicts will grow by 6.3% this year. Passenger traffic in Vietnam, the region's fifth-largest aviation market, surged 28% to 52 million travellers last year.

Apart from AirAsia, other companies that have recently invested or expanded their presence in Vietnam include Malaysia's Public Bank that plans to open six new branches this year and Chinese mobile phone giant Xiaomi that recently launched its smartphone range.

Years of brisk economic growth have swelled a cash-rich middle-class in a nation of 95 million people, a segment that is expected to be 23% of the total population by 2020. This offers the new carrier an opportunity to tap into a large pool of potential customers - many of them first-time fliers - and connect Vietnam to AirAsia's vast network across Southeast Asia.

"A hub in Vietnam will enable AirAsia enjoy a broader footprint in the Southeast Asia," said TA Securities' analyst Tan Kam Meng.

On its part, AirAsia said Vietnam's three major hubs--Ho Chi Minh, Hanoi and Da Nang--provides "the foundation and support for the joint venture's plans to operate domestic and international under-served routes" to connect key Vietnamese cities to Southeast Asia as well as North Asia.

Currently, two budget airlines -- VietJet Air and Jetstar's Pacific Airlines - operate in Vietnam.

"There is great potential for growth in Vietnam," AirAsia said. "This clearly presents an opportunity for another low cast carrier to enter into the market."

AirAsia, which currently flies 172 planes and has ordered for more than 400 aircraft, operates with an affiliate in Indonesia, Thailand, Philippines and India due to various regulations limiting foreign shareholding in an airline.

Shares of AirAsia rose 1.3% to 3.14 ringgit while the benchmark FTSE Bursa Malaysia KLCI ended 0.5% lower.

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