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AirAsia fails again in Vietnam partnership bid

CEO Tony Fernandes says he will try again despite a third setback in 12 years

AirAsia Group CEO Tony Fernandes says he will try again to set up local operations in Vietnam. (Photo by Tsuyoshi Tamehiro)

SHANGHAI -- Malaysian budget carrier AirAsia says it will keep trying to crack the Vietnamese market even as analysts warn it has "missed the boat" after its latest failed attempt to set up a joint venture in the country.

The airline announced on Wednesday that it has terminated an agreement with Thien Minh Group, under which it was to take a 30% stake in an airline company to be launched this year.

AirAsia has already tried three times to set up a partnership in Vietnam, but AirAsia Group CEO Tony Fernandes is not ready to give up.

"I am still optimistic about AirAsia being in Vietnam by end of the year," Fernandes said in a Twitter post the day after the company's announcement. He hinted in his tweet that the choice of partner was to blame for the failure, saying, "Watch this space. Picking the right one."

AirAsia and Thien Minh had agreed in December to set up a joint venture in which the Malaysian company would own a 30% stake, the maximum allowed under Vietnamese law. The company did not give a reason for ending the agreement in its official statement, though local analysts point to the country's restrictive regulations on foreign aviation players as one possible hurdle.

A spokesperson for Thien Minh told the Nikkei Asian Review that the group will release an official statement on the move next week.

AirAsia already offers international flights connecting to Vietnamese cities, but Fernandes has been trying to set up a partnership in the country since 2005.

Travel demand in the market of 95 million grew 9% in 2018, according to the local aviation authority, and Fernandes has referred to Vietnam as the missing piece of the puzzle in AirAsia's plan to tap demand from emerging markets.

But according to Brendan Sobie of the Sydney-based CAPA Center for Aviation, now may be the time for AirAsia to rethink its approach.

"After three failed attempts with three different partners, it's time to let this one go and focus on international expansion using their affiliates from Malaysia, Thailand, Japan, etc.," Sobie said.

The Vietnamese market for budget travel, moreover, is already dominated by local players: Vietjet Aviation, which controls nearly half the market, Jetstar Pacific Airlines and Bamboo Airways.

"The domestic market has become overcrowded and intensely competitive," Sobie added. "Entering now would be risky and it would be nearly impossible to become a significant domestic competitor. AirAsia unfortunately missed the boat on the Vietnam domestic market."

Foreign players, moreover, are forbidden from operating domestic routes in Vietnam, even with a local partner. Licenses, moreover, are awarded on a case-by-case basis, and though newcomer Bamboo Airways received its license relative quickly, the process can take much longer. Vietstar Airlines, established in 2010, is still waiting for a license to begin passenger flights. Local analysts have pointed to these hurdles as one possible reason for AirAsia's repeated setbacks in the country.

The airline has a presence in Indonesia, India, Japan, Thailand and Philippines, and thrives on a feeder traffic business model of connecting second-tier cities to capitals, while keeping operating costs low with no-frills service.

The stock market was little moved by the announcement. AirAsia's share opened 0.4% higher on Thursday trade before closing at 2.43 ringgit.

MIDF Research echoed Sobie's sentiment, saying it is "not imperative" for the group to set up local operations in Vietnam as it can still fly to cities in the country from its regional network.

The Malaysian investment outfit cited the recently inaugurated Kuala Lumpur-Can Tho route, AirAsia's sixth route in Vietnam, as an example of the group's ability to continue expanding regionally without Fernandes' missing puzzle piece.

AirAsia's failed bid to penetrate into Vietnam means Vietjet will continue to dominate the market for now. Vietjet's share price rose 0.44% on Thursday to close at 114,00 dong, and rose a further 0.79% on Friday.

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