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Launch of Vietnam's 3rd budget airline hits headwind

Government concern over capital and capabilities keeps Bamboo Airways grounded

If it gets off the ground, Bamboo Airways plans to fly 24 domestic and 16 international routes. (Photo courtesy of FLC Group)

HANOI -- Uncertainty surrounds the debut of Vietnam's third low-cost carrier as authorities continue to mull approval of the airline just a month before its inaugural flight.

Bamboo Airways, part of real estate developer FLC Group, is awaiting its operating license ahead of flights scheduled for October.

Authorities are believed to have doubts about the carrier's financial fitness and operational capabilities. Still, FLC remains optimistic and plans to begin ticket sales later this month.

At a prelaunch event for the airline in late August, FLC founder and Chairman Trinh Van Quyet said Bamboo Airways is ready to take off after four years of preparation. He said the airline shares similarities with full-service carriers, providing a number of high-quality amenities at low prices.

The carrier is eyeing 24 domestic and 16 international routes by the end of 2023, mainly to destinations where FLC has resorts, including central Vietnam's Binh Dinh Province and the northern city of Thanh Hoa.

It has already signed a memorandum of understanding for the purchase of 24 Airbus A321 jets, and is expected to buy large aircraft from Boeing, including 787 Dreamliners.

Bamboo Airways was officially established in July. If the operating license is granted, the carrier's maiden flight will be between Hanoi and Quy Nhon, the capital of Bunh Dinh Province, on Oct. 10.

A website appeared online in August with ticket and promotional information, making it appear that the carrier had already obtained its license. The Ministry of Transport ordered the site taken down, and Bamboo Airways denied involvement.

Observers believe one reason authorities are dragging their feet is the weak creditworthiness of emerging real estate developers like FLC. The company, established in 2008, experienced rapid growth driven by its resort developments. Revenue reached 11.64 trillion dong ($500 million) in 2017, almost a sevenfold increase from 2013.

FLC's financial base is seen as weak compared to Vingroup -- Vietnam's largest real estate company -- which is expanding into automobile manufacturing. FLC is also considered weaker than Vietjet Aviation, which includes a bank among its group members.

In July, Bamboo Airways increased its stated capital to 1.3 trillion dong, nearly double the initially planned 700 billion dong, as if to quell government concerns.

Concern over too much competition in Vietnam's LCC market is also holding up the license. The country's airline market, formerly dominated by state-run Vietnam Airlines, underwent a drastic change after Vietjet Aviation debuted in late 2011. By the first half of 2017, the newcomer held 43% of market share, up from just 8% in 2012 and eclipsing Vietnam Airlines' 42% share.

LCCs have generally been improving their positions. Jetstar Pacific Airlines, the budget carrier of Vietnam Airlines, claims over 10% of market share.

In July 2017, Vietjet tied up with Japan Airlines to operate flights between Hanoi and Japan's Narita Airport starting in January 2019. The Vietnamese carrier is looking to tap into an expected increase in Japan-bound passengers as Tokyo ramps up efforts to attract foreign workers.

Foreign airlines, like Malaysia's AirAsia and some Chinese LCCs, are targeting Vietnam, where the airline market has grown more than 20% annually on the back of the country's growing middle class.

If successful, Bamboo Airways will increase pressure on Vietnam Airlines, heating up competition in the domestic airline market.

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