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Vietjet's ambitions soar beyond Southeast Asia

Vietnam budget carrier now has bigger market cap than AirAsia

A Vietjet aircraft is seen at Tan Son Nhat airport in Ho Chi Minh.   © Reuters

HANOI -- Vietjet Aviation, Vietnam's largest budget carrier, has grown into the second-most-valuable airline in Southeast Asia by market capitalization, and is building on that success to create a network of international routes stretching outside the region.

Japan represents a central plank in the growth strategy. On Thursday, Vietjet will begin service between Hanoi and Kansai Airport near Osaka. That will be followed from December with flights between Ho Chi Minh City and the Osaka-area airport, and one tying Hanoi with Narita Airport near Tokyo. Routes to Tokyo's Haneda Airport, Chubu Airport near Nagoya and the airport serving Fukuoka are also in the works.

Vietjet CEO Nguyen Thi Phuong Thao told Nikkei in an interview that the airline seeks to capture surging domestic demand for business and leisure travel to Japan. The budget carrier's fares will be low, with a round-trip ticket from Hanoi to Kansai Airport costing the equivalent of roughly $300, or about a third the price on flag carrier Vietnam Airlines.

Vietjet's partnership with Japan Airlines, inked in July 2017, will be key to its global expansion. Vietjet started code-sharing Vietnamese domestic flights with JAL in late October, granting JAL flyers access to its planes. Plans are in the works for a code-share arrangement on JAL's long-haul flights between Japan and the U.S.

Vietjet currently offers service to destinations in nine countries and territories, including China, Thailand and Malaysia. The airline will soon make a decision on whether to launch more international routes, to India, Russia and Australia. Vietjet is also considering partnerships with European carriers.

Vietjet Aviation President and CEO Nguyen Thi Phuong Thao speaks with Nikkei in Ho Chi Minh City. 

Driving Vietjet's expansion is the coming inauguration of the Trans-Pacific Partnership, the 11-member trade pact which Vietnam is a party to. Another catalyst is the strong economic growth fueled by foreign direct investment, such as from South Korea's Samsung Electronics.

Vietnam's gross domestic product grew 6.88% on the year in the quarter ended in September, a rapid pace even for a Southeast Asian economy. Consumption among the country's nearly 100 million people has been climbing. The number of Vietnamese traveling across the border has jumped by 10% to 15% in each of the past few years, reaching 7.5 million in 2017.

Vietjet only has to contend with two domestic rivals: the top-heavy state enterprise Vietnam Airlines and its low-cost arm Jetstar Pacific Airlines. "There are only three airlines in Vietnam, and that arrangement facilitates profit generation domestically," said a representative at an international brokerage.

Last year, Vietjet overtook Vietnam Airlines to take the lead in domestic traffic. This time around, the company looks to take that momentum overseas, armed with extra financial resources.

Vietjet's strengths lie in its focus on cutting costs. Not only is the airline no-frills, it procures top-of-the-line aircraft with superior fuel mileage. Vietjet's average cost per seat, not including fuel, adds up to just 2.25 cents per kilometer, which is reportedly the lowest among global airlines. The net profit margin is around 11%, exceeding that of elite carrier Singapore Airlines.

The company aims to set itself apart with amenities. The in-flight meals -- which cost extra -- feature menu items not usually offered by low-cost carriers. Perhaps more famously, bikini-clad cabin attendants perform in-flight dance numbers. Thanks to these unique services, annual sales have shot up 160% over three years.

Vietjet has attracted stock market investors as well. The company's market capitalization has passed that of AirAsia, the Malaysian carrier that is Asia's largest budget airline. Only Singapore Airlines has a bigger market value than Vietjet among Southeast Asian carriers.

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