VCSC forecasts low-cost carrier VJC will start reporting positive profits in the transportation segment in 2023, while HVN will only start recording net profit in 2024.
Domestic air activity exceeds pre-pandemic levels
According to the Civil Aviation Administration of Vietnam (CAAV), the total number of flights in the first 7 months of 2022 is equivalent to 86% of the number recorded in the same period of 2019. Meanwhile, 2019 data includes flights in For domestic and international flights, in the first 7 months of the year, international flights are still in the recovery phase because Vietnam has not fully opened its doors to foreign tourists until March 15, 2022. Thus, domestic air transport in the first 7 months alone has exceeded that of the same period in 2019.
According to data from ACV, the total number of domestic passengers at the airline’s domestic terminals (ACV operates almost all domestic terminals, except for Van Don Airport) reached 52 million in the first 7 months. in 2022, equivalent to 117% of the number in the first 7 months of 2019. The increase is more evident in the summer with domestic passenger arrivals in the months of 4/5/6/7, corresponding to 119%/ 133%/139%/141% of the numbers for the respective months in 2019.
The recovery of domestic aviation also comes from a strong increase in domestic tourism demand thanks to the trend of “compensating tourism” after Covid-19. According to the Vietnam National Administration of Tourism, the number of domestic tourists in Vietnam in the first 7 months of this year is 37% higher than the figure recorded in the same period of 2019. Therefore, expect transport activities. Vietnam’s domestic air passengers will benefit from strong tourism demand in the future.
Facing the above positive signals, Viet Capital Securities (VCSC) maintains a positive view on the recovery of the aviation industry in the period of 2022-2026 due to all restrictions on air travel in the period of 2022-2026. Water in Vietnam has been lifted and the Government has quickly taken actions to relax entry requirements and restore flights by 2022.
Accordingly, VCSC forecasts that the domestic traffic volume of two major airlines in Vietnam (HVN and VJC) will respectively surpass the pre-Covid-19 level in 2022 of 14%/20% due to the increasing travel demand. Domestic air travel has grown strongly during the initial recovery phase. The analyst team estimates domestic passenger volume in the first seven months of 2022 equivalent to 117% of the first seven months of 2019.
International air transport only recovers strongly from 2024 to 2025
In contrast, the recovery of international air transport took place quite slowly. The reason is due to the strict zero-COVID policy of China – Vietnam’s largest source of international visitors before the pandemic. Based on the current forecast, VCSC believes that the combined international arrivals of HVN and VJC (in terms of RPK) in 2022 will be 34% of the pre-Covid-19 figure compared to 33% in the previous forecast.
In addition, VCSC assumes that the total international passenger volume will only recover to roughly the same level of 2019 by 2024. Specifically, in the August 2022 report, ICAO forecasts the international seat capacity of airlines. Aviation in the Asia-Pacific region will recover strongly in 2022, reaching 90% and 79% compared to 2019 figures in positive and negative scenarios (compared to 62% and 44% respectively). in the May 2022 report). According to forecast, the total international output (calculated in RPK) of HVN and VJC in 2022 will be equivalent to 34%/67%/98%/107% of pre-Covid-19 level in 2022/23/24/25. .
On the other hand, VCSC believes that higher crude oil prices will put pressure on airlines’ profits. According to the forecast, higher jet fuel costs due to the assumption of higher oil prices, are partially offset by the lower petroleum margin forecast. VCSC has increased its forecast for the average Brent oil price to 95/90/75/75 USD/barrel, from its previous forecast of 85/80/75/75 USD/barrel for 2022/23/24/25. .
However, the analysis team also has a more optimistic view on the ability of airlines in Vietnam to transfer the increase in fuel costs to passengers. According to IATA, airfares of the airlines that IATA tracks have increased by 4% YoY in 2021 and this trend is expected to continue in 2022 and 2023 corresponding to IATA’s forecast that airfares of airlines will increase by 6% by 2022.
According to domestic media sources, domestic airfares of Vietnamese airlines in the second quarter of 2022 exceeded pre-pandemic levels due to strong domestic demand – especially in the period from April to April. July 2022.
For VJC, VCSC forecasts low-cost carrier VJC will start reporting positive profit in the transportation segment in 2023. Specifically, revenue in 2023 is forecast to reach VND 41 trillion, up 223% over the same period and EAT after shareholder benefits reached VND 1,282 billion, up 17 times over the same period in 2022.
As for HVN, VCSC believes that HVN will only start to record net profit in 2024, mainly due to high fuel costs and relatively high cost base. In 2022 and 2023, the analyst team forecasts that HVN will continue to lose VND 8,600 billion and VND 2,600 billion because international transport has not fully recovered in the context of high fuel prices and the airline’s leverage ratio.