Vietnamese budget airline VietJet Air reported turning a profit in 2020 despite the catastrophic events that have disrupted the aviation industry. Posting its most recent financial results on January 31st, the company posted an after-tax profit equivalent to $3 million. Let’s find out how the airline managed to do this.
Ancillary revenue saves the airline
According to Vietnam News, VietJet Air’s 2020 financial results show that the airline posted a consolidated after-tax profit of 70 billion Vietnamese dong – the equivalent of $3 million.
While many other airlines have been on the edge of collapse or have sought significant financial assistance through public and private means, several circumstances have allowed this airline to achieve something many might have thought impossible.
The key to its profitability, apparently, has been ancillary revenue and cargo, noting that ancillary revenue accounted for nearly half of its total revenue.
“[Our financials showcase] Vietjet’s efforts to promote ancillary services to offset decreasing air travel revenue” – VietJet
Profitability also made possible through cargo
Cargo operations also contributed to VietJet’s success. In fact, the airline’s cargo volume increased 16% year-over-year in 2020. The last quarter alone saw a 75% increase in freight revenue compared to the same period in 2019.
With no dedicated freighters of its own, VietJet would typically be limited to belly-hold capacity on its fleet of Airbus A320 Family jets. However, the carrier joined the wave of other airlines that utilized passenger aircraft to accommodate freight in the main cabin. This is typically done by removing seats and securing netting where needed.
Passenger aircraft modification wasn’t the only adaptation as the airline established interline agreements with other carriers, enabling it to extend its cargo network to Europe and the US. A notable tie-up includes a deal established with UPS, signed in November 2020.
Other profitable moves
Additional moves contributing to the airline’s success include the opening of a special Ground Services Center at Noi Bai International Airport in Hanoi. The airline says this has “helped the airline better manage its operating costs while improving the brand recognition and service quality.”
While the airline can also report that it did not impose a workforce reduction, it was able to cut other operating expenses – including through securing discounts from suppliers of as much as 25%. Fleet operation costs and daily operation costs were each brought down by 10%. The airline also “successfully hedged” jet fuel in May of last year, attaining a 25% cost savings compared to the market value.
Another contributing factor is the fact that Vietnam has had relatively low cases of COVID-19. This has prevented the country from enacting containment measures that would stifle domestic air travel. Indeed, the airline has since resumed operating its entire domestic network of over 47 routes.
One significant external factor
There is, however, one big external source contributing to the airline’s profits: government action. In fact, VietJet issued the following statement:
“The airline has received support from the government for tax discounts, tax-payment extensions and reductions in landing/take-off fee, ground services fee and air control fee, as well as being considered for the government’s financial aid proposal for local airlines.”
Despite this assistance, it’s quite impressive that VietJet was able to perform so well last year, all things considered.
