International air traffic will take the spotlight

In 9M22, the number of total flights increased 123.4% yoy (mostly domestic flights).

Domestic air traffic recovery

After more than two years of COVID-19, this summer vacation has actually released domestic travellers. A surge in domestic travel across the country has been sparked, in particular, by the timely deployment of numerous appealing new tourism goods in conjunction with tourism stimulus plans of cities and provinces like Da Nang, Quy Nhon, Phu Quoc, Nha Trang, and Quang Ninh.

Additionally, domestic airlines have aggressively taken advantage of and increased the frequency of domestic routes to tourist destinations (for instance, the current flight frequency to/from Phu Quoc has reached 100 domestic flights per day, compared to only 72 international and domestic flights per day to/from Phu Quoc before the epidemic in 2019), aiding the domestic air traffic to achieve impressive growth numbers.

The amount of domestic passenger throughput increased by 9.4% CAGR between 2017 and 2019; this growth can be attributed to Vietnam's demographic changes and income growth, which are the main drivers of domestic air traffic. The Covid-19 outbreak has, however, rendered Vietnam's aviation sector inoperable. In 2020–2021, growth was halted, and the industry experienced a challenging time. Vietnam has been able to manage the pandemic since 2Q22 thanks to widespread vaccination coverage, and the domestic aviation industry has started to recover and has experienced excellent growth.

Mr. Nguyen Dung, senior analyst at VNDirect, predicts that domestic passenger throughput will increase 231.2% year over year and by 30.9% compared to 2019 level in 2022F, maintaining a CAGR of 9.4% over the period of 2017–2022. This prediction takes into account the growth momentum in 9M22 and the potential natural growth of domestic air traffic.

"We don't think the domestic passenger growth in 2022F is very high, but it does indicate that domestic travel demand has increased reasonably with stable natural potential growth. We anticipate domestic passenger growth in the 2023–2025F timeframe to moderate slightly at an 8.9% CAGR since (1) more people can travel internationally and (2) several large domestic airports are overcrowded", said Mr. Nguyen Dung.

Time for international air travel

International passenger throughput increased 35 times yoy in 3Q22 to 4.9 million, which is equal to 49.8% of pre-pandemic level. In 9M22, it increased 14.5 times yoy to 14.5 million, which is equal to 22.3% of pre-pandemic level. Currently, 96 international routes connecting Vietnam with 21 countries/regions are being served by more than 30 foreign airlines and 4 Vietnamese carriers. With a 21-fold growth year over year, Korea is the nation sending the most tourists to Vietnam in 9M22, followed by the United States and SEA nations.

In particular, most international pax are inbound passengers (proportion of 75% in 9M22) with total searches for Vietnam inbound travel increasing 4.9 times yoy in 9M22. Vietnam inbound travel demand increased sharply since 3Q22 as Vietnam has stopped the requirements of validate Covid-19 test results for international passengers and fully resumed international air traffic from May2022. The contribution of outbound passengers is still low in 9M22 as some countries have not fully opened and Vietnamese people tend to travel domestically.

The near-term recovery of Vietnam international tourism heavily depends on the entry requirements of the destination countries. In general, almost every countries have removed entry requirements related to Covid-19 prevention, however the most negative factor to Vietnam tourism recovery is China’s zerocovid policy, in which travel to and from China is still strictly limit  ed. We expect the recovery potential of Vietnam's major international air traffic markets in the base case as follows:

In VNDirect’s base case, air traffic between Vietnam and SEA will recover strongly from 3Q22F as the tourism promotion has been implemented, followed by Korea, Europe, Japan, the U.S and India in 4Q22F, Taiwan and Russia tourism promotion may be implemented in 1Q23F while China tourism promotion may be implemented in 3Q23F. As a results, total number of international pax from SEA market may recover to pre-pandemic level in 1Q23F, followed by Korea, Europe, Japan, U.S in 2Q23F, Taiwan and Russia in 3Q23F and China in 1Q24F.

“Vietnam international pax to reach 12.5m pax in FY22F (versus 0.5m pax in FY21), and may increase 195.2% yoy in FY23F – equal to 88.5% of pre-pandemic level. Since Vietnam aviation businesses’ results have a high exposure to international air traffic, we believe their business results will have an outstanding growth from 2023F thanks to the strong recovery of the international pax. Vietnam international pax may fully recover to pre-pandemic level in FY24F (105.2% of FY19 base) and may reach to 118.9% of FY19 base in FY25F in our forecasts”, Mr. Nguyen Dung expects.