Vietnam Tourism Report Q2 2009

2008 Growth Slumps Figures released by the Vietnam National Administration of Tourism (VNAT) indicated that the tourist industry suffered a major slowdown in 2008. Full-year international tourist arrivals totalled 4.25 million, only a 0.6% rise y-o-y. This arrivals data is well below recent rates of growth. In 2007 visitor arrivals totalled 4.1mn, having grown by 16.0% y-o-y. Such rates had been maintained into Q108, when arrivals grew by 15.7% y-o-y, before slowing to 6.6% in Q208 and declining yet further towards the end of the year.

This data confirms our concerns that Vietnam would suffer heavily from the global economic downturn, which is weighing on tourist arrivals from the US and Europe in particular. With the US economy set to contract in 2009 and European growth to remain minimal, prospects for a recovery of the tourist industry will remain constrained. Indeed, Minister for Culture, Sports and Tourism Hoang Tuan Anh has warned that the industry faces no or negative growth in 2009, and has asked the government to invest US$20-30 billion in a global marketing campaign to attract new visitors. This gloomy prediction was borne out by January and February 2009 arrivals figures. In the first two months of the year, arrivals fell by 10% y-o-y, to 688,753.

Vietnam Airlines Borrows VND7 trillion In a sign that even national carrier Vietnam Airlines is suffering from the tourism slowdown, in March the airline agreed a VND7 trillion (US$ 400 million) loan with the Bank for Investment and Development of Vietnam (BIDV). The loan, set with an undisclosed interest rate, is intended to support the carrier’s operations from 2009-2011 and VND2 trillion is earmarked particularly to cover all the airline’s fuel imports over the period. The remaining VND5 trillion is to cover project development, staff training and expansion of the airline’s fleet. Under the terms of the deal, Vietnam Airlines and BIDV will buy shares in each other, becoming strategic partners. Vietnam Airlines is already involved in a business venture with BIDV, with the two companies, alongside three other domestic firms, having formed an aircraft leasing company in September 2007.

Government Help For Jetstar Pacific The slowing tourism industry is creating difficulties for budget airlines, which are less well-equipped to cope with lower passenger numbers than more heavily capitalised airlines. Budget airline Jetstar Pacific is suffering particularly heavily, stating in early 2009 that its 2008 losses totalled nearly US$50 million. It stated that its bottom line had been damaged by high petrol prices in 2008, as well as a volatile exchange rate (the company’s revenues are denominated in VND but much of its costs are in US$). In late 2008 the government according approved a proposal by the State Capital Investment Corporation (SCIC) to allow Jetstar to issue new shares to its shareholders in order to increase its capital. This will allow SCIC to reduce its stake to 51%, from 75.78%. Other shareholders include Qantas (18%) and Saigon Tourism Corporation (Saignontourist; 6.18%). Under existing national legislation, Qantas, as a foreign company, can increase its stake to a maximum of 30%. In an effort to cut costs prior to the share issue, Jetstar has cut unpopular routes, such as Ho Chi Ming City to Hue, and delayed opening new routes such as Ho Chi Minh City to Da Lat and Buon Me Thuot and from Hanoi to Hue, Da Lat and Buon Me Thuot.