Pho-nominal: Vietnam’s economy is cooling. But its airline industry is still hot and spicy

One sign an airline market matters: it has service from each of the Gulf’s Big Three. Sure enough, Vietnam got its third of the three, Etihad, earlier this month, punctuating a remarkable five-year run for a country that was long an economic and aviation backwater.

China was once the world’s biggest backwater. Then it opened its economy, and its huge pool of low-cost labor led to the biggest economic boom the world has ever known—and alongside it, the biggest boom the airline industry has ever known. Now China’s costs aren’t quite as competitive as they once were. So for that reason and others, such as a general slowdown in global demand, China’s economic growth has slowed.

By the time China’s labor costs began rising several years ago, its southern neighbor Vietnam had opened its economy. Its population, although much smaller than China’s, is still formidable: 90m people. And these people are much poorer, on average, than the Chinese, so they were willing to do the most menial jobs for even lower wages. This big pool of low-cost labor helped lead to an economic boom—and an airline industry boom. Now Vietnam’s economic growth has slowed to about 5% annually. Yet its airline industry—including local and foreign carriers alike—continues growing rapidly, with no signs of a slowdown in sight.

Vietnam has what you might call two and a half airline companies of its own: state-owned legacy Vietnam Airlines; its new nemesis, the private low-cost upstart VietJet, which has agreements to buy or lease up to 100 A320-family airplanes; and Jetstar Pacific, which is branded like all the other low-cost Jetstar units that are wholly or partly owned by Qantas but is 70% owned by Vietnam Airlines itself. None of these airlines trade publicly or publish audited financial statements, but the limited figures they do disclose suggest they’re performing respectably. Vietnam Airlines, with 2012 revenues of about $2.4b (about the same size as, say, Panama’s Copa), broke even with a small net profit of $3m for the year and then earned $8m in the first half of 2013, even with VietJet growing rapidly under its nose. VietJet, for its part, claimed (in an interview with Bloomberg) to have earned $6m in the seven months through July of this year. That would represent an impressive margin for an airline that began flying less than two years ago, has (according to ch-aviation) just nine aircraft and, despite a…

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