Viet Glam: Vietnam Airlines looks to turn heads with shiny new planes and sexy new routes

Vietnam AirlinesLong overlooked in a region with legions of more established carriers, Vietnam Airlines is now grabbing the airline industry’s attention. This fall, it became just the second airline worldwide to fly state-of-the-art A350s, a plane it’s now flying to Paris, and a plane that underscores its ambition to modernize and globalize. The A350 inauguration, moreover, follows receipt this summer of the airline’s first B787-9, a similarly cutting-edge machine that Vietnam Airlines quickly deployed to London.

Is this the dawn of a long-stodgy airline’s rise to aviation prominence?

There are a number of modestly positive signs, although these are often tempered by offsetting risks and shortcomings. Late last year, as part of a larger government effort to privatize state-owned companies, Vietnam Airlines completed an initial public offering. And although it didn’t raise much money, selling just 4% of itself, the transaction signaled a move toward more commercially-minded, returns-based management.

Conducting an IPO, moreover, required Vietnam Airlines to disclose its financial statements, through 2013 anyway. They revealed smallish profits in the first four years of the decade, although as with many airlines around the world, the first of those years—2010—was its best. During the first nine months of this year, meanwhile, according to a recent company press release, it earned just short of a $60m pretax profit on about $2.4b in revenue, good for a 2% pretax margin. The airline added, however, that it receives government financial support—three quarters of its loans, it said, are guaranteed by the state, in a similar way to how China’s government converts national savings to low-interest loans doled on favored companies.

In 2010, Vietnam Airlines joined SkyTeam and has since worked to upgrade its service standards, which nonetheless haven’t yet reached levels—at least in the minds of global business travelers—commensurate with industry leaders like Singapore Airlines or Emirates. Labor productivity is likewise improving but with more work to go.

Doesn’t sound too exciting? Well, maybe not. But Vietnam’s economy is one big reason why Vietnam Airlines stands well positioned to move into the ranks of larger, more successful global carriers. In today’s environment of struggling emerging markets, Vietnam’s GDP grew a bullish 7% y/y in Q3, helped greatly by lower oil prices. Indeed, unlike its ASEAN neighbor Indonesia, Vietnam has diversified its economy away from dependence on commodity exports, relying more on manufacturing, which in turn…

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