Vietnam Airlines will take over majority ownership of Jetstar Pacific in a move that will see the struggling budget carrier get a $25 million cash injection.
As part of the long rumoured deal, Qantas will increase its share in the airline from 27 to 30 per cent. Vietnam Airlines will take over the majority stake from the Vietnamese State Capital Investment Corporation.
The announcement leaves several unanswered questions. Vietnam Airlines, which in the past has blamed Jetstar Pacific for undercutting fares and causing both airlines to lose money, announced plans late last year to launch its own budget carrier, and it remains unclear whether it still plans to do so or whether Jetstar Pacific will essentially become that budget carrier — and in that case whether it will be rebranded.
Though Vietnam has emerged as one of the world’s fastest growing air travel markets, the budget model has struggled to make headway. Vietnam Airlines retains 80 per cent of the domestic market with Jetstar Pacific holding just 17 per cent, leaving LCCs with one of the lowest rates of market penetration of any country.
Jetstar Pacific has also faced a number of problems in recent years, including safety violations and a government investigation into fuel hedging losses that briefly saw two Qantas executives barred from leaving Vietnam. Indeed, when reports of the takeover by Vietnam Airlines first surfaced in December, Qantas union officials pointed to the budget carrier as an example of the pitfalls of expansion in Asia, saying the takeover was proof “the business model didn’t work.”
Not surprisingly, Qantas executives are taking a different view. In a statement released late yesterday, CEO Alan Joyce said the deal would allow Vietnam Airlines and Jetstar to form a “strategic partnership” similar to the one between Qantas and Jetstar in Australia.
“This partnership brings together the proven low cost model of Jetstar with the unique local knowledge and existing networks of the national carrier,” he said. Jetstar CEO Bruce Buchanon said the low rate of budget travel in Vietnam equalled a “tremendous potential for growth.”
As part of the deal, Qantas will contribute $7.5 million toward an A$25 million capital injection, which will be used to replace the carrier’s five leased Boeing 737-400s with Airbus A320s. Qantas said shareholders had expressed support for plans to expand Jetstar Pacific’s fleet to 15 A320s over the next few years.
A new CEO and Chairman of Jetstar Pacific are expected to be named in the coming weeks.