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NEWS UPDATES 11 February 2010

Vietnam: AirAsia challenges troubled Jetstar Pacific

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Australian flag-carrier Qantas's troubled Vietnamese joint venture, Jetstar Pacific, faces a challenge on a new front after Asia’s largest no-fills airline, AirAsia, announced plans to set up operations in the communist country, reported

AirAsia has bought a 30 percent stake for an undisclosed sum in the low-cost airline VietJet Air, which will fly domestic and international routes and be renamed VietJet AirAsia.

The tie-up poses fresh challenges to Jetstar Pacific whose reputation has been battered over the last month by allegations of safety concerns and an investigation into $US31 million in hedging losses.

Two Qantas executives who hold senior positions at Jetstar Pacific have been barred from leaving Vietnam since Christmas, while the Ho Chi Minh-based airline’s former chief executive, Luong Hoai Nam, was arrested early last month over allegations he caused serious losses.

AirAsia’s entry into Vietnam also shows it will compete aggressively against Jetstar in Asia despite the two airlines last month forming a strategic alliance aimed at reducing costs.

Vietnam is AirAsia’s fourth country base, after Malaysia, Thailand and Indonesia. Its long-haul offshoot, AirAsiaX, flies to the Gold Coast, Melbourne and Perth.

VietJet’s share of the travel market in Vietnam is less than 7 per cent, dwarfed by Vietnam Airlines (at about 70 percent) and Jetstar Pacific (about 23 percent). A fourth carrier, Indochina Airlines, suspended services this month after the Vietnamese government reportedly revoked its traffic rights.

Vietnam has been a key element in Qantas’s Asian expansion plans because it is a booming tourist destination and is close to China. Qantas has a 27 percent stake in Jetstar Pacific.

But the controversy surrounding Jetstar Pacific has reinforced perceptions that Vietnam can be a difficult place for foreign companies to invest.

The maximum stake a foreign entity can take in a Vietnamese airline is 30 per cent.

There is still no sign of when the chief financial officer of Jetstar Pacific, Tristan Freeman, and its chief operating officer, Daniela Marsilli, will be allowed to leave Vietnam.

Qantas expects the investigation into Jetstar Pacific to take months.

The Vietnamese Ministry of Transport is also pushing to have the airline change its logo, arguing that its orange star, familiar to Australian travellers, is a corruption of the star on the Vietnamese flag.

The controversy has stoked suspicions that at least part of the communist-led Vietnamese government opposes Qantas’s investment in the country’s second biggest airline.

Last month a report by the Civil Aviation Authority of Vietnam found safety practices at Jetstar Pacific to be ‘‘very poor and ineffective’’ and defects hidden from supervisors. Jetstar has rejected the claims.


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