Analysis of the operation of vietnam airlines joint stock company

1 Cost structure of Vietnam Airlines in the third quarter of 2022 .... Company overview Vietnam Airlines is known as one of the most influential enterprises in the industry, so it is con

HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES

- INFORMATION TECHNOLOGY FACULTY OF BUSINESS ADMINISTRATION

HUFLIT

STOCK MARKET

ANALYSIS OF THE OPERATION OF VIETNAM AIRLINES JOINT STOCK COMPANY

Student’s name & ID number:

Tran Thi Ngoc Anh - 19DH120558 Mai Thị Quỳnh Như - 19DH120160 Nguyễn Thanh Thảo - 19DH120721 Nguyễn Ngọc Trâm - 19DH740145

Trương Tường Vy - 19DH120819

Instructor: Trwong Quang Binh

HCMC, 11/2022

Table of Contents

List of figures and tables 2

Chapter 1: General overview of company 3 1.1 COmpDanV OV€TVICW cà HH HT LH LH Tà Hà Hà HH Hà HH In 3 1.2 Business activitIes OŸ the COITIDAHV HH HH HH HH Hư, 4 Chapter 2: Analysis of the macro environmení of Vietnam Airlines 5 2.1 External ÍACĂOTS HH ng HH HH HH nh HH HH Hà nh kh 5 2.2 Market demand for the aviaflon IndUSETV -á- LH H1, 6 Chapter 3: Analysis of Vietnam”s ạr fransporf ÏnISÍTY .-. << << sec secsse 7 3.1 Advantages and disadvantages of air transport IndUSILy 0.0 ee 7 3.2 Solution of Vietnam Á1rÌID€S - - kg ng nh HH Hiện 8 Chapter 4: Analysis of financial statemenfs of Vietnam Airlines 9 4.1 Cost structure of Vietnam AIrÌÏIN€S s- -Ă- tk HH nh HH Hàng ng 9 4.2 Revenue structure of Vietnam AIrÌIn€§ - án HH HH, 10 Chapter 5: Conlusion 15

List of figures and tables

Figure 2 1 Airline market share in the first 6 month wee eens 6 Figure 4 1 Cost structure of Vietnam Airlines in the third quarter of 2022 9 Figure 4 2 Revenue Structure of Vietnam ÀirÌine§ eee II Table 4 1 Cost structure of Vietnam Airlines in the third quarter of 2022 and 2021

— 10

Table 4 2 Asset of the company In the last { QUAT€TS eee 10 Table 4 3 Business results of the company in the last 4 yeas - 12 Table 4 4 Financial ratios of the company In the last 4 year ~- 13

Chapter 1: General overview of company

1.1 Company overview

Vietnam Airlines is known as one of the most influential enterprises in the industry, so

it is considered a large enterprise, playing a key role in the air traffic industry in Vietnam After more than 20 years of development, Vietnam Airlines has affirmed its position as a national airline with global operations scale and stature in Southeast Asia

In 2015, Vietnam Airlines officially transformed its operating model into a joint stock company, through which the close relationship with shareholders plays an important role in sustainable development over the years of Vietnam Airlines

The history of Vietnam National Airlines dates back to January 1956, when the Civil Aviation Administration was established by the Government, marking the birth of the Civil Aviation Industry in Vietnam The period of 1976 - 1980 marked the expansion and effective exploitation of many international routes to Asian countries such as China, Thailand, and Singapore At the end of this period, Vietnam's civil aviation became a successful city member of the International Civil Aviation Organization (ICAO) In April 1993, Vietnam Airlines was officially established as a large-scale air transport business unit of the State On May 27, 1995, Vietnam Airlines Corporation was established based on linking 20 enterprises operating in the aviation service business, taking Vietnam Airlines as the core

There are a number of airlines in Vietnam that vie to be the best alternative to Vietnam

Airlines, including Pacific Airlines, Vasco, Vietjet Air, Bamboo Airways, and Vietravel Airlines Because of this, there is a lot of competition among airlines with regard to the prices of tickets, the routes they take, and the number of times they fly At this time, Vietnam Airlines has used several techniques of healthy competition by integrating with third parties such as Agoda sites to assist customers in receiving more discounts, booking tickets more quickly, supporting refunds, and resolving issues as swiftly as possible According to the organizational structure of the company, we are able to see that there are big shareholders, and the following individuals make up the leading company leadership:

Major shareholders: The State is the largest shareholder of Vietnam Airlines, holding 1,057,638,000 shares, equivalent to about 94.443% of Vietnam Airlines’ charter capital

3

The representative agency for the owner of the State invested capital in Vietnam Airlines is the Ministry of Transport

The company's board of directors includes:

+ Chairman of the Board of Directors: Mr Dang Ngoc Hoa

+ Head of Supervisory Board: Ms Nguyen Thi Thien Kim

+ General Director: Mr Le Hong Ha

1.2 Business activities of the company

Vietnam Airlines, in addition to providing commercial flights, also provides general cargo transportation services including various types of cargo such as dry cargo, normal cargo, perishable goods, live animals, and dangerous goods, wet goods, courier goods, sensitive goods, trucking services with high professionalism, and quality assurance to

users

Vietnam Airlines’ coverage is global, almost able to land at all airports in the world

Along with that large coverage, the level of recognition of Vietnam Airlines to domestic and regional customers is also extremely high, with the golden lotus logo delicately emblazoned with Vietnam's national flower by Vietnam Airlines to affirm the brand from Vietnam in an extremely subtle way

Vietnam Airlines has used many different forms of PR to increase its awareness and coverage to all customers around the globe Typically, the company's volunteering, development, and formation activities are regularly updated in major state-owned official newspapers to affirm the Vietnam Airlines brand as a large company, targeting the target audience For business customers, although the price may be higher than that

of other airlines, the service of Vietnam Airlines is undeniable In addition, the company also has distributors nationwide to attract customers and make it easier for customers to experience the service As an official carrier, Vietnam Airlines sponsors national, cultural, educational, and sports events as well as helping the community We can easily see Vietnam Airlines at major events such as the Women's Summit, APEC summit, and cultural days abroad such as the UK, Belgium, and Korea

Chapter 2: Analysis of the macro environment of Vietnam Airlines

2.1 External factors

Many large changes and unfavorable events have affected the market economy in 2022 The market may see a large-scale economic crisis in the near future The rising inflation rate and falling VND exchange rate caused this problem To overcome this issue, the state must recover the VND back to the state by increasing bank interest rates (deposit interest rates are 7-8%, and lending interest rates are 12-14%) The VND didn't decline, but the economy slowed When banks raise loan rates, businesses must reduce their business scope to ensure profitability When bank interest rates rise, consumers will bring more money to the bank to earn interest, and demand for bank loans to buy consumer products will fall Vietnam Airlines, a service, and freight firm would also

be affected Consumers will save money on the bank rather than travel, and firms won't mass-produce, therefore shipments will be lower

Political stability affects enterprise growth International flights are also affected by foreign politics Due to the political instability in Iraq and Lebanon, many VNA flights were canceled, incurring business harm Vietnam Airlines is under government management, which is an advantage due to capital, business protection, and financial policies, especially in difficult times due to terrorism, conflicts, epidemics, and fuel costs

According to the General Statistics Office, the GDP grew by 13.67 percent in the third quarter of this year, helping to push the first nine months of the year to the highest level

in the 2011-2022 period For businesses, this metric is highly beneficial Business profits rise as GDP rises because more people can afford to buy things/ services, as more businesses can afford to produce them, and as more people can afford to spend the money they earn (General Statistics Office of Vietnam, 2022)

On November 20, 2022, Vietnam was able to acquire FDI in the amount of USD 25.1 billion, equal to 95% of the same period in 2021, a rise of 0.4% compared to 10 months and 10.3% compared to 9 months (Tram Anh, 2022)

The state of the macro environment affects business decisions on things such as spending, borrowing, and investing When GDP and FDI increase, the volume of products exchanged and bought This will boost freight demand, boosting the company's growth At the same time, Vietnam Airlines is still facing a number of accompanying challenges, such as the political situation in other countries, the rise in

interest rates for savings accounts and loans Vietnam Airlines will be able to have a better understanding of the market's risks and opportunities if they do an analysis of the environment outside of the aviation industry This will allow them to develop a differentiation strategy

2.2 Market demand for the aviation industry

Tn 2020 and the first 5 months of 2021, the Ministry of Planning and Investment claimed the aviation industry market has the most severe downturn Demand for air transport in

2020 decreased by 34.5 - 65.9% and revenue from aviation firms dropped by 61% compared to 2019 According to a report from the Civil Aviation Administration of Vietnam, Vietjet's market share has grown to 44% in the first half of 2022 Vietnam Airlines is in second place with 35.9%, followed by Jetstar Pacific with 13.9%, Bamboo Airways with 4.2%, and VASCO with 2%

Figure 2 1 Airline market share in the first 6 month

Source: Song Huong, n.d

Over the past five years, Vietnam's population has increased by about 6%, and by 2030, passenger demand for air travel is forecast to nearly double compared to 2019, reaching

an annual growth rate of 6.2% Therefore, the demand for air travel in Vietnam will increase and this is a very good opportunity for Vietnam's aviation industry to grow In Vietnam, because economic growth and tourism are recovering well after the COVID-

19 pandemic, there is a favorable premise to promote aviation in terms of passengers, the volume of goods to be moved, and the number of aircraft

Chapter 3: Analysis of Vietnam’s air transport industry

3.1 Advantages and disadvantages of air transport industry

Currently, passengers have nearly completed their anti-Covid-19 vaccinations, allowing for the gradual resumption of domestic flights The demand for domestic travel tends to recover strongly In July 2022, approximately 12 million people traveled through Vietnam's airports The number of domestic passengers is projected to reach

89 million in 2022, a significant increase of 200% over the same period and a rise of 20% compared to 2019 before the outbreak With the encouragement of tourism- stimulating initiatives On the domestic market, the home market will continue to be the primary growth driver, while international transport will recover more slowly due

to the necessity of maintaining acceptable regulatory measures

Although the aviation industry in Vietnam has great potential for recovery in the post- pandemic period, it is vulnerable to three major risks: high oil prices, fluctuating exchange rates, and China's Zero-Covid policy

Economic recovery has been severely slowed by the escalation in global oil prices caused by the conflict between Russia and Ukraine Vietnam Airlines anticipates business to remain challenging because of the sudden rise in Jet Al fuel prices, which has led to high business costs This could result in higher fares and a decreased demand for air travel Given the growing jet fuel situation, low-cost carriers (LCCs) will be less

affected than traditional airlines (FSCs) Vietjet Air’s aircraft are all narrow-body and

short-haul aircraft, so the average fuel consumption/ASK is lower than that of HVN (about 30% of HVN's aircraft are wide-body and long-haul aircraft)

Higher borrowing rates and a stronger dollar affected corporate performance and airline fleet expansion plans Fluctuating currency rates and rising USD interest rates cause airlines problems such as: Stronger USD causes airlines to lose exchange rates when revaluing USD debt In addition, aircraft investment expenses (sold in USD) rise, making it harder for airlines to grow When airlines sell international tickets for USD, these issues are substantially alleviated While interest rates rise, fleet finance rates are normally fixed, thus interest payments are minimal Airlines must borrow at higher interest rates to finance new fleets during this time, which may harm future business

SUCCESS

China's Zero-Covid policy significantly affects Vietnam's aviation industry recovery,

as China accounted for 35% of international visits to Vietnam pre-pandemic (Thy Hang,

2022)

As a result of the aforementioned circumstances, Vietjet Air has been steadily increasing its market share while Vietnam Airlines has seen its share steadily drop

3.2 Solution of Vietnam Airlines

After the COVID-19 epidemic, the aviation sector has begun to exploit additional domestic and international routes, which has made it possible to increase the number

of flights and consequently increased sales This will allow the economy to recover and expand Vietnam Airlines has made attempts to recover from its exceptional difficulties

In addition to the plan to change international flight products so that repatriation flights can continue, Vietnam Airlines has the plan to allow early exploitation of regular routes and cargo flights Vietnam Airlines has implemented a corporate reorganization strategy for 2021-2025 to respond to the COVID-19 outbreak while strengthening competitiveness, operational efficiency, and financial ability to quickly recover and develop Vietnam Airlines has restructured in all areas, including assets, aircraft, portfolio, capital, and organization At the same time, Vietnam Airlines will raise capital from external sources by means of the following: the issuing of domestic or international bonds in the years 2023 and 2024 in a form that is appropriate and feasible (private or public offering), commercial loans from domestic credit institutions, Vietnam Airlines has opened up new routes, prioritized the transfer of freight, and focused on the carriage of specialized passenger types to increase its profitability They have developed several measures to lower expenses in the short term and optimize the cost structure to continue reducing costs post-pandemic In addition, Vietnam Airlines

is the only Vietnamese airline having permission to fly to the two promising markets such as the United States and Canada Aside from the obvious financial benefits, the national airline's confirmation of its exceptional international flying capacity and resources stems from having been granted a license to fly to countries with strict safety and security standards (nhipcaudautu.vn, 2021)

Chapter 4: Analysis of financial statements of Vietnam Airlines

4.1 Cost structure of Vietnam Airlines

According to the consolidated income statement of the third quarter of 2022, expenses accounted for nearly 50% of the company's total expenses, and increased 3 times compared to the same period last year that interest expense accounted for 20.8% of the company’s financial expenses Besides, selling expenses also accounted for 29% of the company's total expenses That said, due to the slow recovery of the international shipping market, plus negative factors such as high fuel prices, the Russia-Ukraine war conflict and financial risks (exchange rate, interest rates) increased, so production and business activities continued to suffer losses in the third quarter and the first nine months of 2022 However, this is also a positive sign for the company’s recovery and development in the future In the near future and according to the forecast, the international market will gradually be restored, the production and business activities

of the Corporation will also have more positive results at the end of 2022 and 2023

Financial expenses Selling expenses

= Enterprise Management Cost

= Expenses for current Frofit

tax

49%

29%

Figure 4 1 Cost structure of Vietnam Airlines in the third quarter of 2022

Source: Vietnam Airlines, n.d