Authorities in Can Tho have offered to assist airlines in recouping potential losses from future flight routes to the southern city in response to some pilot services being ceased due to low bookings.
Can Tho, the economic hub of Vietnam’s Mekong Delta, is cooperating with the Civil Aviation Authority of Vietnam (CAAV) and certain airlines to launch three new routes this year between the city and Cam Ranh, Hai Phong, and Bangkok.
In the long term by 2020, the Mekong Delta city also plans to open direct international flights to Thailand, Singapore, South Korea, Taiwan, and Japan, on top of domestic routes to Vinh and Da Lat, the city’s chairman Vo Thanh Thong said on Thursday.
The air routes are meant to increase the operational capacity of Can Tho International Airport, which was inaugurated in 2011 but didn’t receive its first international flight until 2015, Thong added.
Many Mekong Delta air travelers still prefer heading to Ho Chi Minh City to board flights out of Tan Son Nhat International Airport, despite living closer to Can Tho.
Past additions to flight routes running to and from Can Tho were ceased just after pilot runs due to low occupancy rates, a failure Can Tho hopes to avoid by providing airlines with financial aid should the three planned flights incur losses in their initial stages.
The proposal submitted by the Can Tho transport department to the municipal administration and the CAAV included three possible incentive plans: subsidizing loss-making services in the first year after launch, covering the cost per seat of up 30 percent of the seats on flights departing from Can Tho, and subsidizing unoccupied seats on flights departing Can Tho with an occupancy rate lower than 70 percent.
It was also noted that the maximum amount the city would need to earmark for subsidization would be VND5 billion (US$223,214) a year for domestic services and VND8.5 billion (S$379,464) a year for international routes.
The Can Tho administration has requested that the transport department continue soliciting feedback from relevant sectors before determining the final incentive framework.
Goodwill but impractical
The subsidization offer was meet with both appreciate and straightforward feedback, with many airlines saying that a new service to the southern city might not be a profitable move.
It costs a huge amount of money to launch a new service and every flight must be at least 70 percent booked for the carrier to recoup investment, while piloted flights have proven that few wanted to fly to the Mekong Delta hub.
“Our flights to and from Can Tho currently enjoy an acceptable occupancy rate, but compared to other destinations the service is not particularly attractive,” a Vietjet representative said.
A Jetstar Pacific representative said if there is real demand for flights to Can Tho, airlines will want to open services there, whether or not local authorities provide incentives.
In 2009 Jetstar launched an affordable Hanoi – Can Tho route but quickly ceased the service due to low travel demand between the cities.
Bui Quang Tin, a local economic expert, said the proposal to use the already tight local budget to subsidize airlines has shaky grounds.
CAAV deputy head Vo Huy Cuong said Can Tho should think of a more thorough solution than offsetting for airlines’ losses, such as “encouraging Mekong Delta people to come to Can Tho, instead of Ho Chi Minh City, when they travel by air.”