topic research of the demand and supply of aviation in vietnam in the first nine months of the year 2021 (12021 92021)

UEH UNIVERSITY UEH COLLEGE OF BUSINESS SCHOOL OF ECONOMICS ********** ESSAY COURSE: MICROECONOMICS (21C1ECO50109705) Topic: RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS OF THE YEAR 2021 (1/2021 – 9/2021) Lecturer: Mr Nguyen Thanh Trieu, MA and MPhil in Economics Class: FNC03 Practice group: Group Group members: Student name Responsibility in Assignment Participation % Nguyễn Quang Duy Part 2.4 – 2.5 100% Bùi Nguyễn Bảo Hân Part 2.1 – 2.3 100% Nguyễn Văn Hùng Part 2.1 – 2.3 100% Đỗ Lê Nhã Quỳnh Part 2.4 – 2.5 100% Lê Thanh Trúc Part I, II.1, III 100% Signatures: a d b e c Date Submitted: November 29th, 2021 TABLE OF CONTENTS PART I: INTRODUCTION PART II: ESSAY CONTENT THEORETICAL BACKGROUND 1.1 Quantity demanded 1.2 Quantity supplied 1.3 Supply and demand together RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST MONTHS OF THE YEAR 2021 (1/2021 – 9/2021) 2.1 The actual situation in the first nine months of 2021 and comparison of figures with 2020 2.2 Causes of fluctuations in air services in Vietnam in the first nine months of 2021 2.3 Assess the current situation of quantity demanded, quantity supplied, and prices of aviation services in Vietnam 2.4 Orientation of the aviation industry in the future 2.5 Solution for the aviation industry PART III: CONCLUSION 11 SOURCE AVAILABLE 12 TABLE DATA AND GRAPH Table 1.1: The determinants of quantity demanded Table 1.2: The determinants of quantity supplied Table 1.3: A change in Supply, Demand or both Supply and Demand to equilibrium Table 2.1: Flight data table for the first nine months of 2021 Graph 2.1: Description of supply and demand of Vietnam's aviation industry in first nine months of 2020 and 2021 PART I: INTRODUCTION The development of the field of transportation goes hand in hand with people's desire to travel and transport quickly and conveniently Therefore, along with the advancement in science - technology, the aviation industry was born to serve people’s increasing needs for transportation Up to now, aviation has gradually become an extremely important industry of the economy, a modern bridge for transporting people and goods between regions in a country as well as between countries and territories in the world Over the past 60 years, Vietnam's aviation industry has continuously developed from small to large, from rudimentary to modern, from incomplete to complete, making a significant contribution to the development of tourism, trade, in particular and the entire Vietnam’s economy in general, especially in the period of international integration of the country Vietnam's aviation market is very vibrant and has a very fast development speed, flexibly applying modern science – technology Its quality is increasingly being improved towards international standards Understanding the role and importance of aviation in Vietnam, our group decided to choose the topic: “Research of the demand and supply of aviation in Vietnam in the first nine months of the year 2021 (1/2021 – 9/2021)” In the research process, there will be inevitable shortcomings, we are looking forward to your comments to make the research become better Sincerely thanks, Group RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 1|Page PART II: ESSAY CONTENT THEORETICAL BACKGROUND 1.1 Quantity demanded 1.1.1 Definition Quantity demanded (denoted by QD) means the amount of a good that buyers are willing and able to purchase 1.1.2 The determinants of quantity demanded a Price: According to the law of demand: Other things equal, when the price of a good rises, the quantity demanded of the good falls, and vice versa The quantity demanded is negatively related to the price b Number of buyers: The more buyers in the market are, the more quantity demanded rise, and vice versa c Income: With a normal good, when buyer’s income falls, the demand for the good falls, and vice versa With an inferior good, when buyer’s income falls, the demand for the good rises, and vice versa For example, mobile phone is a normal good, when buyer’s income falls, he/she will choose to purchase a better one; Instant noodles are inferior goods, when buyer’s income falls, they will choose to it them instead of dishes whith higher prices d Prices of Related Goods: The two goods are called substitutes when a fall in the price of this good reduces the demand for another good The two goods are called complements when a fall in the price of this good raises the demand for another good e Customers’ taste: If you like something, you will buy more of it, and vice versa f Expectations: Your expectations about the future may affect your demand for a good or service today For example, if there is an expectation that the price of petrol will increase at weekend, people will tend to get more pertrol since today RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 2|Page Table 1.1: The determinants of quantity demanded VARIABLES THAT AFFECT QUANTITY DEMANDED A CHANGE IN THIS VARIABLE Price Represents a movement along the demand curve Income Shifts the demand curve price of related goods Shifts the demand curve Tastes Shifts the demand curve Expectations Shifts the demand curve Number of buyers Shifts the demand curve 1.2 Quantity supplied 1.2.1 Definition Quantity supplied (denoted by QS) means the amount of a good that sellers are willing and able to sell 1.2.2 The determinants of quantity supplied a Price: According to the law of supply: Other things equal, when the price of a good rises, the quantity supplied of the good rises, and vice versa The quantity supplied is positively related to the price b Number of sellers: The more sellers in the market are, the more quantity supplied rise, and vice versa c Input prices: The supply of a good is negatively ralated to to price of inputs used to make the good A fall in input prices makes the production more profitable at each output price, which helps firms produce more goods or services d Technology: Advanced technology helps firms increase their productivities, and thus more goods and services can be produced e Expectations: Your expectations about the future may affect your supply today Producers make their supply decisions based on expectations RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 3|Page Table 1.2: The determinants of quantity supplied VARIABLES THAT AFFECT QUANTITY SUPPLIED A CHANGE IN THIS VARIABLE Price Represents a movement along the supply curve Input price Shifts the supply curve Technology Shifts the supply curve Expectations Shifts the supply curve Number of buyers Shifts the supply curve 1.3 Supply and demand together 1.3.1 Definition Equilibrium is a point that at which the supply and demand curves intersect It is a situation in which supply and demand have been brought into balance The price at which these two curves cross is called the equilibrium price, and the quantity is called the equilibrium quantity At the equilibrium price: Quantity of the good that buyers are willing and able to purchase = Quantity of the good that sellers are willing and able to sell Surplus is a situation in which quantity supplied is greater than quantity demanded Shortage is a situation in which quantity demanded is greater than quantity supplied 1.3.2 A change in Supply, Demand or both Supply and Demand to equilibrium Table 1.3: A change in Supply, Demand or both Supply and Demand to equilibrium No change in Supply An increase in Supply A decrease in Supply No change in Demand P same Q same P down Q up P up Q down An increase in Demand P up Q up P ambigous Q up P up Q ambigous A decrease in Demand P down Q down P down Q ambigous P ambigous Q down RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST MONTHS OF THE YEAR 2021 (1/2021 – 9/2021) 2.1 The actual situation in the first nine months of 2021 and comparison of figures with 2020 - Due to the pandemic’s impact, Vietnam's aviation industry declined heavily and could not recover; the aviation industry suffered unprecedented losses in history In the first nine months of 2021, all Vietnamese airlines only performed 105,384 flights, corresponding to a decrease of 29.1% over the RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 4|Page same period In the first six months of 2021 alone, the number of flights and passengers is 60-70% compared to the time before the pandemic Especially from the end of May until now, the aviation industry’s revenue has decreased by 80-90% With two outbreaks at the peak time of the Lunar New Year and the holiday from April 30 to May and on May 31, Ho Chi Minh City officially applied Directive 15, which hit the industry hard domestic airline of our country Vietnam's domestic aviation has suffered a severe decline, with daily output only 20-30% compared to the period 3-4/2021 Even the first two weeks of June only correspond to 5-10% of the average transport volume in April 2021 The throughput of Vietnam's airports in the first six months of 2021 is estimated at 26.8 million passengers, down 19.4% over the same period in 2020 Table 2.1: Flight data table for the first nine months of 2021 - Cancellation rate: 1.9%, up 1.0% over the same period - Delay rate: improved to 5.6%, down 9.9% compared to the first nine months of 2020 - The punctuality rate of the top three airlines is 96.8%, 93%, 96.9%, respectively - Short-term liabilities of the three aviation industries continued to increase, reaching the milestone of 50,000 billion VND, as of June 30, 2021: • Vietnam Airlines has an overdue debt of up to 13,337 billion VND • Vietjet Air, short-term loans, and outstanding liabilities amount to 13,800 billion VND 2.2 Causes of fluctuations in air services in Vietnam in the first nine months of 2021 At the online conference of the SBV to support airlines affected by the COVID-19 pandemic on the afternoon of September 28, 2021, Mr Bui Doan Ne, Vice President and General Secretary of the Vietnam Aviation Business Association Nam, said that the impact of the COVID-19 pandemic became beyond the tolerance of the airline business The pandemic continued to last longer than anticipated, causing extended downtime for airlines 2.3 Assess the current situation of quantity demanded, quantity supplied, and prices of aviation services in Vietnam 2.3.1 General assessment based on the theory RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 5|Page The airline industry is called a luxury good from a microeconomic perspective, so its elasticity is always greater than Specifically, when we look at the analysis graph accompanying the above data, we see the following shift: a Before the 4th wave of the COVID-19 pandemic, when the supply (here we understood as the number of flights successfully taken off and landed) was always stable, people tended to go The activities such as traveling and working from place to place by airplane were still at a hustling rate b When the pandemic broke out, the aviation industry had to close, then the production supply curve (the number of flights taken off) was significantly reduced Like the graph here Graph 2.1: Description of supply and demand of Vietnam's aviation industry in first nine months of 2020 and 2021 P 𝑆1 𝑃1 Eq’m1 𝑆2 𝐷1 𝑃2 Eq’m2 𝐷2 Q 𝑄2 𝑄1 *Note: - The graph is only for general purposes It reflects the overall perspective due to the many data from many different sources - All data (people, goods ) is converted to the number of flights to get the best possible data overview *Where: D1, S1: Number of flights according to demand and supply in the first nine months of 2020 D2, S2: Number of flights according to demand and supply in the first nine months of 2021 Eq’m1, Eq’m2: Equilibrium of flights in 2020 and 2021, respectively Because of the pandemic, the supply and demand curves have been severely affected - Regarding the demand curve, users cannot travel or go on business trips to other places by plane The demand for and use of services is drastically reduced ⇒ The demand curve shifts to the left - Regarding the supply curve, RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 6|Page • Because of Directive 16, commercial airports are limited, so the number of flights allowed to operate is reduced ⇒ The supply curve shifts to the left • In addition to the supply curve shifting to the left, it also tends to go down because they need to save their working capital in deciding which aircraft to operate during the pandemic season, with a limited number of customers Using planes with less explicit and implicit costs will result in fewer airfares that buyers pay for and hopefully more customers 2.3.2 Challeging When the Covid pandemic raged, the aviation and transportation industry was one of the most "hit" industries A series of flights were cut off, and planes stopped working, airports stopped, and airlines continuously reported losses Most recently, the Government had to intervene, showing the negative impact of the COVID-19 pandemic on operations—the business of this industry In addition, Vietnam's aviation industry also faces pressure on resources Vietnamese airlines' total number of aircraft is about 230, increasing 24 aircraft compared to 2019, equivalent to about 10% of the fleet According to calculations by industry experts, the whole Vietnamese aviation industry has a surplus of about 58 aircraft, accounting for 26% of the total number of aircraft of airlines The overabundance of resources leads airlines to lower airfares to attract customers to gain market share The average ticket price of airlines in April 2021 is only 55% of the same period in 2019 If this situation continues, the airlines will fall into a position of severe operating loss Passenger transport, gradually reducing competitiveness, especially with foreign airlines Thereby threatening the sustainable development of the whole industry, creating an imbalance between the aviation industry and other transport sectors 2.3.3 Opportunities a For users of air services: According to the Civil Aviation Authority of Vietnam, it is predicted that the situation in 2021 will improve compared to 2020, especially in the second half of 2021, vaccination against Covid-19 will be accelerated in Vietnam in particular and the world in general Vietnam's aviation market will probably start to recover from the middle of the third quarter of 2021, with the throughput of airports in 2021 estimated at more than 70 million passengers b For airlines: VABA (Vietnam Airlines Association) has just proposed to the Ministry of Planning and Investment to report to the Government to submit the National Assembly to allow the application of a refinancing mechanism from 5,000 to 6,000 billion VND for airlines, similar to the tool that has supported Vietnam Airlines Corporation, the refinancing period is 12 months and is automatically extended twice Based on each firm's size, market share, role, and specific contribution to support liquidity At the same time, the proposal for airlines to borrow a credit package of about 25,000 RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 7|Page billion VND with a preferential interest rate of 4%, with a term of to years, for airlines to have secured capital to operate Currently, the environmental protection tax rate for jet fuel in 2021 is being applied at 2,100 VND/liter (equivalent to a 30% reduction) VABA asked the Government to report to the National Assembly for permission to use a 70% reduction of this tax, from 3,000 VND/liter to nearly 1,000 VND/liter, until June 30, 2022 Besides, it is recommended to continue to reduce prices and air service fees at airports VABA also proposed that the management agency approve and quickly deploy the support, avoiding the case of both lack and delay 2.4 Orientation of the aviation industry in the future Looking to the future of the aviation industry, Deputy Director of Vietnam Aviation Department Pham Van Hao said that according to the assessment of the International Civil Aviation Organization (ICAO), there will be two development scenarios for the aviation industry - In the first scenario, aviation will develop according to the V-model, falling to the bottom and overgrowing again - In the second scenario, aviation will develop the U-shaped model Rules will fall to the bottom and last from 3-5 months with economic decline According to the forecast, the aviation market will decrease by 48-71% depending on the development of Disease Vietnam aviation assessment will gradually recover Deputy Director Pham Van Hao said the agency is coordinating with research firms to submit to the Government to reopen international flights to our country with the target of Disease control, control the opening of international flights or ignore the disease for economic development On the side of airlines, Vietnam Airlines leaders said, with an optimistic scenario, Vietnam International Air Market 2022 will recover to an equivalent scale in 2019 "It is expected that Vietnam Airlines will have profit from In 2023 and end the accumulated loss in 2025.", Representative of Vietnam Airlines said Commenting on aviation industry prospects, Mirae Asset Vietnam Securities Company (MASVN) said that 2021 would remain a challenging year Specifically, MASVN argues that the aviation industry is in a state of no more extended surplus to recover further until international flights reopen "The second difficulties that the aviation industry has to face in 2021 are the narrow market, making competition harsher," Mason's expert analyzes 2.5 Solution for the aviation industry 2.5.1 Reducing tax on environmental protection of jet fuel Recently, due to the pandemic’s impact, air transport enterprises have suffered heavy losses and faced a high risk of bankruptcy Therefore, the Ministry of Finance has proposed to adjust the environmental protection tax rate for jet fuel from 3,000 VND/liter to 2,100 VND/liter until the RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 8|Page end of December 31, 2020 The National Assembly Standing Committee approved the above project on July 14 The reduction in the price of jet fuel is one of the factors that directly affect the business activities of the aviation industry, reducing the cost of input materials of the aviation industry The 30% discount on environmental protection tax or the reduction of taxes and fees related to aviation is also aimed at stimulating consumers to use aviation services, thereby creating conditions for this industry to maintain its operations, recovery, and development 2.5.2 Expand domestic tourism lanes Vietnam Airlines and Vietjet Air have aggressively opened more domestic lanes and reduced prices to support tourism businesses to build attractive stimulus tours in the past two months Vietjet Air has increased the total number of domestic lanes in Vietnam to 53 lanes, with eight new lanes connecting Hanoi with provinces with significant tourist areas across the country Vietnam Airlines opened 13 new domestic lanes connecting to famous tourist destinations such as Hai Phong - Da Lat, Phu Quoc - Can Tho; Vinh - Can Tho This July, it is expected that Vietnam Airlines will open five new lanes, bringing the total number of domestic lanes to 55 lanes 2.5.3 Reopening international lanes The international tourism market plays an essential role in the development of the tourism and aviation industries Although it has been allowed to restore all domestic flight sales and operations according to market demand, the domestic market capacity is currently only half of what before the pandemic While international lanes often bring 50-60% of revenue and profit for both airlines and port operators, a large number of aircraft are still lying on unexploited aprons However, in the current complicated period of the pandemic, reopening international lanes is a risky decision At present, Vietnam Airlines is the first airline designated to operate international lanes in the first phase It is expected that in August, some of the first regular flights will be operated again with a frequency of flight/week for each country After the pandemic is under control, the parties can increase the frequency and number of flight lanes The reopening of international lanes will bring many benefits to airlines, especially when the recession at the beginning of 2020 has left many airlines in a state of exhaustion and on the verge of bankruptcy if the international market hasn’t shown signs of recovery However, with the problems of disease control, quarantine after entry are complex problems if they reopen air lanes and international tourism at this time has not been thoroughly considered and there is no concern carefully prepared 2.5.4 Combine closely with related fields Experts confirmed the pandemic of the entire people and actual movements at airports and tourist spots: "Vietnam is a safe destination" Therefore, economic experts, Dr Tran Du Lich, said: RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 9|Page "Currently, opening the international lanes is still a question, so we should boost domestic aviation" According to Dr.Tran, to achieve the goal of helping the aviation industry to rise gradually, there should be close coordination between the aviation industry, businesses, and localities because when traveling, people will be interested in where to stay , eat something and then go out and buy gifts Therefore, the local government has to connect with businesses to develop With the aviation industry, not only aircraft but also many types of accompanying services, so when there are difficulties, airlines can coordinate with service businesses to support development 2.5.5 Promote vaccination and loosen quarantine Advanced vaccination rates and limited quarantine time are two major factors that help the aviation industry return On the other hand, implementing "vaccine passports" will also help Vietnam resume international flight lanes A vaccine passport is a proof that you’ve tested negative for or been protected against certain infections It can be digital, like a phone app, or physical, like a small paper card You can carry it with you and show it if required, like before you go into the office, board an airplane, or visit a restaurant, movie theater, or gym 2.5.6 The Government issued support policies for the aviation industry • Expanding the scope of application of Resolution 84 / NQ-CP dated May 29, 2020, of the Government (regulations decreased by 2% of direct lending interest rate, indirect lending to small and medium enterprises) to businesses affiliates are also supported with interest rates in this group; allow goods to restructure loans and loan debts for debts incurred in 2020-2021 and not transfer debt groups until December 31, 2021 • Extending the deadline for payment of corporate income taxes; v.a.t tax; personal income tax…; • 50% off-service price take-off, landing aircraft landing, and executive service prices to fly, come to domestic flights from October 2020 until the end of December 2021 • Applying a minimum price of VND for specialized services in aviation in the State List of price frames from October 2020 to the end of December 2021 RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 10 | P a g e PART III: CONCLUSION Through the analysis of the demand and supply of aviation in Vietnam in the first nine months of the year 2021 (1/2021 – 9/2021), we realize that Vietnam's aviation industry is facing many challenges The fourth wave of the COVID - 19 pandemic in our country has caused a significant decrease in supply and demand for air transportation, mainly due to the fact that many localities have applied Directive 16 on social distancing (especially in the southern regions, where there is a large population), people's income decreased along with the raging pandemic These things have caused extremely heavy damage, and it takes a long time to recover the aviation industry in Vietnam Through this analysis, we can also see a number of government decisions to temporarily support the industry and measures to accelerate the recovery of the aviation industry in the coming months Through this study, although knowledge is still limited, we hope to help everyone have an overview of the difficult and complicated situation of our country's aviation market RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 11 | P a g e SOURCE AVAILABLE Principles of Microeconomics (N Gregory Mankiw) tháng: Tổng chuyến bay hãng hàng không Việt Nam giảm 29,1% - Nhịp sống kinh tế Việt Nam & Thế giới (vneconomy.vn) 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https://vnexpress.net/3-giai-phap-phuc-hoi-nganh-hang-khong-sau-dai-dich4108218.html 13 https://www.webmd.com/vaccines/covid-19-vaccine/vaccine-passport-covid 14 https://baolangson.vn/kinh-te/411021-hieu-dung-ve-cac-chinh-sach-ho-tro-chonganh-hang-khong.html 15 https://vietnamtimes.org.vn/vietnam-aviation-industry-in-2021-faces-more-furtherdifficulties-due-to-covid-19-pandemic-27063.html RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 12 | P a g e ... THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST NINE MONTHS 2021 10 | P a g e PART III: CONCLUSION Through the analysis of the demand and supply of aviation in Vietnam in the first nine. .. 1.3 Supply and demand together RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE FIRST MONTHS OF THE YEAR 2021 (1 /2021 – 9 /2021) 2.1 The actual situation in the first. .. demand and supply in the first nine months of 2020 D2, S2: Number of flights according to demand and supply in the first nine months of 2021 Eq’m1, Eq’m2: Equilibrium of flights in 2020 and 2021,