SOLUTIONS TO EXPAND THE MARKET FOR CARGOES TRANSPORT OF VIETNAM AIRLINES TO 2015

MINISTRY OF EDUCATION AND TRAINING UNIVERSITEU LIBRE DE BRUXELLE HO CHI MINH CITY OPEN UNIVERSITY SOLVEY BUSINESS SCHOOL MBMM PROGRAM PHAM QUANG MINH SOLUTIONS TO EXPAND THE MARKET FOR CARGOES TRANSPORT OF VIETNAM AIRLINES TO 2015 FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT Tutor: PHD,Nguyen Thi Lien Diep Ho Chi Minh 2007 Acknowledgement of commitment I, Pham Quang Minh, prepared and conducted this business project “Solutions To Expand The Market For Cargoes Transport Of Vietnam Airlines To 2015”, as final project of our MBMM1 program With the approval and great advices from Phd Mrs Nguyen Thi Lien Diep and Mr Ha Duy Quang, Deputy Operational Director Of Tan Son Nhat International Airport Ground Handling Services (TIAGS), this project has been accomplished by myself and served my current company as a real case I trust the legality of all references, information sources and materials using to complete the project Acknowledgements The author wishes to express her profound indebtedness to the courtesy advisor of Phd Mrs Nguyen Thi Lien Diep and for her valuable guidance, document offer and encouragement during the course of this work Her helpful suggestions, supervision and comments have greatly improved the quality of this work I also wish to express his faithful gratitude to Dr Tran Anh Tuan and Professor Jean Pierre Bayens for kindly consenting to be member of my project examination committee I would like to convey my sincere thanks to Cargo Planning and Marketing Department of Vietnam Airlines for providing the information and general support enabling me to undertake of the Master of Marketing and Management program, and warmest thanks to my mentor, Deputy Operational Director, Mr Ha Duy Quang, who offered me valuable ideas for the final project I hope to send my thanks to the two enthusiastic coordinators of our course Mr Serge and Ms Bao Tran who have supported us so much in relationship with the professors of SBS and OU as well as all given us convenient materials from Open University for this course ABBREVIATIONS LIST - AFTA – International Federation of Freight Forwarder Associations - ICAO - International Civil Aviation Organisation - IATA - International Air Transport Association - AAPA- Association of Asian-Pacific Airlines - WB: World Bank - IMF - International Monetary Funds - CAAV - Civil Aviation Administration of Viet Nam - VNA -Vietnam Airlines Corporation - NAA – Northern Authority Airport - SAA – Southern Authority Airport - MAA – Midern Authority Airport TABLE OF CONTENT CHAPTER I .1 INTRODUCTION 1.1 Overview of Vietnam Airlines Corporation 1.2 Problems should be solved 1.3 The project’s objectives 1.4 Research’s method of the project 1.5 Application’s scope CHAPTER II .3 ACTUAL SITUATION OF THE CARGO TRANSPORT OF VIETNAM AIRLINES DURING RECENT YEARS 2.1 The process of establishing the cargo transport of Vietnam Airlines .3 2.2 Analysis of the internal environment related to activities of the cargo transport of Vietnam Airlines 2.2.1 The internal sources, we will analyze following sources: 2.2.2 Operational analysis of the cargoes transport of Vietnam Airlines 2.3 Analysis of the external atmosphere impacts to the cargoes transport of Vietnam Airlines .7 2.3.1 Macro environmental factor: we evaluate by factors impacts to the macro environment 2.3.2 Micro environmental factors CHAPTER III 10 SOME SOLUTIONS TO DEVELOP THE CARGOES TRANSPORT OF VIETNAM AIRLINES 10 3.1 Objectives of the cargo transport of Vietnam Airlines from 2007 to 2015 10 3.1.1 Prediction of the market of the cargo transport 10 3.1.2 The increase’s objectives, targets of the cargo transport of the Vietnam Airlines Corporation to 2015 11 3.1.2.1 Objectives 11 3.1.2.2 The increase’s targets of the cargo transport of Vietnam Civil Airlines sector .11 3.2 Some solutions 13 3.2.1 Establishment of the solutions by analyzing the matrix SWOT 13 3.2.2 According to my subjective assessment and exchanges with experts in the airline sector, we would like to choose some solutions with the high feasibility to expand the cargoes market of Vietnam Airlines as follows : .14 3.2.2.1 Solutions to expand the size of numbers and competence of the fleet and cargo aircrafts to compete on the market (S2,3,4,5 + O1,2,,3,4,5,6) 17 3.2.2.2 Solutions used price’s policies of the products to increase the competitive competence (S1,2,3,4 + T1,2,3,4) 18 3.2.2.3 Solutions to create the financial source to overcome the deficient situations of the investment capital for the business activities of the enterprise (W1,2,3,4,5 + T1,2,3,4) 19 3.2.2.4 Solutions to increase the service quality of transport, supporting services, material facilities in the cargoes transport (W5 + O1,2,3,4,5,6) 20 3.2.2.5 Supporting Solutions .23 CHAPTER IV .26 CONCLUSION AND RECOMMENDATION 26 4.1 Conclusion .26 4.2 Recommendation to Vietnam Airlines 26 REFERENCES Executive Summary: The remarkable point of the Vietnam Civil Airline sector was established in 1956 with only aircrafts It has been operating during 51 years with plentiful events and remarked the important event in 1996 – Vietnam Airline Corporation was established The business competence of VNA has been developing, enhancing to become an international airline In addition to trading in passenger transport, goods transport business has been one of strong points of VNA during recent years After trading in transport business for a long time, VNA got some specific achievements However, at the moment, as VN step by step integrates into the world economy, opens the domestic market to receive the investment waves from foreign countries, the need of goods transport by airlines is very high What VNA should to expand the potential goods market in the future together with facing competitions with other large airlines in the local and international area With the support of Associate Professor Nguyen Thi Lien Diep and Mr Ha Duy Quang – Vice Operating Director of TIAGS, on the basics of applying theories of marketing in general and Business Marketing Planning in particular, together with some available documents of VNA, the author decides to choose the project “ Solutions to expand the goods market of VNA up to 2015”; A potential field but has not been exploited enough in recent years by Vietnam Airlines In hope that this project can give solutions to apply for VNA in the future to bring VNA to the new stages up to 2015 Let’s go the details below: CHAPTER I INTRODUCTION 1.1 Overview of Vietnam Airlines Corporation Vietnam Airlines Corporation is the State Corporation under the model of the Corporation 91 that was established under the Decision No 328/TT dated May 27th, 1995 of the Prime Minister, operated under the Charter of organizing and operating of the Corporation as approved by the Government under the Decree No 04/CP dated January 27th, 1996 The establishment of the Corporation is to create a strong economic corporation in the system of the State’s Enterprises, preferentially concentrate on sources to implement economic – social missions well, to increase the effectiveness and the international competitive performance The Vietnam Airlines Corporation is named Vietnam Airlines (VNA) as the core enterprise The Corporation has 20 member units (including 11 units of independently entering in the accounts, units of dependently entering in the accounts, enterprises); VNA’s capital is in a joint-stock company and five joint – venture companies Each unit has specific functions and mainly is to supply products, services for trading airline transport Is one of the member belonging to the Corporation, Vietnam Airlines is the key unit, gradually strengthen and becomes the key enterprise in the strategies of developing business of our country Main functions of Vietnam Airlines are to operate, trade airline transport (transport of passengers, baggage, goods and package) Nowadays, Vietnam Airlines has been expanding the airline networks to 28 domestic places and 38 international places at Asia, Australia, Europe and America 1.2 Problems should be solved Now the need of transporting cargoes in general and the need of transporting by airline is very large However, the capacity of exploiting the cargoes transport of Vietnam Airlines is limited during recent years It should be privatized in the future 1.3 The project’s objectives To re-evaluate the operational processes of cargoes transport of Vietnam Airlines during recent years to see the strengths, weaknesses, opportunities and threats to propose solutions to expand the market for cargoes transport of VNA to aim at the objectives to 2015 1.4 Research’s method of the project The author uses the methods of collecting material, information related to the operations of trading cargoes transport of VNA during recent years to have secondary information Concurrently the author also investigates, applies the expert methods 1.5 Application’s scope By evaluating, we will give these solutions to apply to VNA in the future Especially in the field of cargoes transport, this is the field that there are much potential for VNA to exploit during recent years, however, VNA has not taken these advantages CHAPTER II ACTUAL SITUATION OF THE CARGO TRANSPORT OF VIETNAM AIRLINES DURING RECENT YEARS 2.1 The process of establishing the cargo transport of Vietnam Airlines Two main business services of Vietnam Airlines are passengers and cargoes’ transport From 1989 to 1994, Vietnam airline sector only concentrated on trading passengers’ transport Up to the end of 1994, the output of the cargoes transport has been fast increasing bringing large incomes for the airline transport in Vietnam, meanwhile the growth rate of the airline transport service has been slowly increasing The Management Board of Vietnam Airlines has predicted the necessity of developing the business services of cargoes transport to the new stage, on December 13, 1994; the General Director issued the Decision to establish the Cargoes Marketing Board, which is the advisory board to the General Director to manage the service business of the cargo transport for Vietnam Airlines Now it is called as the Cargoes Planning and Marketing Department belonging to the commercial division of the Vietnam Airlines Corporation (Table 13 – Appendix ) 2.2 Analysis of the internal environment related to activities of the cargo transport of Vietnam Airlines 2.2.1 The internal sources, we will analyze following sources: + Natural sources: with the available warehouses and equipment serving for handling internal and external warehouse cargoes, mainly concentrating on large airports: NBA, SGN, DAD However, these warehouse systems are downgraded, temporarily constructed (only a warehouse of TSC in SGN is rather modern; Routing network of VNA was constructed by the model of “horizontal axis” mainly APPENDIX Table : The Domestic Market Share Of Cargoes Transport Of Vietnam Airlines In 2006 PA 15% PA VN VN 85% (Source: Marketing Planning Department - Vietnam Airlines 2006) Table : The International Market Share Of Cargoes Transport Of VNA In 2006 NH 3% TH 2% MH 2% BR 11% VN 21% CI 16% TG 5% SQ 5% Other carriers BR Other carriers 10% OZ 3% LH 3% KE 9% JL 4% CX 6% CI CX JL KE LH OZ SQ TG VN NH MH TH (Other carriers : AA, AF, AY, BI, CZ, FM, GA ) (Source: Marketing Planning Department - Vietnam Airlines 2006) Table : Fleet Of Vietnam Airlines Aircraft type Boeing 777-200 Airbus 330 Airbus 320 Airbus 321 Fokker 70 ATR72 Total number of aircraft Number of aircrafts 4 1 10 10 10 45 Number of seats 338 307 325 295 320 266 192 184 79 65 Business Class 32 25 35 12 36 24 16 0 (Source : Web site of VNA - Updated on 31 Jan 2007 ) Economy Class 306 282 290 283 284 242 162 168 79 65 Table : The Organization Model And Management Structure Of Cargoes Board Of Management President & CEO Executive Vice President Commercial Marketing Planning Department Cargo Planning & Marketing Department Passenger Marketing Deparment Marketing Department Planning Department Northern & Southern Regional Office/ World Branch Of VNA In Abroad (Nguồn: Ban tổ chức cán LĐTL- Tổng công ty HKVN) Agencies Of VNA (Source: Marketing Planning Department - Vietnam Airlines 2006) Table 5: Targets of the cargoes output of VNA in the period of 2007-2015 (Unit: Ton) Year International Domestic 2007 116,328 125,000 2008 145,977 166,875 2009 168,870 183,924 2010 214,200 218,400 2011 257,040 231,504 2012 321,300 256,969 2013 401,625 295,515 2014 510,064 354,618 2015 657,982 390,080 (Source: The prediction of the output of the cargo transport 2007-2015 – Vietnam Airlines Corporation -2006) Table 6: Ratio Financial Structure Of Vietnam Airlines (Unit: BillionVND) Ratio 2001 2002 2003 2004 2005 2006 Total Asset 6.267 9.065 11.643 15.298 16.982 17.207 Payable Account 3.760 5.892 8.150 11.000 11.341 12.514 Ownership Capital 2.507 3.173 3.493 4.298 5.641 4.693 EBIT 408 548 304 886 1.025 776 Interest Cost 234 267 288 864 970 473 Debt Ratio (time) 0,6 0,65 0,7 0,72 0,67 0,73 Solvency (time) 1,74 2,05 1,05 1,02 1,06 1,64 (Source: Finance And Accounting Department – Vietnam Airlines 2007) Table 7: The manpower’s structure of Vietnam Airlines TT Kind of manpower Total (person) Rate (%) Service And Ground Handling Division 2.968 29,45% Operation Division 2.543 25,23% Commercial Division 1.646 16,33% Technical Division 1.657 16,44% Division Advise To Board Of Management 1.372 13,61% Others 605 6% 10.078 100% Total (person) (Source: Personnel Department – Vietnam Airlines 3/2007) Table 8: The cargoes’ transport output, market-share and increase level of Vietnam Airlines from 1996-2006 (at Vietnam market) (Unit: Ton) CARGOES Year Airlines International Output 1996 1997 1998 1999 2000 2001 Domestic Total Ma rket Ma r k e t Output Output I n crea s e Sh are Sh are Vietnam Airlines Pacific Airlines Other Airlines 28.200 500 26.003 52% 1% 48% 21.100 300 - 99% 1% 0% 49.300 800 26.003 Total 54.703 100% 21.400 100% 76.103 Vietnam Airlines Pacific Airlines 28.548 603 46% 1% 21.480 3.096 87% 13% 50.028 3.699 1% 362% Other Airlines 32.275 53% - 0% 32.275 24% Total 61.426 100% 24.576 100% 86.002 13% Vietnam Airlines Pacific Airlines 24.953 424 37% 1% 18.086 1.330 93% 7% 43.039 1.754 -14% -53% Other Airlines 42.125 62% - 0% 42.125 31% Total 67.502 100% 19.416 100% 86.918 1% Vietnam Airlines Pacific Airlines 24.057 158 35% 0% 19.132 312 98% 1% 43.189 470 0% -73% Other Airlines 44.252 65% - 0% 44.252 5% Total 68.467 100% 19.444 100% 87.911 1% Vietnam Airlines Pacific Airlines 23.583 305 35% 0% 24.279 276 99% 1% 47.862 581 11% 24% Other Airlines 43.632 65% - 0% 43.632 -1% Total 67.520 100% 24.555 100% 92.075 5% Vietnam Airlines Pacific Airlines 25.090 1.344 30% 2% 39.850 2.356 94% 6% 64.940 3.700 36% 537% Other Airlines 55.923 68% - 0% 55.923 28% 2002 Total 82.357 100% 42.206 100% 124.563 35% Vietnam Airlines Pacific Airlines Other Airlines 31.947 2.307 54.137 36% 3% 61% 34.958 3.285 - 91% 9% 0% 66.905 5.592 54.137 3% 51% -3% Total 88.391 100% 38.243 100% 126.634 2% Vietnam Airlines 39.981 30% 38.046 89% 78.027 17% Pacific Airlines 2.048 2% 4.560 11% 6.608 18% Other Airlines 90.321 68% - 0% 90.321 67% Total 132.350 100% 42.606 100% 174.956 38% Vietnam Airlines 46.250 28% 42.096 89% 88.346 13% Pacific Airlines 2.250 1% 4.980 11% 7.230 9% Other Airlines 115.200 70% - 0% 115.200 28% Total 163.700 100% 47.076 100% 210.776 20% Vietnam Airlines 47.560 30% 48.890 91% 96.450 9% Pacific Airlines 2.716 2% 5.127 9% 7.843 8% Other Airlines 105.724 68% - 0% 105.724 -8% Total 156.000 100% 54.017 100% 210.017 0% Vietnam Airlines 49.063 27 % 57783 85% 106.846 13% 2003 2004 2005 Pacific Airlines 5.451 3% 16.995 25% 22.446 28% Other Airlines 127.200 70% - 0% 127.200 12% Total 181.714 100% 71.778 100% 253.492 12% 2006 (Source: Cargo Planning & Marketing Department – VNA 3/2007) Table : The increase rate of cargo transportation by Vietnam Airline from 1996 to 2006 120,000 100,000 80,000 International Domestic 60,000 Total Output 40,000 20,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (Source: Cargo planning and marketing department – Vietnam Airline 2007) Table 11 : Domestic Routes Of Vietnam Airlines (Source: website of Vietnam Airlines) Table 12 : The prediction of the output of the cargo transport 2006-2020 In Vietnam Market YEAR/PRERIOD International NORTHERN AIRPORT AUTHORITY Domestic Total International MIDDLE AIRPORT AUTHORITY Domestic % increased % in international market % increased % in domestic market % increased % in total market % increased % in international market % increased % in domestic 2006 2007 2008 2009 2010 20052010 65.000 44,4 25,4 88.000 35,4 28,0 110.000 25,0 29,4 125.000 13,6 28,9 140.000 12,0 27,5 25,5 70.000 20,7 42,5 84.000 20,0 43,1 95.000 13,1 42,7 110.000 15,8 43,4 122.000 10,9 43,6 16,0 135.000 31,1 32,1 172.000 27,4 33,8 205.000 19,2 34,3 235.000 14,6 43,2 262.000 11,5 33,2 20,5 1.900 2.900 4.300 8.000 30.000 90,0 0,7 52,6 0,9 48,3 1,1 86,0 1,8 275,0 5,9 9.600 20,0 5,8 11.000 14,6 5,6 12.500 13,6 5,6 13.800 10,4 5,4 15.000 8,7 5,4 2015 20102015 220.000 2020 600.000 9,5 20,0 22,2 17,4 200.000 320.000 10,4 44,1 9,9 42,7 420.000 920.000 9,9 17,0 27,0 21,9 280.000 1.500.000 97,4 56,3 39,9 25,5 43,5 24.000 50.000 13,4 9,9 5,3 20152020 15,8 6,7 market Total International SOUTHERN AIRPORT AUTHORITY Domestic Total % increased % in total market % increased % in international market % increased % in domestic market % increased % in total market International TOTAL % increased Domestic % increased Total % increased 11.500 27,8 2,7 13.900 20,9 2,7 16.800 20,9 2,8 21.800 29,8 3,2 45.000 106,4 5,7 38,0 304.000 189.000 19,6 73,9 223.500 18,3 71,1 260.000 16,3 69,5 300.000 15,4 69,3 340.000 13,3 66,7 16,6 85.000 21,4 51,6 100.000 17,6 51,3 115.000 15,0 51,7 130.000 13,0 51,2 143.000 10,0 51,1 15,4 274.000 20,2 65,2 323.500 18,1 63,5 375.000 15,9 62,8 430.000 14,7 62,6 483.000 12,3 61,1 16,2 255.900 25,4 164.600 21,0 420.500 23,47 314.400 22,9 195.000 18,5 509.400 21,1 374.300 19,1 222.500 14,1 596.800 17,2 433.000 15,7 253.800 14,1 686.800 15,1 510.000 17,8 280.000 10,3 790.000 15,0 1.550.000 46,5 19,6 600.000 1.350.000 12,0 54,5 380.000 10,0 50,7 10,6 50,7 830.000 1.730.000 11,4 53,4 15,8 41,2 1.100.000 20,1 3.450.000 16,6 454.000 15,5 10,1 1.554.000 (Source: Strategy Of Development Vietnam Airlines 2005-2010 And Orient To 2020) 17,6 39,1 230.000 18,4 38,5 36,9 14,5 25,7 750.000 10,6 4.200.000 22,0 Table 13: Organization Chart of Vietnam Airlines (Source: website of Vietnam Airlines) Table 10 : International Routes Of Vietnam Airlines (Source: website of Vietnam Airlines)