VietJet Plans Bond Sale to Finance Plane Order
Published on Jan 26 2015 4:18 PM in General Industry
VietJet, Vietnam’s only privately-owned carrier, plans to raise as much as $300 million from a corporate bond sale to fund expansion while preparing for an initial public offering.
The company will raise $200 million to $300 million as early as the second quarter and has not decided whether to do it overseas or domestically, managing director Luu Duc Khanh said in an interview.
VietJet, which featured dancing flight attendants clad in bikinis on an inaugural route, wants to tap into the growing market of first-time and young air travellers, pitting it against other low-cost carriers such as AirAsia and Bangkok Airways. The bond sale proceeds will help fund the 100 A320 aircraft on order from Airbus SAS, costing about $9 billion, and development of training and maintenance facilities.
“Our company mission is to give everybody an opportunity to fly,” Khanh said. “People often think a low-cost airline would be low quality. We want to change that. A cheap ticket doesn’t mean poor service.”
The company posted its second profitable year in 2014, “well above” the target laid out by shareholders, Khanh said. The airline forecasts revenue of 13.8 trillion dong this year, compared with 8.1 trillion dong in 2014.
VietJet wants to raise about $800 million this year from the corporate bonds issuance, the public offering and loans, Khanh said. He said last May that the company aims to raise $500 million in its public debut.
“It’s a good time for us to sell bonds as borrowing costs are now reasonable in the international markets and Vietnam’s credit rating has improved,” Khanh said.
The company now plans to hold its IPO in the fourth quarter.
The airline served about 6 million passengers last year, a doubling from 2013, Khanh said. It expects passenger numbers to rise as much as 70 per cent this year with new routes to South Korea, Japan, Malaysia and China. It says its domestic market share rose to 35 per cent last year.
Competing in the international market is VietJet’s biggest challenge said Brendan Sobie, chief analyst for CAPA-Centre for Aviation in Singapore.
“Their brand is unknown outside Vietnam and competition is intense,” Sobie said. “They will launch a few international routes this year but the majority of their expansion will continue to be in the Vietnamese domestic market. These adjustments as well as the domestic focus are sensible and should improve VietJet’s attractiveness to potential investors as the exposure to risk is significantly reduced.”
VietJet has delayed plans to start flying to Russia in May, since a falling ruble has depressed travel, Khanh said. VietJet will consider flights to Russia in November, he said.
For now, VietJet is gaining market share by winning over first-time flyers who would otherwise travel to domestic destinations by car or train, said Khanh. At least 30 per cent of passengers are first-time flyers, he said. The airline makes sure fares can compete with rail services, he said. A flight between Hanoi and Ho Chi Minh City costs about 1.3 million dong, less than the typical rail ticket of 1.7 million dong, he said.
The company has had to teach new travellers flying etiquette, as in China, where passengers have opened emergency doors to get off airplanes faster and flights have been diverted because of unruly passengers.
On VietJet, passengers are instructed to use airsickness bags to dispose of used chewing gum as part of the security instructions before takeoff. Many new travellers don’t lock lavatory doors and flight attendants are trained to direct traffic flow in and out of bathrooms to avoid mishaps, he said.
The company has appealed to young travellers with unusual in-flight entertainment. It was fined $1,000 by the Vietnamese government for the stunt with bikini-clad flight attendants because it hadn’t received prior approval, Khanh said.
“If our clients tell us they want more bikini shows in the air, we’ll give it to them,” Khanh said. “We want to be the affordable, fun airline.”
Bloomberg News, edited Hospitality Ireland