18 December 2008

Jetstar Pacific offered lifeline in Vietnam

HANOI - The Vietnamese government has approved a proposal by the State Capital Investment Corporation (SCIC) to save the struggling budget airline Jetstar Pacific.

The government will allow Jetstar to issue additional shares to its existing shareholders to increase its capital.

The government will also permit the SCIC to sell its right to buy additional shares in the airline to other domestic shareholders to reduce the SCIC stake in the airline to 51 per cent. At the moment, the SCIC holds a 75.78 per cent stake in the airline.

Under the new agreement, the airlineââ¬â¢s foreign airline partner, Qantas, will still be able to invest up to a maximum 30 percent stake.

Jetstar's current shareholders include Qantas at 18 percent and Saigon Tourism Corporation Saigontourist at 6.18 per cent.

SCIC's proposal came after the budget airline racked up massive losses this year which now sit at close to US$50 million.

The airline blamed the losses on high petrol prices, an increase in costs, as well as a volatile exchange rate. The airlines revenue is in Vietnamese dong, however most of their costs are in US dollars, inflating the figures.

Inefficient policies and a challenging business environment had partly contributed to the situation, the SCIC said. The losses were also blamed on poor predictions of market trends and bad management.

In response to the crisis, Jetstar has been looking to cut costs, restructure staff, enhance management, and build a feasible business plan.

Jetstar has already cut back on less popular routes, including Ho Chi Minh City to Hue and Ho Chi Minh City to Vinh.

It has also delayed opening new routes from Ho Chi Minh City to Da Lat and Buon Me Thuot and from Hanoi to Hue, Da Lat and Buon Me Thuot.

Source:VNA

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