HO CHI MINH CITY UNIVERSITY OF BANKING

SAI GON INTERNATIONAL SCHOOL OF BUSINESS

DISCUSSION
STRATEGIC MANAGEMENT
Topic: The Effects of External Factors on Vietnam Airlines
Lecturer: Ms. Phạm Hương Diên
Class: IBP21.D01-02

GROUP 3 MEMBER ID
1 ĐẶNG TÂM NHƯ 110320210163
2 ĐẶNG THỊ THANH HUYỀN 110321220065
3 LÊ VÕ VÂN ANH 110321220249
4 NGUYỄN THẢO NGUYÊN 110320210117
5 VÕ THÁI THƯ TRANG 110321220224

YEAR: 2023 – 2024

1. PROFILE
● Vietnam Airlines is the national flag carrier of Vietnam, headquartered in
Hanoi, located at Noi Bai International Airport.
● It operates both domestic and international flights, connecting Vietnam with
various destinations worldwide through 117 routes across 19 countries.
● Established in January 1956 as a state-owned enterprise (accounting for
86.34% shares) Vietnam Airlines has grown and become a major player in the
aviation industry, offering services to over 52 destinations.
● Vietnam Airlines is the shareholder holding the largest percentage of shares in
Pacific Airlines with a shareholding ratio of 98%. The airline also owns a
small airline specializing in operating short domestic flights, VASCO Aviation
Services Company.
● Having joined Skyteam in 2010 and became the first Southeast Asian carrier
to participate in this alliance.

2. THE IMPORTANCE OF ENVIRONMENT ANALYSIS FOR THE

STRATEGY PROCESS OF VN AIRLINES
● Market Understanding and Positioning: Environmental analysis helps
Vietnam Airlines assess market trends, regulatory changes, and competitive
dynamics. Understanding the external environment allows the airline to
position itself effectively in the market and align its strategic objectives with
emerging opportunities and challenges.
● Technological Innovation and Adaptation: Environmental analysis enables
Vietnam Airlines to stay informed about technological advancements relevant
to the aviation industry. By analyzing environmental factors, the airline can
identify opportunities to invest in and leverage new technologies, such as
online booking systems, mobile applications, and in-flight entertainment
systems, to enhance operational efficiency and improve customer experience.
● Regulatory Compliance and Risk Management: Environmental analysis
allows Vietnam Airlines to anticipate regulatory changes related to
environmental standards, safety protocols, and industry regulations. By
proactively monitoring and assessing environmental regulations, the airline
can ensure compliance, mitigate risks, and avoid potential disruptions to its
operations and reputation.

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 ● Competitive Intelligence and Strategic Planning: Environmental analysis
provides insights into competitors' strategies, market positioning, and
customer preferences. By analyzing environmental factors, Vietnam Airlines
can identify competitive threats and opportunities, differentiate its offerings,
and develop strategic initiatives to maintain or enhance its market share and
competitiveness.

● Sustainability and Corporate Social Responsibility (CSR): Environmental

analysis helps Vietnam Airlines assess the impact of its operations on the
environment and society. By analyzing environmental factors, the airline can
identify opportunities to reduce its environmental footprint, adopt sustainable
practices, and enhance its reputation as a socially responsible and
environmentally conscious organization.

3. COMPONENTS OF EXTERNAL ENVIRONMENT AFFECT VN AIRLINES

● Sociocultural:
- Changes in passenger preferences and needs such as the increasing trend in
international travel or passengers favoring high safety standards and premium
services, which can impact Vietnam Airlines.
- The younger generation may also influence how Vietnam Airlines approaches
and advertises to its target audience.
- In terms of the affluent class, the number of high-income individuals has also
increased significantly. The target customers of Vietnam Airlines encompass
people of all ages in various countries, using the services for commuting to
work, traveling, and more. The changes in societal classes significantly impact
the company's development. As people's income rises, the demand for
products and services quality also increases. Instead of opting for low-
performance means of transportation, the number of customers using air travel
services is becoming more widespread. For instance, during holidays and Tet
(Lunar New Year), there is a sharp increase in ticket purchases, even though
prices tend to rise during these periods.

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● Technological
- New technologies are making aviation more efficient, from the use of
lightweight composite materials that reduce fuel consumption to more
efficient engines that produce less pollution. Improved air traffic control
systems are also making air travel more efficient by reducing congestion and
delays.
- Technology is also improving the passenger experience, from online check-in
and mobile boarding passes to in-flight entertainment, high-performance
aircraft, online ticketing systems, and internet accessibility, can provide a
competitive advantage.
- Technology can also influence the operational processes, maintenance, and
safety measures of Vietnam Airlines.

● Economic
The economic factor is one of the most important ways to run a business. Vietnam
Airlines' business activities are based on the change of the economy such as GDP
growth rate, inflection rate, scarcity of resources, the implementation of
government when joining AFTA (ASIAN Free Trade Area), commitment when
joining WTO,... It affects the revenue, expenses, profit, and losses of Vietnam Air.
- The purchasing power of customers, oil prices, and exchange rates can impact
ticket prices and the profitability of Vietnam Airlines.
- The economic growth of Vietnam can also create opportunities for the
expansion of the airline.
- Economic downturn, inflation and exchange rate fluctuation are all
contributing factors to consumers' tightening spending, which has resulted in
lower demand in key markets including Japan, South Korea and China," said
Đinh Việt Thắng, director of the Civil Aviation Authority of Vietnam
(CAAV).

● Ecological
- Vietnam Airlines may need to comply with strict environmental regulations
related to emissions, noise pollution, and other ecological concerns. Adhering
to these regulations might involve adopting cleaner technologies and practices.

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 - Environmental concerns, such as climate change and sustainability, are
increasingly important in the aviation industry. Vietnam Airlines needs to
address environmental issues by adopting eco-friendly practices, reducing
carbon emissions, and implementing sustainable initiatives. This also affects
customers' selection of aviation agencies, as awareness among young people
regarding sustainable environmental protection is increasing.

● Political - Legal
- Vietnam Airlines is a state-owned company in Vietnam, hence, it strongly
depends on the government and political decisions.
- The government can exert significant influence on the aviation industry by
regulating licensing rights, tax policies, and state management.
- International diplomatic relations and political fluctuations can also impact the
international operations of Vietnam Airlines.
- The airline industry is widely impacted by regulations and restrictions related
to international trade, tax policy, and competition. It’s also impacted by issues
like war, terrorism, and the outbreak of diseases—such as Ebola.

4. 5 OPPORTUNITIES AND 5 THREATS FROM THE EXTERNAL

ENVIRONMENT FOR VN AIRLINES

a. OPPORTUNITIES

● Growing tourism industry

The upward trend in Vietnam’s tourism industry, with 12.6 million international
tourists choosing Vietnam as their holiday destination last year, presents a significant
opportunity for Vietnam Airlines.

- Expanding route network: Vietnam Airlines has the opportunity to expand its
route network to cater to an increasing number of international tourists. This
could include adding flights to popular destinations or increasing the
frequency of existing flights.

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 - Increasing frequencies: As the number of domestic travelers stood at 108
million, Vietnam Airlines could increase the frequency of its domestic flights,
helping the airline capture a larger share of the domestic travel market.
- Capturing a larger market share: The projected revenue in Vietnam’s Travel
& Tourism market is estimated to reach 3,647M USD by 2024. By offering
competitive pricing, superior service, and convenient flight schedules,
Vietnam Airlines can attract more tourists and capture a larger share of this
growing market.
- Leveraging online sales: It is projected that 66% of the total revenue in
Vietnam’s Travel & Tourism market will be generated through online sales by
2028. Vietnam Airlines can leverage this trend by using an online booking
system and special promotions on its website or mobile app.

● Government support and policies

In Vietnam, government interventions notably benefit Vietnam Airlines,

highlighting the crucial role of governmental backing in sustaining operations and
fostering recovery within the aviation sector.
- Financial assistance: Vietnam's government has provided significant
financial aid to the airline industry. A request for a bailout of 1.17 billion USD
was made by a Vietnamese airline industry group. Vietnam Airlines itself
sought a loan ranging from 173.91 billion to 521.74 billion USD, at
preferential interest rates, to mitigate COVID-19's impact.
- Fee reductions: The government has historically reduced navigation fees for
domestic airlines, halved take-off and landing fees, and waived fees on
government-guaranteed loans.
- Refinancing: The National Assembly authorized the State Bank of Vietnam to
offer refinancing loans to support Vietnam Airlines' operations.
- Equity increase: A proposal was made for the government to raise equity by
347.8M USD, deemed critical for Vietnam Airlines' survival.
- Legal assistance: The government has been working with Vietnam Airlines
on the completion and submission of necessary procedures to the highest
Vietnamese authorities in order to decide the supporting policies.

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● Global trend towards sustainability
- The recent focus on sustainability: The aviation industry is embracing
sustainability due to global environmental awareness and responsible business
practices, and has committed to achieving net-zero flying by 2050. This trend
is driven by regulatory requirements, consumer preferences for
environmentally conscious brands, and corporate social responsibility
considerations, aiming to reduce carbon footprints.
- Having embraced sustainability through various initiatives
+ Sustainable flight challenge: The airline won accolades for providing
unused in-flight food to VietHarvest, aiding underserved communities.
+ Recycling initiative: Partnering with Limloop Social Enterprise, old
life jackets are turned into reusable bags, cutting carbon emissions
from plastic disposal.
+ Sustainable inflight meals: Using locally sourced, sustainable
ingredients, Vietnam Airlines serves eco-friendly inflight meals.
+ Personal items initiative: Passengers amre encouraged to bring
personal items, reducing non-renewable item usage and single-use
plastic.

- Vietnam Airlines' opportunities

+ For Vietnam Airlines, the trend towards sustainability presents a
significant opportunity to align with global best practices and
demonstrate its commitment to environmental stewardship. As they
already have these practices in place, the airline is well-positioned to
capitalize on this global imperative
+ Vietnam Airlines can enhance its brand image, attract environmentally
conscious travelers, and gain a competitive edge in the increasingly
eco-conscious market.
+ Furthermore, as sustainability becomes a key consideration for
travelers worldwide, Vietnam Airlines can capitalize on this trend to
differentiate itself from competitors, drive customer loyalty, and
contribute to a more sustainable aviation industry.

 Adapting to customer data development

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 Customer data utilization with IoT and data analytics presents a significant
opportunity for Vietnam Airlines to enhance its services and stay competitive in
the aviation industry.

- Personalized services: With leveraged customer data, Vietnam Airlines can

provide more personalized services to customers. The airline can use data
analytics to understand customer preferences and behaviors then tailor its
services accordingly, such as in-flight entertainment, meal choices, and travel
packages.
- Improved customer satisfaction: Vietnam Airlines can enhance understanding
to better meet customer needs, which improves customer satisfaction and
loyalty. This could lead to increased repeat business, positive word-of-mouth,
and higher revenues.
- Operational efficiency: IoT and data analytics can help Vietnam Airlines
increase its operational efficiency. IoT devices can be used to track luggage,
monitor aircraft performance, and optimize fuel consumption. Data analytics
can also be used to predict flight delays and improve resource allocation.
- Partnerships and collaborations: Customer data can also open up
opportunities to partner with hotels, car rental companies, and tour operators to
offer personalizedtravel packages.

● Economic growth

Economic growth in Vietnam is driving significant opportunities for Vietnam

Airlines. This growth attracts investment, boosts demand due to improved living
standards, facilitates infrastructure development for operational efficiency.

- Positive economic situation and forecast: Vietnam's GDP showcased steady

growth in 2023, rising by 5.05% overall and by 6.72% in the fourth quarter
compared to the preceding year. Looking ahead, GDP is projected to increase
by 6-6.5% in 2024, with per capita GDP reaching around 4,284 USD, up by
160 USD from 2022. Additionally, the industrial and construction sector is
expected to grow by 3.7% in 2024. These positive indicators reflect Vietnam's
strong economic expansion.

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 - Investment opportunities: As Vietnam's GDP continues to expand, both
domestic and foreign investors are drawn to the developing economy,
presenting Vietnam Airlines with various opportunities to secure investment
expansion. This flow of investment bolsters both the airline's financial
capabilities and market dominance.
- Rising standards of living driving demand: With economic prosperity comes
an improvement in the standard of living, allowing individuals to allocate
more disposable income towards leisure activities such as travel. There's a rise
in demand for Vietnam Airlines' services, positioning itself in this market
segment and expanding the customer base.
- Infrastructure development leading to efficiency: Economic growth often
paves the way for infrastructure development, benefiting airlines like Vietnam
Airlines by optimal operations, enhancing passenger experience and providing
smoother travel experiences.
- Fostering stability and confidence: A robust GDP growth brings stability and
confidence within the economy, giving a sense of assurance among
businesses. This environment fosters long-term planning and commitment,
therefore the airline stands to benefit from a consistent stream of passengers.

b. THREATS

● Competition in Domestic and International Market

Throughout the period of Covid-19 pandemic, the market share of the aviation
industry has reduced with the significant rate; however, Vietnam Airlines -
national airway still modified positively to adapt to the airway market with
competitors from domestic and international.
- Domestic: Vietnam airlines faced some younger existing airlines such as
Vietjet, Bamboo and so on which are considered as direct competitors. The
competition is based on the analysis of market shares of airline groups in their
operation. Others are compared by fewer factors like price, service, strategy,
route which attracts passengers using their brand.

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 However, Vietnam airlines still account for the top of market share by their
long-term strategy combined with the unique advantages of settlement from
customers. If comparing domestic market share, this airway brand reached
approximately 40% in 2022 after suffering from the consequence of a serious
global pandemic.

- International market: The aviation industry of Vietnam is still young

compared to international ones, especially some countries in the same South
Asian areas like Singapore, Thailand and so on.
When moving on the long routes to other nations, passengers still intend to
choose international brands due to safety, quality service and their prestige.
Although Vietnam Airlines is a national airline with the support of authority, it
still has limitations in changing the attitude and behavior of customers.

● Political Instability

Under the control of the government as the main investor (with a state capital of
86.34%), Vietnam Airlines has difficulties in expanding because of government
policies and regulatory changes.

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 - Routes Disruptions: civil law and the external relationship between fewer
countries can lead to temporary changes in diplomatic relations which cause
conflicts and disrupt flight schedules.
- Regulatory Uncertainty: The political situation between Vietnam and other
countries may cause challenges for Vietnam Airlines in terms of compliance,
operational planning and long-term strategic management.

● Environmental Regulation and Climate Change

Vietnam is a tropical nation so the general situation of weather affects the flight
schedules a lot, causing delays of flight and bringing an unqualified experience
for customers.

The problems of climate change generally cause serious disruption for the
aviation industry. Environmental factors affect the operation of flight and
especially, this feature is out of control and difficult to approach the accuracy of
nature fluctuation.

According to research, the industry has to exploit and adjust new flight ways to
tackle the worst situation weather could result in. Moreover, the production of
aircraft also has to change materials for some parts of the plane that prevent and
limit damage when the weather fluctuation happens.

● Technological changes

Rapid advancement in technology can impact the airline industry in a wide

variety of ways, including changes in aircraft technology (online booking,
network system throughout flight). Therefore, Vietnam Airlines needs to attempt
to adapt to the innovation of the digital era without making it become a
competitive drawback.

However, integrating is considered a challenge because it depends on many

factors and the changes in the whole system that combine both tradition and
development. Vietnam Airlines has to research carefully the consumption habits

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 of customers, the change in the whole management system, and the problem of
security and privacy for information when transforming technology.

● General Economic Situation

After the consequence pandemic, the economy of Vietnam gradually became

downturn which led to negative effects on finance, currency, and average income.
Therefore, the demand for travel has the intention to reduce significantly, this
accidentally affects the operation as well as revenue of Vietnam Airlines

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