Profit goes to Vietnam ... while loss is born by Cambodia?

Cambodian Angkor Air has been profitable since its 2009 launch. However, the company expects minor losses for the next two years. Photograph: Vireak Mai/Phnom Penh Post

Angkor Air forecasts first loss

06 March 2013
By Low Wei Xiang
The Phnom Penh Post

AFTER finishing in the black every year since its launch in 2009, Cambodia’s flagship airline is forecasting a loss for the first time, in a situation that an industry analyst has described as “not necessarily typical”.

Cambodia Angkor Air’s (CAA) loss is projected to span two years, this year and the next, its chairman, Tek Reth Samrach, said. He declined to give a figure, saying it is “not that big”.

The expected loss is the result of the airline rapidly adding new international routes. This year the airline expects to add four new destinations – Guangzhou, Shanghai, Incheon, and Hong Kong – he said.

“It is the nature of this business. When new routes are launched, there are fewer passengers at the beginning, and we need to do advertising,” which adds to operating costs, said Tek, who is also the secretary of state at the Council of Ministers.

These new routes are also served by other airlines, increasing competition, he said.

“But these are important routes. If we don’t make a loss today, we make a loss tomorrow, [but] we will make profits in the long term,” he said.

CAA, launched in July 2009, had begun making profits in the same year. In December of that year, Prime Minister Hun Sen announced that “this airline is making a profit because a lot of passengers are using it”, without disclosing figures. The airline’s load factor, according to figures from the State Secretariat of Civil Aviation, had increased from 25 per cent in July to between 80 to 90 per cent.

An industry analyst said that CAA did not suffer losses in its initial operating years – which would have been usual for new airlines – because CAA is “not necessarily typical”.

“Most of its initial [international] routes are to Vietnam, because of its connection to Vietnam Airlines,” Centre of Aviation chief analyst Brendan Sobie said. He was referring to state-owned Vietnam Airlines’ 49 per cent stake in CAA, which is a joint venture with the Cambodian government.

If destinations in Vietnam Airlines’ network are profitable, CAA – by tapping into it – would also gain profits, he said.

Since 2009, CAA has been the sole operator of domestic flights. Its international flights had only served Vietnam’s Ho Chi Minh City, which Tek conceded was “good” for profits, because there was “no competition”.

Its first international destination besides Vietnam started only in November last year, with the Siem Reap-Bangkok route. This year, flights to Hanoi, Vietnam’s capital, were launched in January, followed by the Phnom Penh-Bangkok route in February.

Meanwhile, the airline’s planned flights to China and Korea are potentially low risk, Sobie said, because the market in these countries is driven by tour packages, which often require many tickets at once.

“CAA must work with the tour agents to get commitment from them,” he said.

Cambodia received about 3.58 million foreign tourists last year, 24.4 per cent more than the year before, and 4.5 million foreign tourists are expected in 2015.