(TIỂU LUẬN) topic research of the demand and supply of aviation in vietnam in the first nine months of the year 2021 (12021 92021)

UEH UNIVERSITY
UEH COLLEGE OF BUSINESS
SCHOOL OF ECONOMICS

**********

ESSAY
COURSE: MICROECONOMICS (21C1ECO50109705)
Topic:
RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE
FIRST NINE MONTHS OF THE YEAR 2021 (1/2021 – 9/2021)
Lecturer: Mr. Nguyen Thanh Trieu, MA and MPhil in Economics
Class: FNC03
Practice group: Group 5
Group members:
Student name

Responsibility in Assignment

Participation %

1. Nguyễn Quang Duy

Part 2.4 – 2.5

100%

2. Bùi Nguyễn Bảo Hân

Part 2.1 – 2.3

100%

3. Nguyễn Văn Hùng

Part 2.1 – 2.3

100%

4. Đỗ Lê Nhã Quỳnh

Part 2.4 – 2.5

100%

5. Lê Thanh Trúc

Part I, II.1, III

100%

Signatures:
a. ________________

d. ________________

b. ________________

e. ________________

c. ________________

Date Submitted: November 29th, 2021


TABLE OF CONTENTS
PART I: INTRODUCTION ......................................................................................................... 1
PART II: ESSAY CONTENT ...................................................................................................... 2
1. THEORETICAL BACKGROUND ..................................................................................... 2
1.1. Quantity demanded........................................................................................................... 2
1.2. Quantity supplied ............................................................................................................. 3
1.3. Supply and demand together ............................................................................................. 4
2. RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN
THE FIRST 9 MONTHS OF THE YEAR 2021 (1/2021 – 9/2021) ......................................... 4
2.1. The actual situation in the first nine months of 2021 and comparison of figures with 2020 4
2.2. Causes of fluctuations in air services in Vietnam in the first nine months of 2021 ............. 5
2.3. Assess the current situation of quantity demanded, quantity supplied, and prices of
aviation services in Vietnam.................................................................................................... 5
2.4. Orientation of the aviation industry in the future ............................................................... 8
2.5. Solution for the aviation industry ...................................................................................... 8
PART III: CONCLUSION ......................................................................................................... 11
SOURCE AVAILABLE ............................................................................................................. 12

TABLE DATA AND GRAPH
Table 1.1: The determinants of quantity demanded
Table 1.2: The determinants of quantity supplied
Table 1.3: A change in Supply, Demand or both Supply and Demand to equilibrium
Table 2.1: Flight data table for the first nine months of 2021
Graph 2.1: Description of supply and demand of Vietnam's aviation industry in first nine months
of 2020 and 2021

PART I: INTRODUCTION
The development of the field of transportation goes hand in hand with people's desire to travel and
transport quickly and conveniently. Therefore, along with the advancement in science - technology,
the aviation industry was born to serve people’s increasing needs for transportation. Up to now,
aviation has gradually become an extremely important industry of the economy, a modern bridge
for transporting people and goods between regions in a country as well as between countries and
territories in the world. Over the past 60 years, Vietnam's aviation industry has continuously
developed from small to large, from rudimentary to modern, from incomplete to complete, making
a significant contribution to the development of tourism, trade,... in particular and the entire
Vietnam’s economy in general, especially in the period of international integration of the country.
Vietnam's aviation market is very vibrant and has a very fast development speed, flexibly applying
modern science – technology. Its quality is increasingly being improved towards international
standards.

Understanding the role and importance of aviation in Vietnam, our group 5 decided to choose the
topic: “Research of the demand and supply of aviation in Vietnam in the first nine months of
the year 2021 (1/2021 – 9/2021)”. In the research process, there will be inevitable shortcomings,
we are looking forward to your comments to make the research become better.
Sincerely thanks,
Group 5.

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PART II: ESSAY CONTENT
1. THEORETICAL BACKGROUND
1.1. Quantity demanded
1.1.1. Definition

Quantity demanded (denoted by QD) means the amount of a good that buyers are willing and able to
purchase.
1.1.2. The determinants of quantity demanded
a. Price:
According to the law of demand: Other things equal, when the price of a good rises, the quantity
demanded of the good falls, and vice versa.
The quantity demanded is negatively related to the price.
b. Number of buyers:
The more buyers in the market are, the more quantity demanded rise, and vice versa.
c. Income:
With a normal good, when buyer’s income falls, the demand for the good falls, and vice versa. With
an inferior good, when buyer’s income falls, the demand for the good rises, and vice versa. For
example, mobile phone is a normal good, when buyer’s income falls, he/she will choose to purchase
a better one; Instant noodles are inferior goods, when buyer’s income falls, they will choose to it
them instead of dishes whith higher prices.
d. Prices of Related Goods:
The two goods are called substitutes when a fall in the price of this good reduces the demand for
another good.
The two goods are called complements when a fall in the price of this good raises the demand for
another good.
e. Customers’ taste:
If you like something, you will buy more of it, and vice versa.
f. Expectations:
Your expectations about the future may affect your demand for a good or service today. For
example, if there is an expectation that the price of petrol will increase at weekend, people will tend
to get more pertrol since today.

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Table 1.1: The determinants of quantity demanded
VARIABLES THAT AFFECT
QUANTITY DEMANDED

A CHANGE IN THIS VARIABLE

Price

Represents a movement along the demand curve

Income

Shifts the demand curve

price of related goods

Shifts the demand curve

Tastes

Shifts the demand curve

Expectations

Shifts the demand curve

Number of buyers

Shifts the demand curve

1.2. Quantity supplied
1.2.1. Definition
Quantity supplied (denoted by QS) means the amount of a good that sellers are willing and able to
sell.
1.2.2. The determinants of quantity supplied
a. Price:
According to the law of supply: Other things equal, when the price of a good rises, the quantity
supplied of the good rises, and vice versa.
The quantity supplied is positively related to the price.
b. Number of sellers:
The more sellers in the market are, the more quantity supplied rise, and vice versa.
c. Input prices:
The supply of a good is negatively ralated to to price of inputs used to make the good. A fall in
input prices makes the production more profitable at each output price, which helps firms produce
more goods or services.
d. Technology:
Advanced technology helps firms increase their productivities, and thus more goods and services
can be produced.
e. Expectations:
Your expectations about the future may affect your supply today. Producers make their supply
decisions based on expectations.

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Table 1.2: The determinants of quantity supplied

VARIABLES THAT AFFECT
QUANTITY SUPPLIED

A CHANGE IN THIS VARIABLE

Price

Represents a movement along the supply curve

Input price

Shifts the supply curve

Technology

Shifts the supply curve

Expectations

Shifts the supply curve

Number of buyers

Shifts the supply curve

1.3. Supply and demand together
1.3.1. Definition
Equilibrium is a point that at which the supply and demand curves intersect. It is a situation in
which supply and demand have been brought into balance. The price at which these two curves
cross is called the equilibrium price, and the quantity is called the equilibrium quantity.

At the equilibrium price:
Quantity of the good that buyers are willing and able to purchase
=
Quantity of the good that sellers are willing and able to sell.
Surplus is a situation in which quantity supplied is greater than quantity demanded.
Shortage is a situation in which quantity demanded is greater than quantity supplied.
1.3.2. A change in Supply, Demand or both Supply and Demand to equilibrium
Table 1.3: A change in Supply, Demand or both Supply and Demand to equilibrium
No change in
Supply

An increase in
Supply

A decrease in
Supply

No change in Demand

P same
Q same

P down
Q up

P up
Q down

An increase in Demand

P up
Q up

P ambigous
Q up

P up
Q ambigous

A decrease in Demand

P down
Q down

P down
Q ambigous

P ambigous
Q down

2. RESEARCH OF THE DEMAND AND SUPPLY OF AVIATION IN VIETNAM IN THE
FIRST 9 MONTHS OF THE YEAR 2021 (1/2021 – 9/2021)
2.1. The actual situation in the first nine months of 2021 and comparison of figures with 2020
- Due to the pandemic’s impact, Vietnam's aviation industry declined heavily and could not recover;
the aviation industry suffered unprecedented losses in history. In the first nine months of 2021, all
Vietnamese airlines only performed 105,384 flights, corresponding to a decrease of 29.1% over the

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same period. In the first six months of 2021 alone, the number of flights and passengers is 60-70%
compared to the time before the pandemic. Especially from the end of May until now, the aviation
industry’s revenue has decreased by 80-90%. With two outbreaks at the peak time of the Lunar
New Year and the holiday from April 30 to May 1 and on May 31, Ho Chi Minh City officially
applied Directive 15, which hit the industry hard. domestic airline of our country. Vietnam's
domestic aviation has suffered a severe decline, with daily output only 20-30% compared to the
period 3-4/2021. Even the first two weeks of June only correspond to 5-10% of the average
transport volume in April 2021. The throughput of Vietnam's airports in the first six months of 2021
is estimated at 26.8 million passengers, down 19.4% over the same period in 2020.
Table 2.1: Flight data table for the first nine months of 2021

- Cancellation rate: 1.9%, up 1.0% over the same period.
- Delay rate: improved to 5.6%, down 9.9% compared to the first nine months of 2020.
- The punctuality rate of the top three airlines is 96.8%, 93%, 96.9%, respectively.
- Short-term liabilities of the three aviation industries continued to increase, reaching the milestone
of 50,000 billion VND, as of June 30, 2021:
•

Vietnam Airlines has an overdue debt of up to 13,337 billion VND

•

Vietjet Air, short-term loans, and outstanding liabilities amount to 13,800 billion VND.

2.2. Causes of fluctuations in air services in Vietnam in the first nine months of 2021
At the online conference of the SBV to support airlines affected by the COVID-19 pandemic on the
afternoon of September 28, 2021, Mr. Bui Doan Ne, Vice President and General Secretary of the
Vietnam Aviation Business Association Nam, said that the impact of the COVID-19 pandemic

became beyond the tolerance of the airline business. The pandemic continued to last longer than
anticipated, causing extended downtime for airlines.
2.3. Assess the current situation of quantity demanded, quantity supplied, and prices of
aviation services in Vietnam
2.3.1. General assessment based on the theory

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The airline industry is called a luxury good from a microeconomic perspective, so its elasticity is
always greater than 1.
Specifically, when we look at the analysis graph accompanying the above data, we see the
following shift:
a. Before the 4th wave of the COVID-19 pandemic, when the supply (here we understood as the
number of flights successfully taken off and landed) was always stable, people tended to go. The
activities such as traveling and working from place to place by airplane were still at a hustling rate.
b. When the pandemic broke out, the aviation industry had to close, then the production supply
curve (the number of flights taken off) was significantly reduced. Like the graph here.
Graph 2.1: Description of supply and demand of Vietnam's aviation industry in first nine
months of 2020 and 2021

P
𝑆1
𝑃1

Eq’m1

𝑆2

𝐷1

𝑃2

Eq’m2
𝐷2
Q
𝑄2 𝑄1

*Note:
- The graph is only for general purposes. It reflects the overall perspective due to the many data
from many different sources.
- All data (people, goods...) is converted to the number of flights to get the best possible data
overview.
*Where:
D1, S1: Number of flights according to demand and supply in the first nine months of 2020.
D2, S2: Number of flights according to demand and supply in the first nine months of 2021.
Eq’m1, Eq’m2: Equilibrium of flights in 2020 and 2021, respectively
Because of the pandemic, the supply and demand curves have been severely affected.
- Regarding the demand curve, users cannot travel or go on business trips to other places by plane.
The demand for and use of services is drastically reduced. ⇒ The demand curve shifts to the left.
- Regarding the supply curve,

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•

Because of Directive 16, commercial airports are limited, so the number of flights allowed
to operate is reduced. ⇒ The supply curve shifts to the left.

•

In addition to the supply curve shifting to the left, it also tends to go down because they
need to save their working capital in deciding which aircraft to operate during the pandemic
season, with a limited number of customers. Using planes with less explicit and implicit
costs will result in fewer airfares that buyers pay for and hopefully more customers.

2.3.2. Challeging
When the Covid pandemic raged, the aviation and transportation industry was one of the most "hit"
industries. A series of flights were cut off, and planes stopped working, airports stopped, and
airlines continuously reported losses. Most recently, the Government had to intervene, showing the
negative impact of the COVID-19 pandemic on operations—the business of this industry. In
addition, Vietnam's aviation industry also faces pressure on resources. Vietnamese airlines' total
number of aircraft is about 230, increasing 24 aircraft compared to 2019, equivalent to about 10%
of the fleet. According to calculations by industry experts, the whole Vietnamese aviation industry
has a surplus of about 58 aircraft, accounting for 26% of the total number of aircraft of airlines. The
overabundance of resources leads airlines to lower airfares to attract customers to gain market
share. The average ticket price of airlines in April 2021 is only 55% of the same period in 2019. If
this situation continues, the airlines will fall into a position of severe operating loss. Passenger
transport, gradually reducing competitiveness, especially with foreign airlines. Thereby threatening
the sustainable development of the whole industry, creating an imbalance between the aviation
industry and other transport sectors.
2.3.3. Opportunities
a. For users of air services:
According to the Civil Aviation Authority of Vietnam, it is predicted that the situation in 2021 will
improve compared to 2020, especially in the second half of 2021, vaccination against Covid-19 will
be accelerated in Vietnam in particular and the world in general. Vietnam's aviation market will

probably start to recover from the middle of the third quarter of 2021, with the throughput of
airports in 2021 estimated at more than 70 million passengers.
b. For airlines:
VABA (Vietnam Airlines Association) has just proposed to the Ministry of Planning and
Investment to report to the Government to submit the National Assembly to allow the application of
a refinancing mechanism from 5,000 to 6,000 billion VND for airlines, similar to the tool that has
supported Vietnam Airlines Corporation, the refinancing period is 12 months and is automatically
extended twice. Based on each firm's size, market share, role, and specific contribution to support
liquidity. At the same time, the proposal for airlines to borrow a credit package of about 25,000

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billion VND with a preferential interest rate of 4%, with a term of 3 to 5 years, for airlines to have
secured capital to operate.
Currently, the environmental protection tax rate for jet fuel in 2021 is being applied at 2,100
VND/liter (equivalent to a 30% reduction). VABA asked the Government to report to the National
Assembly for permission to use a 70% reduction of this tax, from 3,000 VND/liter to nearly 1,000
VND/liter, until June 30, 2022. Besides, it is recommended to continue to reduce prices and air
service fees at airports. VABA also proposed that the management agency approve and quickly
deploy the support, avoiding the case of both lack and delay.
2.4. Orientation of the aviation industry in the future
Looking to the future of the aviation industry, Deputy Director of Vietnam Aviation Department
Pham Van Hao said that according to the assessment of the International Civil Aviation
Organization (ICAO), there will be two development scenarios for the aviation industry.
- In the first scenario, aviation will develop according to the V-model, falling to the bottom and
overgrowing again.
- In the second scenario, aviation will develop the U-shaped model. Rules will fall to the bottom

and last from 3-5 months with economic decline. According to the forecast, the aviation market will
decrease by 48-71% depending on the development of Disease.
Vietnam aviation assessment will gradually recover. Deputy Director Pham Van Hao said the
agency is coordinating with research firms to submit to the Government to reopen international
flights to our country with the target of Disease control, control the opening of international flights
or ignore the disease for economic development.
On the side of airlines, Vietnam Airlines leaders said, with an optimistic scenario, Vietnam
International Air Market 2022 will recover to an equivalent scale in 2019. "It is expected that
Vietnam Airlines will have profit from In 2023 and end the accumulated loss in 2025.",
Representative of Vietnam Airlines said.
Commenting on aviation industry prospects, Mirae Asset Vietnam Securities Company (MASVN)
said that 2021 would remain a challenging year. Specifically, MASVN argues that the aviation
industry is in a state of no more extended surplus to recover further until international flights
reopen. "The second difficulties that the aviation industry has to face in 2021 are the narrow market,
making competition harsher," Mason's expert analyzes.
2.5. Solution for the aviation industry
2.5.1. Reducing tax on environmental protection of jet fuel
Recently, due to the pandemic’s impact, air transport enterprises have suffered heavy losses and
faced a high risk of bankruptcy. Therefore, the Ministry of Finance has proposed to adjust the
environmental protection tax rate for jet fuel from 3,000 VND/liter to 2,100 VND/liter until the

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end of December 31, 2020. The National Assembly Standing Committee approved the above
project on July 14. The reduction in the price of jet fuel is one of the factors that directly affect the
business activities of the aviation industry, reducing the cost of input materials of the aviation
industry. The 30% discount on environmental protection tax or the reduction of taxes and fees

related to aviation is also aimed at stimulating consumers to use aviation services, thereby creating
conditions for this industry to maintain its operations, recovery, and development.
2.5.2. Expand domestic tourism lanes
Vietnam Airlines and Vietjet Air have aggressively opened more domestic lanes and reduced prices
to support tourism businesses to build attractive stimulus tours in the past two months. Vietjet Air
has increased the total number of domestic lanes in Vietnam to 53 lanes, with eight new lanes
connecting Hanoi with provinces with significant tourist areas across the country. Vietnam Airlines
opened 13 new domestic lanes connecting to famous tourist destinations such as Hai Phong - Da
Lat, Phu Quoc - Can Tho; Vinh - Can Tho... This July, it is expected that Vietnam Airlines will
open five new lanes, bringing the total number of domestic lanes to 55 lanes.
2.5.3. Reopening international lanes
The international tourism market plays an essential role in the development of the tourism and
aviation industries. Although it has been allowed to restore all domestic flight sales and operations
according to market demand, the domestic market capacity is currently only half of what before the
pandemic. While international lanes often bring 50-60% of revenue and profit for both airlines and
port operators, a large number of aircraft are still lying on unexploited aprons.
However, in the current complicated period of the pandemic, reopening international lanes is a risky
decision. At present, Vietnam Airlines is the first airline designated to operate international lanes in
the first phase. It is expected that in August, some of the first regular flights will be operated again
with a frequency of 1 flight/week for each country. After the pandemic is under control, the parties
can increase the frequency and number of flight lanes.
The reopening of international lanes will bring many benefits to airlines, especially when the
recession at the beginning of 2020 has left many airlines in a state of exhaustion and on the verge of
bankruptcy if the international market hasn’t shown signs of recovery. However, with the problems
of disease control, quarantine after entry are complex problems if they reopen air lanes and
international tourism at this time has not been thoroughly considered and there is no concern
carefully prepared.
2.5.4. Combine closely with related fields
Experts confirmed the pandemic of the entire people and actual movements at airports and tourist
spots: "Vietnam is a safe destination". Therefore, economic experts, Dr. Tran Du Lich, said:

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"Currently, opening the international lanes is still a question, so we should boost domestic
aviation".
According to Dr.Tran, to achieve the goal of helping the aviation industry to rise gradually, there
should be close coordination between the aviation industry, businesses, and localities because when
traveling, people will be interested in where to stay. , eat something and then go out and buy gifts.
Therefore, the local government has to connect with businesses to develop.
With the aviation industry, not only aircraft but also many types of accompanying services, so when
there are difficulties, airlines can coordinate with service businesses to support development.
2.5.5. Promote vaccination and loosen quarantine
Advanced vaccination rates and limited quarantine time are two major factors that help the aviation
industry return. On the other hand, implementing "vaccine passports" will also help Vietnam
resume international flight lanes.
A vaccine passport is a proof that you’ve tested negative for or been protected against certain
infections. It can be digital, like a phone app, or physical, like a small paper card. You can carry it
with you and show it if required, like before you go into the office, board an airplane, or visit a
restaurant, movie theater, or gym.
2.5.6. The Government issued support policies for the aviation industry
•

Expanding the scope of application of Resolution 84 / NQ-CP dated May 29, 2020, of the
Government (regulations decreased by 2% of direct lending interest rate, indirect lending to
small and medium enterprises) to businesses affiliates are also supported with interest rates in
this group; allow goods to restructure loans and loan debts for debts incurred in 2020-2021 and
do not transfer debt groups until December 31, 2021.

•

Extending the deadline for payment of corporate income taxes; v.a.t tax; personal income tax…;

•

50% off-service price take-off, landing aircraft landing, and executive service prices to fly,
come to domestic flights from October 2020 until the end of December 2021.

•

Applying a minimum price of 0 VND for specialized services in aviation in the State List of
price frames from October 2020 to the end of December 2021...

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PART III: CONCLUSION
Through the analysis of the demand and supply of aviation in Vietnam in the first nine months
of the year 2021 (1/2021 – 9/2021), we realize that Vietnam's aviation industry is facing many
challenges. The fourth wave of the COVID - 19 pandemic in our country has caused a significant
decrease in supply and demand for air transportation, mainly due to the fact that many localities
have applied Directive 16 on social distancing (especially in the southern regions, where there is a
large population), people's income decreased along with the raging pandemic. These things have
caused extremely heavy damage, and it takes a long time to recover the aviation industry in
Vietnam. Through this analysis, we can also see a number of government decisions to temporarily
support the industry and measures to accelerate the recovery of the aviation industry in the coming

months.
Through this study, although knowledge is still limited, we hope to help everyone have an overview
of the difficult and complicated situation of our country's aviation market.

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SOURCE AVAILABLE
1. Principles of Microeconomics (N. Gregory Mankiw).
2. 9 tháng: Tổng chuyến bay của các hãng hàng không Việt Nam giảm 29,1% - Nhịp sống
kinh tế Việt Nam & Thế giới (vneconomy.vn)

3. />
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4108218.html
Tác động của Covid-19 vượt quá sức chịu đựng, ngành hàng không tiếp tục xin vay vốn
ưu đãi | Doanh nghiệp - Doanh nhân | Báo Sài Gòn Đầu Tư Tài Chính
(saigondautu.com.vn)
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