New UAL Flights to Vietnam Are First Since 1975: Doron Levin Bloomberg Columnist

New UAL Flights to Vietnam Are First Since 1975: Doron Levin

Dec. 9 (Bloomberg) -- San Francisco was one of the main departure cities for U.S. military personnel going to Vietnam. These days, tourists and business people, not soldiers, are visiting the Asian country.

So this morning United Airlines will inaugurate passenger service from San Francisco to the Asian nation with the first U.S. commercial flight since the fall of Saigon in 1975.

The daily flight, which will operate with a 347-seat 747- 400, stopping in Hong Kong, will land at Ho Chi Minh City, formerly known as Saigon and from where Pan Am made the last U.S. commercial flight.

UAL Corp., the parent of United Airlines and currently operating under bankruptcy protection, said the number of air passengers between the two countries totaled 300,000 last year and has been growing at 10 percent to 12 percent annually since 1997.

Those numbers are quite small, at least in the environment that United is used to operating. In 2003, for example, the airline carried 1.6 million passengers between its Chicago and Denver hubs.

Mark Schwab, a United vice president, told Bloomberg News on Nov. 16 that ``we are going to see continued double-digit growth between the U.S. and Vietnam for several years to come,'' probably in the teens.

Vietnam Airlines

Under the five-year air service agreement between the two countries, state-owned Vietnam Airlines intends to begin flights to the U.S. at the end of 2005, most likely to San Francisco.

Vietnam Airlines said yesterday that it had signed a contract, estimated to be worth $720 million, to buy 10 Airbus 321 aircraft, to be delivered between 2006 and 2009. The carrier flies to about 25 overseas destinations and is talking with Boeing Co. about buying four next-generation 7E7 Dreamliners starting in 2008.

Vietnamese consular officials told the U.S. that more than 100,000 people traveled to Vietnam from the U.S. this year to celebrate Tet, the country's lunar New Year.

Until 1994 when the U.S. and Vietnam normalized relations, Vietnamese officials often were vocal in their resentment against the U.S. for the war. The passage of time, the need for economic development and a desire for tourist dollars have all played a role in changing that attitude, at least publicly.

Yet signs of the war remain visible throughout the country, with Vietnam proud to show tourists government-preserved tunnels once used by the Vietcong and North Vietnamese soldiers to hide from U.S. soldiers and a War Remnants Museum, with displays such as a burned-out U.S. tank.

Meanwhile, Vietnam is taking a page from the West's tourism playbook. The country had no golf courses, for example, a decade ago and now has 10, with nine under construction and another eight in the planning stage, according to the Ministry of Planning and Investment.

United's Problems

Who would have dreamed in the early 1970s that the triumphant Communist government of North Vietnam would one day be building golf courses in an effort to turn Vietnam into a fast- growing tourist mecca? Or that mighty United Airlines one day would be fighting to stave off liquidation?

United announced last week it will lay off 575 bag handlers and customer service agents as it flies fewer planes to reduce costs. The airline, which employs 61,800, said it's trying to cut $2 billion of costs through pay cuts, termination of pension plans and operational changes.

A week earlier, the financially strapped airline won a temporary court order blocking a group of creditors from repossessing 14 of its Boeing 767 and 737 aircraft. The issue may be resolved in bankruptcy court.

Watching Costs

United faces a treacherous road to recovery, as low-cost airlines continuously erode the pricing of passenger tickets throughout the U.S., as well as eat away at the airline's customer base. One of the healthiest segments of United's business remains its overseas routes, which contend with competitors but haven't yet suffered substantial encroachment by low-cost carriers.

The most difficult aspect of recovery may be the one facing United's employees, who have had to give up substantial pay and benefits in an unsuccessful attempt to restore profitability and undoubtedly will have to give up more. United has asked the bankruptcy court to allow it to break labor contracts with its six unions if it can't reach new concessionary agreements by mid- January.

Vietnam's economic planners, as well as Vietnam Airline's management, should keep a close eye on United and take notes. The world of international business competition is a rough one, and quite unforgiving of enterprises, especially fledgling ones, that can't keep costs in line.

To contact the writer of this column:

Doron Levin in Southfield, Michigan at dlevin5@bloomberg.net.