1995-2020 ANNUAL REPORT RESPONSIBILITY PROACTIVENESS CREATIVITY TABLE OF CONTENTS I. MESSAGE FROM CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER 6 II. DEVELOPMENT STRATEGY 12 Vision 12 Mission 12 Core values 12 Targets 12 Development strategy 13 III. COMPANY OVERVIEW 18 General information 18 Business lines 20 Business network 22 Establishment and Development history 24 Organization structure 26 Shareholder structure 38 Highlight events in 2019 40 Awards and Accolades in 2019 42 IV. BUSINESS PERFORMANCE 46 Key operational performance 46 Key financial indicators 49 V. ASSESSMENT OF THE BOARD OF DIRECTORS 52 On the operations of Vietnam Airlines 52 On the activities of the Board of Management (BOM) 55 On the orientation of operations for 2020 56 VI. REPORT OF THE BOARD OF MANAGEMENT ON BUSINESS RESULTS IN 2019 58 Business environment 58 Performance in various areas 60 Route network 60 Fleet 66 Flight operation 67 Commercial performance 68 Services 75 Technical areas 79 Safety and security 81 Human resource management 82 Communications and brand development 86 Information technology 90 Cooperation programs 91 Investment activities 94 Financial performance 99 Innovations in organizational structure and management policy 103 VII. ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES 106 Compliance with environmental protection regulations 108 Social engagement 109 Employee welfare and benefits 112 VIII. CORPORATE GOVERNANCE 114 Corporate governance structure 114 Information and activities of the Board of Directors 116 Activities of the committees under the Board of Directors 116 Report of the Supervisory Board 117 Activities of the Chief Administrator & Corporate Secretary 119 Investor relations 119 IX. RISK MANAGEMENT 122 X. AUDITED CONSOLIDATED FINANCIAL STATEMENTS 126 To download a soft copy of Vietnam Airlines’ Annual Report 2019, please visit https://www.vietnamairlines.com/vn/about-us/investor-relations/annual-reports or scan QR code on the left-hand side. 3 4 LIST OF AFTK Available Freight Tonne Kilometers AGM Annual General Meeting ABBREVIATIONS ASK Available Seat Kilometers AT Air transportation BH Block Hour BOD Board of Directors BOS Supervisory Board CARG Compound Annual Growth Rate Consolidated Vietnam Airlines and subsidiaries, affiliates FS Financial Statements FSC Full Service Carrier GSM General Shareholders’ Meetings HCMC Ho Chi Minh City IT Information Technology JPA Jetstar Pacific Airlines Joint Stock Aviation Company JSC Joint Stock Company K6 Cambodia Angkor Air LCC Low cost carrier Ltd Limited Liability Company MC Members’ Council OTP On Time Performance PAT Profit after tax PBT Profit before tax RFTK Revenue Freight Tonne Kilometers RPK Revenue Passenger Kilometers SLB Sale and Leaseback Vietnam Airlines/ VNA Parent company (including VASCO) VNA Group Vietnam Airlines, JPA, OV and K6 5 I MESSAGE FROM CHAIRMAN OF THE BOARD OF DIRECTORS & CHIEF EXECUTIVE OFFICER MR. PHAM NGOC MINH MR. DUONG TRI THANH Chairman of the Board Chief Executive Officer Dear Valued Shareholders, Customers and Partners of Vietnam Airlines, First of all, the Board of Directors and the Board of Management of Vietnam Airlines would like to express our sincerest gratitude to the valued shareholders, customers and partners for your trust and support. Thanks to your companionship, Vietnam Airlines maintained strong performance, achieved remarkable outcomes and a number of new set records with the motto of “Responsibility – Proactiveness – Creativity”. Business results continued to break the record with the revenue of VND 100,316 billion, increasing 1.4% year-on-year; the consolidated pre-tax profit by VND 3,388.9 billion, exceeding 2.3% versus last year. In which, the parent company achieved VND 74,693.89 billion in revenue and VND 2,899.34 billion in pre-tax profit, an increase of 20% year-on-year and exceeding 8.3% versus AGM plan. 6 ANNUAL REPORT 2019 | VIETNAM AIRLINES Most of Vietnam Airlines’ (VNPT),VinGroup, Sun Group, financial ratios have significantly etc. Vietnam Airlines enhanced improved, contributing to the extensive collaboration with “ capital autonomy and financial leading international aviation WE ARE STEPPING INTO adequacy. Return on Equity partners, namely: Skywise A REVOLUTIONARY (ROE) reached over 16%, while open aviation data platform DECADE OF ASIA’S Debt-to-Equity ratio (D/E) with Airbus; e-commerce ANTICIPATED decreased to 2.27 times. with Sabre; aircraft engine DOMINANCE OVER THE maintenance cooperation with In addition to financial goals WORLD’S AVIATION Pratt & Whitney, etc. Particularly, being met, flight operation INDUSTRY. in September 2019, Vietnam across Vietnam Airlines Group 2020 MARKS A SPECIAL Airlines launched the first continued to achieve the YEAR OF OVERWHELMING and only aircraft component best performance ever with OPPORTUNITIES, maintenance, repair and 186,000 flights made and 29 CHALLENGES AND overhaul (MRO) joint venture in million passengers transported. CHANGES FOR THE Vietnam with ST Engineering Having overcome difficulties in WHOLE MARKET. Aerospace – the world’s largest infrastructure, resources and MRO service provider. increase in airspace competition, ” Vietnam Airlines managed to Vietnam Airlines received the guarantee absolute safety, highest number of aircraft in aviation security, improve On- the history and operated the Time Performance of departure most routes in the last five years, and arrival ratios of about 90%. with 22 new aircraft and 10 new routes. In 2019, Vietnam Airlines the entire Airbus A321neo fleet, 2019 marked a significant received the entire Airbus A350- the introduction of in-flight Wifi transformation of Vietnam 900 XWB fleet of 14 aircraft, service on Airbus A350, and the Airlines with HVN stock officially and operated 3 of the state- new Vietnam Airlines - FPT Play listed on the Ho Chi Minh of-the-art wide-body Boeing application. City Stock Exchange (HOSE) 787-10 Dreamliner aircraft. This and Vietnam Airlines named These steps are essential completed our fleet of more among the Top 50 Best Listed foundation for Vietnam Airlines than 100 aircraft and 100 routes Companies in Vietnam by Forbes to be widely recognized, with covering all 23 airports across Vietnam for the first time. Thanks numerous prestigious accolades Vietnam and intercontinental to the additional capital, Vietnam by reputable international route network. Airlines strengthened operating organizations. Vietnam Airlines activities through domestic Given our aspiration to become was rated as a 4-star Airline and international cooperation a 5-star international airline, Rating by Skytrax International projects, fleet investment, Vietnam Airlines has constantly Rating Organization for the network development, and introduced improvements in fourth consecutive year. service revamp. service. 2019 was the year of Vietnam Airlines was honored digital technology innovation as World’s Leading Cultural In addition to cooperation with and integration: from the launch Airline and World’s Leading provinces and major local of mobile application and Airline - Premium Economy partners, including Vietnam automatic check-in service to Class by World Travel Awards. National Administration of the universalization of wireless With the efforts of information Tourism, Vietnam Posts and entertainment system across technology adaption and Telecommunications Group digital transformation, Vietnam Airlines was the only entity to 7 THÔNG ĐIỆP CHỦ TỊCH HĐQT VÀ TỔNG GIÁM ĐỐC receive the Outstanding User The world economy is predicted Organization Award by Asian- to lose trillions of dollars and Oceanian Computing Industry the aviation industry alone Organization (ASOCIO) in 2019. might lose a few hundred billion dollars. According to the International Air Transport Dear Valued Shareholders, Association (IATA), the global Customers and Partners, aviation will suffer a loss of USD According to Center for Asia 314 billion, in which Asia Pacific Pacific Aviation (CAPA), we are will be hit hard, accounting for stepping into a revolutionary more than USD 113 billion. decade of Asia’s anticipated The sharp decline in travel dominance over the world’s demand, immigration restriction aviation industry. Nevertheless, and border lockdown have the beginning of this decade put the air transport industry marks a special year of to stagnate, most of the fleet overwhelming challenges for is grounded. The complicated the whole market. developments of the pandemic From the earlier of this year, have reduced market demand the world is going through a in long term, directly affected series of upheavals, including the operations of Vietnam the outbreak of the COVID-19 Airlines as well as other regional pandemic which rapidly spread airlines, signaling significant to more than 200 countries and changes to the business territories, causing adverse prospect of the Group and the impacts on the global economy. whole industry in 2020. 8 ANNUAL REPORT 2019 | VIETNAM AIRLINES Vietnam Airlines proactively History has proven that Vietnam implemented countermeasures, Airlines has always managed including business scale to overcome difficulties and adjustment, assertive cost finds in them opportunities to cutting especially fixed costs be successful. With 25 years and operational costs, labour of experience and leading allocation, salary reform and position in aviation industry, maximizing utilization of the we believe all challenges in support from the government 2020 are the opportunity for and partners to maintain stable the Group to push forward