Vietnam Airlines' Tourism-Driven Gambit: Can the Boom Sustain Aviation Overcapacity?

Vietnam Airlines' strategic pivot toward tourism-led recovery has gained momentum in 2025, capitalizing on the country's post-pandemic tourism boom. With international visitor numbers surging to 17.6 million in 2024-98% of pre-pandemic levels-and domestic tourism projected to hit 120–130 million travelers in 2025, the airline's expansion of international routes and fleet modernization efforts appear well-aligned with growing demand Vietnam's Tourism Sector Surges 21.5% with 15.4 Million International Arrivals^[1]. However, the question remains: Can this tourism-driven strategy sustainably offset overcapacity risks in Vietnam's aviation sector, which is grappling with infrastructure constraints and financial fragility?

Tourism as a Catalyst for Growth

Vietnam's tourism sector has emerged as a linchpin for economic recovery. In the first nine months of 2025, the country welcomed 15.4 million international visitors, a 21.5% year-on-year increase, driven by streamlined visa policies and relaxed travel restrictions Vietnamese Aviation Industry Takes Off^[4]. Key markets like China, South Korea, and Europe have seen exponential growth, with China alone accounting for 2.3 million arrivals in H1 2025. This surge has directly fueled Vietnam Airlines' route expansion, including new long-haul services to Milan and Darwin, and potential trans-Pacific routes to the U.S. and Canada Vietnam Airlines Resumes New Key Routes and Expands International Services for Summer 2025^[3].

The airline's 2025 operational targets-transporting 25.4 million passengers and 346,000 tonnes of cargo-reflect confidence in sustained demand. A $3.8 billion investment in 50–75 narrow-body aircraft by 2025 aims to bolster capacity, while digital transformation and fleet modernization are expected to improve fuel efficiency and reduce emissions Vietnam Airlines Sets Ambition Targets for 2025^[5]. These moves align with the government's 2025 tourism target of 22–23 million international arrivals, which the sector is on track to exceed Vietnam Airlines Sets Ambition Targets for 2025^[5].

Capacity Utilization and Financial Health

Despite the optimism, Vietnam's aviation industry faces overcapacity risks. In H1 2025, the sector served 41.3 million passengers, a 10% year-on-year increase, with international traffic growing 13% to 23 million passengers Vietnamese Aviation Industry Takes Off^[4]. However, domestic routes remain congested, particularly the Hanoi-Ho Chi Minh City corridor, which accounts for 42% of Vietnam Airlines' domestic market share. Airlines have had to reduce seat availability on some routes due to fleet limitations and maintenance backlogs, highlighting operational bottlenecks Vietnam Aviation 2025: Ambitions, Realities, & Challenges^[2].

Vietnam Airlines' financial performance offers mixed signals. In Q2 2025, the airline reported after-tax profits of VND2.92 trillion ($111.45 million), driven by lower fuel costs and optimized operations Vietnam's Aviation Sector Enjoys Thriving Business in Q2 and H1 2025^[6]. Yet, its profit after tax declined by 21.5% year-on-year in Q1 2025 due to rising administrative expenses, and the airline still carries negative equity of VND10 trillion ($398.72 million) as of 2024 Vietnam Aviation 2025: Ambitions, Realities, & Challenges^[7]. Competitors like Vietjet and Bamboo Airways also face debt challenges, with Vietjet's liabilities reaching 83% of its equity and Bamboo Airways defaulting on payments to creditors Vietnam Aviation 2025: Ambitions, Realities, & Challenges^[7].

Sustainability Challenges and Strategic Risks

The industry's financial sustainability hinges on infrastructure development and regulatory reforms. Major airports like Noi Bai and Tan Son Nhat are nearing capacity limits, with Long Thanh International Airport expected to alleviate pressure by 2025. However, construction delays and funding gaps remain concerns. Additionally, Vietnam's non-compliance with the Cape Town Convention has inflated aircraft lease rates, adding to operational costs Vietnam Aviation 2025: Ambitions, Realities, & Challenges^[7].

To mitigate overcapacity risks, analysts suggest allowing foreign ownership in domestic airlines to attract capital and expertise. This could foster competition and efficiency, but it also risks diluting state control over Vietnam Airlines, the national carrier. Meanwhile, the airline's reliance on tourism exposes it to external shocks, such as geopolitical tensions or shifts in global travel trends.

Conclusion: A High-Stakes Bet

Vietnam Airlines' tourism-driven strategy is well-positioned to capitalize on the sector's explosive growth, with international passenger numbers and cargo volumes set to outpace pre-pandemic levels. However, the airline's ability to sustain this momentum depends on addressing overcapacity through infrastructure investment, fleet efficiency, and financial restructuring. While the government's push for tourism and aviation expansion is commendable, investors must remain cautious about the sector's debt-laden carriers and regulatory hurdles. For now, the tourism boom offers a compelling offset to overcapacity-but only if Vietnam can balance ambition with pragmatism.