RECOMMENDATIONS

From the Background section, Vietnam ’s civil aviation sector can be described as follows:  

(1)     The point of departure remains far behind that of other countries in the region and in the world

(2)     The legal framework is incomplete and non-uniform

(3)     The competitiveness remains weak

(4)     The technology is backward

(5)     There is a lack of capital

(6)     Integration into “knowledge-based” economics is weak, and relies heavily on government subsidies

(7)     Its management mechanism is imperfect  

To reach a US–Vietnam Bilateral Civil Aviation Agreement with a feasible content, Vietnam and the US must first find suitable steps for the BCAA and then move towards an Open Skies agreement.

To Vietnam :  

Given the relative weakness of the aviation sector, the Vietnamese government will maintain monopoly control. It is preferable for Vietnam to carry out an Open Skies policy in the sub-region ( Cambodia , Laos , Myanmar , and Vietnam ) first, then Open Skies in ASEAN and APEC. Vietnam should sign a traditional bilateral civil aviation agreement. Based on a traditional agreement, Vietnam and the US can then work towards an Open Skies agreement.  

I highly recommend constructing the US–Vietnam Bilateral Civil Aviation Agreement as follows (See Appendix 1 for Time-Frame):  

1.       From 2002 to 2005: Prepare the traditional US–Vietnam civil aviation agreement  

During this period, Vietnam Airlines (the national carrier) and US airlines can operate their flights via code-sharing contracts. In addition, Vietnam should complete the “Open Skies” agreement within the sub-region CLMV and then move up to ASEAN.  

More concretely, Vietnam will need to carry out the following:  

·         Prepare conditions for future investments such as improving airport infrastructure and strengthening the fleets with long-range aircraft like Boeing 767 and 777.

·         Quickly build up a distribution network in the US .

·         Sign interline contracts with US airlines.

·         Reach a special prorated agreement (SPA) with US airlines which do not operate direct flights to Vietnam .

·         Gain allowance to establish a passenger service agency (PSA) in the East Coast of the US .

·         Establish representative offices in San Francisco , Los Angeles , and New York City .

·         Prepare Code-share or Block Seats agreements with US airlines operating direct flights to Vietnam .

·         Create favorable conditions for five US airlines to operate in Vietnam .

·         Allow US airlines to open their representative offices in both Hanoi and Ho Chi Minh City .

2. From 2006 to 2010: Move toward an “Open Skies” Agreement between the US and Vietnam  

Vietnam civil aviation should develop with international standards, keeping pace with countries in the region, reducing the government subsidy, and expanding the free market economy.

Based upon gains from 2002 to 2005, the US and Vietnam should introduce amendments to the traditional US–Vietnam BCAA with the following new contents:  

·         Expand routes and freedoms, especially Fifth and Seventh Freedoms

·         Improve fares and CRS

·         Designate more airlines  

In addition, in order to reach a feasible US–Vietnam Bilateral Civil Aviation Agreement, legislative and executive issues must be adjusted uniformly.  

·         Amend the Civil Aviation Law 1995 and current legal aviation documents, in order to:  

-          Introduce privatization and foreign investment in air transportation

-          Separate state-owned businesses into independent businesses

-          Allow businesses to decide on prices, charges, and fees

-          Reduce the government protection; limit red tape in licensing  

·         Issue decrees, decisions, and documents uniformly and transparently regarding operations of Vietnam ’s civil aviation sector and the airlines of counterparts.  

To the US :  

·         Use influence to push for Vietnam ’s accession to the WTO in the year 2005.

·         Increase investments and loans to Vietnam to promote the construction of Vietnamese airports, particularly four international airports. Also promote flight safety and information technology for ground management for the Computer Reservation System (CRS).

·         Grant loan to Vietnam to buy or lease high-load modern aircraft with long-range flying ability.

·         Help Vietnam train staff with management, business, and technological skills.

·         Give Vietnam ’s aviation special priority to carry out the Open Skies Agreement.

The next section will justify these recommendations and will anticipate impacts of the US-Vietnam BCAA on Vietnam and the US .

ANALYSIS PAPER

I. POLICY ANALYSIS:  

The Party and the government of Vietnam recognize the strategic importance of civil aviation on the industrialization and modernization of the country. The Bilateral Civil Aviation Agreement between the US and Vietnam will promote the development of Vietnam ’s civil aviation sector, helping it to reach the following goals:  

·         Reconcile Vietnam ’s civil aviation regulatory policies with regional (ASEAN, APEC) and international standards (WTO, ICAO, IATA) and advance Vietnam ’s integration into the world

·         Promote foreign investments in civil aviation through joint ventures

·         Create more capital to invest in aircraft, infrastructure, and equipment

·         Create a fair environment for competition

·         Improve the quality of air services

1.       The attitude of the Vietnamese government toward international integration, liberalization, privatization, and joint-ventures  

Realizing the decision of the General Assembly of the Vietnam Communist Party VIII to “Enlarge diplomatic relations, actively take part in regional and international organizations, and fortifying and improving of Vietnam in international markets,” Vietnam has recently pushed for integration into the international economy. Vietnam joined the free trade area of ASEAN (AFTA); participated in the Asia Europe Summit Meeting and the Asian Pacific Economic Forum (APEC); has negotiated for access to the World Trade Organization (WTO); and is pushing forward other bilateral and multilateral agreements. These efforts are reflected by the Decision 07–NQ/TW issued by the PolitBuro on November 27, 2001 on economic integration. The decision addressed the need to improve efficiency of production to ensure an effective integration process.  

As mentioned in the background section, Vietnam became the seventh member of ASEAN in 1995 and an official observer of the WTO in 1994. Vietnam also ratified the US-Vietnam Trade Bilateral Agreement. The agreement marks a complete normalization of economic relations between the two countries and confirms the important advancement of Vietnam into the global economy. It favors the US government, firms, and businessmen to expand their commercial operations to Vietnam , a sensitive and diversified market in Southeast Asia . Moreover, goods exported to Vietnam may be re-imported to the US without high tariffs. Thus, US investors in Vietnam may advance their competitiveness in the US market.  

The Vietnamese government has attached much importance to private and foreign capital having a positive effect on the national economy. The Vietnamese government promotes the private economy in various production and business sectors. A desirable business and legal environment helps stimulate a private capitalist economy through foreign investments, privatization, and joint-stock companies.  

The state-operated economy may be diversified by joint-ventures, which combine the state with private interests to create benefits for investing parties. This type of economy will spur the development of economic infrastructure with modern technology and will create more jobs.

2. The attitude of the Vietnamese government toward the Vietnam civil aviation sector in general, and the US–Vietnam Bilateral Civil Aviation Agreement in particular  

The Vietnamese government recognizes the strategic importance of civil aviation for commerce, services, technology, tourism, international relations, and for the overall development of the national economy. Vietnam has attempted to integrate its civil aviation to the region and the world with a gradual and prudent approach. To date, Vietnam has signed bilateral civil aviation agreements with 40 countries, of which about 20 have been put into operation.  

In addition, a framework for aviation law has been built and amended. In 1982, Vietnam civil aviation law was formed. Amendments to the law were introduced in “The 1992 Amended Civil Aviation Law I” and “The 1995 Amended Civil Aviation Law II” and in other documents, written texts, circular letters, decrees, and government decisions. The current barrier impeding the process of the civil aviation sector is not the legal framework but rather the long-running government subsidy and monopoly of Vietnam airlines. Foreign investments and privatization have not been adequately encouraged.  

That said, Vietnam aviation has expanded its flight route networks to most of the world, except for Africa and America . This is a crucial pre-requisite for Vietnam ’s integration in the world economy. The following are three benefits of improved civil aviation:  

1)       Economic development has moved Vietnam towards an industrialized and modernized country. As living standards increase, the civil aviation market promises revenue and quality service.

2)       Improved civil aviation can attract foreigners and tourists. Japanese and American tourists are attracted to the country’s favorable geographical position, history and culture.

3)       Situated at the heart of Asia , with a high traffic density of international flights, Vietnam can be a large hub for passengers and cargo.  

The US-Vietnam Bilateral Trade Agreement and the cooperation policy between the two countries would be perfectly complemented by a US-Vietnam Bilateral Civil Aviation Agreement.  

In short, international integration, market economy, and free competition would all be advanced with the improvement of the civil aviation sector. The aviation sector must take advantage of the Vietnam-US Bilateral Trade Agreement, and access the WTO. Building aviation relationships will help Vietnamese airlines to compete with US airlines and airlines of other nations. Vietnam airlines can use information technologies to help modernize their operations for future Open Skies cooperation.  

For the Vietnam/US aviation relationship to develop, the Vietnamese Government must continue to diversify the economy, moving the country towards a modern Open Skies strategy.

3. US policy toward the aviation sector and the US–Vietnam Bilateral Civil Aviation Agreement:  

The US government has prioritized establishing strong aviation relations with a number of countries, particularly those countries that possess the potential for growth and expansion in the aviation sector. Asia , South America , and Europe hold the potential for aviation growth. In addition to promoting air transportation services, the US benefits from new markets. Listed below are primary US interests: 

·         Strengthening and building consumer confidence in the international air market

·         Creating opportunities for US airlines to enter new markets, thus creating more business opportunities for US companies

·         Expanding the Open Skies policy  

US government policy towards the US aviation industry is supportive, particularly to those airlines hurt by the September 11 terrorism. Air safety, maintaining national security, and bringing peaceful life to the American people while strengthening the US economy are priorities.  Expanding trade helps reverse downward trends in the US economy. The conclusion of the US–Vietnam Bilateral Trade Agreement, with timely passage by both Houses and President Bush, reflects the positive attitude of the US government on the future of US/Vietnam trade relations. The US–Vietnam BCAA would likely gain the support of the US government, as it would facilitate further access to US goods and services in the Vietnamese market. The BCAA allows American airlines to approach the Vietnam air traffic market that they have long ignored.  

Countries opposed to the Open Skies policy fear that liberalizing the air transportation market may violate their sovereignty. The US may attempt to prevent airlines of these countries from entering the US market. The US government may also try to limit the commercial relationship between the Open Skies opposition airlines and US airlines. However, the US should make an exception for Vietnam to compensate for the highly competitive environment the Open Skies agreement creates. Support for a traditional aviation agreement would depend on a suitable timetable for an ultimate Open Skies Agreement between the two countries.  

US policy towards the aviation industry and towards the US–Vietnam Bilateral Trade Agreement indicated that the US-Vietnam BCAA would be reached in the near future.

II. POLITICAL ANALYSIS  

Different points of view may arise on a strategy to promote the US-Vietnam Bilateral Civil Aviation Agreement. Vietnam ’s aviation future faces two pressing questions:  

(1) Will the US–Vietnam Bilateral Civil Aviation Agreement be reached? If the agreement fails to pass in timely fashion, Vietnam will lose opportunities to strengthen the relations with the US, to take advantage of the US-Vietnam Bilateral Trade Agreement, to catch up with airlines of countries in the region and the world, and most importantly, to participate in the multilateral world trade system (WTO), which would increase trade and foreign investments in Vietnam.  

(2) How would the US–Vietnam Bilateral Civil Aviation Agreement proceed? How quickly and how comprehensive an agreement can be reached is unknown. Also uncertain is whether the agreement mirrors traditional bilateral agreements or Open Skies Agreements.  

1.       Domestic stakeholders (Appendix 2 for Stakeholder Analysis Chart):  

·         Vietnamese Leaders in the Communist Party and in the Government:  

The Central Committee of the Communist Party receives legal documents, proposals, and statements submitted to the Political Bureau by the Permanent Committee of the National Assembly for consulting before bringing them before the Plenum of the National Assembly to ratify. The US–Vietnam BCAA has divided the Central Committee, the PolitBuro, and National Assembly into two groups. The groups argue over the process, stages, and content of the agreement and how to promote the agreement without breaking the political mechanism.  

The first group, which can be considered “conservative,” thinks the agreement is not currently suitable for Vietnam , a country with a low level of development. It supports stable development under the direction of socialism. For this group, the economy can develop slowly but stability must be maintained. The young airlines of Vietnam must be aided and the Vietnamese economy must be supported to respond to competition with giant US airlines. 

The second group, which can be seen as “open-minded/ progressive,” believes that rapid growth can only be achieved by liberalizing the market. For them, hesitation will cause lost opportunities. A number of factors may change, but benefits are gained in return. The BCAA agreement would help the private sector grow faster and create more, higher quality jobs. Expansion of the private sector will require restriction of state-owned sectors, but in turn air services will be of higher quality and competitiveness. This progressive group thinks that both Vietnam and Vietnam airlines will benefit from modernization. The US–Vietnam BCAA will cause air services between the two countries to grow and catch up with opportunities created by the US-Vietnam Bilateral Trade Agreement and Vietnam ’s accession to the WTO. It helps Vietnam airlines join the international air system. Vietnam ’s civil aviation sector will benefit from advanced business management and modernizing information technology.  

The Central Committee and the PolitBuro tend to operate based upon points of view of the Ministry of Defense and the Ministry of Police. Due to national security reasons, these ministries are unlikely to support the US-Vietnam Bilateral Civil Aviation Agreement. According to them, the Open Skies policy is risky and may lead to economic and political crisis.  

·         The Civil Aviation Administration of Vietnam (CAAV) and the Vietnam Airlines Corporations:  

Within the CAAV, Vietnam Airlines Corporations, and other functional units, two main trends are likely to arise. First, the board of leaders may want to pursue the traditional civil aviation agreements that Vietnam has signed with over 40 countries rather than an Open Skies Agreement with the US . They may wish to appease other government officials. Second, the functional units and staff may prefer the Open Skies agreement because they believe that the Vietnamese civil aviation sector can learn from US aviation, a strong power in the international air transport system. Moreover, with an Open Skies policy, civil aviation employees could benefit from a salary two times greater than that of other state employees. Hence, they may accept the US-Vietnam BCAA being signed under Open Skies form.  

·         The Ministry of Public Security and Ministry of National Defense:  

The two ministries are not likely to support an Open Skies agreement with the US . From their point of view, the agreement could endanger national security and social policy. With careless management, international reactionary forces and economic criminals could harm the process of building and protecting the country. The ministries would argue that the state must maintain control over important civil aviation operations, such as passenger transportation, synchronized services, and flight and airport management. They would prefer the government run civil aviation under monopoly policies or play a crucial role in domestic equity. Allowing foreign business to participate in this field is too risky. The Ministry of Public Security and the Ministry of National Defense may create a long debate around the content and scope the US-Vietnam BCAA.  

Though the ministries recognize the necessity of a modernized civil aviation agreement, they remain staunchly political on strengthening interior defense and national security. These two ministries have a strong and compelling strength in the government due to the number of seats their delegates occupy in the National Assembly.  

·         Ministry of Foreign Affairs:  

The Ministry of Foreign Affairs has made much effort to establish a good relationship with the US , and thus will support the US-Vietnam Bilateral Civil Aviation. It has actively influenced the Vietnamese government to normalize relations with the US , and has pushed the US-Vietnam Bilateral Trade Agreement and the US–Vietnam civil aviation relationship.  

·         Ministry of Trade:  

The Ministry of Trade would definitely support the US-Vietnam BCAA and an “Open Skies” agreement. The ministry would like to promote commercial services between the US and Vietnam , and would like to promote Vietnam ’s accession to the WTO. The US-Vietnam BCAA, according to the Ministry of Trade, would be an effective means to increase exports, imports, and services once the US-Vietnam Bilateral Trade Agreement is ratified.  

·         Ministry of Planning and Investment (MPI):  

The MPI recognizes the urgency of the US-Vietnam BCAA. The MPI wishes to complete the National Plan for Economic Growth, which would increase the 2000 GDP two-fold by 2010. In order to achieve that goal, it is necessary to solve two fundamental and related problems: capital investment and policy adjustment. Signing bilateral and multilateral aviation agreements with strong counterparts would help fulfill these requirements. With the US-Vietnam BCAA, especially under the form of an Open Skies agreement, capital inflows will increase as giant US air service companies enter the Vietnam aviation industry. The MPI is likely to support the US-Vietnam BCAA as a foundation for the Open Skies agreement.  

·         Ministry of Finance:  

The US-Vietnam BCAA would help increase foreign investment and private business. Thus, it would positively affect the budget and revenue issues that the Ministry of Finance faces. In addition, the agreement will give the Ministry experience in managing and directing finances in other strategic sectors of the economy, with effective results. Therefore, it is probable that the Ministry of Finance would support the US-Vietnam BCAA.  

·         Ministry of Transportation (MOT):  

The Ministry of Transportation would strongly support the ratification of the US-Vietnam BCAA. The main goal of the MOT is to develop multi-modal transportation. The US-Vietnam BCAA would help develop other modes of transportation such as surface and sea. Moreover, the BCAA would help Vietnam comply with targets of the ASEAN Framework Agreement Services (AFAS) to promote cooperation between ASEAN countries on transportation services.  

·         Ministry of Legal Affairs:  

The Ministry of Legal Affairs is in charge of examining legal aspects of aviation agreements. The Vietnam civil aviation law must be adjusted to comply with international modern rules to suit the US-Vietnam BCAA. A feasible modern aviation agreement would allow the Ministry of Legal Affairs to quickly examine and adjust the Vietnam civil aviation law. Then, laws such as Commercial Laws could be amended. The Ministry of Legal Affairs would likely support the introduction of a modern US-Vietnam BCAA under the Open Skies form, and it plays a very important role in the final decision on the US-Vietnam BCAA.  

·         The General Administration of Tourism (GAT):  

The US-Vietnam bilateral civil aviation agreement would be backed by the General Administration of Tourism because tourism and aviation are strongly tied to one another. The agreement will facilitate the transportation of American tourists to Vietnam , thus increasing revenues. The agreement would bring about greater infrastructure of international airports, modern aircraft, and high quality service, attracting 18 to 24 million people per year.[1] Vietnam could gradually become a significant center of tourism, commerce, and services in the region. The General Administration of Tourism would likely advocate the US-Vietnam BCAA for the sake of the tourist industry.  

·         The General Administration of Customs (GAC):  

The General Administration of Customs is an important coordinator at airports, as it deals with customs, tariff barriers, and import-export policies. Handling import tariffs at airports, a corrupt staff of customs officials has abused its power, causing a significant loss of hundreds of millions of US dollars to the country. In the past few years, the GAC has lost its position in the government and society. Once the US-Vietnam civil aviation has been signed, it is believed that the GAC will improve to conform to standards of transparency and red tape elimination held by the US and others. Therefore, it is likely that the GAC will support the US-Vietnam Civil Aviation Agreement and the Open Skies policy.  

·         The General Department of Post and Telecommunication (GDPT):  

Once the US-Vietnam Bilateral Civil Aviation Agreement is reached, the number of passengers to Vietnam will increase, resulting in more revenues for the GDPT. Once foreign investors enter the market, they will need to communicate to manage their businesses. Thus, post and telecommunication services domestically, regionally, and globally will also increase, and fuel the GDPT. Moreover, the agreement will help improve the quality of current postal services such as mailing, packaging, and express delivery to reach customers in a faster and more convenient way.  

·         Vietnamese consumers:  

Vietnamese consumers will support the US-Vietnam bilateral civil aviation sector because it would bring improved services and a more favorable price system. More importantly, the agreement would contribute to the economic development of Vietnam as a whole; thus, living standards would improve. The Vietnamese consumers would have more chances to travel and expand their worldview.

2.       US stakeholders:  

2.1.         US Congress:  

The US Congress plays a crucial role in passing regulations on transportation and other strategic economic sectors. Agreements in transportation, including air agreements, could not be reached without consensus among committees in Congress. Aviation issues are primary dealt with by the Committee on Commerce, Science, and Transportation of the US Senate, the House Committee on Transportation and Infrastructure (sub-committee on Aviation), and the House Committee on Ways and Means, (sub-committee on Trade). A number of US Senators, who served in the war in Vietnam , would potentially advocate the US-Vietnam BCAA. It is likely that the US Congress would support the US-Vietnam BCAA, since they would like to promote US aviation that could expand its route network to every region in the world. Helping the US economy to recover from the September 11 attacks is further motivation for supporting the US-Vietnam BCAA. Moreover, the US-Vietnam Bilateral Trade Agreement, which passed through Congress, shows that efforts are being made to strengthen relations with Vietnam .    

2.2.    Bush Administration and Department of State  

The Bush Administration and the Department of State would likely advocate the US-Vietnam BCAA. The motto “expand the international aviation market” coincides with their objectives. The Administration and the Department of States are determined to build a strong aviation relationship with partners from such potential growth areas as Asia , South America , and Central Europe . They also would like to create an atmosphere of free trade within the aviation sector and services. Through free trade, US airlines can harvest large economic benefits. Moreover, because the US-Vietnam civil aviation relationship has stagnated due to ideological differences, the Administration and Department of State may wish to build stronger economic ties.  

2.3.  Department of Transportation (DOT) and Federal Aviation Administration (FAA)  

The DOT and the FAA will most likely support the US-Vietnam BCAA. The DOT and FAA recognize that the current situation in Vietnam does not allow for the civil aviation sectors to fully embrace the Open Skies policy. By supporting the BCAA, however, the DOT and FAA could advance its own international policy. Therefore, the DOT and FAA would support a transitional agreement that would be a foundation for the negotiation of a more liberal aviation relationship between the US and Vietnam . After the US-Vietnamese bilateral agreement is concluded, the DOT and FAA would support an Open Skies agreement. 

2.4.  US Airlines:  

Five US airlines, namely United Airlines, American Airlines, Northwest Airlines, Continental Airlines, and Delta Airlines, would be primary supporters of the US-Vietnam BCAA. With the recent slump in the airline industry resulting from September 11, gaining access to more markets and building strong alliances tops the priority list for US airlines. With an increasing population in Vietnam and many Vietnamese currently living in the United States , the US-Vietnam BCAA and an ensuing “Open Skies” agreement would be of great economic benefit. Many airlines hope for both the US-Vietnam BCAA agreement and a US-Vietnam Bilateral Trade Agreement.

III. COMMERCIAL ANALYSIS  

The US-Vietnam Bilateral Civil Aviation Agreement (BCAA) would be the first bilateral agreement between Vietnam and the US for commercial and transportation services. The agreement would help Vietnam civil aviation grow and modernize. It would facilitate the transportation of passengers and cargo between the two countries and more importantly, contribute to the economic, cultural, and political relationship of the two nations. The US-Vietnam BCAA has the following commercial impacts:

Impact on the financial resources of Vietnam ’s civil aviation sector:  

The aviation transport market between the US and Vietnam was formed in the 1980s, despite the prevailing diplomatic difficulties between the two countries. Thanks to the Open Door policy, the demand for tourism and investment greatly increased the passenger market in the 1990s.  

   Data provided by Vietnam Airlines Corporations  

The 175,000 passengers between Vietnam and the US is equivalent to 10 percent of the total number of domestic passengers in the graph below. The Vietnam Airlines Corporations believes that the US-Vietnam market will exceed the Vietnam-Western Europe market of 2005, which is expected to be 270,000.[2] Thus, by the following equation, the US-Vietnam passenger traffic is expected to rise by nearly 10 percent per year over the next 5 years:  

 175,000*(1+X)⁵ =270,000, so X=9%.   

To assess the commercial impact of the US-Vietnam BCAA, let us observe a number of general strategic tables of the CAAV.

a.      
The expected passenger traffic market in the period of 2000-2010.  

  *Development Strategy of Vietnam Airlines Corporations 2000-2010[3]  

At the moment, Vietnam Airlines is applying Special Prorated Agreements (SPA) with China Airlines, Cathay Pacific, Japan Airlines, and Korean Air to operate flights to the US . SPA allows Vietnam Airlines to carry passengers and cargo to an immediate point in Northern Asia , from which another airline will carry them to the US .  Though this method does not create immediate benefits for Vietnam Airlines, it does lay a foundation for direct flights between the US and Vietnam . For example, a one-way ticket from Vietnam to the US , operating via China Airlines, costs 650 US dollars (380 US dollars for the Hanoi/Ho Chi Minh City-Taipei and 270 US dollars for Taipei-San Francisco/ Los Angeles ). Once Vietnam and the US have direct flights the airfare is expected to be lower than 650USD due to the decrease in the fare between Vietnam and the immediate point. This will strengthen the competitiveness of Vietnam Airlines Corporations. According to a VAC estimate, one-way fare for the US-Vietnam route will cost around 500 US dollars.  

The decrease in price will be: USD650 – USD500 = USD 150.  

Therefore, percentage change in price will be: 150/650 =0.23 (23% decrease)  

Based on Table 3–2, Estimated Price Elasticities of Demand, price elasticity of demand for airlines in the long run is 2.4.[4] Thus, the percentage change in quantity demanded for traveling between the US and Vietnam will be:  

0.23*2.4 =0.55 or 55% increase (%rP*PED = %rQd). The increase of passengers is: 175*0.55=96 (Qincrease = Qold*%rP). Thus, using the Arc elasticity style, the new number of passengers is: 175*(2+.55)/(2-.55) = 308,000.  

As noted in the background section, Vietnamese patriots account for 60% of the total market, US veterans and tourists 25%. The rest are US investors, politicians, and diplomats of the two countries, and Vietnamese students on study tour. However, we must subtract the number of Vietnamese politicians, diplomats, and students, which accounts for 2 percents of the market.[5] Thus, we have the 60%+25%+13% =98%.  The increase in the total passengers market is: 308,000 – 175,000 = 133,000. Subtract 2%, and the new increase is around 130,000 passengers.  

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