If you can’t beat them, join them: Asian airlines follow low-cost rivals
THREE Asian flag carriers have announced plans to set up new low-cost airlines, jumping on the budget airline bandwagon as their cheap and cheerful rivals grab a bigger share of passengers and make inroads into long-haul business.
The region’s full-service carriers have rebounded from the global economic downturn. But they are in a dogfight with each other for lucrative premiumclass passengers while low-cost airlines such as AirAsia and Qantas-owned Jetstar are not ceding any of the ground they gained from aggressive expansion during the recession when cheap flights gained appeal.
Now, more national flag carriers are deciding that if you can’t beat them, join them. Some analysts say this shows the traditional airlines are facing up to the major strategic challenge that has been looming for the past decade: the incursion of low-cost carriers into short-haul flights and, more recently, into bread-and-butter long-haul routes – those longer than six hours.
“Ten years ago, low-cost carriers only accounted for 1 percent of the market” in Asia, said Brendan Sobie, an analyst at the Sydney-based Centre for Asia Pacific Aviation.
“Five years ago, they accounted for about 9 percent. This year, they will account for almost 20 percent,” he said, predicting the figure could double within the next decade.
The proliferation of budget airlines, and their new moves into intercontinental flights, spells good news for travellers: increased competition will drive down airfares as the line between low-cost and full-service airlines becomes blurred.
But it will also mean an even tougher fight to stay profitable for both budget and regular carriers as they grapple with high fuel costs. The International Air Transport Association has forecast Asia-Pacific airlines to earn combined profits of $3.7 billion (R25bn) this year, down from $7.6bn in 2010.
In Malaysia, budget airlines account for half of seat capacity, in Singapore, they account for 22 percent and in Thailand 17 percent, eating into the business of flag carriers in the three southeast Asian countries.
Yet, it came as a surprise to the industry when Singapore Airlines last month announced plans to set up a budget airline to operate medium-and longhaul routes next year.
The move follows the appointment of new management this year and is a major gamble for the national airline, which relies on business and firstclass travellers who make up a small percentage of seats but account for up to 40 percent of revenue. It will be only the second flag carrier to launch a lowcost unit after Qantas Airways.
“It is a defensive move in a difficult market,” said Citigroup analyst Rigan Wong.
Singapore Airlines hopes to echo the success of AirAsia X, which started in 2007 and became profitable just three years later with flights to 15 cities in Asia, Australia, Europe and the Middle East.
Elsewhere in Asia, other flag carriers are only just getting around to venturing into the low-cost short-haul routes.
In Japan, All Nippon Airways is to tie up with Hong Kong’s First Eastern Investment to set up the country’s first budget carrier. Peach Aviation will start flights in March 2012, offering fares on short-haul international routes at half the current prices.
Thai Airways has also given the nod to plans for a wholly owned budget carrier to operate two-to three-hour flights from Bangkok by early 2012.
“Until full-service carriers respond more aggressively to the competition, low-cost airlines may continue to build market share gains in the longhaul segment and generate good profits,” Wong said. – Sapa-AP