Too many low cost airlines in Asia?

BANGKOK - Some 15 years ago, Asia seemed to be the least likely continent to endorse the low cost airline’s revolution in contrary to America or Europe. But today, Asia is home to over 75 airlines with more new carriers emerging every year. In 2014, Thailand and Taiwan are probably heading in terms of airlines creation. Taiwan finally opens up its skies to low cost carriers with the creation of new carriers or the conversion of long-established airlines such as Trans Asia Airways. In Southeast Asia, Thailand remains a favourite; after the creation of Thai Lion Air, subsidiary of the Indonesian low cost carrier Lion Air, the Kingdom is expecting to see the emergence of two long haul budget airlines, Nok Scoot and Thai AirAsia X. The latter will unveil this month its plans with first flights likely to serve Japan, South Korea and China PRC.

Nok Scoot is due to take off by the second half 2014 with possible air flights to Australia, Korea but also Singapore. In Hong Kong, Jetstar is impatiently waiting for the start of its subsidiary with China Eastern Airlines. Jetstar, a subsidiary of Australian national carrier Qantas, is still awaiting for Hong Kong authorities’ approval, which has been undermined by an active lobbying of Cathay Pacific which controls over 60% of its home market.

The multiplication of low cost airlines even weight on AirAsia which recorded a drop of 19% of its earning in the fourth quarter of its financial year. Southeast Asia second largest budget airline group Tiger Air has posted losses over the last three years. The carrier recently got rid of its
Filipino subsidiary, sold to Cebu Pacific, while rumours are regularly surfing about a potential sale of its Indonesian subsidiary Tiger Mandala.

Many regular carriers are increasingly involved with low cost airlines’ business. SIA is involved into Tiger Air and Scoot, Korean Air with Jin Air, Thai Airways with Nok Air and Thai Smile, Malaysia Airlines with Firefly, All Nippon Airways with Peach and Vanilla Air and Qantas with Jetstar.

However, these airlines can also become sharp competitors even to their genitors. Heavy competition in Asia weight on fares offered and dent into the business of legacy airlines. The most striking example is Australia national carrier Qantas. The airline, which has developed subsidiary through Jetstar with subsidiaries in Singapore, Japan, Vietnam and probably Hong Kong, posted a A$235 million loss during the second quarter of its financial year. According to Neil Hansford, chairman of consulting firm Strategic Aviation Solutions to the Wall Street Journal, only 16% of Australians fly today with their national carrier.

Next to see its traffic further eroded is certainly Thai Airways International. The Thai national carrier has seen its market share diminishing on regional routes due to increased competition of low cost airlines linking Bangkok and increasingly Phuket to a dozen countries in Asia Pacific. The announcement of two long haul low cost subsidiaries –Thai AirAsia X and Nok Scoot (although the latter is indirectly an affiliate of Thai Airways)- will further take away passengers volumes from important markets such as Japan , China and in the longer term Australia. While Qantas has now been embarked into a painful restructuring process which will see its workforce slashed by over 15% until 2017, Thai Airways will continue to remain fragile as the Government –owning the majority of stakes- is incapable to restructure properly the carrier.

Passengers’ leaking from legacy into budget carriers probably explains why Chinese authorities have so far been reluctant to allow a massive development of China-based low cost carriers. A contradictory position while China Civil Aviation has been relatively open to provide traffic rights to foreign budget carriers. However, international air passengers flow continue to generate only 15% of all air travellers’ movements…

Sourced: TravelDailyNews