Asia’s low-cost carriers have relied on complex cross-border joint ventures to enter into new markets, but there is significant doubt that the relationships will go the distance.
Without the kind of single aviation market that has allowed pan-European operators to expand into new markets, the likes of AirAsia, Jetstar and until recently Tigerair, have had to rely on franchising their brands and operations to other operators in which they could only hold minority stakes– albeit largely retaining management control.
The results on the whole have not been encouraging. Many of these joint venture carriers have struggled, collapsed or failed to get off the ground at all.
For example Tigerair shut down its loss-making Tigerair Mandala operation in Indonesia in June 2014, shortly after it and its joint venture partners agreed to sell Tigerair Philippines to Cebu Pacific. Then, in October, it sold its remaining 40% stake in Tigerair Australia to Virgin Australia for A$1 ($0.79).
Even AirAsia, which has enthusiastically embraced the joint venture model, has faced difficulty with some of its affiliates struggling to turn a profit.
“I think almost without exception joint ventures have been failures with low-cost airlines,” says Credit Suisse managing director equity research Timothy Ross. “All attempts to stray outside of home markets, with the exception of Thai AirAsia, have been failures.”
He adds that Thai AirAsia has succeeded largely due to its first-mover advantage and rapid growth on both the domestic and international market, putting it ahead of rivals such as Nok Air.
The Malaysian carrier has also established joint ventures in Indonesia and the Philippines, which have continued to struggle. Indonesia AirAsia's net loss doubled to IDR856.3 billion ($66.1 million) in 2014, while Philippines AirAsia lost RM19.3 million ($5.3 million) in the fourth quarter of 2014 alone.
Nevertheless, AirAsia group chief executive Tony Fernandes said in April that, subject to local board approval, it plans to IPO its Indonesian and Philippines affiliates this year, which could raise up to $600 million.
Its latest joint venture, AirAsia India, is still in start-up mode, but that is expected to change soon. “We’re going to get to five planes soon. Once we get to five planes we are in a break-even situation which will be fantastic,” Fernandes told Flightglobal in March.
It is also working to re-establish a franchise in Japan during the second half of the year, after its short-lived joint venture with All Nippon Airways was dissolved in October 2013 amid major disagreements over the carrier’s strategy.
Despite the challenges, long-haul affiliate AirAsia X has also followed the model, establishing Thai AirAsia X and Indonesia AirAsia X. In both cases, the Malaysian carrier has teamed with existing AirAsia partners to launch the new affiliates.
Qantas’s Jetstar unit has struggled to show a return from its affiliates in Asia, but signs are getting brighter for its operations in Japan, Vietnam and Singapore. In the six months to 31 December, Qantas disclosed that its share of losses from the ventures reduced by A$13 million, but it did not report the total loss.
In spite of that, the Australian carrier has shown a willingness to give further support to its affiliates. In November it and fellow 33% shareholder Japan Airlines agreed to inject a further Y11 billion into Jetstar Japan, and in April announced that former Jetstar group operations chief Gerry Turner would take over as chief executive of the Narita based airline.
It has also continued to back Jetstar Hong Kong, despite the proposed carrier’s uncertain future. Following a public hearing in March, the airline is still waiting to hear if it will receive an AOC, almost two years after it was originally planning to launch. As a result of the delay, the carrier has sold most of its Airbus A320s leaving it with only two to start operations.
Having shed its cubs, Tigerair’s only foreign commitment is Tigerair Taiwan, in which it holds 10%. Taiwanese carrier China Airlines holds the remaining 90%.
Following a rights issue in December, which saw Tigerair become a subsidiary of Singapore Airlines as the carrier’s stake rose to 56%. Since then, there has been a growing focus for the carrier on bedding in its position with the other SIA group carriers. In particular, Tigerair has been working to grow its co-operation with long-haul carrier Scoot, in an effort to build more interline traffic.
Scoot has itself has embraced the model somewhat, taking a 49% stake in NokScoot, a new long-haul low-cost joint venture with Thailand’s Nok Air. While it had planned to launch scheduled services in May, concerns about Thai regulatory oversight standards have seen it effectively grounded, as South Korea, Japan and China have blocked new flights by Thai carriers.
SIA has also shown that it is keen to pursue other LCC investments. In March it confirmed reports that it had held discussions with South Korean carrier Jeju Air over a potential investment.
Lion Air also seems to have put the brakes on its own planned regional expansion. While it operates affiliates in Malaysia and Thailand, so far it has not established carriers in other touted markets, such as Myanmar and Australia.
Source: Cirium Dashboard