Asia’s low-cost carriers are still focusing on consolidating years of rapid growth, although new players are emerging in North Asia.
Following heady growth from the likes of Tigerair, AirAsia and Lion Air, most of the region’s budget carriers put the brakes on expansion in a bid to preserve yield and prevent an all-out bloodbath as seen in other markets. This has seen several carriers sell aircraft or defer planned deliveries
Timothy Ross, managing director equity research at Credit Suisse in Singapore, says that there has been some return to acceleration, but not back to the heady days previously seen. “I still see this as an oversupplied model in Southeast Asia, but not as difficult as it was a year ago,” says Ross.
In large part, that has been due to the bigger carriers curtailing their capacity growth, and some consolidation.
Flightglobal’s Innovata networks data service shows that between 2013 and 2014, AirAsia’s core Malaysian operation slowed its seat growth to 4%. That compares to a year-on-year average of 10% in the three years prior.
Across the wider AirAsia group, seat growth was flat in 2014, a trend that looks set to continue in the short-term, as the group has pushed back deliveries of a number of A320s until past 2018.
Even rival Lion Air, which has grown at a staggering pace over recent years, cut its seat capacity in 2014 by 6% compared to the year prior. In part that was due to a greater focus on new full-service subsidiary Batik Air, but it has also sold some aircraft to lessors that have placed them with other operators.
A first round of consolidation also seems to have bedded in. AirAsia completed its takeover of Zest Air in the Philippines, while Cebu Pacific Air took over Tigerair’s Philippines operation.
Tigerair, which is now 58% owned by Singapore Airlines, has had to make some painful moves to rein in a tattered balance sheet and history of red ink. In late 2014 it raised S$234 million ($176 million) through a rights issue and sub-leased a dozen A320s to IndiGo as it battled overcapacity. It also completed the full sale of its Tigerair Australia unit to Virgin Australia in October for the princely sum of A$1 ($0.78).
Its hometown rival, Qantas-backed Jetstar Asia, has also had a subdued year, keeping capacity flat which allowed it to return to a profit in the quarter ended 31 December.
Brighter spots appear to be on the horizon for those two carriers, however, thanks in large part to the lower oil price.
“This is a great opportunity for them to book a gain, having bled all over the place for the last couple of years,” says Ross.
Some are bucking the overall trend. Ho Chi Minh City based VietJet Air continues to take delivery of aircraft – including its first A321 in April - and has become a serious challenger to Vietnam Airlines in its domestic market. It has also started expanding its international network to Singapore, Taipei and Seoul.
Not all has gone completely to plan for VietJet. Its Bangkok-based affiliate Thai VietJet Air secured an AOC in December, but so far has only operated charter flights. The carrier has also put plans to expand on to long-haul routes on the back burner for now.
While Southeast Asia remains subdued, new carriers have launched in China and Taiwan.
In January, Juneyao Airlines’ subsidiary 9 Air, also known as Jiuyuan Airlines, launched its first flights from Guangzhou. At the same time, Chinese majors China Eastern Airlines and Hainan Airlines are also setting about transforming subsidiaries to play in the emerging market.
In large part, the growth has been spurred by new government policy that encourages more growth of low-cost carriers in the world’s largest aviation market. Nevertheless, Ross says that the focus is on using them to develop connections to smaller cities rather than fighting it out on trunk routes.
“Their policy is aimed at protecting those dual lanes, allowing budget carriers to focus on regional and under served markets and protecting taxpayers in the three major airlines – China Southern Airlines, Air China and China Eastern,” he says.
The new carriers join Spring Airlines, the Shanghai-based carrier that has now been operating for a decade. The carrier finally concluded its long-planned initial public offering early this year. It has since delivered stellar profit growth. Its share price nearly tripled within two months of listing.
Across the straits, last December saw the launch of Tigerair Taiwan and V Air. Although new start-up carriers, China Airlines owns 90% of Tigerair Taiwan (Singapore’s Tigerair owns 10%) while V Air is wholly-owned by embattled TransAsia Airways.
In Hong Kong, HNA group-backed Hong Kong Express has continued to branch out its network and scale up as it stakes its claim as “Hong Kong’s LCC,” as chief executive Andrew Cowen puts it. Flightglobal’s Ascend Fleets database shows that it now operates 10 A320s, and later this year it will take its first A321.
Potential rival Jetstar Hong Kong, backed by Qantas, China Eastern and Shun Tak Holdings, still remains in limbo. Earlier this year, Hong Kong authorities had a public hearing of the arguments for and against giving the carrier an air operator’s certificate, but there is no indication yet when a final decision will be made.
Source: Cirium Dashboard