Cheap-fare carriers set to go places in Asia

"The genie is out of the bottle", is how JP Morgan regional aviation analyst Peter Negline describes the introduction of low-fare carriers in Asia.

He adds that there will only be more flying in the region's skies in the years ahead.

Following the success of AirAsia in Malaysia and, further afield, Virgin Blue in Australia, new low-fare carriers are being planned in several parts of the region, including Indonesia, Thailand and Singapore.

Some are already operating internationally from Indonesia, while in Thailand there have been two launches in recent months: Thai AirAsia, part-owned by AirAsia of Malaysia, and One-Two-Go, wholly-owned by international operator Orient Thai.


Both started with domestic operations but Thai AirAsia launched Bangkok-Singapore services on 16 February and has plans for more international routes.

Even some of the major incumbent carriers are seeking a piece of the action.

Thai Airways International is involved in a new Bangkok-based low-fare carrier to be known as Nok Air, while Qantas Airways in Australia is launching a low-fare domestic subsidiary to be known as Jetstar and Singapore Airlines is to be a sizeable shareholder in Singapore-based Tiger Airways. All three new airlines plan to launch services in the coming months.

In announcing plans for Tiger, SIA chief executive Chew Choon Seng said: "We have been studying the growth and success of the low-cost carrier model in Europe and the US. We have come to the conclusion that the low-cost carrier model can succeed here as well.

"It will open new markets and make air travel more accessible to more people... We think it will be successful and profitable within a short period of time."

Tiger will operate narrowbody aircraft to destinations within a 4h range of Singapore.


In their favour is the fact that Asia has a massive population with a rising middle class and a growing penchant for travel, say analysts, who add that labour costs are also low in many of the region's markets.

AirAsia, for example, which started domestically in Malaysia but which launched international services late in 2003, claims to have the lowest cost base of any airline, anywhere in the world.

Going against them is the fact that there is a lack of secondary airports in Asia and that there are regulatory issues associated with international operations in the region, say the sceptics.

Unlike Europe, which is effectively an open market for air services, Asia still has many restrictions on international air services, in part due to the fact that several national carriers remain state-owned.

But most observers believe the problems can and will be overcome, and Asian low-fare airlines will create their own business model that will be slightly different from that of the successful players in Europe such as EasyJet and Ryanair. But the main thing going for them remains the same - growing demand for cheap tickets between city pairs.

In addition, low-fare airlines are expected to help spur a further liberalisation of air services agreements in the region, as governments see economic benefits from the corresponding growth in air travel and tourism.

AirAsia, for one, is adamant that it has not taken business away from national carrier Malaysia Airlines domestically, but rather has grown the market with its cheaper fare options.

JP Morgan's Negline says there will still be a need for incumbent full-service airlines within Asia, but they cannot just ignore the new low-fare segment of the market.


"None of the incumbents should adopt a head-in-the-sand attitude and hope they will simply go away," he says.

Ryanair founder Tony Ryan, whose family has taken a stake in Tiger, says his family's investment vehicle decided to become involved in the new airline because "low-cost travel is taking off all over the world and I'm sure it will be successful" out of Singapore as well.

He believes that "10 or 15 years from now, maybe 10% of the traffic [in Asia] will be low-cost". He adds that Southwest Airlines started operating well before the US domestic market was deregulated, while Ryanair did the same "before there was freedom of the skies in Europe".

"Freedom of the skies evolves," says Ryan, adding that "I think over time it will evolve in this region as well."


Source: Flight Daily News