Launching low cost carriers in emerging Asia: Is now the time?

The aviation industry is currently in one of the stormiest patches in its history. Ominous clouds in the form of surging oil prices and the Eurozone crisis have led airline industry group IATA to warn that global profits will more than halve in 2012. They have also predicted that European carriers will suffer losses of US $1.1 billion (S $1.4 billion) this year alone.

But on top of these economic factors are the issues surrounding an increasingly demanding customer – one that expects a high quality of service and comfort at rock bottom prices.

With slow growth, narrowing margins and increased competition, Asia’s premium airlines are creating discount airlines in a bid to bring in new passengers and control expenses.

More than 80% of aviation industry stakeholders believe that network carriers have to change their strategy and pricing models to compete with low cost carriers (LCCs) on regional point-to-point routes, according to the2012 Full Service Airline Market Intelligence Survey released by Terrappinn, organiser of the Aviation Outlook Asia.

But is it the right strategy for the premium carriers to launch their own budget brands?

The challenge ahead for Asia’s premium airlines, which consistently get top ratings from travellers, is how long they can maintain high-quality service while making a profit.

Until recently, these airlines were relatively immune to competition from LCCs. But budget airlines now account for 24.9% of Asia’s total passenger traffic, up from 19.1% in 2011 and 9% in 2006, according to consulting firm UBM Aviation.

This bite into their market share has added to the woes of a downturn in premium and business travel – premium airlines’ most profitable area of business.

The figures have prompted at least five full-service Asian airlines to set up LCCs, including Scoot from Singapore Airlines Ltd., Jetstar Japan from Japan Airlines Corp., Peach Aviation by ANA and Thai Smile from Thai Airways International PCL.

At the same time, there are tremendous growth opportunities in Asia. Findings from the World Travel and Tourism Council (WTTC) predict positive growth for the Asian travel sector. In addition, countries such as China and India are expected to perform strongly.

In support of this, the Air Transport Action Group’s regional and group analysis of Asia Pacific states the key drivers of the robust expansion of the region’s air transport market to be steadily rising incomes and rapid urbanisation of the very large populations in China and India, as well as other dynamic Asian economies.

Secretary General of the World Tourism Organization, Taleb Rifai, believes the expansion of LCCs has “certainly played an important role in this tourism success”.

“As in other regions, Asian tourism is dominated by intra-regional traffic, with as much as 78% of tourists visiting an Asian destination coming from an Asian market. LCCs, offering inexpensive, point-to-point routes, have therefore been a key factor in enabling millions of Asian tourists to join the growing tourism market,” he adds.

Rifai asserts that this burgeoning LCC market, as well as all other players in the sector, is set to continue benefitting from Asia’s sustained tourism growth over the coming years. According to UNWTO’s long-term forecast, Tourism Towards 2030, international tourist arrivals to Asia and the Pacific are projected to increase from 204 million in 2010 to 535 million in 2030. The region will also see the biggest increase in outbound tourists between now and 2030.

“Provided companies and destinations shape the appropriate strategies, they stand to gain significantly from the growing Asian market,” Rifai continues.

“To do so, however, will require in-depth and local knowledge of Asian consumers and markets; it is important to understand that Asia is not a single market but has many differences in terms of markets and segments. Events such as TravelRave provide a valuable platform to learn about the latest trends in the region and network with key players in the region.”

This view was further augmented by discussions at TravelRave’s 2011 Asia Travel Leaders Summit, where it was noted that the Middle Affluent Consumer (MAC) segment in Asia is on the rise. This segment is estimated to grow by 20% and will account for approximately US $430 billion in tourism spending by 2020

In addition, as a part of the travel business chain, LCCs create a domino effect on other travel partners.

Keenly aware of this growing trend, industry leaders are convening at TravelRave to engage in meaningful discussions about optimising their business opportunities at events such as Asia’s premier aviation industry leadership forum, Aviation Outlook Asia (AOA), held from October 17-18, and ITB Asia from October 17-19 – events under the TravelRave umbrella.

Si Thu - Myanmar airways (image)Si Thu, managing director, CEO, Myanmar Airways International, will be one of the many in the business attending TravelRave’s AOA this year to discuss the issues faced by the airline industry.

“Myanmar has emerged from its isolation and seen exponential growth in the high season of 2011-2012,” he explains.

“This is just the beginning of the growth of Myanmar’s aviation industry and we will see continued growth as Myanmar Airways International, readies itself to capture the region’s burgeoning market. I am looking forward to meet and learn from other key players in Asian aviation at Aviation Outlook Asia 2012!”

Eleanor Uy, general manager of Terrapinn Pte. Ltd, event organiser of AOA, says the 2012 edition will be the biggest in its five year history.

“It continues to convene senior aviation executives to determine the business strategies and growth outlook for the industry,” she explains.

“This is where new ideas and perspectives are threshed out, when you can meet and connect with potential business partners; and discover new and innovative technologies powering airline business, alongside aviation leaders from Garuda Indonesia, Myanmar Airways International, Malaysia Airlines, Pacific Royale Airways, Royal Brunei Airlines, and many more.”

TravelRave events provide the perfect platforms to network, allowing airlines to strike unique partnerships to further their business objectives.

Aviation Outlook Asia continues to be the primary platform for C-suite leaders of the regional aviation industry to convene. Past luminaries who have attended include Chong Phit Lian, former Chief Executive Officer, Jetstar Asia; Si Xianmin, Chairman, China Southern Airlines and Azran Osman Rani, Chief Executive Office, AirAsia X, to name a few.

One of the topics that will be discussed at Aviation Outlook Asia during TravelRave is how airlines will optimise their distribution mix, especially in the face of LCC competition.

There will also be plenty of opportunities to connect with like-minded industry experts with breakout sessions and networking

FIND OUT MORE

For more information, visit www.travelrave.sg or follow @TravelRaveSG on Twitter

NEXT WEEK:

Tourism investment opportunities in Asia

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