AFP
Wednesday December 10, 06:40 PM AEST
Asia's budget airline industry taking off, but no European-style price cuts
SINGAPORE, (AFP) - The future of Asia's fledgling budget airline industry is looking increasingly bright with the entry of aviation's big players but massive European-style price cuts are unlikely, analysts said.
Singapore Airlines (SIA) and the founder of successful European budget airline Ryanair became the latest to stake their claim with an announcement on Tuesday they were setting up Tiger Airways to start flying from the city-state next year.
Malaysia's AirAsia is currently the most well-established and successful no-frills carrier in the region and is planning on expanding its intra-country routes into Thailand next year.
Other players in the industry include Indonesia's Lion Air, which flies a no-frills service from Jakarta to Singapore, Orient Thai Airlines, Malaysia's Athena Air Services and Singapore's ValueAir, which expects to start flights next year.
But it is the recent rush by the major airlines to establish no-frills services that analysts and industry players believe has confirmed the future of low-cost carriers in Asia and will lead to stronger competition.
Aside from SIA and Ryanair founder Tony Ryan, Australia's Qantas Airways this week named its new budget airline, Jetstar, to counter the success of low-cost upstart Virgin Blue, which has 28 percent of the domestic market.
Flamboyant British businessman Richard Branson, who launched Virgin Blue three years ago, has said he too wants to enter the Asian market and is looking for partners.
The Sydney-based managing director of the Centre for Asia Pacific Aviation, Peter Harbison, told AFP he was "extremely bullish" on the future of the region's low-cost airline industry, especially after the announcement of Tiger Airways.
"I think this significantly steps up the level of competition and the importance of this type of model in the region," Harbison said.
"The low carrier model works best in... the short-haul point-to-point market where price is extremely important and the deciding factor is price."
Jimmy Lau, a spokesman for Singapore's ValueAir, also said SIA's decision to establish a no-frills airline would ease concerns there were too many obstacles for budget carriers to succeed in Asia.
"More importantly for us internally, what SIA is doing has validated our business model. It means the model can work in Asia," he said.
Some of the reasons previously cited for Asia being unable to replicate the European no-frills success include the relatively long distance of the routes and the lack of cheap alternative airports away from the main ones.
Europe is also regarded as having a far bigger surplus of pilots that drives the cost of salaries down and Asia does not have a common market.
Hong Kong-based ING Financial Markets aviation analyst Philip Wickham said these factors meant passengers in Asia were unlikely to enjoy the ultra-cheap flights available in Europe, where tickets can sometimes cost less than a pint of beer.
"I think you will see some cheaper flights (in Asia) but you might not see anything dramatic," Wickham said.
He also pointed out the lack of a common market meant it was highly unlikely a budget airline would be able to operate as a pan-Asian service.
Instead Wickham said the low-cost airlines in Asia will generally only be able to fly routes that begin or end at their own airport.
Nevertheless, passengers can expect to pay hundreds of dollars less for many popular destinations that currently are not serviced by no-frills airlines, analysts said.
For example Wickham said Tiger Airways' destinations will include Bali, Bangkok, Hong Kong, Jakarta, Manila and Phuket.
============================================