Full service airlines change the budget carrier game

[flee 5]

Singapore budget carrier Tiger Airways caused something of a stir when chief executive Tony Davis, along with key shareholders Indigo Singapore Partners and Ryanasia Limited, sold 40 per cent of their share holdings in the airline soon after the announcement of its alliance with Thai Airways International to set up Thai Tiger Airways.

 

In reaction, Thai Airways executive vice-president Chokchai Panyayong said: "We have to admit that it's something we never knew before. Now our finance department is looking at more details and considering if the change will affect our plan to set up a new carrier with Tiger."

 

That concern is likely to pass as a ripple of undue caution as budget carrier euphoria spreads across Asia. Following the Thai Tiger announcement, All Nippon Airways said it was seeking a foreign airline partner to chase the same rainbow.

 

The obvious trigger is the booming popularity of regional budget air travel, which is expected to grow from today's 20 per cent of market share to 35 per cent by 2015 when Asean open skies is fully implemented.

 

What has been especially compelling is the growing competition posed by low-cost carriers to full-service airlines. Budget carriers are flying farther and, increasingly, seeking to fly where full-service airlines operate, no longer confined to remote destinations by-passed by the bigger carriers.

 

The result is that full-service airlines no longer enjoy market exclusivity.

 

Air Asia X paved the way for long haul operations, flying from Kuala Lumpur to London's Stansted airport. Jetstar is competing with parent Qantas, Singapore Airlines and Emirates flying between Singapore and Melbourne.

 

Thai Airways - which already owns domestic budget carrier Nok Air - bets on Thai Tiger to check its loss of regional market share. Its president, Mr Piyasavasti Amranand, said: "We believe this move will provide opportunities for Thai (Airways) and allow (it) to be more competitive in the region." He added: "If we don't do anything, our market share will decline further."

 

ANA too is concerned about the growing competition from Chinese and Southeast Asian low-cost carriers.

 

This is where the budget business game changes - when full-service airlines decide to drive the competition to protect their turf, albeit through subsidiary discount carriers which claim to be independent of their parents. The game has moved from inter-budget carrier competition to competition across the board.

 

The new mantra for air travel is cost-driven. The market is losing its clear demarcation between full-service and budget as consumers become less conscious of the segmentation. The choice is not between budget and full-service, but airlines that offer the best deal.

 

Qantas chief executive Alan Joyce did not hide his ambition for Jetstar when he announced structural changes at the budget carrier recently. He said: "This will ensure we are well placed to successfully expand our footprint to new markets throughout Asia."

 

While some experts have questioned the wisdom of Qantas and Jetstar competing with each other on some routes, it is a strategy of staking an additional share of the pie as more players enter the fray, so as not to suffer a complete outflow of the business as it shifts downward from premium to other more economic alternatives. Keep it within the family, that is.

 

Yet this is not new in the history of aviation. American and European full-service airlines have spawned budget off-shoots which they subsequently sold, shut down or absorbed back into the parent company. Examples include Ted by United Airlines, Song by Delta Airlines, Tango and later Zip by Air Canada, Go by British Airways, and Snowflake by Scandinavian Airlines System.

 

There's also a plethora of defunct independent budget carriers. So, is the Asian budget carrier bubble at risk of bursting as it swells?

 

There are upsides - the economic recovery, more liberal open skies policies, the geography of the region that makes air connection almost necessary, accessibility to hitherto remote locations, new short-haul tourist attractions such as Singapore's integrated resorts, and the growing travel markets in India and China as the economies shift from one that is primarily product-based to one that is increasingly service-driven.

 

There are downsides too - the uncertainty of rising fuel costs, disruptions caused by pilot shortages and market saturation despite the optimistic growth forecasts.

 

But the biggest risk is that of biting off more than one can chew. The long-haul is untested ground for budget carriers and demands a different business model. It is too early to assess the success of Air Asia X.

 

Hong Kong's Oasis Airlines and Macau's Viva Macau Airlines tried and failed. These airlines, however, could not boast the parentage that Air Asia X had in Air Asia - a budget carrier itself, but Asia's largest and most successful - and Jetstar had in Qantas.

 

A more pertinent point is how these parent airlines would change the competitive landscape for budget carriers. It is likely a few of them will grow stronger and larger as the attrition of numbers begins.

 

 

 

The writer is a management consultant.

Source: http://www.todayonline.com/Commentary/EDC100826-0000062/Full-service-airlines-change-the-budget-carrier-game

[aaronhiew 0]

I like this paragraph from the writer ~ It is too early to assess the success of Air Asia X.

[Izanee 0]

well...MAS was the only one that decided to fight directly against AK! Now they want Firefly to do that for them? Does that mean MH will be back with the legacy carriers? Hard to believe, really