Asia’s Budget Carriers Go Long Haul for Growth
Budget carriers in Asia, which have seen surging growth over the last decade, are now looking to tap the long-haul market.
“The long-haul low-cost market is the latest fad, as a very small portion of long-haul flights are operated by LCCs, (low cost carriers). This is a sector which has tremendous growth potential,” Brendan Sobie, Senior Analyst at CAPA — Centre for Aviation, told CNBC.
By the end of 2012, there will be an estimated 50 budget carriers operating in Asia, but only four will be in the long haul segment. Air Asia X of Malaysia and Australia’s Jetstar currently fly long distance, and they will be joined by Singapore’s Scootin mid-2012 and Philippines' Cebu Pacificin 2013.
Low cost carriers typically fly short distances of up to three hours, and pack up to 25 percent more passenger seats on the same aircraft type. Passengers in Asia have so far lapped up the cheap fares of these no-frills airlines.
Whether they are willing to put up with the lack of entertainment as well as limited legroom and food on longer routes of five to 10 hours will make or break the long haul budget model.
Air Asia X, which pioneered the category, announced this month that it was discontinuing all flights to London and Paris by the end of March, after almost three years of operations. CEO Azran Osman-Rani told CNBC that falling European demand and high taxes squeezed them out of those routes. The carrier will now focus on Australia, Korea, China and Japan.
But some see Air Asia X’s change of plans as a setback for the long-haul budget model.
“Air Asia X experimented with something new and had to pull out. Don’t know whether passengers are ready to fly long haul on budget,” a senior executive with a full-service European airline told CNBC.
The success of the long-haul model depends on “passenger tolerance”, Campbell Wilson, the CEO of Scoot, said on the sidelines of the Low Cost Airlines 2012 Conference in Singapore. His airline plans to fly to destinations within nine to 10 hours of Singapore and will launch with a flight to Sydney later this year.
Another long-haul budget carrier, Philippines’ Cebu Pacific, is looking toward the Middle East market, which has a large Filipino immigrant population. According to its CEO, Lance Gokongwei, about 600,000 Filipinos visit Saudi Arabia every year — yet the Middle East is not served by any Filipino airline.
“There is a rock-solid demand base [for us],” said Gokongwei, adding that currently there are 11 million Filipinos abroad. “Overseas contract workers are our main market.”
While Cebu is looking to tap a very specific market, others are hoping to cash in on the boom in leisure travel by offering a cheaper option to more far-off destinations. But full-service airlines are already responding with more attractive pricing.
“Over the last year, legacy airlines have also dropped prices by about 20 percent. The spread between budget and us is fast narrowing,” said the full-service airline executive.