Asia’s low cost carriers take off

The low cost carrier (discount airline) industry has taken off in Asia and in a very big way.  Now the world’s largest aviation market, Asia is home to dozens of low cost carriers from domestic start-ups to regional arms of legacy carriers.  According to market analysts, low-cost carriers in Asia could grow 20 percent over the next year alone and profits by these airlines are expected to be the biggest of any region this year.

While many North American and European discount airlines, which have been around for years (Southwest Airlines began in the US almost 40 years ago and Ryanair in Europe in 1991), are hurting along with the large legacy carriers, the Asian discount airline market has grown by 50 percent during the global recession.

Two trends taking place in Asia are increased competition and innovation.  As these airlines become larger and more successful, Asia’s (and other regions) large airlines are losing market share and starting low-cost brands of their own.  These tie-ups have the advantage of larger networks, resources for innovation and promotion, newer facilities, and established brands (as well as images of safety, service, etc).  For new entrants, the uncertainty of whether low cost carriers, who focus on short-haul/low-fare flights, can successfully transition to long-haul/low-fare flights, is another advantage at this time.  Competition will continue to increase as ASEAN countries move toward Open Sky policies set for 2015.

As competition increases and passengers have more options, innovation becomes key.  In addition to new routes, new markets, and promotions, innovative ideas include:

-Tiger Airways is considering “standing-only” (a vertical seat) tickets as an even lower cost option for passengers.

-AirAsia X marked its entry into New Delhi with promotional fares as low as INR 1.  This route features its new “Premium flatbed seats” which are standard in its business class.

-AirAsia recently implemented a Royal Bank of Scotland foreign exchange solution for its online ticketing.  The system automatically sets prices in any one of five global currencies (Australian dollar, Hong Kong dollar, UK sterling, Singapore dollar, US dollar) giving customers certainty about credit card charges and making it easier for the airline to mind cash flow.

What about Japan?

Once a market leader in Asia, Japan’s airline industry is in turmoil.  According to the International Air Transport Association, Japan has fallen behind due to a failure to cut costs, liberalize or make other necessary reforms to keep competitive.  Also, because the nation’s two legacy carriers, JAL and ANA have tightly controlled the domestic market, there is little competition (low cost carriers or even low fares).  Japan needs to make changes fast and the country’s closeness to China and strategic location as an entry point into Asia are huge opportunities.

Some of Asia’s low cost carriers have started to enter the Japanese market as well.  AirAsia plans to launch flights by the end of the year that will fly between Kuala Lumpur and Tokyo’s Haneda Airport and China’s Spring Airlines will fly between Shanghai and Ibaraki.  Faced with this new competition, ANA recently announced plans to launch its own low-cost carrier within the next year.  The to-be-named airline is expected to offer competitively priced international flights within six hours of Japan.  Will this airline be able to compete and will it be innovative enough to survive?

A quick look at a few of Asia’s discount carriers:

AirAsia (Malaysia):  The region’s low-cost carrier pioneer.  Since beginning service in 2001, AirAsia has become the dominant carrier in Southeast Asia.  Flights are no frills–no free food or drinks, no tickets or seat assignments (first Asian airline to do this), no refunds, no business lounges, and no loyalty program.  Aircraft is utilized as much as possible with an extremely short turnaround time.  The airline only uses one type of aircraft, uses secondary airports single type of aircraft is used, uses secondary airports, point to point network and lean distribution system (mainly internet sales via credit card, few sales offices and avoiding travel agents as much as possible).  AirAsia X, the airline’s long-haul/low-fare arm affiliated with Virgin and Air Canada was launched in 2007.  The network covers destinations over four hours from Kuala Lumpur.  AirAsia has continued to expand its network recently set a world record by selling half a million seats on the first day of its “Mind Blowing Fare” campaign.

Tiger Airways (Singapore):  Singapore’s largest low-cost airline in terms of passengers carried.  Tiger Airways’ cost structure is modeled after Europe’s Ryanair and includes carefully examining every aspect of the business to remove non-essential costs.  The airline charges for products and services, which they call “Tiger Add-On(s)” and includes charging for luggage based on weight, fees for preferred seats, and convenience fees for reservations and changes.  Tiger Airways also flies a single type of aircraft, a narrow body aircraft, and turns planes around fast.  They don’t spend money on advertising or marketing more than necessary and offer very few special promotions.  In an alliance with Thai Airways, Tiger Airways plans to launch a new low-cost carrier, Thai Tiger Airways, which will begin service in Thailand in 2011.  The new airline targets the domestic market, which has a huge potential for growth–only six million out of 65 million Thais have ever been on an airplane.

Spring Airlines (China):  China’s first low cost airline and based in Shanghai.  The airline began service in 2005 and flies a single type of aircraft to routes within mainland China.  Spring Airlines only sells tickets online and offers no complimentary food onboard.  Its first international route will be to Ibaraki Airport in Japan, followed by new routes to Korea and other Southeast Asian countries.  Thanks to dramatic growth in China, Spring Airlines has been profitable for the past five years and is looking to expand its fleet.

The industry is growing at an incredible rate and changing not only the industry itself, but also the lives of the people and the countries they service.  How will this effect business in Asia’s developed and emerging nations as well as global marketing and branding?  This is something we will keep watching.


Brand marketing in emerging markets – China/P&G

With stagnant markets and shrinking sales at home, companies around the world have turned to selling their products overseas, particularly in emerging markets such as China and India.  Nearly everyday we hear of Western corporations and their businesses in these countries. In business today having an emerging market strategy has become a necessity.

Our last blog post touched on P&G’s activities in India and today we take a look at China.  Be sure to check back for more posts and reflections on business in emerging markets.


Western companies have been in the Chinese market for decades, and for many, China is now one of their most important markets.  However, over the last several years there has been increasing pressure from the Chinese government and growing hostility toward multinational corporations (i.e. Google, Rio Tinto, etc.).  Doing business in China has become more difficult for US and European companies with increasing restrictions, limits on imports and exports, and protectionist policies and “buy Chinese” measures.  The growing friction presents problems not only for foreign businesses, but also foreign governments and the Chinese themselves.  The Chinese obviously have their own point of view on this topic and it is important for us to understand it.  (When conducting business in another country it is essential to understand the local point of view and ideas, even those that are difficult or different.)  Global marketing today has moved beyond a simple chess-like strategy.  Today, it is about pursuing each other’s profits and each country’s own elements have been mixed into a hybrid.  This means that understanding and respecting each other is of the utmost importance.

Setbacks and problems aside, China still remains a huge market (and the world’s second largest economy) with massive opportunities.  But simply going overseas and selling your product doesn’t necessarily mean success.

P&G in China

One company that has been successful in China is US consumer goods giant, Proctor & Gamble.  P&G has a 20% market share in China and is top in most of the categories in which it competes.  An interesting example is P&G’s disposable diaper business.  P&G failed when they first tried to launch disposable diapers in China over a decade ago because there was simply no market for the product.  Not only did P&G have to convince Chinese mothers that their product was the best, but they also had to persuade them that diapers (and disposable ones) were even necessary.  Simply selling a lower-quality, cheaper version of the Western product didn’t work.  (Side note: apparently due to China’s one-child policy, parents have a strong love for their only children, which translates into a strong desire to provide them with the best, including the best products.)

How was P&G successful?  A huge key to the company’s success was creating a solid understanding of the Chinese consumer’s habits by conducting thorough R&D and fieldwork to learn about the culture and mothers and their babies.   After coming up with a product that fit the market, P&G  launched the diapers with a huge marketing campaign in 2007.  Today, P&G’s Pampers is the top selling brand in a category that barely existed before P&G’s launch in China.

P&G is well-known for its research and ability to understand markets.  They don’t simply localize their famous Western brands, but rather take a product and understand the culture in which they will sell that product.  In some cases, they work to change consumer behavior to create a market for the product, as they did with diapers.

Another interesting example is P&G’s focus on the countryside/rural Chinese market, which is a huge opportunity, but can be extremely complicated as it is made up of mostly first-time buyers with low incomes.  Rural areas in China are also incredibly diverse and most customers buy products only from tiny mom and pop stores.  In order to understand these potential buyers, P&G sent researchers into villages and stayed with families to really understand the cultures, buying habits and traditions.  While price is obviously important, developing products that match with the culture and tradition is the key.  (Example: Urban Chinese consumers purchase more expensive and exotic flavored toothpaste, but rural Chinese prefer the cheaper, Crest Salt White version because traditionally they believe that salt whitens teeth.)  P&G’s thorough research and development means more profits and often more brand loyalty, as well as increased choice for customers.

Today there is more competition from both foreign and domestic brands in China.  In order for foreign companies like P&G to remain competitive and successful, it is vital to focus beyond simply the language or numbers and data and to look at how consumers really live and how a product or service fits into the daily lives and culture.

Brand marketing in emerging markets – India/P&G

The number of companies introducing products and services into emerging markets is increasing.  Emerging markets are seen as lucrative spots and with enormous populations in China, India and Indonesia, success means huge profits.

Established fast moving consumer goods company, P&G (Proctor & Gamble) has been in the Indian market for over 20 years.  It is now one of the leading companies to have introduced dozens of products that are indispensable to the daily lives of Indian consumers.

Although it is unclear when they first began to “sew seeds” in the market, P&G began to penetrate the Indian market between 1984 and 1985.  At the time, their products were relatively high priced and they were only able to hold onto a small share of the market.  From around 2000 the company focused on lowering the prices of detergents like Tide and Ariel and introduced new categories and new products.  The major product was feminine product, Whisper.  While they are learning from their failures, P&G’s continued battle is admirable.*Note: The detergent brand Tide was developed for the North American market and Ariel for the European market.  The Tide brand is the focus for the Indian market, however Ariel is also sold in the country.  There are differences in shapes and features.

P&G creates brands.  For each brand, P&G develops a category that fits with a country and region’s characteristics as well as the preferences and uses of the consumer.  In other words, they are very good at making sub brands.  In the case of the Japanese market, the number of brands often ends up increasing because there is a belief that brands themselves should be renewed.  Brands disappear from store shelves in a flash and new ones appear.  For the Japanese, this is not really a problem.

However, P&G’s market size is the entire world.  For a global brand strategy, the fewer the number of brands (categories), the easier to it is to manage.  And, the company hopes to hear people say, “The detergent I use is Ariel!” across country borders.  In order to hear this, management is P&G-like.  It’s not an exaggeration to say that P&G and its product brands are being “raised” by people around the world.

P&G’s competition in India is Unilever or Hindustan Unilever, a long established business of over 75 years.  With advertising expenditures of close to 100 million dollars, Unilever has not lost its grip on the Indian market.  However, it’s price battle with P&G may mean Unilever is loosing some of its hold on the market.  This is a topic that is heating up in the American and European media.

P&G faces more than just a market share battle with competitors.  A Forbes article in April pointed out that in order for P&G to succeed in emerging markets it will need to increase the number of senior positions from the home countries and markets.  Compared with rival Unilever, P&G lacks diversity.

Also, as with other companies, P&G targets the middle-income group with a large number of brands and products.  Whether price battles with competitors were intended or not, there is movement toward expanding into the low-income group, an important market from now on.  P&G brand products are still expensive for the lower-income consumers who avoid them.