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.

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