The surge of low-cost carriers in Asia

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Five years ago, there were only a few low-cost carriers (LCCs) operating in Asia. Now there are more than 50. With demand for more affordable air travel on the rise, and some government restrictions loosening, Asia is quickly catching up on a three-year trend in the U.S. and Europe. And the LCC influx looks set to keep growing over the next few years as the ASEAN Open Skies agreement takes full effect in 2015.

Just like their counterparts in other regions, Asian LCCs originally focused on leisure traffic at the lowest possible fares. But they are slowly starting to target corporate travel. The good news for the business traveler is that LCCs represent a solid alternative to traditional carriers, especially on shorter flights.

How is the LCC surge affecting individual Asian markets?

Indonesia, which already has the world’s fifth-largest domestic air market, has seen a number of new airlines enter the arena in recent years. Lion Air has ordered more than 600 planes by 2026, making it one of the largest aircraft buyers for both Boeing and Airbus.

Malaysiais home to one of Asia’s largest and most successful low-cost carriers, AirAsia, which also has subsidiary airlines in Thailand, Indonesia, Japan and the Philippines. AirAsia already has 60% domestic market share and 40% international market share in Malaysia, and is gearing up to enter local markets in India, Vietnam and other Asian countries.

Another booming market for both domestic and international LCCs is Thailand. Most of the LCCs in the region already serve the country’s main airports; they’re joined by several Thailand-based LCCs, including Thai Airways’ Thai Smile, AirAsia Thailand and Nok Air.

Singaporeis home to several LCCs: Tiger Airways, Jetstar Asia and Scoot. While Tiger Airways and Jetstar are more traditional budget airlines with regional coverage, Scoot is new to the mix and serves as a medium to long-haul carrier. Both Tiger and Scoot are owned by regional powerhouse Singapore Airlines, whereas Jetstar’s main shareholder is Australia’s Qantas.

The Philippines’ Cebu Pacific is one of the most well established and recognized budget carriers in Asia. From its home country hubs it now flies to more than 50 destinations in Asia Pacific, and plans to start long-haul flights later this year to Dubai, Kuwait, Australia, the U.S. and Europe.

Indiahas seen an influx of low-cost airlines over the past few years. More than 60% of India’s domestic markets are now served by LCCs. Air Asia has recently decided to hop on the bandwagon with a new carrier based in Chennai.

A late-comer to the LCC scene, South Korea now has at least five airlines operating both domestic and regional low-cost flights. On some main domestic routes (such as Seoul – Jeju), the LCC market share is already well over 50%. International routes are still in their infancy but are expecting double-digit growth in the coming years.

In 2012 three new low cost airlines were established in Japan, the world’s third largest aviation market. All three are subsidiaries of Japan Airline (JAL) and All Nippon Airways (ANA). Operating at half of the costs of full-service airlines, these carriers are changing the landscape of Japan’s traditionally expensive domestic and regional air travel market.

Heavily regulated China has only seen two real LCCs emerge so far: Spring Airlines and Juneyao Airlines. The government continues to keep a tight rein on domestic LCC growth to protect the national airlines from too much competition. However, the regional market has more than ten LCCs operating to China. This year will see the arrival of the first LCC to callHong Kong home since 2008, with the launch of China Eastern Airlines and Qantas Group’s Jetstar Hong Kong.

What role should LCCs play in a corporate travel program?

Unlike their counterparts in the U.S. and Europe, Asian LCCs have much longer average flight distances. Many of the carriers in Asia are also subsidiaries of national airlines and often offer hybrid service concepts with limited frills like meals, frequent flyer points, transfers or code-sharing with other airlines.

Low-cost carriers represent a solid alternative for business travelers within Asia. You can find business class seats on LCCs like Scoot and Jetstar at similar prices for non-restricted economy class tickets on traditional airlines. And though you may miss out on the latest in-flight entertainment systems and full-flat beds, they still offer plenty of leg room and a host of other benefits for business travelers.   

However, there are some constraints that should be noted:

·         LCCs are not necessarily cheaper than traditional airlines, especially if you don’t book flights well in advance. In China, LCC fares can be just as expensive as those of traditional carriers, particularly in the high season.

·         Some of these airlines are not on the GDS, so reservations must be made directly through their websites. This booking process is much less efficient as the travel agent must go into the LCC’s website, source the fare and as they await authorization, the fare may change. Data tracking for security purposes must then be manually input to be consolidated. Furthermore, in APAC, payment challenges arise if the traveller does not have their own credit card.

·         Several of these airlines struggle with safety issues. Just last week, a brand new Lion Air 737 missed the runway and crashed into the sea while trying to land in Bali.  This was Lion Air’s sixth crash since 2002. Indonesia now only has two airlines that are approved to fly in European airspace.

·         With new LCCs popping up almost overnight in Asia, we recommend you stick with airlines that are well established in the marketplace.

When it comes right down to it, deciding whether or not to incorporate APAC LCCs in your program mix means asking yourself the same questions as with any other supplier: Does their offer support your company’s travel patterns, service, safety, and policy requirements and program goals?

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