Could budget airlines topple Asia's legacy carriers?

Could budget airlines topple Asia's legacy carriers?

Low-cost airlines in Asia are only recently getting off the ground, but they'll likely revolutionize travel in the region
peach aviation
Launched in March 2012, Peach Aviation is Japan's first low-cost carrier.

Traveling on budget airlines is a way of life in Europe and North America.

But in Asia, where low-cost carriers have only recently begun cutting into the market shares of established airlines, their impact on commercial aviation will likely far surpass anything seen in other markets.

Budget operators’ share of the Asian aviation market surged from zero to 25 percent over the past decade, according to the Centre for Asia Pacific Aviation, which estimates that there will be 50 budget airlines in the region by the end of 2012, with approximately 1,000 aircraft on order.

“Ten years ago, network airlines almost universally declared that low-cost carrier operations simply wouldn’t work in the Asia Pacific region, but today nearly all full-service airlines in the region have their own low-cost offshoots,” says Tom Ballantyne, Hong Kong-based chief correspondent for commercial aviation magazine Orient Aviation.

Peaches freshens up Japanese market

The latest quirkily named and brightly colored, low-cost carrier to debut in the region is Japan’s Peach Aviation -- a partnership between All Nippon Airways (ANA) and an investment group in Hong Kong -- which inaugurated service in March with a flight from Osaka to Nagasaki.

The launch of Peach reflects a shift in the aviation industry in Northeast Asia, where the emergence of low-cost carriers has lagged behind growth in Southeast Asia.  

“In the Asia Pacific region, budget carriers account for approximately 20 percent of the market, as they have not yet reached the level of Europe and the United States, where budget carriers account for 35 percent of the total market,” says Siva Govindasamy, Asia managing editor of Flightglobal Group, an aviation media company.

airasia AirAsia is one of the leading budget operators in the region. “The rapid growth is particularly notable in Southeast Asia, with Tiger Airways, Jetstar and Lion Air taking on incumbent legacy carriers in the short-haul routes, and less so in Northeast Asia.”

Peach is Japan’s first low-cost airline.

China, Asia’s fast growing aviation market, has no substantial budget carriers.

“When the Chinese low-cost carriers begin to emerge in larger numbers, the growth will be phenomenal,” predicts Ballantyne.

According to the International Air Transport Association (IATA), by 2015, 37 percent of all global air passengers will travel on routes to, from or within Asia Pacific, compared with 29 percent for Europe and North America. The IATA predicts that by 2015 approximately 877 million more people -- including 212 million from China alone -- will travel by air than in 2010.

“This means Asia Pacific will be driving global growth,” says Ballantyne.

Implications for full-service airlines

Full-service carriers in Europe and North America have been forced to adapt to the presence of budget airlines by making efforts to reclaim significant losses in market share, such as cutting prices and in-flight services.

In Asia, budget carriers are presenting similar challenges to legacy airlines.

“Budget carriers will only say they are creating new markets for people who haven’t had the opportunity to travel before, whether it was due to the cost of plane fare or the lack of certain direct links to and from areas that were not serviced by full-service carriers,” says Govindasamy.

Many full-service carriers have decided that the best way to keep from losing market share is to enter the low-cost market with subsidiary airlines.

“You’ll see full-service carriers withdrawing on some of their routes and giving them to their low-cost subsidiaries,” says Govindasamy.

Experts say the rapid rise of budget carriers doesn't necessarily mean major Asian airlines are in trouble.

“What the boom in budget travel has done is change the mindset of network carriers,” says Ballantyne.

“Even though they are full service airlines, they have all picked up practices from the budget operators. This is particularly evident in terms of ancillary revenue, where even full-service airlines have found ways to make more money by charging for extras, such as allowing passengers to pay more for a particular seat on the plane.”

From the consumer's point of view, the benefits of the changes in the industry are obvious. In addition to having the option of luxury and full-service travel, they have an increasingly large array of cheap fares and access to formerly underserved destinations in the region. 

"That [budget] opportunity is what millions of Asians emerging in the middle class want," says Ballantyne. 

Also on CNNGo: Qantas and China Eastern team up on new Hong Kong budget airline

Frances Cha is a Digital Producer at CNN Travel. 


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