Monday, July 27, 2009

More air travellers shifting from economy to low-cost

Jimmy Lim Chin Hwa abandoned Singapore Airlines Ltd's coach class for budget carrier Jetstar Asia Airways Pte two years ago to save 65 per cent on the cost of flying. He's noticed more people following suit.

"Normally, the flights are half full but since the start of the year it's packed," said Lim, 50, a marketing manager at Unicane Furniture Pte, waiting to board a flight at Singapore's Changi airport to Indonesia. "The bigger airlines are just too expensive."

Losing economy-class customers like Lim adds to pressure on carriers such as Singapore Air, forecast to post its worst annual profit in two decades, as travel dwindles amid the global recession. Jetstar Asia, AirAsia Bhd and other regional discount carriers meanwhile are adding more planes after cut-rate fares helped double their market share since 2005.

"Low-cost carriers are making it so affordable now," said Tan Teng Boo, who oversees US$200 million (US$1 = RM3.54) as managing director at Kuala Lumpur-based iCapital Global Fund. "The full-fare carriers will have to sit down and think about reinventing themselves."

The potential for cheap flights in Asia, where half the world's population lives, has also attracted investments from billionaire Wilbur Ross in an Indian discount airline, and Virgin Group's Richard Branson in a Malaysian no-frills carrier.

Asia's budget carriers control about 10 per cent of the market by seat capacity currently, according to the International Air Transport Association, or IATA. At least 20 low-fare airlines have started in the continent since 2000.

"During a recession, we also prosper because people are coming down market," said Datuk Seri Tony Fernandes, chief executive officer of AirAsia, Southeast Asia's biggest budget airline. "We are no different from McDonald's or Wal-Mart. Our goal is to fill up our planes."

AirAsia filled 80 per cent of its available seats on average in June, the best ever for that month, Fernandes said. Jetstar Asia, partly owned by Australia's Qantas Airways Ltd, flew 15 per cent more people in the first six months compared with the year earlier period.

In contrast, Singapore Air's passenger numbers slumped 19 per cent in June, the eighth consecutive drop. Thai Airways International Pcl's numbers declined 18 per cent last month, the 12th straight decline.

Singapore Air, the world's second-largest airline by market value, Malaysian Airline System Bhd, and Thai Air, are altering networks and cutting capacity. Singapore Air is parking planes, lowering pay, and removing 11 per cent of capacity in the year ending in March. The airline said last week it will reduce seats on some planes by 14 per cent as part of a cabin upgrade.

"We are morphing our marketing," Singapore Air chief executive officer Chew Choon Seng said on July 1. "If at times like these, people want more value for money, then we adapt our marketing accordingly."

The carrier may post a full-year profit of S$627 million (S$1 = RM2.45) in the year ending in March, the worst in at least two decades, according to the median estimate in a Bloomberg survey. The airline reported its first operating loss in six years in the quarter ended March.

Performance at Thai Air was "pretty bad in the last two months," executive vice president Pandit Chanapai said July 16.

PT Lion Mentari Airlines, Indonesia's biggest low-fare carrier, is buying 178 Boeing Co planes, the highest number for the aircraft maker in Asia over the last five years. Malaysia's AirAsia, with a tagline "Now Everyone can Fly," has ordered 175 aircraft from Airbus SAS, the largest client for single-aisle models in the region for the world's biggest planemaker.

AirAsia last month lowered ticket prices by scrapping administrative charges. Tiger Airways Pte, a no-frills carrier partly owned by Singapore Air, is selling tickets at 9 Singapore cents, excluding taxes, to more than a dozen destinations.

Source : Business Times
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