AirAsia Bhd and Qantas Airways Ltd are challenging Singapore Airlines Ltd and other full-service carriers with a low-fare, long-haul business model that has previously failed.
Qantas’s Jetstar unit will add budget long-haul flights from Singapore later this year. The carrier cuts costs by renting movies to passengers and using lightweight equipment to pare fuel usage. AirAsia X, which flew more than 1 million passengers in 2009, squeezes 35% more seats onto its planes than full-service carriers to pare expenses.
The two carriers also have support from existing airlines, with AirAsia X able to access flights to about 70 cities from its Kuala Lumpur hub through cooperation with AirAsia, Asia’s largest budget carrier. These ties may help the long-haul carriers avoid the fate of stand-alones Oasis Hong Kong Airlines Ltd and London-based Zoom Airlines, which both folded in 2008.
“Long haul, low cost is transforming the whole aviation landscape in Asia,” said K. Ajith, an analyst at UOB-Kay Hian Research in Singapore. “Budget carriers may be a force to reckon with in the future because if they have a strong network and are viable, they can potentially lure passengers from established carriers.”
Long-haul discount airlines differ from Southwest Airlines Co and Ryanair Holdings Plc because they offer flights of more than five hours and have premium-class seats. AirAsia X, part-owned by AirAsia, flies twin-aisle Airbus SAS planes to London and Australia, and it’s planning services to Japan and South Korea. Jetstar intends to begin Singapore-Melbourne flights in December followed by services to Auckland in March. It’s also planning flights to European and Asian destinations.
“There seems to be a market for long-haul discount travel if prices are low enough,” said Sean Fenton, who helps manage US$740mil at Tribeca Investment Partners in Sydney. “It’s a threat to the incumbent carriers.”
AirAsia X charges from about RM1,286 for a flight from Kuala Lumpur to Stansted Airport, 12km outside of central London. An economy ticket on Malaysian Airline System Bhd (MAS), the nation’s largest carrier, to Heathrow Airport costs from about RM2,104. Singapore Airlines charges from about S$1,486 (RM3,429) for a Singapore-Heathrow coach-class ticket.
Singapore Airlines serves “different market segments with different service propositions,” Nicholas Ionides, a spokesman, said in an e-mail reply to Bloomberg questions.
MAS doesn’t intend to compete directly with the lowest fares rivals are offering to safeguard margins, chief executive officer Tengku Azmil Zahruddin said in an e-mail. The airline was targeting customers who didn’t make decisions based on price alone, he said.
AirAsia X, which last year had its first annual profit since starting flights in 2007, had gained from AirAsia’s feeder traffic, said chief executive officer Azran Osman Rani. Oasis Hong Kong, which flew to London and Vancouver, and trans-atlantic carrier Zoom, didn’t have similar partners.
Relying on a point-to-point market “will be a real killer because there won’t be enough people flying every day,” Azran said. “That’s why the Oasis of the world really struggled.”
Jetstar, which operates domestic flights within Australia and services to Japan, has code-shares with Qantas and a partnership with Air France-KLM Group, Europe’s largest carrier.
AirAsia X cuts costs by using fewer attendants per flight than full-service carriers because it only loads and serves hot meals that customers have ordered, Azran said. That saves the carrier as much as US$100 per passenger, he said. Jetstar also formed a venture with AirAsia in January aimed at lowering costs for spare parts and ground-handling services.
AirAsia X’s costs were 2.8 cents per available seat kilometer last year, Azran said. Jetstar had costs of 6.8 Australian cents (5.7 cents) in the six months ended December, said chief executive officer Bruce Buchanan. The carrier made twice as much profit as the Qantas mainline business in that period.
Costs at Singapore Airlines, including premium and economy cabins, averaged 8.7 Singapore cents (6.2 cents) last year, according to Bloomberg calculations on figures from the carrier.
Jetstar plans to boost its fleet to about 100 aircraft by 2015 from 65 as of June. AirAsia X aims to increase its twin-aisle fleet to 20 planes from eight over the same period, as it strives to more than triple sales.
Including short-haul routes, budget carriers may account for 30% of Asia-Pacific capacity by 2015 from 20% now, said Derek Sadubin, chief operating officer at the Sydney-based Centre for Asia Pacific Aviation.
Singapore Airlines may be shielded from budget competition by its reliance on premium passengers, who account for about 40% of revenue, said Ng Sem Guan, an analyst at OSK Research Sdn in Kuala Lumpur. “There’s always demand for luxury things such as Mercedes Benz,” he said. Singapore Airlines is “a different animal” from low-cost carriers.”
Travelers now flying economy-class with full-service airlines may also be reluctant to give up frills just for a cheaper ticket, said Rohan Suppiah, an analyst at Kim Eng Securities Pte in Singapore. “Do you really want to sit for hours in a budget configuration?” he said. “This model will probably only appeal to customers who are very price-sensitive.”
Zoom stopped flying in August 2008 about a year after it began London-New York flights, crippled by competition and rising fuel costs. Oasis Hong Kong, which halted services after 17 months of flying, entered liquidation in June 2008 with about a HK$1bil of debts.
Stephen Miller, who was Oasis’s chief executive officer, said there was “great potential in Asia” for low-cost long-haul because of the high costs at full-service carriers.
“But it’s a tough business until you get a name, a certain percentage of the market and a critical mass of aircraft,” he said. — Bloomberg
Source : STAR
[tags : malaysiahotelnews hotels malaysia resorts news travel tourism travel tourism news]