Asia-Pacific LCCs are bigger but not necessarily better

December 1st 2015

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In the past decade, they have exploded across the Asia-Pacific, but their growth has taken a pause in 2015, in a year that has been the toughest yet for the region’s low-cost carriers. Read More » With more than 50 budget airlines flying in the region, fierce competition and rapid fleet expansion have finally caught up with them. They are reporting shrinking yields that is forcing a reassessment of the estimated 1,000 plus new single aisle aircraft they have ordered. Several LCCs have cancelled or deferred deliveries.

Asia’s largest no-frills airline group, AirAsia, is a typical example of the problems facing the sector. In November it reported a third quarter (ended September 30) net loss of $94 million. The results were a combination of factors but included foreign exchange losses and a write-down of its Indonesia AirAsia affiliate, which alone lost $19.9 million.

Another subsidiary, Philippines AirAsia, had an after tax loss of $29.1 million and the long-haul arm, AirAsia X, continued its losing streak with a deficit of $68 million for the period, its eighth consecutive quarterly loss. While group chief executive, Tony Fernandes, maintains there will be a turnaround, it is a worrying trend.

Qantas’ stable of LCCs – Jetstar International, Jetstar Asia in Singapore, Jetstar Pacific in Vietnam and Jetstar Japan – have had the brakes put on their growth as they search for profits in a crowded market place.

Poorly performing Singapore-based Tigerair also remains in recovery mode. Part-owner Singapore Airlines (SIA) wants to take full control of the carrier so it can better co-ordinate Tigerair operations with SIA’s wholly-owned medium to long-haul subsidiary, Scoot. It hopes more integrated network planning between the two carriers will make some money for investors.

But there is one development in the sector that has been a surprise – the expansion of long-haul LCCs. Despite its loss-making record, AirAsia X has talked about returning to Europe, which it abandoned during the Global Financial Crisis. In the Philippines, Cebu Pacific has announced flights to Guam, its first U.S. destination, and said it plans to add Honolulu, a potential stepping stone to the U.S. Mainland.

AirAsia has talked about Hawaii, but it will be a one stop service through Japan because of the distance. Scoot has cautiously suggested it would consider the U.S. using its fleet of B787 Dreamliners.

Despite the financial pressures brought on by present market conditions and continuing over-capacity, Asia-Pacific LCCs have become an integral part of the region’s aviation landscape. There is little sign that any of the LLCs are about to close their doors.

They dominate domestic traffic in several countries, including Thailand, Korea and the Philippines. China has Spring Airlines, 9 Air, China United Airlines, Ruili Airlines and Lucky Air. Thailand has Nok Air, NokScoot, Thai AirAsia, Thai AirAsia X, Thai Lion Air and Thai Vietjet Air. In South Korea, there are five LCCs: Eastar Jet, Jeju Air, Jin Air, T’way Airlines and Air Busan, with two more awaiting approval to launch: AirAsia Korea and Air Seoul.

In Japan, LCC airlines now include Spring Airlines Japan, Jetstar Japan, Vanilla Air and Peach and the soon to be launched AirAsia Japan, Mark Two.