News Backgrounder
Hawaii attracts Asia’s route hungry LCCs
Asia’s long-haul budget carriers are setting their sights on the sun and sand island of Hawaii.
December 1st 2015
Let them come. We’re more than capable of handling the competition. That’s the message from Hawaiian Airlines chief executive, Mark Dunkerley, as he faces a competitive crop of Asian low-cost carriers (LCC) planning services to his Honolulu hub. Read More »
The leaders of the pack are Malaysia’s AirAsia X, Cebu Pacific from the Philippines and Jin Air from South Korea and Nokscoot, a joint venture between Thai LCC Nok Air and Singapore’s budget carrier Scoot. Hawaii is on its radar flying Scoot’s B787s, but not for another two years.
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| 'Honolulu is a destination I believe Thai people will love' |
| Patee Sarasin Nok Air boss |
Until now, LCCs have been thin on the ground in Hawaii. Australia’s Jetstar is operating established and profitable services from Eastern Australia and Virgin America recently started flying from the U.S. mainland to Honolulu.
Korean Air low-cost subsidiary, Jin Air, is the first Asian LCC to compete with Hawaiian with its launch of five flights a week between Seoul-Incheon and Honolulu using B777-200ERs.
The Philippines largest budget carrier, Cebu Pacific, plans to begin non-stop Manila-Honolulu services early next year with A330s and Malaysia-controlled AirAsia X, also with A330s, will fly on from Osaka in Japan, a city Hawaiian Airlines serves. Both are awaiting approvals to fly the route.
It is a significant development for the region’s long-haul LCCs, which have largely focused on routes of around six hours within Asia. Hawaii is a 9.5 hour flight from Manila and more than 15 hours from Kuala Lumpur.
Analysts see the new routes targeting Hawaii, a popular leisure destination, as an initial step in the LCCs’ longer term plans to fly onto the U.S. Mainland from the island.
Cebu Pacific regards Honolulu as a major opportunity. The LCC will compete on the route with Philippine Airlines. Hawaiian Airlines dropped their Manila-Honolulu services in 2013.
“We think it’s an attractive market because there are a lot of Filipinos in Hawaii and possibly there’s a lot of connecting traffic from Honolulu to the West Coast,” said Cebu Air president and chief executive, Lance Gokongwei.
AirAsia X applied to the U.S. Department of Transportation for approval for a four times a week service between Kuala Lumpur and Honolulu, via Osaka Kansai, last April. It intends to apply for the Fifth Freedom traffic rights available to Malaysian carriers between Japan and the U.S.
Malaysia Airlines, now MAB, used some of the rights until April 2014 when it terminated its four flights a week service to the Los Angeles via Tokyo Narita.
AirAsia X, which operates 377-seat A330-300s, will account for about 18% of scheduled seat capacity between Osaka and Honolulu when it enters the market. Delta Air Lines leads the market with a 39% share, operating B747-400s. Japan Airlines, with B777-200s, has around 32% while Hawaiian Airlines, with A330-200s, accounts for the remaining 29%.
AirAsia Group chief executive, Tony Fernandes, recently told consultancy, CAPA, thatAirAsia X will provide one-stop connections to Honolulu from several domestic destinations using AirAsia Japan.
Other AirAsia long and short-haul joint ventures around the region, including Thailand and Indonesia, could feed Hawaii-bound traffic through an Osaka “hub”, Fernandes said. The new U.S. route is part of the unfolding “connecting the dots” strategy that is integral to the pan-Asian AirAsia model. “This model, in many ways, imitates the traditional full service connectivity operation, but with inbuilt economies”, CAPA said.
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| 'The Hawaii brand, which has been so resilient, is a great draw for people from other cultures. We have no doubt it will appeal to Chinese visitors' |
| Peter Ingram Hawaiian Airlines executive vice president and chief commercial officer |
The consultancy said Hawaii would be an initial testing ground for Asia’s long-haul LCCs, “but mainland U.S. destinations are possible over the medium to long-term as new-generation wide-body aircraft are placed into service”.
Speaking at the Boyd Group International Aviation Forecast Summit in Las Vegas in September, Nok Air chief executive, Patee Sarasin, said NokScoot is eyeing services to Honolulu, with plans to operate the flights with shareholder Scoot’s B787s. Scoot has an all-B787 fleet of seven with 13 more on order.
“Honolulu is a destination I believe Thai people would love,” he said. “Honoulu is an 11-hour direct flight from Bangkok.” He said NokScoot could operate its B777-200s to Hawaii, but would prefer to deploy Scoot’s 787s from its base at Bangkok’s Don Mueang airport.
Sarasin also raised the possibility of partnering with Hawaiian Airlines. “We are going to talk with them. They can take passengers from us on to Los Angeles.”
Hawaiian Airlines has no direct services to Southeast Asia because it does not have aircraft capable of operating non-stop to the region. Its longest route is Honolulu-Beijing, a 13 hour flight. All of its services into the region are to North Asia, including Osaka, Tokyo and Sendai in Japan and Seoul in Korea. Beijing was launched last year. It has terminated its Taipei route, but maintains a code share with China Airlines to Honolulu. It also code shares with All Nippon Airways, Air China, Korean Air and Virgin Australia.
None of this phases Hawaiian’s Dunkerley, who said the carrier has increased its market share in Australia. “We have not chased the low headline fare, but have focused on educating the travelling consumer on value for money,” he said.
“The competition from Jetstar forced us to rethink our product and our price point. We discovered that people coming to Hawaii on vacation aren’t looking necessarily for the cheapest fare they can find.
“They have a very keen appreciation of value for money. There are things they value on a long-haul leisure holiday and, in general, they are things Hawaiian provides. We serve meals and a couple of glasses of wine. You can bring your bags onboard and we have blankets to keep you warm. All the basic things, frankly, that people expect on a flight of that length.
“They are provided as a matter of course on Hawaiian whereas our LCC competitors charge for each of these things.”
Dunkerley said the priority is to be the best value carrier as opposed to being the best priced. “Consumers are learning the difference between an all-in price and what it offers compared with an item by item price that all adds up.
“Only time will tell about the impact of the new Asian LLC competitors on his airline, Dunkerley said. “We are confident that our combination of product and costs work very well in this particular market.
“We already compete against LCCs in the form of Jetstar and Australia has been a very successful market for us. So, projecting into our future, we believe in our ability to be competitive whether it be with full-cost legacy airlines or LCCs.”
Hawaiian’s latest Asian route, to Beijing, launched 18 months ago, appeared to be performing well, despite the slowing Chinese economy. Peter Ingram, the airline’s executive vice president and chief commercial officer, said: “We are really happy with the way the market is growing for us. China’s growth is slowing a little bit, but we should note the government has just announced annual GDP growth of 6.9% for the next five years.
“Disappointing economic expansion in China is considered rip-roaring growth in the rest of the world. We see an outbound travel market that has nowhere to go but up in China. Over time China’s GDP will surpass North America.
“It has an enormous population and as the middle class grows demand for leisure and travel is going to grow. The Hawaii brand, which has been so resilient, is a great draw for people from other cultures. We have no doubt it will appeal to Chinese visitors.”
