|Airport workers unload passenger baggage from an AirAsia Bhd. airplane at the Low Cost Carrier Terminal in Kuala Lumpur, Malaysia, in February 2009.|
Jimmy Lim Chin Hwa abandoned Singapore Airlines Ltd.âs coach class for budget carrier Jetstar Asia Airways Pte two years ago to save 65 percent on the cost of flying. Heâs noticed more people following suit.
âNormally, the flights are half full but since the start of the year itâs packed,â said Lim, 50, a marketing manager at Unicane Furniture Pte, waiting to board a flight at Singaporeâs Changi airport to Indonesia. âThe bigger airlines are just too expensive.â
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.
âLow-cost carriers are making it so affordable now,â said Tan Teng Boo, who oversees $200 million as managing director at Kuala Lumpur-based iCapital Global Fund. âThe full-fare carriers will have to sit down and think about reinventing themselves.â
The potential for cheap flights in Asia, where half the worldâs population lives, has also attracted investments from billionaire Wilbur Ross in an Indian discount airline, and Virgin Groupâs Richard Branson in a Malaysian no-frills carrier.
Asiaâs budget carriers control about 10 percent 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.
âDuring a recession, we also prosper because people are coming down market,â said Tony Fernandes, chief executive officer of AirAsia, Southeast Asiaâs biggest budget airline. âWe are no different from McDonaldâs or Wal-Mart. Our goal is to fill up our planes.â
AirAsia filled 80 percent of its available seats on average in June, the best ever for that month, Fernandes said. Jetstar Asia, partly owned by Australiaâs Qantas Airways Ltd., flew 15 percent more people in the first six months compared with the year earlier period.
In contrast, Singapore Airâs passenger numbers slumped 19 percent in June, the eighth consecutive drop. Thai Airways International Pclâs numbers declined 18 percent last month, the 12th straight decline.
Singapore Air, the worldâs 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 percent of capacity in the year ending in March. The airline said last week it will reduce seats on some planes by 14 percent as part of a cabin upgrade.
âWe are morphing our marketing,â Singapore Air Chief Executive Officer Chew Choon Seng said on July 1. âIf at times like these, people want more value for money, then we adapt our marketing accordingly.â
The carrier may post a full-year profit of S$627 million ($435 million) in the year ending in March, the worst in at least two decades, according to the median estimate in a Bloomberg survey of 13 analysts. The airline reported its first operating loss in six years in the quarter ended March.
Performance at Thai Air was âpretty bad in the last two months,â Executive Vice President Pandit Chanapai said July 16.
PT Lion Mentari Airlines, Indonesiaâs biggest low-fare carrier, is buying 178 Boeing Co. planes, the highest number for the aircraft maker in Asia over the last five years. Malaysiaâs AirAsia, with a tagline âNow Everyone can Fly,â has ordered 175 aircraft from Airbus SAS, the largest client for single- aisle models in the region for the worldâs 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.
With Southeast Asian economies facing their worst economic slowdown since the region was hit by a financial crisis a decade ago, more and more companies are taking up such deals.
Singapore-based Jetstar Asia has almost 400 corporate clients now, compared with 300 at the start of the year, said Chief Executive Officer Chong Phit Lian.
Legacy carriers arenât giving up. Malaysian Air started a âGlobal Low Faresâ campaign in June to boost ticket sales after posting its first quarterly loss in more than two years. Singapore Air introduced promotional fares after seeing a decline in demand across all its cabin classes, said Nicholas Ionides, a spokesman for Singapore Air.
Eating their business
Singapore Air was little changed at S$13.38 at the close of trading in the city-state and Malaysian Air gained 4.6 percent to 3.18 ringgit. AirAsia rose 0.8 percent to 1.30 ringgit.
âBudget carriers are simply eating into their business,â said Jim Eckes, managing director of industry adviser Indoswiss Aviation. âThatâs why full-service airlines are fighting back with discounts.â
The cuts will need to be deep to convince Lim, the furniture executive, to return. He flies at least 10 times a year to Surabaya, Indonesia, and pays on average S$176 for a return ticket, compared with S$500 on SilkAir, Singaporeâs regional unit.
âFlying budget is just so much cheaper,â said Lim. âI donât think the bigger airlines can match the prices offered by low-cost carriers.â Source: Bloomberg