According to the Centre for Asia Pacific Aviation (CAPA), the low-cost carriers’ share of the Southeast Asia region aviation market has sky-rocketed from almost nothing to 58 per cent in the last 10 years. In Europe however, the budget airlines account for only about 40 per cent despite being in the ‘fly cheap’ market way longer than Asia.
The reason for concern? There are more planes on order than in existing fleets.
For the year 2014, and additional 12 low-cost airlines might soon join the 47-strong flying flock in the Asia-Pacific region.
It was also recently reported that Beijing is planning to develop a new airport for a cool $14 billion that is expected to open in 2018.
In Southeast Asia, there has been an accelerated growth especially in the large archipelagic regions such as Indonesia and the Philippines where flying is the preferred mode of transportation. Out of the world’s 15 busiest low-cost international routes, nine of them belong to Southeast Asia.
Despite being ahead of the growth demand in Southeast Asia and generating long-haul profits, the competition from other budget airlines are beginning to feel the pressure from declining profits on short-haul routes.
Recently, Tigerair announced a loss of $177m for the year until March up from $36m last year. Most of its national affiliates in Indonesia and Singapore have not been spared a similar fate. As a result, the company is grounding planes and cancelling orders. AirAsia has deferred new plane deliveries and are instead concentrating on cutting costs. Jetstar Asia has also suspended all of their growth plans until market conditions improve significantly.
Most of these airlines blame the industry’s overcapacity for the bulk of their problems and difficulties. Also, another problem lies in the fact that their carrier costs are as not low as they have expected. The expensive nature of Southeast Asia’s sleek and sophisticated airports running at full capacity are overwhelmed by millions of unpredictable passengers and new landing slots often have difficulty given space allocation unlike Europe with smaller, cheaper and idle airports.
On a brighter prospect, the saturated market still has plenty of traction to grow and packed with promising potential especially when two new budget friendly carriers, NokScoot and AirAsia X offering medium to long haul flights are planning to take off this year. Scoot and Cebu Pacific have also been exploring ways to push full-service trips on low-cost and long-haul flights.
It’ll definitely be interesting to see how the low-cost airlines in the Asia Pacific region combat this congested issue especially when margins are tighter now than ever before especially when it comes to upping their service delivery within a constrained budget.
Let us know your thoughts on how ‘flying cheap’ can eventually find its way back up in the skies away from disarray.