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Asia's no-frills fliers
proliferate
By David Fullbrook
BANGKOK - Cheap airline tickets are expected to
fill Thai skies early next year, as no-frills carriers
using different strategies clash in a battle that will
either mark the coming of age for discount airlines in
Asia - or end in bankruptcy.
Bangkok-based
Orient Thai Airlines is racing to get its 1-2-GO up and
running before Malaysia's established discount carrier
AirAsia, partnered with the Thaksin family's Shin Corp,
enters the Thai market. Both expect to face a third
challenger - Thai Airways International.
AirAsia
chief executive officer Tony Fernandes and Udom
Tantiprasongchai, the managing director of Orient Thai
Airlines, feel certain that flying is within reach of
any Thai who can afford a motorbike. "There is
undoubtedly a great deal of potential market expansion -
on the scale of 30 percent plus on global examples of
entry by low-cost airlines," said Peter Harbison,
managing director of the think-tank Center for Asia
Pacific Aviation.
That is a dramatic turn away
from decades of flight experience across Asia, where
patrician air carriers such as Cathay Pacific and
Singapore International Airlines have worked hard to
lure passengers with cutting-edge personal
entertainment, inflight Internet and attentive service
by charming crews. Southeast Asian governments,
particularly those of Thailand, Malaysia and Singapore,
have traditionally regarded their airline service as a
mark of prestige.
Recently, however, ING
Securities in Singapore predicted that low-cost Asian
airlines are in danger of cutting seriously into
conventional air-carrier profits, with Malaysian Airline
System Bhd and Thai Airways facing serious competition
from the low-budget carriers.
State-backed,
full-service carriers have been protected from
competition thus far by regulatory red tape. That is now
changing, and not just in Southeast Asia. India too is
slowly snipping away at regulations, giving booming
private carriers such as Air Sahara and Jet Airways more
opportunities to snatch passengers fed up with Air
India's and Indian Airlines' dire service. China is also
starting to open up, after last year's consolidation of
central-government carriers. Transfer of airports to
local governments is expected to precipitate more
flights and new private-sector airlines.
While
1-2-GO's systems are still being developed, Orient is
looking to steal a march on the competition. "One option
could be to run a simple shuttle in December, to
introduce the service and build up awareness while the
system is being developed, just as Jet Blue didn't roll
out all their services straight away," Udom said.
AirAsia's first services will be from Malaysia
to Bangkok and other major destinations. Domestic
services will follow. "There's a potential there. I
think Thailand's a great market, I think it's run by a
very pragmatic, pro-business government. If we didn't
look at it, we'd be silly," Fernandes said.
Orient is taking a different tactic from
AirAsia, a fairly standard off-the-shelf no-frills
operation, planning to sell seats at flat prices of
about 1,500 baht (US$38) one-way domestically. AirAsia's
prices rise as the departure date moves closer. "The key
to a low fares airline is revenue management - when do
you sell at $199? We've really fine-tuned it," says
Fernandes.
Despite AirAsia's success in
Malaysia, where it earned a profit of RM30 million ($7.5
million) in the year to June, talk of prices like these
has Atichart Athakravisunthorn, president of regional
carrier Air Andaman, worried.
"The normal fares
charged in Thailand are already equal to low fares in
Europe; how low can you go? If you lower fares to the
point where low-fare airlines can operate, there will
only be a few more travelers. The idea sounds good, but
if you look at the details, I don't think it will work."
Prices that low threaten to shatter the cozy
markets that have persisted until now. "[A] feature of
this new environment will be greater volatility,
especially as the new genre finds its true role, partly
constrained by regulatory controls. Consequently, we
shall also see market exit - ie collapses - in some
cases," Harbison says.
Udom believes flat
prices' simplicity will win through and suit the way
people travel. "Asian people, Thai people don't plan
domestic trips weeks in advance, usually just a few
days," he says. Some AirAsia seats will be cheaper than
Orient's, though, judging by ticket prices in Malaysia.
Udom is unruffled. "I have full confidence we will
survive."
Fernandes is unperturbed. "I believe
our fares can reach a big, big part of the population.
TG [Thai Airways], Orient Thai and all these others, can
they have consistently low fares to bust the market
open? I think that's what we can bring."
Orient
will not rely on the web to drive sales, unlike AirAsia.
"We are not looking at a total Internet solution like
Western airlines," says Udom.
A smart card
holding personal details and a digital photo,
functioning as a boarding pass, is to be used to pay for
services and build customer loyalty. Unlimited-travel
passes, similar to those commuters use on public
transport in some cities, are being considered.
AirAsia is sticking with its website, which
sells 65 percent of its tickets in Malaysia, and
mobile-phone messaging, accounting for 3 percent of
sales since launching two months ago.
"We've got
a very sophisticated distribution model we can roll out.
In Thailand, in a month, we've put in a call center,
we've got our Thai website. Scalability is much easier
for us now," says Fernandes.
And that may be
AirAsia's biggest advantage. All the hard, pioneering
work has been done in Malaysia. "It's a real art this
business, it really is. You just can't learn it
overnight, and there are not many people who can teach
you, either. Every market is different," Fernandes says.
If these systems work well in Thailand, the road
to Indonesia and beyond is wide open. By contrast,
Orient brings more than a decade's experience of keeping
costs caged while running charters and scheduled
services around Asia. That experience has influenced its
aircraft choice, drawing gasps among some observers and
causing Fernandes to shake his head.
Augmenting
its single-aisle 757s, of which six are now being
delivered, with another six penciled in by 2005, should
be six smaller Boeing MD-80s that will fly during slack
periods and fill the gaps when demand spikes. These
aircraft have become popular with Indonesian airlines
because they carry more passengers than Boeing's
venerable 737, the low-fare carriers' workhorse.
Orient will use Boeing 757-200s on domestic
routes during busy mornings and evenings, while flying
to big markets like China and Japan during the daytime
and overnight.
Both aircraft are larger and use
less fuel per seat, when carrying many passengers, than
the older 737s. "The 757 has at least 80 seats more than
the 737 classics, but on the fuel burn it's 1,000
kilograms less than the 737 per hour," Udom says. That
doesn't bother AirAsia, which will have 21 737s by June,
rising to 30 or 40 by 2006.
Like AirAsia, Orient
will earn commissions selling hotel rooms, renting cars
and providing other services. Space on aircraft
fuselages will be rented to advertisers too. "How you
maintain the service is by building other income," says
Udom.
Neither Fernandes nor Udom seems bothered
by Thai's plan to start a low-fare subsidiary next year.
"I think our strongest weapon against competition is our
ability to generate cash and generate profitability in
tough periods and being able to generate profit at a
very low fare," says Fernandes.
Thai's move is
surprising when its own domestic services have lost
money for years and other full-service carriers have
botched their own discount carriers. At the very least
it could cause conflicts within Thai, says Fernandes:
"The difficulty is when the low-cost carrier starts
competing with TG. That's when you start getting
issues."
Atichart sees only losers with three
carriers slugging it out. "We will see the disappearance
of services to many provincial airports. It might even
mean the demise of regional airlines out of Bangkok.
After one or two years I think the low-cost airlines
will collapse too. To work, it has to be regional. We
don't have open skies in Asia yet."
"Yet" being
the operative word it seems, Harbison says: "The
pressures created by the low-cost near-hysteria in the
media, and the validity of the model itself on
point-to-point routes, will undoubtedly accelerate the
process of regulatory reform. This includes multilateral
liberalization. Another accelerator will also be the
unilateral steps which some governments are now moving
towards - such as India, remarkably suggesting open
skies with ASEAN [Association of Southeast Asian
Nations] countries."
(Copyright 2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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