Sunday, 8 April 2012

The Battle of Low-Cost Long Haul in Asia Pacific

With Singapore Airlines low-cost subsidiary-Scoot commencing their inaugural flight to Sydney on June, it looks like the battle of low-cost long haul travel will certainly intensify. Philippines largest carrier, Cebu Pacifc also having plans to operate long-haul routes in 2013 means that competition among these carriers will be more fierce. Currently, there are 2 airline group that are operating low-cost long haul route. One is Air Asia Group’s Air Asia X that is based in Kuala Lumpur, while the other is Qantas-backed Jetstar Airways which operates out of Australia and also Singapore(by the airlines sister company-Jetstar Asia).
Scoot will operate flights using ex-Singapore Airlines Boeing 777-200.

Scoot have announced that the airline will fly to Sydney, Australia and Gold Coast, Australia in June. While the airline recently announced that the airline will commence flights to Tianjin, China in August. The airline also announced that 2 more Chinese cities will be served by the end of 2012 that is not served by its parent company. It is likely to be Nanjing and Hangzhou. Nanjing has previously been served by SIA, but the service was terminated in 2009. The route is currently served by a daily Airbus 320 service by China Eastern Airlines. Nanjing, the 13th busiest airport in China is served by a number of foreign airlines including Lufthansa. While Hangzhou, the 9th busiest airport in China which is a popular tourist attraction and situated about 300km outside of Shanghai. The city is served by carriers as far as Ethiopian Airlines and KLM. The city is served by its Jetstar Asia’s four weekly flights.

So far, Scoot is a plan that is being executed well by SIA. They fly to new destinations that is not served by their parent company(with the exception of Sydney). The reason why Scoot is allowed to fly Sydney together with their parent company is that the Singapore-Sydney route has a large passenger volume and surprisingly it is the route between Singapore and Australia that has the less competition(if we compare with Perth, Melbourne and Brisbane). Only British Airways and Qantas Airways flew the route. The other routes to Perth, Brisbane and Melbourne are all served at least by 3 carriers(excluding SIA). The routes that is announced so far are all flown by Air Asia X. It seems like Scoot have hopefully to get a share of passenger that is flying with the KL-based carrier in these few years and create a new market without bringing negative effect to Singapore Airlines premium services.

Competition at Sydney will increase with Air Asia X, which has just started flying daily to Sydney on April 1. The airline has made a big changes to the carrier network by suspending flights to London, Paris, Mumbai and Dehli and most recently, Christchurch. The airline stated that the reason behind the decision is due to high operating cost which includes high fuel prices, high airport tax charges and the recently implemented taxes on airline operating in Europe. The carrier will put their focus on their core market in Australia, Korea, China and Japan which are flights around the 4-8 hours region. After the cancellation, Air Asia X announced that flights to Taipei, Perth and Tokyo will be increased. In short-term, it is unlikely that the airline will resume flights back to these suspended destination. With the share-swap deal with national carrier-Malaysia Airlines concluded last August, it is highly likely that both airline will cooperate in many areas including route network. In future, Air Asia X are expected to fly to cities in their core region, namely Adelaide, Nanjing, Xian, Wuhan, Fukuoka, Nagoya and also Jeddah which is the gateway for local Muslims to Mecca.

The airline currently operates 9 Airbus 330-300 with another 16 more to come. While the airline has also place orders for 3 Airbus 330-200 and 10 Airbus 350-900. Looking at the airlines order, there is a possibility that Air Asia X will operate flights back to Europe once these fuel-efficient aircraft arrives. Before the cancellation, Air Asia X operates European flights using the 4-engined Airbus 340-300 which has a high cost of operating. But as always, Air Asia X(and also Air Asia) has a slight advantage comparing to those carriers operating from Singapore. Airport taxes and landing fees are not that high comparing to those operating from Singapore and also air traffic are not that heavy if we compare to the likes of Jakarta, Bangkok and Singapore.
Air Asia X uses Airbus 330-300 aircraft to operates its low-cost long haul flights to its core-market of Australia, China, Korea and Japan.
The other carrier which flies regularly on medium and long-haul route is Qantas-owned Jetstar Group. The airline together with its Singapore sister company flies regularly on flights that is more than 4 hours. Recently, Jetstar started flying the Singapore-Melbourne and Singapore-Auckland route using Airbus 330-200 which can accomadate 310 passengers. Currently, Jetstar operates 11 Airbus 330-200 and has 15 orders of the Boeing 787-8 Dreamliner. Those Airbus will return to parent company Qantas once the new 787 starts to fly with Jetstar. At the moment, Jetstar International long-haul destinations include Honolulu,Tokyo Narita, Osaka, Beijing, Bangkok, Ho Chi Minh City and Phuket. These destinations are all served from Australian cities of Sydney, Cairns , Gold Coast, Melbourne and Darwin. On the whole, Jetstar long-haul network doesn’t have many overlapping with the other 2 competitors, apart from routes between Singapore and Australia. Competition on routes between Singapore and Australia will surely be more intensify once Scoot start flying.
Jetstar Airways currently operates 11 Airbus 330-200 that flies medium and long-haul destinations.  

The move of allocating new 787 to Jetstar seems like a strategy to put more focus on Jetstar’s network rather than expanding Qantas’s current market. In recent years, Qantas has only welcome only the Airbus 380 super-jumbo jets and Boeing 737-800 jets which intends to replace its old Boeing 747-400 and Boeing 737-400 jets. Apart from that, Qantas has scaled down some of their international routes including switching to a smaller aircraft (Boeing 747 to Airbus 330) on flights to Asia. But for Jetstar, Qantas has order a staggering 110 Airbus 320 jets for the unit. 99 for both Jetstar Airways, Jetstar Asia, Jetstar Pacific and soon to fly Jetstar Japan. While the remaining 11 was initially allocated for the new Premium airlines that is going to be based at Singapore or Kuala Lumpur,, but it is likely that Jetstar will allocate these 11 jets to the recent announced Jetstar Hong Kong. Not to forget that Qantas 787 order are going to the Jetstar unit first instead of Qantas mainline fleet shows Qantas focus on this new segment of the aviation market. Previously, Jetstar has plans to operate to Europe including Rome and Athens, but those plans are scrapped in the end. But there is a possibility that such plans to commence flights to Europe with Air Asia X cancelling all their services to Europe.

Jetstar branded airline include Jetstar Airways, Jetstar Asia, Jetstar Pacific, Jetstar Japan and Jetstar Hong Kong.

Surely the battle will continue and it is likely that the battle will be more and more intense and fierce between these rivals. One interesting fact is that, these airlines are all backed by a big airline group. Scott is a full subsidiary of Singapore Airlines, Jetstar Group is backed by Australian carrier Qantas Airways while Air Asia X is owned by Asia’s largest low-cost carrier Air Asia Group.
The Editor

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