Saturday, 16 June 2012

New Babies Created by Asian Carriers

More and more airlines are formed in the Asia region and most of them are formed by existing high profile carriers in the Asia region. At the start of the year, Peach Aviation, a new low-cost airline that is based at Osaka-Kansai which is formed by All Nippon Airways took to the skies. Just a few weeks back, Scoot, Singapore Airlines long-haul low-cost carrier commences its first flight to Sydney, Australia.

Meanwhile, many airlines are in the process of flying their first group of passengers. In Japan there will be two new players this year, Jetstar Japan, a new low-cost carrier backed by both Japan Airlines and Qantas Airways and partly owned by Mitsubishi Corp will start their first flight in July; while Air Asia Japan, a new low-cost carrier formed by Asia’s largest low-cost airline Air Asia and All Nippon Airways will start flying in August. Both these two airlines will be based at Tokyo-Narita Airport. In the meantime, a new low-cost terminal had been planned at Tokyo-Narita which will specially house these two new airlines and it is expected to be completed by 2015. Special landing fees have been given to low-cost carriers that are going to operate from Tokyo-Narita. The airport is eagerly attracting new airlines after losing much of the traffic to Tokyo’s downtown Haneda Airport since the opening of international traffic to the airport and also to regional hubs like Beijing and Seoul. Japan has one of the busiest domestic networks in the world. With three new low-cost carriers starting their operations this year, both ANA and Japan Airlines have started to shift some of their domestic operation to these new subsidiaries which have a lower-cost base and putting more focus on international medium and long-haul traffic.

Masaru Onishi, president of Japan Airlines, left; Bruce Buchanan, chief executive officer of Jetstar Airways, center; and Hideshi Takeuchi, chief executive officer for the Industrial Finance, Logistics and Development Group at Mitsubishi Corp., hold up pieces of a promotional placard during a news conference announcing the launch of Jetstar Japan, in Tokyo on 16 August 2011.

 The first airplane to be used by budget airline AirAsia Japan is pictured on June 11, 2012 after arriving from France at Narita International Airport near Tokyo.

In China, foreign airlines are still being restricted from forming new airlines in the country with the exception of Hong Kong and Macau. Qantas Airlines and China Eastern Airlines have announced the formation of Jetstar Hong Kong, a new low-cost carrier that is going to start operation in 2013. Qantas’s decision to set up a new carrier in Hong Kong is mainly to get access to the greater China market, but this decision could back-fired the airline as Hong Kong has one of the highest landing fees in the world and one of the busiest in Asia. The low-cost model has not been proven as a success yet at Hong Kong. Most famously, Oasis Hong Kong, a low-haul low-cost carrier based in Hong Kong ceased their operation just 3 years after suffering heavy losses. While Hong Kong Express Airlines, owned by Hainan Airlines are in the process of changing their business model from a full-service model to a low-cost model.

The scenario in China is also the same in one of the fastest growing aviation market in the world-India. The India has considered opening foreign ownership of local carrier after Indian carriers suffer heavy losses. Reports circulating that Singapore Airlines are interested to buy some stakes in India airlines. While Air Asia Group CEO Tony Fernandes has said in an interview, Air Asia is interested to set up an affiliate airline in the country if the government decides to open the aviation industry to foreign ownership. India is one of trickiest market in the world. Despite recording double digit passenger growth every year in the past decade, airlines in the country still suffer heavy losses. Airlines operating in India have to adapt to high costs in the country. Five out of the six airlines in India recorded losses last year. It is interesting how the skies of India will develop once foreign airlines are allowed to participate in the country. I expected to see some new babies to be born in India once foreign investors are allowed to participate in the country’s aviation industry.

In Thailand, Thai Airways International is in the process of setting up the first flight for its new airline named Thai Smile. The airline is intended to serve the market gap between low-cost carrier and full-service carrier. It will begin operations starting from July 2012 starting flights between Bangkok and Macau. Not long ago, Thai Airways has increased its stake in Nok Air to 49%. The airline will focus on low-cost domestic service out of Bangkok’s older Don Mueang Airport; while Thai Smile will focus serve international secondary cities and some popular domestic route. Thai Airways hopes that the establishment of Thai Smile and Nok Air will able to compete against Thailand’s largest low-cost carrier Thai Air Asia. All LCCs based in Thailand will soon move their operations to the older Don Mueang Airport, so that the airport congestion in Suvarnabhumi Airport will be eased. Thai Airways has long wanted to set up a low-cost airline, but previously the proposed plan with Tiger Airways to set up Thai Tiger Airways failed to materialize. Thai Airways’ 2 subsidiaries operating different strategies and business model will give some serious competition to Air Asia Group’s Thai Air Asia.

THAI Smile Air will receive four 174-seats Airbus A320 aircraft in June, August and September.
One of the most high-profile new airlines this year is Singapore Airlines long-haul low-cost carrier -Scoot. The carrier just started flying to Sydney and Gold Coast in Australia a few days back, will commences operations to Tianjin, China and Bangkok, Thailand. In the meantime, Scoot has also announced Taipei, Taiwan and Tokyo-Narita as their next destinations. The airline is expected to fight against Jetstar and Air Asia X which provides long-haul low-cost flights in the region. Scoot will continue to explore secondary cities (Tianjin, Gold Coast) and operate flights to high frequency market out of Singapore (Sydney and Bangkok). In the coming 4 years, the carrier is expected to operate 16 Boeing 777-200 that is inherited by its parent company.

The first flight by Singapore Airlines' low-cost offshoot, Scoot, touches down at Sydney Airport on June 5. The carrier’s Boeing 777-200 has 402 seats: 32 ScootBiz Seats and 370 Economy Class Seats.  
If you think premium carriers are the ones setting up new low-cost airlines, Lion Air of Indonesia decides to go the other way round. Not only premium airlines are setting up low-cost carrier, even low-cost carrier decides to set up premium carriers too! The airline is currently the largest low-cost airline in Indonesia, has announced its plan for a premium airline named Batik Air that will be based in Jakarta (or Manado) and scheduled for operations starting March 2013. The airline will begin service with 10 Boeing 737-900ER and it has a firmed order for 5 Boeing 787-8 Dreamliner. The new airline will go head-to-head with Indonesia’s national carrier-Garuda Indonesia. The Indonesian market is considered one of the most “underserved” market in the world by aviation analyst. With double-digit air travel growth recorded each year, you will only expect the existing carrier to keep expanding and new carrier joining the battle in Indonesia. Lion Air has just finalized 230 Boeing 737 MAX and Boeing 737-900ER order deal with Boeing not long ago. Air Asia Group decides to set up a new ASEAN region office in Jakarta shows how underserved the market it is in Indonesia and Mandala Airlines is resuming its operations after Tiger Airways acquired a 33% stake in the airline.

Batik Air selected the Boeing 787-8 Dreamliner over the Airbus 330-300 for its long-haul premium flights. The airline is expected to take to the skies in March 2013. 
Philippines welcomed Air Asia Philippines, a joint venture between a group of Filipino investors and AirAsia Group. The airline will be based in Clark International Airport, which is 50 miles away from Manila. Air Asia Philippines commenced its operations in March 2012 with two brand new Airbus 320. The airline will be Air Asia Group’s third international venture after Indonesia and Thailand. The new airline will give the country’s largest low-cost carrier –Cebu Pacific some stronger competition after dominating the Philippines low-cost market for such a long time.

Existing babies that has already been created includes Korean Air’s Air Busan and Asiana Airlines’ Jin Air. Garuda Indonesia has its own low-cost unit named Citilink. Vietnam Airlines and Jetstar Group together own Jetstar Pacific in Vietnam. While in Malaysia, Malaysia Airlines has its own Firefly airline which operates turboprop operations with lower cost out of KL’s older Subang Airport. Singapore Airlines too has its own low-cost unit -Tiger Airways while Qantas Airways has its Jetstar Airways brand. Philippines Airlines has also its own budget unit named Airphil Express which competes with Cebu Pacific in Philippines. Air India has its own Air India Express and Jet Airways with its Jet Konnect operates low-cost services in India. Even Taiwan’s EVA Air is now considering switching its subsidiary Uni Air into a low-cost unit. There are not many airlines in Asia that doesn’t operate a low-cost unit, namely Cathay Pacific Airways, Air New Zealand, China Southern Airlines and Air China.

But the "airline within an airline" strategy was a strategy adopt by North American and European carriers a decade ago. But most of them failed, this includes United Airlines' Ted, Delta Air Lines’ Song, Scandinavian Airlines Systems sister Snowflake, KLM Royal Dutch Airlines’ Buzz and British Airways’ GO. Most premium carriers just do not get the idea of how a low-cost carrier should be operating. But the difference with Europe, North America and Asia now is that most Asian country experiencing great passenger growth, some countries like China, India and Indonesia even recorded double-digit growth each year. Will these new subsidiaries created by these Asian carriers a success? Only time will tell.

(The Editor)

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