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  • Sep 18, 2014
  • Updated: 2:18pm
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AVIATION

Dogfight on the cards as more low-cost carriers launch in the region

More low-cost carriers will soon be launched in the region, promising a stiff Battle with full-service airlines for passengers and landing slots at airports

PUBLISHED : Monday, 13 January, 2014, 12:27am
UPDATED : Monday, 13 January, 2014, 2:20pm

A dogfight is looming in the horizon as more budget carriers come on stream, bringing them head-to-head with the likes of Cathay Pacific Airways, China Southern Airlines and Air China.

Airlines in the region have for years been shielded from low-cost carriers, unlike in the Asia-Pacific where they have steadily grown in the past decades.

There are about 60 budget airlines operating nearly 1,000 aircraft in the Asia-Pacific but only four in Greater China - encompassing the mainland, Hong Kong, Macau and Taiwan - deploying fewer than 80 aircraft.

The severely underserved market will soon be filled up by newcomers in Guangzhou, Taiwan, Hong Kong and Beijing, diverting passengers from and jostling for limited landing slots with full-service carriers.

When we lower prices to match their offers, it will damage our brand
CHINA SOUTHERN AIRLINES

Shanghai-based Juneyao Airline, which in November last year announced the launch of Guangzhou-based Jiuyuan Airlines, has already forced China Southern to rethink its strategy in the Pearl River Delta, says an official from the carrier.

"Jiuyuan has made China Southern nervous because of the trend it represents," said the official, who did not want to be identified.

After the Civil Aviation Administration of China offered incentives to stimulate the growth of low-cost carriers towards the end of last year, more budget airlines are expected to emerge soon.

"The buzz is, China National Travel Service is planning an LCC, too, which will probably be based in Guangzhou," the official said.

The impact on full-service carriers will be threefold: diversion of price-sensitive passengers and pressure on airfares; competition over landing slots; and the effect on service levels in the long term.

The scarcity of landing slots at Guangzhou Baiyun International Airport would intensify with the entry of more players, the official said.

Most landing and take-off slots from 7am to 11pm had been taken, with 95 per cent of the total slots occupied, said the official, citing data from Baiyun Airport. The two-runway airport's designed capacity is 60 aircraft per hour. The shortage of landing slots would only be resolved when the construction of a third runway was completed in 2016-17, the official said.

This is the reason why some analysts are sceptical about the success of low-cost carriers on the mainland.

"It is doubtful whether LCCs will be profitable as the airspace situation and the air traffic control system on the mainland are very different from those in the Asia-Pacific region," said Kelvin Lau, the head of transport at Daiwa Capital Markets.

The comprehensive high-speed railway network on the mainland was a big overhang for budget carriers, he added.

"The massive delays at major airports due to airspace constraints will compromise LCCs' short turnaround time, which is the key for budget airlines in keeping costs down," he said.

Jiuyuan Air is set to offer "9 dollar" tickets on regional routes and will announce more details for its fleet and route plans this month.

China Southern said that as more budget carriers came into service in its home base, it would put pressure on airfares and force it to compromise its services in the long run, the official said.

"When we lower prices to match their offers, it will damage our brand," he said. "Prolonged price wars would probably force us to cut our services in the long run."

Spring Airlines, the only profit-making budget carrier on the mainland, says the number of low-cost carriers will more than double to eight as Beijing is trying to shore up the market. The government has lifted price restrictions on air tickets and lowered the threshold of setting up budget carriers.

China Eastern Airlines, which teamed up with Jetstar to set up a low-cost airline in Hong Kong, is considering converting its subsidiary China United Airlines into a budget carrier. The Beijing-based regional airline would be the first low-cost carrier based in the capital.

In Taiwan, China Airlines joined the bandwagon last month by setting up a joint venture with Tigerair, Singapore's largest low-cost carrier. Tigerair Taiwan will cover northeast Asia, Southeast Asia, Hong Kong and Macau as well as cross-strait routes.

The venture has a registered capital of NT$2 billion (HK$516 million), with China Airlines owning a 90 per cent stake.

Meanwhile, Hong Kong Express Airways beat Jetstar Hong Kong in October as the first low-cost carrier based in the city. HK Express has launched eight destinations to Japan and Southeast Asian nations since.

Cathay Pacific has launched its "fanfare" programme of discount tickets every Tuesday. It has objected to granting a licence to Jetstar on the grounds that it is not a genuine Hong Kong carrier.

While a question mark hangs over Jetstar, Cathay is not free from competition, threatened as it is by new low-cost carriers from the mainland and Taiwan. These would affect Cathay's hub-and-spoke network in Hong Kong, say aviation experts.

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pragmatist
Cathay - tighten your seatbelt. With your declining service quality, this is the final warning from the market. Stop playing the legal games.
 
 
 
 
 

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