Competition among ASEAN budget carriers heats up

Reading Time: 2 minutes

AirAsiaThe aviation market for low-cost carriers or budget airline in Southeast Asia is becoming tougher even though in some markets the industry is close to saturation.

The total budget airline fleet is expected to grow by 20 per cent in 2013 and will count around 500 planes at year-end, with the three biggest airlines being Lion Air, AirAsia and Cebu Pacific (see table below).

The share of low-cost carriers of the entire aviation market in Southeast Asia is now above 50 per cent, having steadily increased over the last 10 years from less than 5 per cent in 2003, the Center for Aviation reported.

Indonesia has emerged as the hottest market in Southeast Asia and probably the world. Indonesia now has the world’s fifth largest domestic air travel market after China, with over 70 million annual passengers in 2012. Low-cost carriers currently account for about 60 per cent of Indonesia’s domestic market and over 40 per cent of the much smaller international market, which accounted for about 16 million passengers in 2012. Indonesia’s budget fleet will consist of about 200 aircraft by the end of 2013.

Another growth market for low-cost carriers in Southeast Asia for 2013 will be Malaysia. This is driven not by a solid surge in demand, as is the case with Indonesia, but by the introduction of new competition. Malaysia is the third biggest aviation market in Southeast Asia but had been the only market among the largest six that had just one low-cost player, AirAsia, which has changed with the entrance of Lion Air’s subsidiary Malindo.

Thailand will be the next market to become a battleground in the intensifying AirAsia-Lion rivalry. Lion has said it plans to launch an affiliate in Thailand by the end of 2013. Apart from that, Thai AirAsia, Nok Air, Orient Thai and Bangkok Airways are battling against each other.

The Philippines is seeing slower growth in 2013, following a period of rapid capacity expansion which led to over-capacity. Low-cost carriers in 2012 accounted for 80 per cent of domestic passengers in the Philippines, giving it the highest penetration rate in the world among medium and large size markets. But competition on many routes was irrational and four of the five carriers were unprofitable – AirAsia Philippines, Philippine Airlines’ affiliate AirPhil Express, Tiger affiliate Tigerair Philippines and Zest. Only the market leader Cebu Pacific, which captured 46 per cent of the domestic market last year, ended 2012 with a profit.

The Singapore market saw a large surge of capacity in late 2011 and early 2012, which resulted in losses for its two low-cost carriers Tigerair Singapore and Jetstar Asia/Valuair. Market conditions and profitability have since improved as capacity growth slowed. But Tigerair has re-accelerated fleet expansion, which could once again lead to capacity strains.

Opportunities still remain for the budget airline market in some ASEAN countries, particularly Myanmar and Vietnam. These important pioneer markets have the lowest low-cost carrier penetration rates among the seven main ASEAN countries, but start-ups from both countries are expanding rapidly.

LCC table
Source: CAPA – Centre for Aviation
Notes: Wings Air reduction caused by phase out of MD-80s and Dash 8s.
Tigerair 25-aircraft figure is for fiscal year ending 31-Mar-2014.
Nok Air figures include Saab 340s operated by regional partner.
Zest Air reduction caused by phase out of MA-60 turboprops.
Orient Thai figures only includes domestic LCC operation (737s).
Valuair aircraft were returned in 1H2013. Valuair flights are now operated using A320s under the Jetstar Asia AOC.
AirPhil/PAL Express, which transitioned from LCC to FSC in early 2013, has been removed entirely for comparison purposes
Do you like this post?
  • Fascinated
  • Happy
  • Sad
  • Angry
  • Bored
  • Afraid

Reading Time: 2 minutes

The aviation market for low-cost carriers or budget airline in Southeast Asia is becoming tougher even though in some markets the industry is close to saturation.

Reading Time: 2 minutes

AirAsiaThe aviation market for low-cost carriers or budget airline in Southeast Asia is becoming tougher even though in some markets the industry is close to saturation.

The total budget airline fleet is expected to grow by 20 per cent in 2013 and will count around 500 planes at year-end, with the three biggest airlines being Lion Air, AirAsia and Cebu Pacific (see table below).

The share of low-cost carriers of the entire aviation market in Southeast Asia is now above 50 per cent, having steadily increased over the last 10 years from less than 5 per cent in 2003, the Center for Aviation reported.

Indonesia has emerged as the hottest market in Southeast Asia and probably the world. Indonesia now has the world’s fifth largest domestic air travel market after China, with over 70 million annual passengers in 2012. Low-cost carriers currently account for about 60 per cent of Indonesia’s domestic market and over 40 per cent of the much smaller international market, which accounted for about 16 million passengers in 2012. Indonesia’s budget fleet will consist of about 200 aircraft by the end of 2013.

Another growth market for low-cost carriers in Southeast Asia for 2013 will be Malaysia. This is driven not by a solid surge in demand, as is the case with Indonesia, but by the introduction of new competition. Malaysia is the third biggest aviation market in Southeast Asia but had been the only market among the largest six that had just one low-cost player, AirAsia, which has changed with the entrance of Lion Air’s subsidiary Malindo.

Thailand will be the next market to become a battleground in the intensifying AirAsia-Lion rivalry. Lion has said it plans to launch an affiliate in Thailand by the end of 2013. Apart from that, Thai AirAsia, Nok Air, Orient Thai and Bangkok Airways are battling against each other.

The Philippines is seeing slower growth in 2013, following a period of rapid capacity expansion which led to over-capacity. Low-cost carriers in 2012 accounted for 80 per cent of domestic passengers in the Philippines, giving it the highest penetration rate in the world among medium and large size markets. But competition on many routes was irrational and four of the five carriers were unprofitable – AirAsia Philippines, Philippine Airlines’ affiliate AirPhil Express, Tiger affiliate Tigerair Philippines and Zest. Only the market leader Cebu Pacific, which captured 46 per cent of the domestic market last year, ended 2012 with a profit.

The Singapore market saw a large surge of capacity in late 2011 and early 2012, which resulted in losses for its two low-cost carriers Tigerair Singapore and Jetstar Asia/Valuair. Market conditions and profitability have since improved as capacity growth slowed. But Tigerair has re-accelerated fleet expansion, which could once again lead to capacity strains.

Opportunities still remain for the budget airline market in some ASEAN countries, particularly Myanmar and Vietnam. These important pioneer markets have the lowest low-cost carrier penetration rates among the seven main ASEAN countries, but start-ups from both countries are expanding rapidly.

LCC table
Source: CAPA – Centre for Aviation
Notes: Wings Air reduction caused by phase out of MD-80s and Dash 8s.
Tigerair 25-aircraft figure is for fiscal year ending 31-Mar-2014.
Nok Air figures include Saab 340s operated by regional partner.
Zest Air reduction caused by phase out of MA-60 turboprops.
Orient Thai figures only includes domestic LCC operation (737s).
Valuair aircraft were returned in 1H2013. Valuair flights are now operated using A320s under the Jetstar Asia AOC.
AirPhil/PAL Express, which transitioned from LCC to FSC in early 2013, has been removed entirely for comparison purposes
Do you like this post?
  • Fascinated
  • Happy
  • Sad
  • Angry
  • Bored
  • Afraid