LCC giants eye new territory as offshore moves accelerate
The rapid growth of low-cost carriers (LCC) has already transformed Asia's aviation industry, and now they are driving the next phase of change as they expand into other countries in the region.
The major LCCs in Asia and Australia have established the model of setting up joint ventures outside their home countries to circumvent ownership and control restrictions. Most are devoting resources to building up these nascent carriers and replicating the same pattern in new Asian markets. The latest signals from the main players show that this process is gathering speed.
LCCs are booming in the Asia-Pacific region. The Sydney-based Center for Aviation says there are no less than 45 LCCs in this zone, with nine having been added since the beginning of 2012.
These airlines carry some of the largest orderbooks in the industry—three of the big Asian LCCs account for more than 1,000 orders—and much of that growth will be channeled to their offshore franchises.
Eventually, multilateral liberalization agreements, such as one proposed by the 10-member Association of Southeast Asian Nations, could make it easier to set up offshore affiliates. But until then, the carriers will rely on joint ventures with local partners as their conduits for establishing hubs in other countries.
A prime example is the Australia-based Jetstar group, which is moving closer to gaining approval for a Hong Kong-based affiliate to complement its joint ventures in Japan, Singapore and Vietnam.
The establishment of the Jetstar Hong Kong operation is “progressing well,” Jetstar Group CEO Jayne Hrdlicka said during the Center for Aviation's Australia Pacific Aviation Summit here recently. An application for an operator's license has been submitted to regulators, and it is expected to be published in the Hong Kong government gazette this month. This will start the public comment process.
Hrdlicka says Jetstar remains confident that the Hong Kong joint venture will begin flying by year-end.also has an ownership stake, and local company Shun Tak Holdings joined as a shareholder in June, which is expected to help the carrier gain regulatory approval.
Elsewhere, Jetstar Japan has expanded its fleet to 13, and will boost this to 21 by the end of June 2014, Hrdlicka says. The carrier is seeing “significant underlying demand” in Japan, and this is expected to strengthen, as the Japanese market still has comparatively little penetration by low-cost carriers.
Another of the Asian LCC giants is the Malaysia-basedgroup, which has established joint-venture franchises in Thailand, Indonesia and the Philippines, and is launching another in India. Now, the group's long-haul airline, , is following up with its own offshore expansion.
AirAsia X CEO Azran Osman-Rani says the carrier is in the process of setting up new hubs for long-haul operations in Thailand and Indonesia. In both locations, AirAsia X will be able to draw on feeder traffic from AirAsia short-haul carriers already located there, Osman-Rani says. An announcement regarding the formation of the Thai carrier is expected “very soon,” he says.
The AirAsia X strategy is to follow AirAsia as it establishes new short-haul joint-venture carriers in other countries, says Osman-Rani. But beyond Thailand and Indonesia, it could be years before any other AirAsia affiliates grow enough to help support an AirAsia X hub, he says.
Indonesia's Lion Air has more aircraft orders than any carrier in Asia, but has previously trailed the other big LCCs in setting up joint ventures. However, this year it launched Malindo Air in Malaysia and is attempting to set up an LCC in Thailand.
The proposed joint venture in Thailand is making progress toward gaining government approval. Lion is working with an unnamed Thai partner, and a launch date will not be announced until the air operator's certificate (AOC) has been approved, a Lion Air spokesman says.
The joint venture is going through a two-stage approval process; it must first secure a business license before it can gain the AOC from Thailand's department of civil aviation. The business license application is going smoothly, the spokesman says. In addition, meetings have been held with the civil aviation department regarding the AOC.
The new airline will useaircraft from Lion Air. The carrier has not revealed how many aircraft it will initially use nor from which of the two Bangkok airports it will operate. The joint-venture partners are negotiating for the best possible airport deal.
Lion sees great potential in Thailand, the Lion spokesman says. It has a very large domestic market, and there is strong untapped demand for leisure and business international travel between Bangkok and other cities in the Asean bloc.
Meanwhile, Lion is also expanding Malindo Air. The joint venture, which was launched in March, has recently announced that it will begin its first international flights—between Kuala Lumpur and Dhaka, Bangladesh's capital—starting Aug. 28. The carrier says it also intends to launch flights from Kuala Lumpur to the Indonesian destinations of Bali, Jakarta, Medan and Batam.
Malindo has a fleet of three-600s and four 737-900ERs. It is expected to receive one more 72 and two 737s this year, giving it 10 aircraft.
The Tigerair group does not have the same level of orders as the other LCCs, although it does have joint-venture franchises in Australia, Indonesia and the Philippines, as well as its core Singapore-based operation.
The group is scheduled to receive 10 Airbus A320s during the fiscal year through March 2014, with half going to the Singapore carrier and the remainder to the Tigerair joint ventures. Of these five, two have been delivered to the Indonesian carrier Tigerair Mandala, two will go to Tigerair Australia and one remains unassigned, an airline spokeswoman says.
Tigerair's Australian operation currently has 11 aircraft, Mandala has nine, and the Philippines carrier has five. Beyond the 10 being delivered during this fiscal year, another 15 A320s are on the orderbook, due to be delivered by December 2015. While it has previously said it wants to expand its footprint in Asia, for now Tigerair is “focused on growing our existing joint ventures,” the spokeswoman says.
Tigerair Australia CEO Rob Sharp says the airline needs to double the size of its fleet of 11 A320s to achieve the efficiencies that are expected from a low-cost carrier.
bought a 60% share in Tigerair Australia earlier this year, with the Singapore-based Tigerair parent owning the remainder. Virgin Australia has stated that the Tigerair Australia fleet is expected to grow to 35 by 2018. At least in the near term, its new aircraft are from the Tigerair group orderbook.
So far, Tigerair Australia has no plans to serve short-haul international destinations with its own aircraft, Sharp says. While he would “never say never” regarding international service, it is concentrating on the domestic network at the moment.