The Flying Vision and here comes The Alliance
January 2nd 2007 16:38
Three years ago with the explosion of budget airlines in South East Asia, the writer envisioned, through a paper, an affordable long-haul flight between the region and Australia. And on 1st January, 2007, a proposal from AirAsia, Virgin and EasyJet to form an alliance to fly long-haul routes came to light. The move could cause a potential impact on the traditional airliners but to the delights of frequest flyers, students or just anybody wishing to take a plane, at an affordable fare.
In conjuction with the latest developments, Benkaiser.NET Investment Portal brings you the paper written three years ago with a vision similar to what is currently unfolding.
“Now everyone can fly”, the slogan of Malaysia’s first low cost carrier (LCC) Air Asia strikes a chord with the commons, indeed. With its ticket fares so affordable that now almost everyone could afford to fly. Prior to that, domestic air travel with national carrier, MAS could cost half of the salary of an ordinary white-collar worker or a whole month salary of a factory-hand. The perception of air travel being premium transportation no longer rings true now.
Now everyone can fly domestic routes with Air Asia was true three years ago but the fact is fast shifting due to an explosion of LCCs in South East Asia, notably Singapore, Thailand and a little further south, Australia. But Air Asia of Malaysia is still leading the way of South East-Asia LCCs market.
Every piece of news of a new LCC only bring smiles to consumers as the increasing number of LCCs translate into lower fares due to competition. The aviation sector is no longer an oligopoly market dominated by national carriers which requires huge set-up capital, technical resources and extensive sophisticated marketing but a near free-for-all neo-monopolistic competition and with the LCCs set up today are in fact asset-light through leasing of aircrafts, computerized administration and networking and simple advertising of fares as bait. As such with fixed costs relatively lower, decent, if not, attractive profits are to be earned.
The explosion of LCCs in the region fueled by an increasing demand of budget air travel is a derived demand of the rising middle-class population in Malaysia and Thailand, both being the most dynamic economies in the region after Singapore. Although LCCs fares are relatively lower, super low fares below RM 50 are only available during the off-peak seasons. Otherwise the fares are usually above RM100 but below RM200. It is considered affordable to the middle-class.
Destinations are continuingly regionalized, expanding away from domestic routes due to competition. Air Asia sniffed the competition inevitable and therefore entered into a 50-50 joint venture with Thaksin Corp of Thailand and set up the Thai Air Asia with Bangkok as base to serve the lucrative southern China region market through Macau SAR.
Singapore’s pioneer LCC, Valuair first destination was Hong Kong. It only has two leased aircrafts at present. Another upcoming Singaporean LCC is Tiger Airways, which is 49% owned by Singapore Airlines and the rest by the Ryan Family of Ireland which owns RyanAir. With such powerful backings, Tiger Airways confidently announced that it will do all it can to become the market leader. Indeed such statement sent a shiver to other LCCs for it has the vast resources and deep pockets to run at a long term loss to eliminate competitors. The economies of scales are at work.
Thailand’s LCC One-Two-Go already sparked-off an intense competition through buying off all the super-low fares offered by Thai Air Asia on the internet so that only the standard fares are available whereas One-Two-Go super-low fares are the only cheap airfares available to attract customers, away from Thai Air Asia. Both carriers fly to the same destination, Macau.
Such intense competition benefits consumers, not in terms of lower fares but services as well. LCCs are usually no-frills with the stewardess being Flying Salesgirls trying to sell you knick-knacks. Yes you have to pay for mineral water, at least on Air Asia. However, Valuair modified the concept. The three and half hour flight between Singapore and Hong Kong is punctuated with make-up sessions for the ladies sponsored by Maybeline. Stewardesses are awarded commissions for sales.
Regionalisation of South East-Asia would be propelled by LCCs increasing the mobility of people especially when AFTA (Asean Free Trade Area) is coming close to realization. LCCs could lower the cost of cross-border business especially for the SMIs.
The effect of LCCs is great with economies stimulated by an increase in the mobility of people throughout the region which is likely to boost the tourism sector, which is an important part of most South East-Asian economies.
The spin-off effect does not only confine to the South East-Asia but to southern China as well, most notably Macau which is fast becoming the budget air hub for South China. Macau on its way to become the Las Vegas of Asia and the only Chinese territory where gambling is legal, attracting hordes of cash-rich Mainland Chinese tourists daily, naturally attracts LCCs.
Traveling around the region at most times do not require visas and with the competition going on, reservation and buying of air tickets, over time, would become easier with the internet E-ticketing leading the way. Maybe boarding an aircraft in the future is paperless but just swipe your ID-Chip card on a machine and voila.
Back in Malaysia, Air Asia is the only LCC available whereas latecomer Singapore has two with another being set up Qantas. Malaysians currently could only fly cheap domestically. MAS is the only carrier to fly out of the border, except southern Thailand. One has to transit at Bangkok or Singapore for an out-of-Malaysia budget air travel.
Such inconvenience was created by MAS fearing Air Asia eating away its regional pie which contributes 30% revenue. Such fear can be eliminated if both carriers cooperated with Air Asia serving domestic and regional routes while MAS concentrates on international destinations. Consumer is king and will demand for that to happen and the government could not ignore such demands whereas other countries opened their skies. Let the market force work.
But such fear is not unfounded for if in the long run; LCCs could fly international routes through transits though at a longer time but at much lower cost. Assuming pure market force at work, Malaysians comprised the third largest foreign student population in Australia, air travel between the nations are daily and frequent, LCCs could attempt to capture the lucrative market by setting a budget air hub in northern Australia such as Broome in Western Australia or Darwin in Northern Territory.
A scenario could be constructed based on Air Asia and Australian LCC Jetstar. Air Asia could fly from Kuala Lumpur to Broome or Darwin and then transit to Jetstar to reach the final destination. Two LCCs and one transit could be a little more time-consuming then a conventional direct flight but at a fraction of a direct air fare. LCCs could confidently capture a significant market share. Most overseas students and backpackers would opt for the LCCs flights. Same could be said for Macau serving as a LCCs transit hub between South East-Asia and North East-Asia.
The growth of the LCCs in the region is still in the growing stage and once reaches the point of saturation only the strongest survive while those uncompetitive budget carriers would most probably be absorbed and liquidated.
Once again, if, with less LCCs than before, airfares would no longer be as cheap, discounting inflation. LCC is the buzzword now as Dotcom was back then but the LCC bubble is much harder to pop.
But before market saturation sets in, existing LCCs should look up north to China as the next region for growth. As for now, there are no LCCs serving Chinese domestic routes and the domestic routes there itself are enough to capture the full attention of LCCs. No need international flights for the dollars.
The Air Asia flight from Langkawi to Kuala Lumpur was a smooth and pleasant one for me and it was cheap as well. Now when I can fly to Australia at a fraction?
In conjuction with the latest developments, Benkaiser.NET Investment Portal brings you the paper written three years ago with a vision similar to what is currently unfolding.
LCC is the word
“Now everyone can fly”, the slogan of Malaysia’s first low cost carrier (LCC) Air Asia strikes a chord with the commons, indeed. With its ticket fares so affordable that now almost everyone could afford to fly. Prior to that, domestic air travel with national carrier, MAS could cost half of the salary of an ordinary white-collar worker or a whole month salary of a factory-hand. The perception of air travel being premium transportation no longer rings true now.
Now everyone can fly domestic routes with Air Asia was true three years ago but the fact is fast shifting due to an explosion of LCCs in South East Asia, notably Singapore, Thailand and a little further south, Australia. But Air Asia of Malaysia is still leading the way of South East-Asia LCCs market.
Every piece of news of a new LCC only bring smiles to consumers as the increasing number of LCCs translate into lower fares due to competition. The aviation sector is no longer an oligopoly market dominated by national carriers which requires huge set-up capital, technical resources and extensive sophisticated marketing but a near free-for-all neo-monopolistic competition and with the LCCs set up today are in fact asset-light through leasing of aircrafts, computerized administration and networking and simple advertising of fares as bait. As such with fixed costs relatively lower, decent, if not, attractive profits are to be earned.
The explosion of LCCs in the region fueled by an increasing demand of budget air travel is a derived demand of the rising middle-class population in Malaysia and Thailand, both being the most dynamic economies in the region after Singapore. Although LCCs fares are relatively lower, super low fares below RM 50 are only available during the off-peak seasons. Otherwise the fares are usually above RM100 but below RM200. It is considered affordable to the middle-class.
Destinations are continuingly regionalized, expanding away from domestic routes due to competition. Air Asia sniffed the competition inevitable and therefore entered into a 50-50 joint venture with Thaksin Corp of Thailand and set up the Thai Air Asia with Bangkok as base to serve the lucrative southern China region market through Macau SAR.
Singapore’s pioneer LCC, Valuair first destination was Hong Kong. It only has two leased aircrafts at present. Another upcoming Singaporean LCC is Tiger Airways, which is 49% owned by Singapore Airlines and the rest by the Ryan Family of Ireland which owns RyanAir. With such powerful backings, Tiger Airways confidently announced that it will do all it can to become the market leader. Indeed such statement sent a shiver to other LCCs for it has the vast resources and deep pockets to run at a long term loss to eliminate competitors. The economies of scales are at work.
Thailand’s LCC One-Two-Go already sparked-off an intense competition through buying off all the super-low fares offered by Thai Air Asia on the internet so that only the standard fares are available whereas One-Two-Go super-low fares are the only cheap airfares available to attract customers, away from Thai Air Asia. Both carriers fly to the same destination, Macau.
Such intense competition benefits consumers, not in terms of lower fares but services as well. LCCs are usually no-frills with the stewardess being Flying Salesgirls trying to sell you knick-knacks. Yes you have to pay for mineral water, at least on Air Asia. However, Valuair modified the concept. The three and half hour flight between Singapore and Hong Kong is punctuated with make-up sessions for the ladies sponsored by Maybeline. Stewardesses are awarded commissions for sales.
Regionalisation of South East-Asia would be propelled by LCCs increasing the mobility of people especially when AFTA (Asean Free Trade Area) is coming close to realization. LCCs could lower the cost of cross-border business especially for the SMIs.
The effect of LCCs is great with economies stimulated by an increase in the mobility of people throughout the region which is likely to boost the tourism sector, which is an important part of most South East-Asian economies.
The spin-off effect does not only confine to the South East-Asia but to southern China as well, most notably Macau which is fast becoming the budget air hub for South China. Macau on its way to become the Las Vegas of Asia and the only Chinese territory where gambling is legal, attracting hordes of cash-rich Mainland Chinese tourists daily, naturally attracts LCCs.
Traveling around the region at most times do not require visas and with the competition going on, reservation and buying of air tickets, over time, would become easier with the internet E-ticketing leading the way. Maybe boarding an aircraft in the future is paperless but just swipe your ID-Chip card on a machine and voila.
Back in Malaysia, Air Asia is the only LCC available whereas latecomer Singapore has two with another being set up Qantas. Malaysians currently could only fly cheap domestically. MAS is the only carrier to fly out of the border, except southern Thailand. One has to transit at Bangkok or Singapore for an out-of-Malaysia budget air travel.
Such inconvenience was created by MAS fearing Air Asia eating away its regional pie which contributes 30% revenue. Such fear can be eliminated if both carriers cooperated with Air Asia serving domestic and regional routes while MAS concentrates on international destinations. Consumer is king and will demand for that to happen and the government could not ignore such demands whereas other countries opened their skies. Let the market force work.
But such fear is not unfounded for if in the long run; LCCs could fly international routes through transits though at a longer time but at much lower cost. Assuming pure market force at work, Malaysians comprised the third largest foreign student population in Australia, air travel between the nations are daily and frequent, LCCs could attempt to capture the lucrative market by setting a budget air hub in northern Australia such as Broome in Western Australia or Darwin in Northern Territory.
A scenario could be constructed based on Air Asia and Australian LCC Jetstar. Air Asia could fly from Kuala Lumpur to Broome or Darwin and then transit to Jetstar to reach the final destination. Two LCCs and one transit could be a little more time-consuming then a conventional direct flight but at a fraction of a direct air fare. LCCs could confidently capture a significant market share. Most overseas students and backpackers would opt for the LCCs flights. Same could be said for Macau serving as a LCCs transit hub between South East-Asia and North East-Asia.
The growth of the LCCs in the region is still in the growing stage and once reaches the point of saturation only the strongest survive while those uncompetitive budget carriers would most probably be absorbed and liquidated.
Once again, if, with less LCCs than before, airfares would no longer be as cheap, discounting inflation. LCC is the buzzword now as Dotcom was back then but the LCC bubble is much harder to pop.
But before market saturation sets in, existing LCCs should look up north to China as the next region for growth. As for now, there are no LCCs serving Chinese domestic routes and the domestic routes there itself are enough to capture the full attention of LCCs. No need international flights for the dollars.
The Air Asia flight from Langkawi to Kuala Lumpur was a smooth and pleasant one for me and it was cheap as well. Now when I can fly to Australia at a fraction?
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