Asia remains ambiguous about low-cost carriers

Asia remains ambiguous about low-cost carriers

Slobodan Lekic, Associated Press/Jakarta

While dozens of low-cost airlines in Europe are locked in a
dogfight for survival, the concept of no-frills carriers is just
taking off on the Asian and Australian continents.

The cutthroat competition in Europe has caused at least three
carriers among the more than 50 currently operating at present to
go belly up in recent months.

And Europe's largest low-cost airline, easyJet PLC, said last
week that competitive pressure led to a loss of 19.7 million
pounds (US$35 million) in the first half of its fiscal year.

Still, another two dozen startups are awaiting permission to
begin flying across the EU.

"This is a problem that's been brewing in Europe for quite
some time with so many people jumping onto the bandwagon they
were always going to hit a bit of a bump," said Peter Harbison,
head of the Center for Asia-Pacific Aviation in Sydney,
Australia.

While Europe's budget airlines undergo growing pains, Asia's
are still in their infancy.

With an area several times larger than Europe and about five
times more people, industry analysts say expectations for growth
in Asia's budget air travel is tremendous.

But in many countries, including the region's largest
potential market, China, government-held aviation turf is closely
guarded, with state-sponsored carriers and other full-service
airlines restricting landing slots and effectively shutting out
new entrants.

A number of other nations have resisted the temptation to
deregulate their markets, including South Korea and Taiwan.

But that hasn't caused a complete standstill in the
development of low-cost airlines in the region. Industry
mavericks such as recording industry-turned airline executive
Tony Fernandes, who runs Malaysia-based AirAsia, have moved the
ball forward by forging cross-border joint-ventures.

Earlier this year, Fernandes was cleared for take off to
Thailand after he teamed up with a company controlled by
Thailand's Prime Minister Thaksin Shinawatra, allowing Fernandes
access to the Thai market that he couldn't get as a purely
foreign-owned venture.

Although nothing like the explosion of low-cost carriers in
Europe, AirAsia and others have had enough success to get the
attention of full-service carriers, who have scrambled to start
their own versions to compete on the low end of the aviation
market. Thai Airways and Singapore Airlines, for example, have
both started their own budget airlines largely in response to
AirAsia's encroachment on their markets.

Perhaps the biggest success though has come in Australia,
where the Richard Branson-owned Virgin Blue has taken nearly a
third of the domestic market from Qantas Airways.

Harbison and other analysts noted that the contrasts between
the nascent Asian budget airline industry and the well-
established European low-cost carrier scene are so profound that
the two cannot be realistically compared.

The main distinction is that in Asia no-frills carriers are
creating a completely new market segment by allowing people who
would not otherwise be able to afford air travel to fly for the
first time in their lives, while the European market was largely
mature before budget airlines took off in a big way.

"Unlike Europe, there is a massive pool of potential first-
time flyers in Asia," said Srboljub Savic, a consultant and
specialist on the Indonesian airline industry.

He described as "huge" the potential for growth in budget air
travel throughout Asia and Australia.

The best example is Indonesia, he said, where cheap fares and
new destinations have sparked an unprecedented boom in air
travel. At least two dozen budget airlines have taken to the
skies since the industry was deregulated four years ago.

Indonesia expects passenger loads to increase by 20 percent in
2004, following a record growth rate of over 40 percent last
year.

"Nowadays the ticket between (the northern Sumatran city of)
Medan and Jakarta costs about the same as passage on a ship,"
Savic said. "But while the sea trip takes two days, the flight
lasts only two hours."

Hasyim Arsal Alhabfy, a spokesman for Lion Air, the country's
fastest-growing budget airline, recalled sitting next to an 80-
year-old woman passenger who had tears streaming down her face.

"I never dreamed that in my lifetime I would see the clouds
from above," she answered after Alhabfy asked what was wrong.