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.