Budget airlines may soar in Asian skies: experts

Budget airlines may soar in Asian skies: experts

M. Jegathesan Agence France-Presse Kuala Lumpur

More no-frills airlines may take off in Asia to meet increasing consumer demand following the success story of Malaysia's budget carrier AirAsia, industry experts say.

The push for countries such as China and Indonesia to set up budget airlines such as those in the United States and Europe was fueled by market demand and profitability, analysts told AFP.

Peter Foggin, London-based senior vice-president of DVB Bank AG said Asia could be next in line for the budget boom.

"That would not surprise me at all because of the success of USA's Southwest Airlines, UK's EasyJet and Ireland's RyanAir. And now you see the success of AirAsia in the last 18 months. People will say if they (AirAsia) can do it, I can do it also," he said.

Commenting on plans by Singapore Airlines to possibly launch a budget carrier, Foggin said: "They see the success of AirAsia. They know how big the market is and how good the opportunity is in Asia."

Singapore Airlines (SIA) has this year floated plans to enter the budget carrier market, mulling the idea of converting its regional wing, SilkAir, or establishing a separate airline.

SIA said on June 12 it would make a decision by the end of the year after a task force set up to look into the feasibility of a low-cost outfit completed its study.

Former Singapore Airlines (SIA) managing director Lim Chin Beng has also begun moves to set up a regional budget airline in potential competition with his former employer.

AirAsia Friday named three foreign partners who will inject US$26 million to enable the 18-month old profit-making carrier to buy new aircraft to expand its business.

The investors are the Bahrain-based Islamic Development Bank (IDB), Gulf-linked Crescent Venture Partners and Deucalion Capital, a Frankfurt-based global private equity fund.

Foggin said besides Singapore, budget carriers are expected to emerge in China and Indonesia.

"China, Indonesia, definitely, we will see low-cost carriers taking off," he said.

Azrul Azwar, an economist with MIDF Sisma Holdings Sdn Bhd, expressed similar sentiments saying the huge populations and large geographical areas of the two countries were encouraging factors for budget airlines.

"I think there seems to be a new trend in Asia to jump onto the bandwagon. There is big potential in China and Indonesia for this business," he told AFP.

AirAsia chief executive Tony Fernandes said the region offered vast opportunities for budget carriers.

"I think there is a lot of potential. Sure some countries will start low cost business carriers," he said.

But Foggin cautioned potential players, saying that AirAsia entered the business with many advantages which new individuals may not have.

"AirAsia has built a great platform with a low cost base which appeals to passengers to fly. It has a large domestic market as only six percent of the 23 million population have flown," he said.

Azrul said AirAsia's impressive start could be challenged by new budget carriers if it does not move faster to expand regionally.

"It has raised new funds to acquire new aircraft, it could add regional destinations before competition comes in," he said.

Azrul also said that AirAsia could form strategic alliances with foreign carriers.

"AirAsia could fly the foreign tourists when they arrive in the country directly to under-served and remote areas in Malaysia or in the region," he said.

But Fernandes maintained that AirAsia was unfazed by the possibility of competition from SIA or other countries, saying it would not be rushed into going regional.

"I am very surprised SIA is going budget. I think they are losing focus. It is like Rolls Royce saying it will launch mini cars. I am in no rush to go regional," he said.