Budget carriers need to consolidate: AirAsia

Budget carriers need to consolidate: AirAsia

Agence France-Presse, Kuala Lumpur

Asia's most profitable budget carrier AirAsia is expecting a wave of consolidation in the sector as rising fuel prices and firmer aircraft leasing rates put pressure on new entrants, a report said on Monday.

The Malaysia-based carrier's chief executive officer Tony Fernandes told the Financial Times that many no-frills ventures were founded by "people chasing what they thought was easy money" but who now faced much tougher operating conditions.

"I think business plans are looking quite different, and I think there's going to be a rationalization for sure. I think it's inevitable," he was quoted as saying in an interview from Singapore.

The comments come less than a week after Valuair and Jetstar Asia, two discount airlines based in Singapore, announced they were in talks that could lead to an alliance or merger.

The negotiations are a sign that the industry could be set for a shake-out after a period of rapid growth, with a host of new low-cost carriers having been set up across Southeast Asia and India in the past three years.

"At US$25 jet fuel (per barrel), with aircraft leasing where it was and people seeing how well we were doing, there was a herd mentality, with many people chasing what they thought was easy money," Fernandes said.

"I think their business plans have obviously changed dramatically, with jet fuel now at $75 (per barrel) and a hardening in aircraft (leasing) pricing," he added, according to the report.

AirAsia, which launched as a budget operator in December 2001 with just two aircraft, has become a significant player in the industry and been imitated by startled national carriers along with a host of new low-cost entrants.

AirAsia is now Southeast Asia's biggest low-cost carrier in terms of fleet size and derives much of its business within Malaysia. It also operates in Thailand, Indonesia, the Philippines and China.