Low cost carriers soaring in Southeast Asia

MANILA, Philippines ­– Low cost carriers’ (LCC) capacity in Southeast Asia has increased 8-fold over the last 10 years – from about 25 million seats in 2004, to nearly 200 million in 2014.

This is according to the Global Aviation Outlook 2015, released February 17 by the Centre for Asia-Pacific Aviation (CAPA), a Sydney-based think tank.

In contrast to LCCs, Full Service Carriers (FSC), such as Philippine Airlines, have seen their capacity increase in the same period by approximately 45%, or less than 5% per annum, from about 180 million seats in 2004, to 260 million seats in 2014.

CAPA stated that LCCs already account for almost 60% of seat capacity within Southeast Asia.

They are also rapidly expanding into the medium-haul market which will further put pressure on FSCs.

LCCs, including full-service airline group’s budget carrier subsidiaries, are still driving most of the growth in Southeast Asia and would continue through 2015, CAPA said. 

The region currently hosts 22 LCCs – most of them part of larger airline groups, 8 within AirAsia, and 4 in the Lion group.

Six of the 22 LCCs are affiliated with full-service groups: Citilink under Garuda, Jetstar Asia under Qantas, Jetstar Pacific under Qantas and Vietnam Airlines, Nok under Thai Airways, and Scoot and Tigerair under Singapore Airlines.

But these LCCs only account for 86 aircraft, or 16% of the total fleet, CAPA said.

The Philippines’ Cebu Pacific ranks third among LCCs in Southeast Asia. It expanded its fleet from 41 in end-2012 to 52 by end-2014, with a pending order of 40 aircraft.

As of January 2015, there are 6 medium and long-haul LCCs based in 5 Southeast Asian markets.

The rest of the world only has 4 long-haul low-cost operators, two of which also serve Southeast Asia, according to the CAPA report.

Consolidations

The year 2015 is seen to be the second consecutive year of slower growth and potentially the second consecutive year when most airlines would end in the red. 

“But improving market conditions, lower fuel prices, and restructuring efforts should at least reduce the losses/migrate to profit and allow new growth,” CAPA noted.

CAPA predicted that further consolidation of these LLCs would happen this year.

This follows a trend that saw Tiger Air Philippines, formerly partly owned by Singapore Airlines, become a wholly-owned subsidiary of Cebu Pacific in 2014.

Also, several airlines have again deferred aircraft or suspended expansion. AirAsia is planning to grow its A320 fleet by only 5 aircraft in 2015 after deferring or selling 24 of its original 29 deliveries.

Tigerair and Jetstar Asia have suspended expansion until at least 2016 while Cebu Pacific, Citilink and Nok expansion will be modest – 5 additional aircraft for each carrier.

CAPA said: “2015 could bring some more adjustments to the delivery stream along with consolidation. Capacity cuts by some of the flag carriers are also likely as they finally start to make some of the difficult decisions they have avoided for years.”

Another year of relatively modest growth will give the market a chance to catch up and finally absorb the huge influx of capacity that was added in 2013 and the first part of 2014, CAPA stated in its outlook report.

“As the region’s largest countries stabilize and demand recovers, the overcapacity concerns that have dogged Southeast Asia for the last 18 months should start to ease,” it said.

Fundamentals of the market remain favorable, particularly at the bottom end as the continued rise of incomes means more of the region’s 600 million people can afford to fly, while those who are already flying can afford to do so more often, CAPA said. – Rappler.com