World’s Safest Low Cost Carriers for 2015


AirlineRatings identified the top 10 safest low-cost carriers in the world (in alphabetical order):

AER LINGUS

ALASKA AIRLINES

ICELANDAIR

JETBLUE

JETSTAR

KULULA.COM

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MONARCH AIRLINES

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THOMAS COOK

TUI FLY

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WESTJET

AirAsia CEO Calls On Philippines To Ascend To ASEAN’s Open Skies


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AirAsia (AK, Kuala Lumpur Int’l) Group CEO Tony Fernandes has called on the Philippines to ascent to the Association of Southeast Asian Nations (ASEAN) multilateral Open Skies agreement. Fernandes argued that being part of the treaty would boost local tourism help while helping to drive down air fares through the introduction of competition.

However, the Filipino government has rejected the move on the grounds that the current standard of the country’s infrastructure – Manila in particular – would not be able to take the added pressure.

“The challenge in Manila is congestion,” Finance Secretary Cesar Purisima told the Philippine Flight Network. “We need to fix our infrastructure bottlenecks.”

In a bid to improve conditions at the ageing airfield, AirAsia’s local subsidiary, AirAsia Zest (Z2,Manila), has begun lobbying government to establish a new terminal at Manila airport dedicated to Low Cost Carriers stating that it is is willing to provide the design and expertise needed to get the project started.

While Manila’s issues are gradually resolved, Purisima has put forward a compromise – a “Pocket Open Skies” agreement in which select secondary airports throughout the country would be opened up to international traffic.

“We would love more connections and we thank Tony Fernandes for connecting cities in the Philippines to the rest of the region. We’ve seen the benefits of it,” said Purisima.

However, commentators have warned that any policy decisions taken must be made in consultation with Cebu Pacific Air (5J, Manila) and Philippine Airlines (PR, Manila) both of which have expressed grave concerns over the opening up of Filipino skies to the likes of Tigerair (TR, Singapore Changi),Malaysia Airlines (MH, Kuala Lumpur Int’l), Vietnam Airlines (VN, Hanoi), Garuda Indonesia (GA,Jakarta Soekarno-Hatta) and AirAsia (AK, Kuala Lumpur Int’l) among others.

The airlines argue that as privately run operations, they do not enjoy state-backing and would therefore be put at a serious disadvantage in comparison to some regional competitors whose governments both fund and protect them.

Philippines AirAsia (PQ, Manila) has meanwhile announced that it is considering relaunching operations from Clark from 2016 when the so called NLEX-SLEX Connector Road is expected to be completed cutting travel times between central Manila and Clark to 45 minutes. It had originally launched from Clark, not very successfully though, and then consolidated all operations in Manila as part of the cooperation agreement with Zest.

Source: http://www.ch-aviation.com/

Gulf Carriers Heat Up Competition in Asia Pacific Airline Industry


EK

There is a giant shift taking place at the moment in the commercial aviation industry as the extraordinary growth of Gulf carriers continues to be felt around the world. There is no slowing down of the region’s ambition to conquer as many long haul routes as possible, and if there were ever any doubts, they would have been dashed by their gigantic wide-body aircraft order (+350) at the end of last year.

While Airbus and Boeing are sporting rather large smiles, airlines in Asia and other markets are finding themselves having to rethink their approaches. Emirates, Etihad Airlines and Qatar Airways find themselves in one of the most advantageous locations, connecting Europe to Asia, North and South America, Africa and India. Add the seemingly unending economical investment from the region, and global airlines are reshuffling their strategies to keep up.

EY

Asian low cost carriers are responsible for the world’s largest aircraft orders this year, but the competition for full service and low-cost carriers in Asia is only going to get hotter. Emirates are aggressively expanding, carrying 39 million passengers in 2013, and aiming for 70 million annual passengers by 2020 according to the carrier’s CEO. The Gulf airlines are taking firm aim at the Asia Pacific region which is already affecting Asian carriers in some ways.

Garuda Indonesia remains the largest Asian carrier between the two regions; much of its capacity related to religious travel, with Cathay Pacific the second largest early in 2013, slipping to third place at the beginning of this year. Philippine Airlines has taken the number two ranking, largely driven by a demand for migrant workers. The Philippines has put pressure on long haul operations with new services between Manila to Dubai from Cebu Pacific, Philippine Airlines and PAL Express. With increasing saturation of the Philippines-Middle East market, and the addition of the Abu Dhabi to Hong Kong service from Air Seychelles (part owned by Etihad), Cathay Pacific is consolidating its network, recently announcing the end of its services to Abu Dhabi and Jeddah.

Garuda-Indonesia

Singapore Airlines which has always prided itself on its high service standards, faces competition not only on routes from Gulf carriers, but star rating too. Malaysia Airlines has been cutting costs and services for some time now, but reinstated its Kuala Lumpur to Dubai route in August of last year.

SQ

An increasing number of Middle Eastern-based airlines are eyeing long-haul, low-cost services as Saudi’s flynas (Nas Air) recently announced. The LCC intends on establishing connectivity to eight destinations in five countries, incorporating a 20×20 plan (20 million passengers by 2020).

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Vietnam Airlines are also facing competition from Middle Eastern carriers who have added more internationally connecting flights from Vietnam, and Saudi Arabian Airlines has just announced its intention to extend connectivity to over 200 destinations globally, including Japan, Vietnam and Taiwan.

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As some of these networks are reliant on seasonal religious festivals, and heavy one way traffic on routes attributed to employment, we can expect to see an adjustment in the way Asian carriers manage their Middle Eastern connections. Add the increasing expansion of UAE airlines who are fiercely building new networks globally and Asia’s enormous LCC growth, it is reasonable to expect that Asia-Pacific aviation is facing many more evolutions to come.

Manila is the World’s 10th Largest Low Cost Carrier Capacity


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Manila ranked as the 10th city in the world with the highest low cost carrier (LCC) seat capacity after New York, according to global travel technology provider Amadeus.

Amadeus Air Traffic, part of the company’s Travel Intelligence Portfolio of solutions, calculated the Philippine capital with an LCC capacity of 5.74 million seats for the first half of 2013 or two percent higher as compared to the same period last year.

The total capacity of Manila means that it is just a little over 850,000 seats behind New York City which is currently ranked ninth on the list.

However, two other Asian cities are currently outpacing Manila with Jakarta ranked third with a capacity of 9.38 million representing a 44 percent increase and Kuala Lumpur with 8.16 million seats or a rise of 15 percent from 2012. There are five low cost carriers operating in the Philippines, such as AirAsia Zest, Cebu Pacific, Philippines Air Asia, PAL Express and Tigerair Philippines. Eight out of 10 seats on the domestic market are low-cost carrier seats.

Amadeus LCC specialist Alexandre Jorre said that Asia is currently experiencing a big leap in services provided by LCCs across the region.

“We see a natural boom in LCC capacity across Asia, where point-to-point air travel is largely underserved. However, across the mature markets of Europe and North America capacity is constrained, which may explain why some LCCs are considering new approaches to secure future growth,” Jorre said.

London which saw a three percent increase in LCC capacity for the six months still dominates the market with a capacity of 14.77 million. It is followed by Sao Paolo with a capacity of 10.75 million or up seven percent the previous year.

Other cities ranked in the top 10 are Las Vegas, fifth with 7.52 million capacity; Denver, 6.90 million capacity; Chicago, 6.85 million capacity; and Barcelona, 6.70 million capacity.

With three Asian cities ranked in the top 10 in terms of LCC capacity, the region during the first half of the year also increased its LCC seat capacity by 28.70 percent to 129.30 million.

The other big regional jump in terms of LCC capacity were experienced by the Middle East which was up 17.70 percent to 13.50 million seats and Africa which rose 13.10 percent to 4.30 million

However, Europe and North America which grew by only 0.80 percent and 1.50 percent still holds the highest LCC capacity with 182 million and 154 million respectively.

“With a 25 percent year-on-year rise over the first half of 2013, LCC bookings in Amadeus are growing significantly. This is a very encouraging sign that our ability to adapt to LCC distribution needs is proving attractive to both travel agents and airlines. LCCs are seizing the opportunity we offer to penetrate the high-yield business travel market and expand into new regions where they have limited brand presence,” Jorre said.

The Amadeus Air Traffic can calculate estimates for total air passenger volume for any origin and destination worldwide, including those dominated by LCCs.

 

Source: Bernie Magkilat | Manila Bulletin

 

Budget Airlines Crowd Asia


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Asia’s skies are about to become more crowded. At least 10 new budget carriers are expected in the region by the end of next year, expanding fare choices for consumers but squeezing airline profit margins even more.

The growth in new routes is shifting east to highly congested and expensive centers such as Taiwan and Hong Kong, though Southeast Asia remains a lucrative market as more people turn to budget travel.

On Monday, Taiwan’s China Airlines Ltd. said it would team up with Singapore’s Tiger Airways Holdings Ltd. to launch Taiwan’s first budget carrier, hoping to link neighboring tourist and business hot spots when it starts service in the fourth quarter of 2014.

TransAsia Airways Corp. in Taiwan is also planning its own low-cost airline, while two other budget operations are being launched in neighboring Hong Kong, a first for the Chinese city.

“Taiwan is in an ideal location for low-cost carriers because the flight time to most destinations in Southeast and Northeast Asia is within four hours,” said Huang-Hsiang Sun, chairman at China Airlines. The carrier will own 90% of Tigerair Taiwan, with the rest to be held by Tiger.

Taiwan has been slow to embrace budget-airline travel because of a small domestic market, while earlier restrictions on air rights made it difficult for airlines to develop regional and international services.

The popularity of budget flights has forced many national carriers to slash fares to better compete against low-cost carriers.

By contrast, many Southeast Asian airports have the capacity to handle much more budget-related traffic. At Kuala Lumpur’s airport – home to AirAsia Bhd. – budget-airline flights often exceed those of full-service airlines.

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In Thailand, four new low-cost airlines are being launched, fueling more rivalry between the region’s two biggest no-frills operators, Lion Air and AirAsia.

The Thai unit of Indonesian discount carrier Lion Air started operations last week, taking on the local operations of AirAsia. Scoot, the low-cost long-haul unit of Singapore Airlines Ltd., said Monday it will start a Bangkok-based carrier with local budget airline Nok Air, to be called NokScoot.

In the Philippines, operating regional budget carriers include Cebu Pacific Air, PAL Express, AirAsia Zest, and Tigerair Philippines.

In Southeast Asia, where bustling economies and thrifty passengers have kept budget airlines profitable, low-cost carriers account for more than 52% of air capacity, according to consultancy CAPA-Center for Aviation.

That is more than double their share for all of the Asian-Pacific region. Fares between routes such as Singapore to Kuala Lumpur in Malaysia go for as low as US$20 on budget airlines, making the rates comparable with those of road-based transportation.

Faced with increased competition at home, established budget-airline brands in Southeast Asia have expanded into more costly locations in East Asia such as Japan, while South Korean airlines have started their own budget ventures.

But analysts and industry executives say that market still remains largely unproven, given the challenges of achieving scale alongside high airport fees and traffic bottlenecks. An executive at low-cost carrier Jetstar Japan Co. said earlier that ground-handling fees at the nation’s airports are “several times higher” than those in Singapore, adding to the airline’s cost burdens.

“Profit margins are very thin in East Asia because of high operating costs. Unless there’s strong government support, it will be very difficult for budget airlines here to achieve high utilization rates and turnaround times for their planes in order to turn profitable,” said Kelvin Lau, an airline analyst at Daiwa Securities. Adding to the constraints are the limited takeoff and landing slots at airports such as Hong Kong during daytime and evening peak hours.

But there is significant room for growth. In Hong Kong and Taiwan, budget airlines account for only 5% of available seat capacity, according to some market estimates, compared with about 30% to 35% in Singapore.

Budget carrier Hong Kong Express Airways Ltd. sold more than 200,000 seats in just two-and-a-half months since its launch, after the former full-service airline converted into the city’s first short-haul budget airline.

 

Source: The Wall Street Journal

Too many LCCS Breed ‘Irrational’ Competition, Cause Huge Losses


Source: Lenie Lectura, Business Mirror

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THE promise of low fares, new destinations and the cheapest airline tickets available are all that interest Filipino travelers, making domestic low-cost carriers (LCCs) not just popular but very strong as an industry.

LCCs in 2012 accounted for more than 80 percent of domestic passengers, giving it the highest LCC penetration rate in the world among medium- and large-size markets, the Civil Aeronautics Board (CAB) said.

“They ruled the skies. The concept of expensive travel via an airplane is no longer true. They continue to offer promo fares, more seats, more flight schedules,” said CAB Executive Director Carmelo Arcilla in an interview.

This year the share of low-cost seats in the domestic market is seen to jump by a single digit, from 80 percent last year, Arcilla said.

There is no stopping the LCCs from expanding. However, their rapid capacity expansion, in a bid to serve more Filipinos who love to travel, has led to overcapacity.

Aviation think tank Centre for Asia-Pacific Aviation (Capa) said there are just “too many” LCCs in the Philippines, with the “overcapacity and irrational competition” resulting in losses or lower profits for budget airlines.

There are five LCCs operating in the country. These are Cebu Pacific, PAL Express, Zest Airways, Tiger Airways Philippines (formerly Seair) and AirAsia Inc.

The losses of AirAsia Inc., operating as Philippines’ AirAsia (PAA), reached $38 million from April 2012 to June 2013. It transported 551,000 passengers during this period, corresponding to average operating loss of $68.50 per passenger, according to Capa.

Tiger Air Philippines incurred total losses of $48 million over the past year, Capa said in its July 2013 report.

To address their financial problems, the LCCs beefed up their war chest by getting new partners. Some acquired fuel-efficient aircraft and others tested new and untapped markets.

The competing LCCs include Seair, which became TigerAir Philippines when Singapore’s Tiger Airways completed its 40-percent investment in August last year.

Seair faces intense competition, ranked as fifth-largest LCC in a crowded and highly price-sensitive Philippine market. It may take some time for the carrier to become profitable as it continues to build its presence through network expansion and increasing its distribution and payment channels.

AirAsia Inc. also entered into a partnership and cross-ownership deal with Zest Air, which gives AirAsia access to the lucrative Manila market.

In March AirAsia forged a partnership and equity tie-up with Zest Air that resulted in the former taking a 49-percent stake in Zest Air. In exchange, Zest Air owner Alfredo Yao took a 15-percent stake in AirAsia as PAA’s original owners—Michael Romero, Marianne Hontiveros and Antonio Cojuangco—reduced their stakes from 20 percent to 15 percent. AirAsia Berhad’s 40-percent stake in PAA remained unchanged.

Capa also noted that AirAsia Inc.’s decision to drop its Clark hub in favor of Manila was a wise move to end its financial struggle. “With AirAsia’s upcoming move to Manila, it hopes to reduce costs at a critical juncture by pursuing a more integrated operation with Zest Air. This should improve the financials of both carriers,’ said Capa in its September 19 report.

Capa pointed out that AirAsia could use slots held by Zest Air, which has the third-largest portfolio of slots at the Manila International Airport after Philippine Airlines (PAL) and Cebu Pacific.

Zest Air currently operates 13 routes from Manila, including nine domestic routes and four international routes—Kuala Lumpur and Kota Kinabalu, both of which are AirAsia Malaysia hubs, along with Shanghai and Seoul. AirAsia aircraft may be used to operate some Zest Air flights on the 13 existing Zest routes.

“While AirAsia has consistently been in the red since its March 2012 launch, Zest has also struggled financially and prior to the AirAsia deal it had been seeking new investors for a couple of years. Both carriers are optimistic that combining at Manila will improve their fortunes,” Capa said.

Zest flights are now available on the AirAsia web site and the carriers are in the process of integrating further, culminating in Zest Air adopting the AirAsia brand.

“LCCs have to stimulate the market. Expanding their network by integrating with foreign airlines is one of the solutions to plug their losses,” Arcilla commented.

Meanwhile, PAL’s budget arm, PAL Express, has been expanding its route network.

“Rationalization has come to the market in the form of consolidation,” Capa noted.

Arcilla said rationalization via consolidation is a global phenomenon in the aviation industry. It is not unique to the Philippines. “The airline industry is a very complicated industry that is subject to serious risks. That’s why the airlines need to be innovative and getting a partner is one of the solutions, particularly when margins are going down,” the CAB official said.

Cebu Pacific, for instance, said that while it recoded high passenger traffic in July and August this year, margins were still quite small.

“The revenue looks positive in terms of volume, but not so positive in terms of unit price. We have very good growth in passenger traffic, particularly in July and August. They’ve grown, but came into the expense of substantially lower yields,” Cebu Pacific President Lance Gokongwei said.

Cebu Pacific remained the country’s leading domestic carrier, with 5.4 million passengers flown at end-June this year, up 9 percent from 4.9 million in 2012. Its load factor also rose to 81.5 percent from 78 percent last year.

In all, the CAB reported that the number of domestic passengers stood at 10.77 million at end-June from last year’s 11.01 million.

Seven airlines reported an average seating capacity of 13.9 million in the first six months and an average load factor of 77.5 percent. Load factor is the number of occupied seats per flight.

Other innovations noted by Arcilla include airline’s indirect ticket selling via Internet and offering of snacks and other amenities previously enjoyed only by passengers of full-service airlines. “LCCs have to be competitive. Aside from low fares they have to offer something to entice more passengers,” he said.

Capa said the consolidation is good for all Philippine carriers. It said Cebu Pacific and PAL would almost certainly weather the storm and stand to benefit from the inevitable consolidation.

While the domestic market is not good for budget airlines, Capa said there are still opportunities to make inroads in the international market, particularly for medium-haul routes.

Cebu Pacific plans to launch its new A330 operation in mid-2013 on routes to the Middle East, as well as within Asia and Australia.

Capa also said PAL could fight off its rival by expanding its budget unit PAL Express into the long-haul market. The flag carrier may allocate some of the A330s scheduled for delivery this year to PAL Express.