Business Model Lines Blur as Budget, Legacy Airlines Slug it out


By David Leo, TODAY

The line between legacy airlines and budget ones continues to blur as more budget carriers fly beyond the four-to-five-hour range, eyeing markets traditionally served by full-service operators. AirAsia’s addition of Honolulu as a destination is just the latest.

At the same time, legacy airlines are starting budget offshoots, such as Lufthansa’s Eurowings and Singapore Airlines’ Scoot.

 

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Eurowings operates non-stop from Cologne and Bonn to destinations in the US (Seattle, Orlando, Miami and Las Vegas).

Long-haul operations are usually tough on the business models of budget airlines — fuel prices are a higher percentage of a budget carrier’s operating expenses — and there is no telling how long fuel prices will stay at their current low levels.

The longer the flight, the higher the expectations of creature comforts. But new and more fuel-efficient long-range aircraft are making it possible for low-cost carriers to ply the same distant routes that have traditionally been the domain of the big guys.

Reaching further

Budget aviation history is dotted with the failure of many who tried to go farther and failed. Yet, ambitious entrepreneurs, from Sir Freddie Laker — who pioneered the trans-Atlantic no-frills model in the 1970s with his Skytrain service — to AirAsia founder Tony Fernandes, keep trying.

This is the spirit of adventure that keeps the industry learning and thriving.

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Singapore based Scoot is looking beyond India and the Mideast to destinations in EU, starting with Athens in June. 

In June, AirAsia will introduce flights from Kuala Lumpur to Honolulu under its long-haul AirAsia X banner, becoming the first budget airline approved by the US Department of Transportation for operations between the US and Asia.

The flight will clock 16 to 18 hours, including a two-hour transit stop in Osaka. There will be four weekly services.

Mr Fernandes made a similarly bold move back in 2009, launching services to London, and, in 2011, to Paris. He did it despite the collapse in 2008 of Hong Kong’s Oasis Airlines, which commenced services to London (Gatwick) in 2006 followed by services to Vancouver in 2007.

Before it folded, Oasis was voted “World’s Leading New Airline” at the 2007 Annual World Travel awards.

Ultimately, Mr Fernandes also suspended AirAsia X’s operations to London and Paris in 2012, because of high fuel prices and weak demand.

Yet that setback has not stopped him from launching new services to Honolulu.

He has also confirmed that Air-Asia X will resume operations to London when the airline receives its new, more economical long-range Airbus A330-900neo fleet in 2018. Rome and Frankfurt are also in the plans.

More than just dollars

Price is a budget airline’s main feature and attraction. AirAsia’s introductory offer of RM2,300 (S$731) for a return ticket from Kuala Lumpur to Honolulu is a steal.

There will be takers, but unless AirAsia is able to grow the traffic for the route, the limited market may not be able to sustain it in the long run.

Honolulu is very much a leisure destination.

 

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AirAsia depends on feeds from its regional connections in countries such as Indonesia, Thailand and India. 

But AirAsia faces competition on this route from legacy airlines such as Japan Airlines, Korean Air, Air China, China Airlines and Philippines Airlines, whether direct from their home bases or in code-share arrangements with partner airlines such as Delta Air Lines and United Airlines.

Besides, tour planners for the US West Coast that include Honolulu as part of the itinerary are inclined to favour connections from San Francisco or Los Angeles.

AirAsia therefore cannot depend solely on point-to-point traffic between Kuala Lumpur and Honolulu.

Tweaking the model

As budget and legacy airlines continue to borrow ideas from one another, that is where the line blurs.

Full-service airlines are increasingly unbundling their products and offering meals and baggage space as add-ons.

British Airways is the latest airline to stop offering free meals for the short-haul, and ironically, Delta is considering re-introducing complimentary refreshments.

 

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A number of legacy airlines adopted the budget model of charging for checked baggage and while the global standard is one carry-on, Ryanair surprises by allowing two pieces. 

Ryanair too has become more customer focused, expunging its erstwhile terse take-it-or-leave-it attitude.

Some budget carriers are already offering premium class products, especially for the medium to long haul, to attract business travellers and others.

A common playing field can only mean cheaper seats for all. For passengers, that, at least, is the hope.

 

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Airline of the Year 2016


Airlineratings.com Airline of the Year Awards:

Airline of the Year: Air New Zealand

Best Business Class: Singapore Airlines

Best Economy: Air New Zealand

Best First Class: Etihad Airways

Best Low Fare Carrier (Asia/Pacific): Scoot

Best New World Carrier: Virgin Australia

Best Premium Economy: Air New Zealand

Inflight Entertainment Award: Singapore Airlines

Long Haul (Asia/Pacific): Cathay Pacific

Regional Airline Award: Silk Air

 

World Airline Awards 2015: 10 Best LCCs In Asia


1. Air Asia (Malaysia)

2. Air Asia X (Malaysia)

3. IndiGo (India)

4. Jetstar Asia (Singapore)

5. Scoot (Singapore)

6. Peach (Japan)

7. SpiceJet (India)

8. Tiger Airways (Singapore)

9. Nok Air (Thailand)

10. Spring Airlines (China)

Cebu Pacific Long-Haul LCC Hybridises By Pursuing Transit Traffic, Starting With Sydney-North Asia


5J1Cebu Pacific Air’s long-haul unit is entering a new phase of growth which will also see it evolve to pursue more transit traffic. Cebu Pacific initially envisioned a pure LCC model for its long-haul low-cost unit, relying almost entirely on point to point traffic, but is now looking to build up connections, particularly to feed its new ManilaSydney route.

In Sept-2014 Sydney and Kuwait will become Cebu Pacific’s second and third long-haul destinations afterDubai, where its performance has improved in recent months following a dismal start in 4Q2013. The carrier’s A330 fleet, which now consists of four aircraft with a fifth to be added by the end of Aug-2014, has until now been primarily used to upgauge short-haul routes.

The upcoming launch of services to Australia and Kuwait will be followed by Saudi Arabia in 4Q2014 and Hawaii in early 2015. Sharjah may also be launched in 2015 as Cebu Pacific considers leasing additional A330s.

This is the first in a two part series of analysis reports on Cebu’s now 14-month-old widebody operation. This part focuses on the new Manila-Sydney route and connection opportunities beyond Manila. The second part, to be published later this week, will look at Cebu’s plans for Saudi Arabia and the prospects of a Sharjah service. It will also examine the overall PhilippinesUAE market including Cebu’s performance in Dubai.  

Cebu Pacific currently has just one long-haul route

Cebu Pacific began operating A330s in Jun-2013, becoming the fourth LCC in the Asia-Pacific region with widebodies after Jetstar, AirAsia X and Scoot. Daily services to Dubai were launched in early Oct-2013 after an initial period of operating the first two A330s on regional routes.

Cebu Pacific currently uses its A330-300 fleet for Dubai and several short-haul routes. Some frequencies from Manila to Singapore, Seoul, Cebu and Davao are operated regularly with A330s. The A330 is also being used to Tokyo Narita during select days for the peak northern summer season and has previously been used to serve Hong Kong during peak periods. (Cebu Pacific is unable to use the A330 regularly on the Manila-Hong Kong route due to bilateral capacity constraints unless it reduces frequencies, which is not a sensible alternative as slots at Hong Kong are at a premium and Cebu Pacific would like to maintain its current Manila-Hong Kong schedule of four daily flights.)

Cebu Pacific currently operates four A330-300s in single-class configuration with 436 seats. Cebu Pacific is the only long-haul LCC with an all-economy configuration. Jetstar, AirAsia X and Scoot all offer a premium product, with Jetstar and Scoot providing a recliner style seat and premium economy-like product while AirAsia X offers an angled lie-flat business seat.

Cebu Pacific still does not see a need to introduce a premium product as its target market is overseas workers. The Philippine market is extremely price sensitive with limited premium demand.

Cebu Pacific long-haul low-cost model evolves to focus more on transit traffic

Cebu Pacific however is starting to recognise the value of feed. Its initial long-haul model envisioned relying on point to point traffic with a focus on the Manila-Middle East market. This market consists predominately of Filipino workers and to a lesser extent visiting friends and relatives (VFR) as Cebu Pacific’s low fares stimulate more frequent visits by families living back in the Philippines as well as more frequent trips home by the expatriates.

Cebu Pacific for several years has offered a transit product which, for an additional fee, offers a through check-in including transfer of checked bags. But the carrier’s overall portion of transit traffic is very low – less than 5% – including from widebody flights. Cebu Pacific has no intention of migrating to an origin and destination pricing model or starting to work with global distribution system providers, initiatives AirAsia X has adopted in pushing up its transit traffic component to nearly 50%.

Cebu Pacific plans to stick with a traditional sum of sectors LCC approach in pricing connections. The airline, however, is hybridising to some extent by promoting more connections between Cebu Pacific flights and onto flights operated by other airlines.

Cebu Pacific recently began interlining with Tigerair, its first interline partnership with another LCC. It also recently worked with Middle Eastern LCCAir Arabia to promote connections beyond Sharjah, which it served for 12 weeks during the recent runway closure at Dubai, but not through a formal interline or IT link. (The potential of a deeper relationship with Air Arabia will be examined in the second part of this series of analysis reports.) 

Cebu Pacific sees its Manila-Dubai route, which resumed in late Jul-2014 after the Dubai airport fully reopened, as continuing to consist nearly entirely of point to point traffic. But Cebu Pacific is aiming to generate a larger portion of transit passengers on its new Sydney-Manila route, which it plans to launch on 9-Sep-2014 with four weekly flights. The general manager of Cebu Pacific’s long-haul division, Alex Reyes, told CAPA prior to CAPA’s recent Australia Pacific Aviation Summit in Sydney that the carrier is particularly pushing connections to Hong Kong.

Cebu Pacific has opportunity to stimulate demand in Sydney-Hong Kong market

Sydney-Hong Kong is a large local market served with five daily non-stop flights, including four from Cathay Pacific and one from Qantas. But the market has not grown over the past several years due to bilateral constraints.

The Sydney-Hong Kong market generally suffers from higher average fares than other large Sydney-Asia city pairs such as Singapore, Kuala Lumpur and Bali because it lacks a non-stop LCC option. (Singapore, Kuala Lumpur, Hong Kong and Bali are all top 10 international destinations from Sydney based on current seat capacity.)

Singapore Airlines long-haul LCC subsidiary Scoot serves Singapore-Sydney while AirAsia X serves Kuala Lumpur-Sydney and Jetstar serves Bali-Sydney. AirAsia X’s new Indonesian affiliate is also expected to launch Bali-Sydney service by the end of 2014.

Scoot and AirAsia now offer a one-stop product in the Sydney-Hong Kong market but routing passengers via Singapore or Kuala Lumpur is more circuitous than Manila. Currently the fastest connections on AirAsia/AirAsia X from Sydney to Hong Kong is about 16 hours (with a layover in Kuala Lumpur of about three hours) while the fastest connection from Hong Kong to Sydney is about 14 hours (with a layover of only slightly more than one hour). Scoot connections are generally longer, ranging from 15 to 19 hours (includes Singapore-Hong Kong flights operated by Scoot and Scoot partner Tigerair).

In comparison, Cebu Pacific will offer a total journey time of about 12 hours in both directions (slightly less than 12 hours on Sydney-Hong Kong and slightly more than 12 hours on Hong Kong-Sydney). Cebu’s Sydney-Manila flight lands at Manila at 17:30, or 100 minutes before the last of Cebu Pacific’s flights from Manila to Hong Kong. The third of Cebu Pacific’s four daily flights from Hong Kong lands in Manila at 21:30, or just under three hours before the new 00:15 departure for Sydney.

Cebu Pacific is also offering an array of domestic connections at Manila, which will particularly be targeted at Australians going on holiday because the main leisure destinations in the Philippines (such as the islands of Boracay and Palawan) can be only accessed by domestic flights. Cebu Pacific is hoping to stimulate demand in the outbound Australian market – which grew by 25% over the last two years – although the Filipino worker and VFR segment is its main focus. Cebu Pacific says there are about 170,000 Filipinos living in Australia, including about 70,000 in New South Wales, while in 2013 only 56,000 Australians visited the Philippines.

Manila well positioned as hub for Australia-North Asia market flows

There are huge opportunities for the Philippines’ emerging tourism sector to attract more Australians, particularly as lower fares make holidays in the Philippines as inexpensive as Bali. But there are likely more growth opportunities for Cebu Pacific in carrying passengers beyond Manila – both Australians and North Asian residents.

Manila is geographically well positioned for connections between Sydney and North Asia in addition to the obvious example of Hong Kong. In his presentation at the CAPA Australia Pacific Aviation Summit on 6-Aug-2014 Mr Reyes said there is a big opportunity to carry Sydney passengers beyond Manila and added: “We want to get people to hop to North Asia.”

Mr Reyes singled out Beijing, Seoul, Shanghai, Taipei and Tokyo as well as Hong Kong. He pointed out that flight times from Manila to all these destinations are two or three hours less compared to Kuala Lumpur.   

But quick connections will only be available in both directions for Hong Kong. Beijing, Seoul, Shanghai, Taipei and Tokyo are only served by Cebu Pacific from Manila with one daily flight or less, making it more difficult to offer a competitive product from a schedule perspective. AirAsia X generally provides faster transit times as it serves most of these destinations as well as Sydney with two daily flights. Among these five destinations Scoot currently only provides a one-stop product in the Sydney-Taipei market.

AirAsia X has become a major player in the Australia-North Asia market over the past year as it has added a second daily flight to Sydney,Melbourne and Perth, providing a huge increase in capacity that could be not supported entirely by the Malaysian market and connections withinSoutheast Asia. The entrance of Cebu Pacific adds even more LCC capacity in the Australia-Southeast Asia market, providing another increase which once again will require a significant share of connecting traffic to North Asia to be sustainable.

With the launch of services from Cebu Pacific, Australia will have all four long-haul LCCs from the Asia-Pacific region with over 100,000 weekly seats. This includes about 50,000 seats from Australia-based Jetstar Airways, which has roughly two thirds of its international capacity at its long-haul unit. There are also about 45,000 weekly short-haul LCC seats in the Australian international market operated by Jetstar Airways, Jetstar Asia,Indonesia AirAsia, and Tigerair.

Cebu Pacific could attract Taiwan, South Korea, Japan and China traffic at Sydney but needs to improve schedules

Cebu Pacific could still attract some price sensitive customers in the Sydney-North Asia excluding Hong Kong market who do not mind long layovers or stopovers in Manila in one direction. But the real volumes would come if and when the carrier adds frequencies in its North Asian markets.

Cebu Pacific has the setup in Manila to offer fast connections but without the schedules this will not be fully utilised. Mr Reyes says Cebu’s integrated operation at Manila Terminal 3 enables connections in as little as one hour with through baggage.

Taipei, which is already a large connection market for the Australian long-haul low-cost operations of Scoot and AirAsia X, could particularly be attractive if Cebu Pacific expands on the Manila-Taipei route. Currently Cebu Pacific’s only flight from Taipei arrives in Manila at 03:05, or three hours after the Sydney flight departs (requiring a 21 hour connection time), while from Sydney to Taipei a transit time of just under five hours is available. There are currently only four non-stop weekly flights from Sydney to Taipei, all on full-service flag carrier China Airlines.

In the Sydney to Beijing, Shanghai and Seoul markets a long connection (15 to 20 hours) is similarly required on the return. Tokyo has about a 12 hour connection from Sydney and about an eight hour connection on the return. Connections to Japan could improve as Cebu Pacific has been expanding rapidly in the Japanese market since a new bilateral agreement last year opened up opportunities for Filipino carriers. Cebu Pacific over the past year has launched services to Tokyo Narita and Nagoya, while upgrading Osaka, which had been its only Japanese destination, to daily and is now seeking to take over one of the two daily flights to Haneda recently dropped by PAL.

Narita is currently the only Japanese airport served non-stop from Sydney, according to OAG data. The route is served only by full-service carriers, with Qantas and oneworld partner Japan Airlines each operating one daily flight on the route. Jetstar serves Tokyo from Cairns, Gold Coast and Melbourne with domestic connections at both ends, using Jetstar Airways from the three Australian gateways (including to Sydney) and Jetstar Japan from Narita.  

Opportunities for Cebu Pacific in the Sydney-mainland China market, which has emerged as a large target market for AirAsia, are more limited as Cebu Pacific doesn’t have as large a network in China. It currently serves the three major Chinese cities – Beijing, Guangzhou and Shanghai – with less than daily flights and has only one secondary destination – Xiamen, which is served with only two weekly flights. Growth in China is not likely at least for the short to medium term given the current state of relations between China and the Philippines.

But Hong Kong – and potentially other North Asia connections as Cebu’s schedule thickens – will clearly play a big role in Cebu Pacific’s performance in the Sydney market and be a factor in potential expansion into other Australian markets. Mr Reyes says that since ticket sales for the new Sydney-Manila route began in mid-Jun-2014 booking have been “quite good”.

Further Australia expansion possible if bilateral is extended

Cebu Pacific plans to increase Sydney from four to five weekly flights from Dec-2014. A further expansion to Australia is possible in 2015 but requires an expansion of the Australia-Philippines air services agreement.

See related report: Cebu Pacific’s Australia launch falls victim to old fashioned protectionism and mercantilism

The current bilateral is capped at 6,000 weekly seats, with 2,200 now allocated to Cebu Pacific and 3,800 to Philippine Airlines. This cap applies only to Melbourne, Sydney, Perth and Brisbane; Philippine carriers are free to serve other Australian airports with unlimited capacity.

PAL is expected to fully utilise its capacity allocation from Dec-2014, when it plans to upgrade Sydney from four weekly to daily flights. Philippine authorities are keen to expand the bilateral which would enable both Cebu Pacific and PAL to expand. Mr Reyes says Cebu Pacific is interested in serving multiple destinations in Australia.

With additional traffic rights Cebu Pacific could launch Melbourne as early as 2015 and upgrade Sydney to daily. PAL has said it is interested in launching non-stop service to Perth and Brisbane. (Brisbane is now served three times per week via Darwin while Perth was also briefly served via Darwin in 2013.)

Cebu Pacific could also eventually serve Perth and Brisbane but Melbourne is more likely in the near to medium term. Cebu Pacific sees Perth as a potential destination for its future fleet of A321neos as the market is likely too thin to support an A330. It does not believe the A321neo will have the range to serve Brisbane although this could be re-examined after the new type enters service.

Cebu Pacific faces huge challenges as Sydney service commences

Cebu Pacific however first needs to build a sustainable business case in Sydney, which could prove to be challenging. Cebu Pacific will have to overcome stiff competition and potential overcapacity on the Manila-Sydney route.

Qantas serves Sydney-Manila with four weekly flights while PAL’s recent decision to increase Sydney to daily in response to Cebu’s entrance puts pressure on a market which has traditionally been relatively small with large seasonal fluctuations. While PAL has been in Australia for decades Cebu Pacific is a relatively unknown brand in the Australian market.

Sydney has a relatively large Filipino population but the community is not large enough to support 16 weekly flights except during peak travel periods such as Christmas and Easter. The 16 flights will provide about 2,200 one-way seats, nearly double current capacity levels.

Transit traffic to North Asia should help but Cebu Pacific will face stiff competition in the Sydney-North Asia market from more established long-haul LCCs, particularly AirAsia X, which is now the fourth largest foreign carrier in the Australian market. Cebu Pacific will need to increase frequencies in several key North Asia markets in order to offer attractive connections from Sydney to cities other than Hong Kong.

To be competitive and build a sustainable operation in Australia Cebu Pacific may also have to consider adopting an origin and destination pricing model and pursuing stronger relationships with travel agents, including online travel agents. Cebu Pacific is entering the Australia-Asia market at a time competition is extremely intense, pressuring yields and load factors at all airlines. It will take a lot more than low fares and a low cost structure to carve out a profitable niche.

Source: CAPA, Centre for Aviation

Making Low Cost, Long Haul Flights Work: Migrant Class


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LOW-COST long-haul flying has been a notoriously difficult nut to crack ever since Laker Airways, a transatlantic British airline, introduced the concept in 1977. It went bust five years later. Numerous other carriers have since come and gone, but none has managed to combine bargain airfares with long-haul intercontinental flights and survive. Michael O’Leary, the boss of Ryanair, Europe’s largest low-cost carrier, continues to whet appetites with promises of €10 ($14) flights to North America. But bombastic claims are nothing new for Mr O’Leary, who privately admits that the cost of aircraft and high fuel prices mean it is not currently practical.

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Air Asia X of Malaysia

Interesting, then, that Asian airlines are having rather more success in the field, albeit with some false starts. In 2009 AirAsia X, the long-haul subsidiary of AirAsia, a Malaysian carrier, began offering £99 ($168) fares from Kuala Lumpur to London. On the day of the inaugural flight, Brent crude oil was trading at $45 per barrel. Three years later, when the route was abandoned, it stood at $125. Today a barrel of the black stuff sets you back $112. Given that fuel typically accounts for about a third of an airline’s costs, flying a widebody plane for 13 hours on the cheap is a decidedly challenging proposition.

Yet AirAsia X lives on. The airline today operates intercontinental routes from Kuala Lumpur to Jeddah, Saudi Arabia and several points in Australia. Tony Fernandes, its chief executive, says London flights will eventually return, though not on the same fuel-guzzling four-engine Airbus A340s. “We had the wrong aircraft,” he admitted last year. Orders for 37 new A330s and 10 next-generation A350s—both twin-engine aircraft—should improve his chances next time. Mr Fernandes will also be able to choose from multiple points of origin, with AirAsia X subsidiaries launching in Bangkok, Thailand and Bali, Indonesia.

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Cebu Pacific Air of the Philippines

Two other Asian low-cost carriers are exploring the model: Cebu Pacific of the Philippines, and Singapore Airlines’ subsidiary Scoot. Cebu Pacific received its first widebody A330 last summer, and now deploys four of the jets on regional flights plus one long-haul route to Dubai. In September, Kuwait and Sydney will join the network. Unlike AirAsia X, which offers a business-class cabin to entice some premium passengers, Cebu Pacific positions itself as radically low-cost. Its all-economy A330s are crammed with 436 seats (by way of comparison, Etihad seats 231 people on the same aircraft). As well as doing away with frivolities like legroom, baggage and food, Cebu Pacific makes little effort to facilitate onward journeys with partners. “We find that our passengers have learned how to self-connect,” Lance Gokongwei, its chief executive, says. If that means adding several hours to an already lengthy journey, then so be it.

Scoot of Singapore
Scoot of Singapore

This works for Cebu Pacific because the majority of its customers are migrant workers—one in ten Filipinos live abroad—who shoulder the burden stoically. For them, cost is the most critical factor when booking a flight. Hence Mr Gokongwei’s reluctance to sign interline or codeshare deals with local carriers. Although this would make travelling more bearable, it would also undermine the no-frills model by restricting flight times and layering on costs.

Norwegian Air Shuttle
Norwegian Air Shuttle

Would this model work in Europe or America? When AirAsia X pulled out of London in 2012, it blamed taxes for the failure. That was nonsense. Fuel prices alone sounded the death knell, and would probably do so again today even with A330s. There are only three ways for an airline to beat high fuel costs. One is to boost revenue by adding sizeable business-class cabins (at which point your low-cost credentials go out the window); another is to boost revenue by cramming in passengers like sardines (which Filipino workers will tolerate, but others may not); the last is to buy ultra-fuel-efficient planes that reduce your operating costs. Norwegian Air Shuttle hopes to do the latter with its Boeing 787 Dreamliner flights from London to New York. But because modern jets cost the most to lease, the fares are hardly rock bottom. Return flights start at £360—a far cry from Mr O’Leary’s €10 tickets. If Europeans and Americans want genuinely low-cost long-haul flights any time soon, they will have to look to the Philippine model. Many might think that too high a price to pay.

Source: MR, The Economist

Low Cost Carriers In Asia: Too Much Of A Good Thing


 

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After a binge of aircraft-buying and airline-founding, it is time to sober up.

SOUTH-EAST ASIA’S low-cost airlines have gone from feast to famine. Cheap, short-haul, no-frills flying came late to the region, but people have taken to it eagerly. In just ten years, according to the Centre for Asia Pacific Aviation (CAPA), a research firm in Sydney, low-cost carriers’ share of the region’s aviation market has soared from almost nothing to 58%. In Europe, where cheap airlines have been flying for much longer, easyJet and its fellows account for only about 40%. Now South-East Asia’s skies are looking crowded.

The rise of low-cost carriers reflects pent-up demand for flying in an increasingly well-off part of the world. This year another 12 such airlines may join the 47 already flying in the Asia-Pacific region. This week it was reported that Beijing is planning a new, $14 billion airport. In South-East Asia growth has been particularly strong: many of its 600m people live in large archipelagic countries, such as Indonesia and the Philippines, where flying is the easiest way to get around. Of the world’s 15 busiest low-cost international routes, nine are in South-East Asia. All this demand requires aeroplanes: CAPA says South-East Asia is the only region where there are more planes on order than in existing fleets.

However, the expansion of airlines’ capacity seems to be getting ahead of the growth in demand. Some low-cost carriers are struggling to fill their seats. Plusher airlines are feeling the pinch, too: this week Cathay Pacific said that despite strong long-haul profits, competition from budget airlines was starting to hurt it on short-haul routes. Singapore Airlines expressed similar worries earlier this month. Con Korfiatis, former boss of Jetstar Asia, the low-cost arm of Australia’s struggling Qantas, believes that “the growth in the market will definitely be there, it’s just a matter of introducing too much capacity too soon.”

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Cebu Pacific of the Philippines

On May 2nd Singapore-based Tigerair announced a loss of $177m in the year to March, up from $36m the year before. Several of its national affiliates, notably in Indonesia and Singapore, have fared particularly badly. The company is grounding planes and cancelling orders. AirAsia, usually the most bullish of low-cost flyers, has also said it is deferring deliveries of new planes and concentrating instead on cutting costs. Jetstar Asia says it has suspended all growth plans until market conditions improve.

Tigerair blames the industry’s overcapacity for its difficulties. But another problem is that the carriers’ costs are not as low as they would like. Most of South-East Asia’s showy, expensive airports are running at full capacity, overwhelmed by unpredicted millions of passengers. New landing slots are desperately hard to find. Unlike Europe, the region has few smaller, cheaper or disused airports that low-cost carriers can use.

Despite the gloom, part of the market still looks promising. Two of the carriers expected to take off this year, NokScoot and AirAsiaX, both joint ventures based in Thailand, will be offering medium- to long-haul flights (ie, lasting more than four hours). Although the short-haul market is saturated, this business still has plenty of room to grow.

PQENROUTETORPVK

Scoot, the low-cost arm of Singapore Airlines, and Cebu Pacific of the Philippines have also been exploring this business. Campbell Wilson, Scoot’s boss, says that adding just one Scoot flight a day to the existing seven full-service trips between Singapore and Sydney pushed up total passenger numbers on the route by 32% in six months. That is impressive, but margins are tight on low-cost long-haul, because passengers expect more comfort on longer journeys. No one has yet worked out how to make money on these flights. Two new, fuel-efficient aircraft, Boeing’s 787 “Dreamliner” and Airbus’s A350, could just change that. Let battle commence.