Budget carriers race for Asian destinations
Saturday, 17 November 2007
Bradley Perrett
Singapore's Tiger Airways will establish a franchisee airline with the South Korean city of Incheon, racing against rivals to set up in untapped markets and exploit the huge potential of no-frills aviation in Asia.
The latest expansion move by the budget carrier, 49 per cent owned by Singapore Airlines, will create perhaps the most widely spread narrow-body operation in the world.
Once Incheon Tiger Airways starts up, Tiger-branded A320 services will extend across a region stretching from near the North Korean border to Hobart in southeastern Australia, 9,100 km. (5,700 mi.) away-from 37ºN to 43ºS-and as far west as Cochin (Kochi) in India, 9,300 km. (5,800 mi.) from Hobart.
Such a geographical spread would be comparable with Britain's Easyjet, extending its network from Northern Ireland to Japan and India.
But while Tiger's operations will be wide, they will also be thin: the carrier has a mere nine A320s in service and 41 on order, with options on 20 more that would be delivered by 2016.
"It is a race between AirAsia, Tiger Airways, Jetstar and maybe Lion Air" to stake claims to Asian markets, says Paul Yong, an analyst with DBS Vickers Securities in Singapore. "The early-mover advantage is not only about establishing a brand. It is also about getting airport slots."
Tiger isn't saying when the new business, to be owned in partnership with the Incheon municipality, will begin flying, but it confirms the services will reach out to South Korea's big neighbours.
"With the buoyant economic growth in North Asia, the infrastructural heritage of the Incheon authorities and the strong track record of Tiger Aviation, travelers in Korea, China and Japan can look forward to enjoying affordable, fuss-free, point-to-point travel in North Asia and beyond," Tiger says.
The core Tiger operation based in Singapore is already flying as far north as Xiamen in southeastern China, so it wouldn't be surprising to see the Korean business reach down to the same city, so aircraft can be smoothly transferred between the affiliated companies for maintenance.
As with Tiger's Australian subsidiary, the South Korean unit is expected to begin with five aircraft from the parent company's October order for 30 A320s, which, like all its aircraft, will be powered by IAE V2500 engines. Tiger seems very likely to take up its A320 options, given the opportunities in the immense geographical spread of its operations.
Yong says budget airlines have just 9 per cent of the Asian market, compared with 29 per cent in the U.S. and 26 per cent in Europe. Tiger operates a pure no-frills model, and the key to its business strategy is franchising. Like McDonald's System Inc., it seeks to supply its brand and operational know-how to franchisees, whose operations appear to be part of a single, widely spread company.
Two rivals-Malaysia-based AirAsia and the Jetstar unit of Australia's Qantas Airways-are adopting a similar strategy, and for the same reason: to get around the nationality requirements that prevent an airline of any Asia-Pacific country from flying between two other countries.
AirAsia has franchisees in Thailand and Indonesia. Jetstar has one in Singapore while its parent, Qantas Airways, has bought 30 per cent of Vietnam's Pacific Airlines, which plans to adopt the Jetstar brand. In Indonesia, another breed of cat, Lion Air, says it wants to adopt the same strategy and is looking for acquisitions in Thailand, Vietnam, Bangladesh and Malaysia.
AirAsia has also agreed to set up a Vietnamese franchisee, Vina AirAsia, but the government has reportedly refused to grant a license because of lobbying from its own carrier, Vietnam Airlines, and Qantas.
Tiger's attempts to franchise its model to Southeast Asian Airlines of the Philippines have been similarly stymied by opposition by local carriers.
But the Singapore airline wholly owns its Australian operation, which will begin flying this month, because Australia lets foreign airlines operate domestically. The Singaporean and Australian operations will serve Darwin.
"Basically these airlines are trying to follow what is happening in Europe and the United States, where only a few budget airlines are becoming dominant," says Yong. "The budget model is about scale and efficiency."
In other words, all four carriers hope to be Asia's Ryanair or Easyjet.
South Korea already has budget airlines, but they are not nearly as aggressive as the franchising carriers emerging from Southeast Asia and Australia. The South Korean government on Nov. 5 licensed Yeongam Air to join Hansung Airlines and Jeju Air Co. in the local budget airline market. The largest South Korean airline, Korean Air, has said it also wants to set up a budget operation.
The market that most captivates Asian budget airlines is China, which, unlike the countries of Southeast Asia, has a population spread among hundreds of cities that would offer almost limitless combinations of connections.
But any plans to set up Chinese franchisees became more complicated this year when authorities said they would accept no applications for new airlines until 2010, as part of a drive to keep their outstanding safety record (AW&ST Oct. 29, p.56).
On the other hand, the Chinese market that eventually emerges in 2010 should be much easier to operate in than the present, highly regulated system.
The Chinese civil aviation bureau has reaffirmed its commitment to deregulate all commercial routes from 2010, requiring airlines only to notify it of planned services, not seek its permission. The airport of the big central city Wuhan is already trying out the planned deregulated system.
Moreover, the bureau is actively supporting the future growth of the budget airline industry by searching for locations for secondary airports near big cities.
"I really appreciate what the boss of Malaysia's AirAsia has as his slogan: 'Now everyone can fly,' " the chief civil aviation regulator, Yang Yuanyuan, told Reuters news agency last month. "This is great. This is my dream."
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Aviation Week
Singapore's Tiger Airways will establish a franchisee airline with the South Korean city of Incheon, racing against rivals to set up in untapped markets and exploit the huge potential of no-frills aviation in Asia.
The latest expansion move by the budget carrier, 49 per cent owned by Singapore Airlines, will create perhaps the most widely spread narrow-body operation in the world.
Once Incheon Tiger Airways starts up, Tiger-branded A320 services will extend across a region stretching from near the North Korean border to Hobart in southeastern Australia, 9,100 km. (5,700 mi.) away-from 37ºN to 43ºS-and as far west as Cochin (Kochi) in India, 9,300 km. (5,800 mi.) from Hobart.
Such a geographical spread would be comparable with Britain's Easyjet, extending its network from Northern Ireland to Japan and India.
But while Tiger's operations will be wide, they will also be thin: the carrier has a mere nine A320s in service and 41 on order, with options on 20 more that would be delivered by 2016.
"It is a race between AirAsia, Tiger Airways, Jetstar and maybe Lion Air" to stake claims to Asian markets, says Paul Yong, an analyst with DBS Vickers Securities in Singapore. "The early-mover advantage is not only about establishing a brand. It is also about getting airport slots."
Tiger isn't saying when the new business, to be owned in partnership with the Incheon municipality, will begin flying, but it confirms the services will reach out to South Korea's big neighbours.
"With the buoyant economic growth in North Asia, the infrastructural heritage of the Incheon authorities and the strong track record of Tiger Aviation, travelers in Korea, China and Japan can look forward to enjoying affordable, fuss-free, point-to-point travel in North Asia and beyond," Tiger says.
The core Tiger operation based in Singapore is already flying as far north as Xiamen in southeastern China, so it wouldn't be surprising to see the Korean business reach down to the same city, so aircraft can be smoothly transferred between the affiliated companies for maintenance.
As with Tiger's Australian subsidiary, the South Korean unit is expected to begin with five aircraft from the parent company's October order for 30 A320s, which, like all its aircraft, will be powered by IAE V2500 engines. Tiger seems very likely to take up its A320 options, given the opportunities in the immense geographical spread of its operations.
Yong says budget airlines have just 9 per cent of the Asian market, compared with 29 per cent in the U.S. and 26 per cent in Europe. Tiger operates a pure no-frills model, and the key to its business strategy is franchising. Like McDonald's System Inc., it seeks to supply its brand and operational know-how to franchisees, whose operations appear to be part of a single, widely spread company.
Two rivals-Malaysia-based AirAsia and the Jetstar unit of Australia's Qantas Airways-are adopting a similar strategy, and for the same reason: to get around the nationality requirements that prevent an airline of any Asia-Pacific country from flying between two other countries.
AirAsia has franchisees in Thailand and Indonesia. Jetstar has one in Singapore while its parent, Qantas Airways, has bought 30 per cent of Vietnam's Pacific Airlines, which plans to adopt the Jetstar brand. In Indonesia, another breed of cat, Lion Air, says it wants to adopt the same strategy and is looking for acquisitions in Thailand, Vietnam, Bangladesh and Malaysia.
AirAsia has also agreed to set up a Vietnamese franchisee, Vina AirAsia, but the government has reportedly refused to grant a license because of lobbying from its own carrier, Vietnam Airlines, and Qantas.
Tiger's attempts to franchise its model to Southeast Asian Airlines of the Philippines have been similarly stymied by opposition by local carriers.
But the Singapore airline wholly owns its Australian operation, which will begin flying this month, because Australia lets foreign airlines operate domestically. The Singaporean and Australian operations will serve Darwin.
"Basically these airlines are trying to follow what is happening in Europe and the United States, where only a few budget airlines are becoming dominant," says Yong. "The budget model is about scale and efficiency."
In other words, all four carriers hope to be Asia's Ryanair or Easyjet.
South Korea already has budget airlines, but they are not nearly as aggressive as the franchising carriers emerging from Southeast Asia and Australia. The South Korean government on Nov. 5 licensed Yeongam Air to join Hansung Airlines and Jeju Air Co. in the local budget airline market. The largest South Korean airline, Korean Air, has said it also wants to set up a budget operation.
The market that most captivates Asian budget airlines is China, which, unlike the countries of Southeast Asia, has a population spread among hundreds of cities that would offer almost limitless combinations of connections.
But any plans to set up Chinese franchisees became more complicated this year when authorities said they would accept no applications for new airlines until 2010, as part of a drive to keep their outstanding safety record (AW&ST Oct. 29, p.56).
On the other hand, the Chinese market that eventually emerges in 2010 should be much easier to operate in than the present, highly regulated system.
The Chinese civil aviation bureau has reaffirmed its commitment to deregulate all commercial routes from 2010, requiring airlines only to notify it of planned services, not seek its permission. The airport of the big central city Wuhan is already trying out the planned deregulated system.
Moreover, the bureau is actively supporting the future growth of the budget airline industry by searching for locations for secondary airports near big cities.
"I really appreciate what the boss of Malaysia's AirAsia has as his slogan: 'Now everyone can fly,' " the chief civil aviation regulator, Yang Yuanyuan, told Reuters news agency last month. "This is great. This is my dream."
.....................
Aviation Week