Low-cost carriers to continue to drive growth in aviation industry

Low-cost carriers are driving growth in the aviation industry this year, accounting for a billion-dollar increase in the profits forecast for airlines in 2012.

And Singapore Airlines (SIA) has latched on to the trend with its newly-minted low-cost carrier Scoot, in a bid to remain competitive.

Low-cost carriers have continued to enjoy healthy profits, with the number of economy passengers more than doubling that of premium travellers, according to the International Air Transport Association.

Besides Jetstar and AirAsia, SIA's Scoot started operations this year, with Cebu Pacific joining the ranks next year.

Siva Govindasamy, Asia managing editor of Flightglobal, said: "From virtually nothing four years ago, we will have four Southeast Asian long-haul low-cost carriers next year, and you are still in a market segment that is unproven.

"People do not know how much money you can make in this market segment. AirAsia X is likely to have its IPO (initial public offering) next year, and we will see how the market reacts to that long-haul low-cost business model."

Asia Pacific carriers account for more than half of the profits in the aviation industry this year, and low-cost carriers currently take up about 18 per cent of the market in Asia Pacific, compared to 24 per cent globally.

Some airlines are expecting deliveries of more aircraft in 2013, with the likes of LionAir and AirAsia both adding more than 30 new planes to their current fleet. And experts have said this could lead to a price war in Indonesia and Malaysia, which could result in consolidation for smaller players.

But full service carriers aren't resting on their laurels either. Besides ordering new aircraft, SIA is also spending S$95 million to upgrade existing cabins.

But Singapore's national carrier is also repositioning its focus from the premium to value segments.

Subhranshu Sekhar Das, director (aerospace & defense practice) at Frost & Sullivan, said: "The only way to survive in this market is to consolidate and position their strengths.

"We have been seeing multiple carriers creating multiple brands under one umbrella, either SIA creating SilkAir, Scoot; Thai Air with Thai Smile and their partnership with other low-cost carriers; MAS with MASwings, Firefly..."

Besides multiple offshoots, SIA is also starting to get embroiled in a competition in Australia. SIA recently bought a 10 per cent stake in Virgin Australia and sold off its loss-making unit in Tiger Australia.

This came after a recent tie-up between Qantas and Emirates. But Qantas Airways looks set to defend its turf.

Leithen Francis, editor of Aviation Week, said: "Qantas is going to be focusing on the domestic market. I think Alan Joyce's point of view is to invest in those bits of the business that are profitable.

"Their international long-haul business is not profitable but what is very profitable is their domestic 737 operation, and also their regional turbo prop and regional jet operation. So I can see them investing more in new equipment for their operations in Australia."

But with the recent fall of India's Kingfisher Airlines, some analysts also predict that competition might soon move to India's aviation market instead.

Mr Francis said Etihad is in active negotiations to take a stake in Jet Airways and India is a very important market for Middle Eastern carriers.

SOURCE

Premium airlines no longer have the cutting edge? One thing for sure is the emergence of these low-cost carriers have battered on the profits of the big boys so much so that they're creating their own brand of low-cost carriers to complement their routes on the premium side of business. 

The tide has changed, the future belongs to the low cost carriers as they're virtually recession-proof.