Competition among budget airlines heats up

Southeast Asian low-cost airlines are looking at new ways to out-do one another.

In a market driven by rising wealth, it seems size does matter, so too does keeping faith with customers, as Singapore Airlines' budget offshoot Scoot has learned in its first year of operation.

Long-haul low-cost carrier Scoot is adding another destination to its small but growing fleet. Its inaugural flight to Seoul commences 12 June.

Scoot’s CEO Campbell Wilson said: “Our fifth aircraft does not operate between 11pm and 4am, which therefore provides some backup for when our key departures to Australia, Taipei and Japan and most of the China flights depart. So when you grow a little larger, you have a little bit more bandwidth to be able to counter the inevitable issues that crop up.”

Scoot has had to counter setbacks in its early days, but it said it has done what it can recapture passenger confidence.

Mr Wilson said: “We've certainly listened to the feedback that we've received in the early months of selling tickets.”

Shashank Nigam, CEO of SimpliFlying, said: “I believe their China focus has really paid off well, launching secondary Chinese cities that SIA doesnt fly to… for example, Nanjing.”

By 2015, Scoot will be the first low-cost carrier in ASEAN to operate the Boeing 787 Dreamliner aircraft, which will help the airline reduce costs.

But in the highly-competitive environment, analysts said low-cost carriers like Scoot and Tiger Airways could look to establish more partnerships with other airlines in order to grow their network.

Mr Nigam said: "Tiger needs to work closer with regional partners like Mandela and SeaAir in the Philippines which have been highly unprofitable of late. I think if they can leverage that better, it will help the group overall. For Tiger, I think the key is beating the trend of commoditisation. Everyone can fly now. Everyone can fly cheaply. You want to go beyond price as the product. "

Indonesia's biggest budget carrier Lion Air has an outstanding US$24-billion order for Airbus and also launched Malindo Airways in Malaysia to capture a share of the market from its competitor AirAsia.

AirAsia X, AirAsia's long-haul low-cost arm, is setting up its second hub in Bangkok.

Paul Ng, head of Aviation at SH Legal, said: "They have a huge fleet. And they have huge delivery orders. So they have economies of scale, which Scoot does not have. Each of these carriers has hinterlands to rely on. Lion Air (has) Indonesia, the world's largest archipelago, and AirAsia, Malaysia, which is the second largest, highest GDP country outside Singapore. These two are very rich sources of revenue.

“For Scoot itself, which is in Singapore, with very high passenger traffic, it's ultimately dependent on international trade lines and on how many trade routes that it can secure from governments to do its business. Lion Air and AirAsia can fly domestically with very few restrictions, subject to there being available slots in the airports that they want to fly into.”

Besides injecting more aircraft to boost yields, experts said budget airlines would also do well to boost ancilliary services, which make up almost 40 per cent of their income.

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Things are heating up. The low cost carriers are finding ways to out perform each other and gain a bigger market share. In order to stand out from the rest, the airline must prove itself to be different, in a good way. Easier said than done when this has to be done while keeping to the low cost model.