Airlines increase baggage allowance: worth the weight?

Hot on the heels of Emirates and Qantas Airways, legacy carriers like Singapore Airlines and Garuda Indonesia recently announced a 10-kilogramme extra baggage allowance for passengers across all classes.

While analysts say other carriers might soon be pressured to do the same in order to keep up, at the end of the day, it still comes down to dollars and cents.

Asia Pacific airlines are hoping to hit the sweet spot with more customers by upping the baggage allowance, starting from at least an extra seven kilogrammes in economy class.

Qatar Airways also added an extra seven kilogrammes for its economy class passengers, from 23 to 30 kilogrammes in September 2013. Emirates extended the baggage allowance in 2009 and Etihad Airways upped theirs in 2012.

"It's ironic that many of these legacy carriers that have been picky with passengers for being overweight in terms of their baggage and suddenly, because of the intense competition from low-cost carriers, they're saying ‘here's another 10-kilogramme allowance’. I don't think it will make much of a difference," said Shukor Yusof, an analyst at Standard & Poor’s capital IQ.

"Most people travelling nowadays travel very lightly. They don't need a lot of baggage. But if you're allowing 10 kilogrammes, I think it is negligible. In the whole context of whether it is going to increase your bottom-line, I don't think it will have any impact at all. What will impact is whether or not fuel prices will stay low."

Travellers typically have to pay for checked-in baggage in a low-cost carrier (LCC). But that playing field is changing with the likes of Thai domestic LCCs such as Nok Air and Thai Lion Air that offer free 15-kilogramme baggage limits, effectively competing with the free 20-kilogramme allowance offered by most legacy carriers.

Besides Garuda Indonesia, Singapore Airlines and Malaysia Airlines, China Southern Airlines and Qantas Airways have also increased their baggage allowance for their customers on certain routes.

But analysts say this will not go very far in terms of increasing the airlines' bottom-line. Rather, they say these full serviced carriers should work on enhancing other product offerings to stand out from the competition.

“There are many other ways to compete. In-flight entertainment is one, more comfortable seating is another, greater choice in terms of selection of the type of services that you want and the type that you don't need, and this should result in a lower-price ticket,” said Paul Ng, global head of aviation at Stephenson Harwood.

"For SIA, they already provide the best service in economy in the region; you've got food, drink service, excellent in-flight entertainment,” said Greg Waldron, Asia managing editor at Flight Global.

“Unfortunately a lot of the time when people choose air tickets, they choose to buy on price and that's always going to be a challenge for airlines like this. You can always throw things at the customer but it's always going to come back to people's wallets. "

Baggage and ticket prices aside, experts say it all boils down to the cost of fuel that will ultimately affect the airlines' bottom-line. 

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Competition heats up among budget airlines in Thailand

Thailand: The market for budget airlines in Thailand is set to become even more competitive.

Thai Lion Air and VietJet Air are muscling in, starting next month.

VietJet Air will launch its first flights between Thailand and Vietnam in the first quarter of 2014, while Thai Lion Air will start twice-daily flights to Chiang Mai and Jakarta and a once-daily flight to Kuala Lumpur in December.

Analysts said some routes may become over-serviced, making deeper price-cutting inevitable.

Thailand's already-thriving Don Mueang Airport will get a new operator in December.

Indonesia's largest airline Lion Air will join the competition, going head-to-head with other low-cost carriers (LCCs), with an aim to capture an initial 10 per cent of the market.

Thai Lion Air will also be the first airline in Thailand to operate the B737-900 ERs.

Voravuth Vongkositkul, director of flight operations at Thai Lion Air, said: "We have a lot of competitors here in Thailand. I cannot say that we will profit but we forecast that in the next two to three years, we will get everything back.

"We also think of expansion or using another hub, in the second half, we could consider Chiang Mai or Hat Yai."

Lion Air is the latest airline to enter Thailand's aviation market and Thai Lion Air will be commencing twice-daily flights from Bangkok to Chiang Mai in December. And to stand out from other low-cost players, Thai Lion Air is offering its passengers a free 15-kilogramme baggage allowance. Analysts said this just makes the competition even stiffer for incumbents such as Thai Air Asia and Nok Air.

Brendan Sobie, chief analyst (Southeast Asia) at the Centre for Aviation, said: "The LCC penetration rate in the international Thailand traffic is about 20 per cent, which means about 20 per cent of the international seats to and from Thailand are accounted for by LCCs. If you compare that to Singapore, the number is about 31 per cent, and in Malaysia, that number is 50 per cent.

"So I think the major LCC groups see that there are potential opportunities to go into the market. It is unknown whether so many new airlines can be supported, given that environment. So we could potentially see some consolidation in the medium- to long run. "

What carriers lose on lower prices, they hope to make up by carrying more passengers in a low-cost market that accounts for just 20 percent of in- and out-bound travel.

In 2012, Jetstar Asia served two million passengers in the Singapore-to-Bangkok market alone.

Barathan Pasupathi, CEO of Jetstar Asia Airways, said: "The Thai market's capacity has actually grown under 10 per cent year-on-year while Jetstar Asia has grown its capacity by 30 per cent at the same time.

"Today, we have 31 alliances and our alliance partners transfer feed into our Singapore hub and fill up seats from Singapore to Bangkok. Likewise, Bangkok being another important hub, our partner alliances actually fly into Bangkok and they fill up the leg between Bangkok to Singapore."

But it is the growing traffic from China and the potential traffic from its newly-opened-up neighbour that offer the most potential.

Paul Ng, global head of aviation at Stephenson Harwood, said: "Thailand has an Open Skies Treaty with China so it is a springboard into Southern China like Guangzhou and the other southern states. The other is Thailand is intimately associated with one of the fastest and newest markets in ASEAN, Myanmar."

That is a market with about 65 million people, and one that budget carriers will have their eyes on - especially if Thai visa restrictions are eased on Myanmarese travellers next year.

Mr Sobie said: "There is no denying that LCC opportunities in Southeast Asia are huge. They have been huge for the last 10 years.

"The rate of penetration for LCCs in Southeast Asia has gone from zero to over 50 per cent of the market. And there are still opportunities because you have the emerging middle class, you have growth and discretionary incomes, and you have frontier markets like Vietnam and Myanmar that are just starting to emerge."

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