Asia's Budget Airline Carriers Ride Out Troubled Economic Times

Source - VOA

Asia's Budget Airline Carriers Ride Out Troubled Economic Times
By Ron Corben
Bangkok
22 June 2009

Asia's budget airlines have grown rapidly in recent years. And while some are faring well, the sector faces a bumpy ride as economic turbulence hits both domestic and international travel.

Asia's low-cost airlines, which took off in good economic times, are facing the stiff headwinds of the global economic downturn.

The International Air Transport Association warns that Asia's aviation industry is in "survival mode," with airlines forecast to lose over $3 billion this year.

Some air carriers focus on domestic market to prevent losses
But some low-cost carriers are doing a bit better than average as more travelers seek to cut costs.

"That's pretty much what we're seeing in the airline business. We've seen premium traffic down - we're seeing the value-based airlines up and succeeding and doing well," says Bruce Buchanan, the chief executive officer of the Australian low-cost carrier Jetstar.

But he says budget carriers in Asia face several obstacles, especially tough regulations and government control over airports and fees.

Still, he says, budget airlines are adapting to the challenges, and working with governments to create opportunities. Jetstar, for one, plans to expand its Singapore operations, creating a strategic hub.

In May, Singapore allowed more flights to the Philippines, especially for low-cost flights, targeting smaller markets such as Cebu and Davao. Traffic between the two countries grew 12 percent last year.

And relaxed regulations have led to more budget flights connecting Singapore and Malaysia.

New policies help financial recovery of some low-cost airlines
Malaysia's Air Asia has been a success story in turbulent times. First-quarter net profit rose by more than 25 percent this year, buoyed by a jump in passenger numbers.

John Koldowski, a spokesman for the Pacific Asia tourism Association, says Air Asia's gain must mean pain for some higher-cost competitors.

"One would assume in a climate where the pie is not growing that rapidly - if at all - that for them to still be improving their numbers, then they're taking market share from someone else," he said.

But not all budget carriers are doing as well. In Thailand, most airlines struggle because of the global economic slump, domestic political tensions and the threat of swine flu.

Nok Air, Thailand's state-owned low-cost carrier, has had to refocus on the domestic market, overhaul routes, cut overseas services, reduce its fleet and shed staff. From a loss of $16 million last year, it recently reported a six-month profit of over $4 million.



Sehapan Chumsai, a Nok Air executive vice president, says the airline's attention will be on the domestic market for the foreseeable future.

"At the moment we have already passed the financial crisis from the fuel crisis last year - at the moment we are back into a good balance sheet," said Sehapan Chumsai.

Budget airlines in India also face tough times.

"India is most certainly going through a difficult stage of repair after a surge in growth, which hit a ceiling of a combination of infrastructure, too many airlines in too short a time," said Peter Harbison, the executive chairman at the Center for Asia Pacific Aviation in Sydney.

Because of high fuel prices, hefty taxes, and the economic downturn, India's Kingfisher Airlines lost over $200 million in the nine months that ended in December.

Low ticket prices, tough economy cause fierce competition among all airlines
Despite problem areas, the growth of budget carriers across Asia has forced full-service airlines to compete hard.

"The legacy [full-service] carriers are fighting back to regain market share they'd lost previously to the low cost, by offering extremely good deals," said Brian Sinclair-Thompson, general manager in Thailand for Swiss International Air. "The fares we've got on Swiss, the prices are the lowest - I've been here 10 years - we've never had lower fares than we've got today. So I think we're meeting the low-cost challenge."

He says the comfort and service of the big airlines will keep customers coming back.

Still, low-cost airlines have established a special place in Asia's travel industry. But having grown rapidly during the boom years, many budget carriers find the tough economy forces them to rethink expansion plans.

While hoping for an economic recovery, many of them are focusing on domestic markets and short-haul flights to secure a future in the region's skies.