Abacus Study Analyses Low Cost Airlines in Asia

Low cost carriers across Asia Pacific are deploying a more collaborative strategy as competition intensifies, according to a new Abacus LCC/Hybrid Study.

Abacus has shared analysis from in-depth surveys with over 20 major budget brands, explaining in part their success in averaging almost three times the growth trajectories of their full service counterparts – and their plans for the future.

While they all intend to leverage the advantages they enjoy with lower cost bases, better aircraft utilization and what they consider superior technology to gain share, many have become concerned about cannibalization of the sector at the budget end.

Of those surveyed, four in ten (42%) cite competition from other LCCs as a ‘significant challenge’, just behind the serious concern of fuel costs. That compares to only 4% who see full service brands as a direct threat.

A common response has been to differentiate and diversify, with the result that only 27% still identify themselves as low cost ‘pure-play’. The majority prefer a ‘new age’ or hybrid definition, given moves to broaden their service offering.

Indeed, as the battleground shifts, LCCs are looking to extend their ancillary products and services portfolio even further, moving up the market to capture more of the untapped premium sector. It explains the change in stance on business-to-business distribution.

Previously focused on web-only fares, the majority of respondents have moved to embrace the travel agent channel, with over half (54%) already integrated with a Global Distribution System (GDS) to access the trade directly, and a further six intending to soon.

“These airlines are meeting frustrated demand from corporate travel agents for LCC content so it’s a win-win. We’ve seen related bookings jump 40% just in the first two months of this year,” explained Ho Hoong Mau, VP Airline Distribution for GDS leader Abacus. “The carriers’ reward is the higher yielding business travellers, governed by policies that can now include low cost options.”

LCCs that have integrated acknowledge the GDS as a ‘valuable distribution channel’, particularly in agent-centric markets, helping them ‘gain brand recognition’ and for some to ‘fill seats on less popular flights’ with the leisure sector, according to the study. Respondents report travel agents, both on and offline, now delivering an average 24% of their bookings.

The benefits, however, extend beyond just the incremental trade business. Travel agents are also adept with complex cost-saving interline and codeshare reservations, which is another area where the LCCs are looking for longer term growth.

From the survey, 37% intend to partner with other airlines to feed their network over the next 3 to 5 years. Almost a third (32%) are considering joining or forming an alliance, with 26% admitting they might merge or acquire a smaller LCC at some point in the future.

With 60 budget airlines operating in Asia Pacific by the end of this year, there are plenty of partners to choose from at home and even more outside the region. “Collaboration is key to step change in this industry. Whether LCCs are looking at major markets like China for potential allies or for links with carriers bringing passengers into Asia’s hubs, they will gain strength from an extended network,” Ho added.

Closer ties are also expected to afford these airlines dividends. Eight in ten respondents forecast their growth to be between 6-20% short-term, with another 11% predicting over 20%. The future appears to be bright for those planning to take many more routes to market.

The Abacus LCC/Hybrid Study, Asia Pacific 2014, collating in-depth responses from 49 budget airline executives based in Asia Pacific, was conducted in Q3 and Q4, 2013.