Asian Aviation on Brink of Major Change

The Asia Pacific aviation industry has entered a massive transition phase, with the arrival of low cost airlines, delegates attending the China & North Asia Low Cost Airline Symposium heard today.

The Symposium, with some 200 delegates in attendance from across Asia, North America and Europe, was coordinated by leading aviation industry consultants, the Centre for Asia Pacific Aviation.

Peter Harbison, Managing Director of Symposium organiser, the Centre for Asia Pacific Aviation, stated that the old competitive rules governing the aviation industry are disappearing fast. “The opening of aviation markets – in which low cost operating models are one ingredient of a cocktail for rapid change – is forcing every airline and government in this region to think again”, Mr Harbison said.

Mr Harbison emphasised the importance of the recent Qantas announcement to establish a low cost airline in Singapore in showing how easy it is to “adapt” the restrictive bilateral foreign ownership rules to permit third country operation – a unique Asian approach. According to Mr Harbison, “no other major carrier has previously established a foreign subsidiary carrier, without a local airline partner being involved. Qantas is in effect asserting a hybrid form of the right of establishment. This could change the way the airline system works.

The LCA model itself has the potential to unlock massive growth throughout Asia - and especially in China and India – which will be vital to the success of the fledgling low cost scene in this region. 

“When we look back in a couple of years, we will see that the wider (and in fact most far reaching) feature of these new developments is the enormous acceleration of the liberalisation process in this region. This will have a major effect also on the growth of network airlines. The LCA phenomenon is the catalyst for this rapid change. As a result, the liberalisation egg is now well and truly scrambled”.

According to Mr Harbison, the airline business has historically been like a main street “where all the stores are department stores. Basically the market has been told what it needs. Now, with increasing flexibility, the market is going to make up its own mind”.

Some airlines - but not all of them yet - are fast realising that discount airline brands, like Best and Less and 7-Elevens are about to open - and that they need to react. 

A key theme for discussion at the Symposium is the fact that air travel is now becoming commoditised. The LCA product is about airline seats as a commodity. According to Mr Harbison, “many still believe that “face” is too important to Asians to allow them to travel on these risky, “cheap” airlines. They don’t understand that commodities sell on price, and the Asian culture is synonymous with trade. Where most of that commodity is transporting from A to B at the same speed and in the same aircraft type, the equation sorts itself out very quickly. We all have sensitive hip pocket nerves”.

Mr Harbison highlighted some key strategic issues:

The Asian LCA is about much more than adopting US and European models. Here it is the catalyst for a regulatory revolution

Localised versions of LCA will continue to evolve 

The arrival of the LCA coincides with rapid income growth and regional economic integration

Liberalisation will accelerate, leading progressively to multilateral open skies

Network airlines must restructure - or be seriously challenged

LCA subsidiaries will survive here - at least in international markets

For airports:

LCAs will use existing hubs in Asia (hub-hub and to secondary-hub)

Behind-gateway direct international city pair routes will proliferate Pressure on hubs will grow - influencing airline strategy and government policy

Some regional airports will grow quickly and be able to raise capital and/or privatise

LCAs generally will promote airport privatisation moves – and benefit from them

Remarkable growth possibilities exist - both to regional centres and for existing hubs

And the travel and tourism industries:

LCAs will lower the income threshold for air travel, opening totally new markets 

Tourism to major cities AND regional centres will prosper, benefiting national economies

Local tourism industry will work with regional airports to attract LCAs

The traveller profile covers all existing types – repeat leisure, VFR & business travellers plus new fliers attracted by low fares, point to point services, innovative sales and distribution techniques and the remarkable self-selling phenomenon of LCAs.

Mr Harbison concluded, “there is no doubt that this time has come for the new airline breed. It should mean good news for everyone. It has the potential to be one of those rare win-win events”.