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Asian budget airlines ride growth in long-haul flights

Four of the 10 low-cost carriers with the most long routes come from the Asia-Pacific region

Low-cost carriers' planes sit on the tarmac at Kuala Lumpur International Airport.   © Reuters

SINGAPORE -- Low-cost air carriers quintupled their long-distance routes worldwide over the past 10 years, a Sydney-based aviation think tank says, and efficient new aircraft should help continue this expansion that Asian names have helped propel.

The spread into longer routes by low-cost carriers is "probably the biggest change which is transforming the way the international [airline] market works" in the past few years, Peter Harbison, executive chairman of think tank CAPA, said last week at an industry forum here. Such carriers originally focused on short-haul flights.

Long-haul routes by these carriers -- defined by CAPA as any flights longer than 4,100km -- increased 415% between 2008 and 2018. By way of comparison, the flight distance between Osaka and Singapore is about 4,900km.

While the number of seats on domestic routes by low-cost carriers climbed 55% globally over the past 10 years, seats on international routes -- many of them long haul -- soared 900%, Harbison told the audience at the CAPA Global LCC Summit held here Thursday and Friday.

Such capacity remains a "very small proportion of global traffic -- under 10%," according to Harbison, but the pace of growth is substantial and accelerating.

"We are at the next stage [of low-cost carrier development] where full-service carriers have to respond much more aggressively," Harbison said in a speech.

When the competition between low-cost carriers and full-service airlines was confined to short flights, the big players dominated the long-haul market, Harbison said. But lower fuel prices and the advent of new, fuel-efficient aircraft types helped low-cost carriers fly longer at lower operating costs.

"Anybody who flies long haul in the future is going to have to have much greater attention on cost," Harbison said.

Four of the top 10 low-cost carriers based on the number of long-haul routes come from the Asia-Pacific region, CAPA statistics show, led by Indonesia's Lion Air and its 36 longer routes. AirAsia X operates 20 such routes under the group, and the long-haul arm of Malaysia's AirAsia reportedly looks to increase its wide-body jet fleet and expand the network as it recovers from early years of headwinds. Scoot, the low-cost subsidiary of Singapore Airlines, has spread its wings to Athens and Honolulu since 2017 and plans to add a Singapore-Berlin route in mid-2018.

The "long-haul, low-cost model out of Japan is certainly very attractive," Gareth Evans, CEO of Jetstar Group, said at the forum. The chief of the low-cost arm of Australia's Qantas Airways was asked whether its joint venture in Japan wants to tackle long-distance international routes.

"It is not something that happens next week or next month or next year," Evans said. But he showed strong interest, saying "that is a huge market."

Jetstar Japan, the joint venture with Japan Airlines and other shareholders, operates largely within Japan, with a few short-haul international destinations including Taipei and Shanghai. Long-haul flights out of Japan would let the group add more popular destinations.

AirAsia X also has expressed interest in expanding its Japan network this year, alongside India routes.

Harbison reckons the long-haul, low-cost segment will continue growing as the carriers obtain more new aircraft. Qantas said last month that Melbourne-based Jetstar Airways will use 18 Airbus A321neo long-range planes ordered by the group. When Jetstar takes delivery of the planes starting in 2020, it will become the third low-cost carrier after Air Arabia and fast-growing Norwegian to operate this small but long-range aircraft. CAPA said 54% of existing orders for this aircraft type come from low-cost carriers.

Yet low-cost carriers face challenges in the long-haul field.

"Successful [low-cost carriers] have been the ones who operate short hauls, where it is easier to drive the cost 40-50% lower than incumbent competitor airlines," Corrine Png of transportation research house Crucial Perspective in Singapore said on the sidelines of the forum. "For a long-haul network, the cost differential between [low-cost] and full-service carriers is narrower."

Charging for meals, cabin entertainment and baggage allowances can increase non-fare revenue, but raising such income in Asia's price-sensitive market is tougher than in markets like Europe, observers noted.

Higher fuel prices pose a concern as well. It is no coincidence that long-haul, low-cost airlines flourished during times of cheap fuel, a major part of airlines' costs. Though the newer planes help carriers save fuel, Png said increases in fuel costs typically are "not completely covered by surcharges."

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