ROUTES ASIA: ASM Looks at Asia – The Past, Present and Future

Over the last 30 years the Asian economy has been the driving force in the global economy creating a new global economic landscape and as a result the Asian aviation market is now the leading aviation market in the world. The phenomenal growth of the Asia market is well told, but the facts are still staggering.

Almost two thirds (60 per cent) of the world’s population is in Asia, around 4.6 billion people and China and India alone account for 37 per cent. Economic growth rates for Asia continue to be above the global average, and China has on average clocked up over ten per cent growth rates for the last three decades. Around two–thirds of the world’s Middle Class will be in Asia by 2030. Low-Cost Carriers (LCCs) currently have a 20 per cent market share of the aviation market and the three largest low cost carriers will have a combined fleet of over 1,000 aircraft by 2026 with manufacturer Airbus estimating the region will need over 11,000 aircraft (for renewal and growth) over the next 20 years.

But what’s interesting is, what will be the trends shaping the Asian aviation market in 2014 and will these same trends shape the aviation market in the future? According to David Stroud, managing director with ASM – the World Route Development Consultants, there are certainly interesting times especially with regard to the LCC business.

“The LCC market in Asia appears to be a paradox,” he told The HUB Daily on the opening day of this year’s Routes Asia forum in Kuching, Sarawak, Malaysia, “on the one hand the major LCCs Tiger Airways, AirAsia and Jetstar, are entering a phase of consolidation whilst on the other hand there are new LCC’s emerging such as Vietjet Air and Lion Air owned Malindo Air.

AirAsia has already created a number of subsidiaries and franchises including Thai AirAsia, AirAsia Zest, Philippines AirAsia, AirAsia Japan, Air Asia X and whilst the joint venture with All Nippon Airways (ANA) to create AirAsia Japan dissolved last year AirAsia are aiming to re-launch in Japan and are also expecting approval to launch AirAsia India.

Tiger Airways Holdings (33 per cent owned by Singapore Airlines) is creating a similar airline group using the Tiger brand with Tigerair Australia, Tigerair Phillippines, Tiger Air Mandala and will launch in 2014 a newly created Tigerair Taiwan, a joint venture with Air China. Even Singapore Airlines- owned long-haul low-cost carrier Scoot is joining forces with Nok Air, based in Thailand, to establish a new long-haul low-cost carrier NokScoot.

As well as the expanding Pan Asian LCC brands, there are new low-cost carriers emerging: Vietjet Air, based in Vietnam, with a recent order for 65 aircraft, Malindo Air, the Lion Air Malaysian offshoot, while Tata SIA Airlines will bring a full service offering to the Indian market to complement the growing LCC sector.

“The simple fact is that while the established markets of Singapore, Malaysia and Thailand have a high proportion of LCC seats, there are still markets that are relatively underserved by the LCCs, such as Vietnam, Japan, Taiwan, Hong Kong, China, Myanmar and India, hence there is an appetite to establish new carriers and for the LCC groups to target these country markets,” explained Stroud.

The Asian LCCs have also embraced stretching the LCC business model beyond short-haul narrowbody markets, more so than other LCCs in other regions. Air Asia X and Cebu Pacific in the Philippines continue to develop their A330 services whilst Scoot is expected to launch its 787-9s in the later part of 2014 replacing the 777-200s that maybe offloaded to NokScoot.

However, Stroud noted that full-service carriers are striking back against their new competitors. “Many of the Asian full-service carriers have responded to the LCCs by launching their own LCCs or investing in a LCC, an approach that hasn’t always created success in Europe and the Americas,” he explained.

“Despite many of the full-service carriers not having as extensive order books as the LCCs, many are steadily launching new air services, a few of the significant ones include: Philippine Airlines starting flights to London Heathrow in November 2013 and the recent announcements from Korean Air and Air China launching links to Houston and Washington DC in the second quarter of this year,” he added.

The traditional Asian hubs of Singapore, Bangkok, Hong Kong and Kuala Lumpur have increasingly come under pressure over the last 10-15 years from the Middle East hubs, but over the next year or so the competition will intensify. “The implications of the Emirates – Qantas partnership which was concluded last year will shift traffic flows between Europe and Australia through Dubai and away from Singapore,” noted Stroud.

“The conclusion of the Etihad Airways 24 per cent share in Jet Airways and its increased stake in Virgin Australia will take shape over the next couple of years, while Qatar Airways will look to take advantage of its entry to oneworld. Turkish Airlines will also continue to rise as a competitor to the Middle East hub carriers,” he added. There is even talk that the latter will seek to acquire a small A380 fleet to help it compete on a cost basis with the other Middle East carriers.

What is certain across the region is that the Chinese hubs will begin to capitalise on the newly introduced China 24 hour transit visa programme, particularly Guangzhou which is geographically well placed - the China Southern network is now as strong as many of the other Asian carriers.

Looking further into the future the scenarios for the Asian aviation market are endless. “Will the Asian low-cost carriers become the dominant brands and establish themselves as long haul carriers with large widebody fleets?” questioned Stroud given that the massive A380 and next generation A350 and 787 twins will provide the cost economics these carriers will demand.

“The Chinese outbound market will no doubt become the largest outbound market in the world, but will China develop truly global hubs? Will some of the traditional full service carrier become niche brands or disappear all together? The only thing that is certain is that the World will look very different in another 15 years and the ‘centre of gravity’ of economic wealth will have moved increasingly towards Asia,” added Stroud.

In 2001 Tony Fernandes purchased an airline for one Ringgit and there was only one Chinese airport with over 20 million passengers. Just 13 years later AirAsia is worth over 6 billion Ringgit market capitalisation and there are over ten airports in China with over 20 million passengers. The pace of change is far quicker than we can ever imagine!

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