By Arno Maierbrugger/Gulf Times Correspondent/Bangkok
A multitude of factors, including increasing competition from Middle East carriers on long-haul routes, a massive ticket price war as a result of dropping kerosene prices and improving economic dynamics of a growing middle class, is radically changing the aviation market in Southeast Asia.
Latest news that Thai Airways will lay off 5,000 staff and cut 10% of its routes is just another sign that the rapid rise of low-cost carriers is challenging established airlines to an extent that starts to become seriously troubling for the latter.
Major national airlines in the region, apart from Thai Airways Indonesia’s Garuda, Philippine Airlines, Singapore Airlines, Malaysia Airlines and Vietnam Airlines are either making continued operational losses or just thin profits despite current ultra-low oil prices and cheap refinancing options on the capital market.
Most of the national airlines, suffering from state bureaucracy and inert leadership structures, are being overrun by a new generation of budget airlines that are reacting much quicker to market conditions and driving ticket prices down across the region. For example, while Thai Airways had to publicly deny bankruptcy rumours to avoid ticket cancellations and has to deal with unhappy government officials who are no longer entitled to free flights for them and their family, AirAsia, the region’s largest budget airline, used the dropping oil price to announce on January 26 that it will scrap its fuel surcharges across all its carriers, which led to bustling ticket sales.
Thailand, which is an especially important destination for budget carriers, has seen the market share of low-cost carriers seen exploding to 44% in terms of passenger movement and 39.7% of entire aircraft movements in 2014, airport operator Airports of Thailand said last week. Moreover, the already impressive number of 24 low-cost carriers operating in Thailand is expected to see more entrants in the budget travel market, further eating into market shares of full service operators.
In Indonesia, national carrier Garuda obviously missed out on capitalising early enough on the fact that a 250mn-population spread over 17,000 islands has now more money to travel as a result of improving economic conditions.
But Lion Air, a budget carrier launched in 1999 that grew to Indonesia’s largest airline by number of passengers flown and fleet size, did not, which resulted in booming business for the carrier and rapid expansion. Lion Air plans to list at the Jakarta stock exchange this year, and its market valuation is put by analysts at $2bn, double the value of listed Garuda Indonesia. Lion Air has also become known for placing largest-ever single commercial orders for planes from both Boeing and Airbus in both plane makers’ history, at purchase values exceeding $45bn, while Garuda keeps “adjusting” its flight network by cutting international routes.
Southeast Asia’s national carriers have also lost the race in fast-growing emerging destinations such as Cambodia, where now low-cost airlines are more or less setting the agenda. Cambodia’s aviation market grew by 13% in 2014, the fastest rate in Southeast Asia, a phenomenon well noticed by regional budget carriers such as JetStar, AirAsia, Vietjet, Cebu Pacific or Silkair which are offering highly affordable regional flights to Phnom Penh and Siem Reap, as opposed to Thai Airways, Malaysia Airlines and Vietnam Airlines which stick to partly exorbitant prices, completely ignoring the growing mass market of travellers.
With regards to long-haul flights to Cambodia, Qatar Airways made a wise decision to launch direct daily flights from Doha to Phnom Penh as early as in 2013. It is now the only airline from outside East Asia serving Cambodia directly on a well-booked connection.
