What you should know about flying budget

IT makes sense to fly budget when you can save big. Yet for as many travellers there are lauding the advent of budget carriers which not only make air travel affordable but also permit them to fly frequently, there are as many who turn their noses up on them.

So before you jump at that attractive offer to fly at what appears to be a ridiculously low fare, make sure you know what you are buying. Consider these cases.

 

Case #1

Courtesy en.wikipedia.com

My friend Al who makes frequent short business trips between Tangier in Morocco and European destinations has a stack of Ryanair tickets that he books way in advance to take advantage of the lowest fare. Each trip costs him under US$20, which he would not bat an eyelid to forego if he could not travel on the booked date. In the big scheme of things, he believes, he has saved a sizeable amount in airfares. But Al travels light (and never carries checked luggage), and the journey is too short to make a fuss about service.

 

Case #2

Another friend, Steven, flew from Sydney to Singapore in business class on Scoot. At check-in he was charged AU$120 for 6 kg excess baggage. That works out to more than 10 per cent of the fare he paid, although you could get a business class fare for as low as AU$500 as advertised by Scoot. Had he travelled economy class, the excess baggage fee could be as high as 60 per cent of the fare!

What upset Steven more than having to pay for excess baggage was the way the situation was handled. First, his request to remove some items so that he could hand-carry (since he was allowed 10 kg which he had not fully utilized) was rejected. It was as if this was too good an opportunity for the airline to pass up. Second, he never received a response from Scoot to his feedback/complaint.

Budget carriers are not as generous as legacy airlines with baggage allowances. Many are the stories of travelers – holiday-makers in particular – caught in a similar situation.

 

Case #3

A colleague, Lee, was excited about the promotional fare for a cheap holiday in Bangkok for his family of four, paying a price that was less than 20 per cent what he would have paid on a full-service airline. Unfortunately, when his plan fell through, he could neither change the date of travel nor get a refund.

 

What else should you know?

Do not just go by the advertised fare (as with the fares of full-service airlines). You will be surprised how the applicable taxes and surcharges may be more than the fare.

Food and beverages, if available, are expensive on board. You’ll be lucky if water is free. Some airlines may not allow you to bring food onboard, so as to boost the sale of in-flight meals.

Expect delays and cancellations. Most budget airlines do not the fleet and flexibility to meet exigencies. In the event that these happen, it can mean a long wait for the next flight. Do not expect transfers to other airlines. And you can forget compensation.

If you flying budget to connect with another airline, there is no guarantee you can make it in the event that the budget flight arrives late. There is a greater problem when the budget flight arrives at a different terminal and if you have checked baggage. Budget carriers do not have arrangements with full-service airlines for baggage transfers or guaranteed connections on whether the booked or an alternative flight.

Courtesy Airbus

Special services such as wheelchair assistance may not be available or are provided at hefty fees. Some budget carriers prefer not to carry passengers that require such special services. In June, passenger Colin Poole was shocked to learn that Tiger Airways would surcharge him SG$500 (US$406) for wheelchair assistance when his ticket cost only SG$156. Apparently he was not informed of the charge when he booked the ticket. Another passenger, Jack Lai, who booked with Jetstar was told at check-in that he would have to pay a surcharge amounting to more than the SG$200 he paid for the ticket.

Courtesy abc.net.au

You should know how the budget carrier that you book with operates. For example, Ryanair requires you to check-in online and print your boarding pass before arriving at the airport. There is a fee if you check-in at the airport. Many budget airlines do not assign seats, so it may mean split seating for a group of people travelling together. Southwest Airlines practice block boarding according to the time you check-in.

People who complain about budget carriers’ lack of service may be reminded about the definition of “no frills”. The cut-and-dry handling is often considered rude. Indeed, some budget carriers’ staff are well known in the industry to be infamously rude, as if justifiably so as they cannot afford the time to waste on frivolous requests and complaints.

Budget carriers may not admit it publicly, but they do not thrive on customer loyalty. They know only too well that their class of customers cares more about the cost. My friend Al is one, who will continue to fly budget. But my friend Steven has sworn he will stick with the full-service airlines.

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Air Canada to cram 20 per cent more seats on budget carrier

Picture courtesy BCIT Commons

FANCY sitting in an aircraft with 20 per cent more seats than what you were used to on an Air Canada flight? Of course, you would expect to pay less for the smaller space.

That’s just how Air Canada’s new low-cost airline to be launched in 2013 will look like, serving transatlantic and leisure routes in the United States and the Caribbean. About half the incremental profits, according to Air Canada chief financial officer Michael Rousseau, will come from cramming in more seats, with the rest to be derived from lower employee wages and more flexible work rules.

The new discount carrier will be wholly owned by Air Canada but will carry a different name. It will operate a fleet of 20 Boeing 767s and 30 Airbus A319s.

Air Canada may be a Johnny-come-lately in the game, but it is better late than never if it means moving for the better. The airline is adopting a defensive approach in the leisure market, and consequently some of the routes that Air Canada is operating will flip to the low-cost carrier. Mr Rousseau said: `The majority of the transatlantic routes will be in fact growth routes for us that we think we can make adequate if not very strong returns.”

Indeed, many budget carriers thrive on offering cheap fares to leisure destinations, usually secondary ports, since this class of travellers are generally more concerned about getting from point A to B than about the in-flight service. Brand loyalty is of little importance in the choice of airline. It is also a domain of charterers because of the seasonal nature of the travel. This means Air Canada will be competing with the like of Air Transat, and it also means its regular customers may start looking at more comfortable alternatives.

Mr Rousseau said Air Canada has studied different models around the world, citing as an example the Qantas/Jetstar relationship. The Australian flag carrier has been pushing the brand of low-cost Jetstar with commendable success across Asia, setting up bases in Singapore, Japan, Vietnam and, pending approval, Hong Kong. But Jetstar is more like an extended arm of Qantas, operating short regional routes of up to five hours. The long haul is quite a different story if Air Canada is thinking of Europe and, it is said in the longer term, Asia.

Air Canada may have also looked at how Singapore Airlines too has a stable of subsidiary airlines that include regional carrier SilkAir and budget carriers Tiger Airways and Scoot. A possible pitfall here is how if there is little differentiation between the parent airline and its subsidiary offshoots, the competition may bite inwards.

When Mr Rousseau said the discount carrier “is a very exciting initiative, not just for Air Canada, but for our employees as well…” and went on to talk about how the new offshoot would benefit from lower staff costs and flexible work rules, you flinch as you recall how its pilots had opposed the start-up. Absurd as it may sound, is this excuse to get round an industrial issue?

SilkAir steps out of SIA’s shadow

FINALLY, regional airline SilkAir is stepping out of parent Singapore Airlines (SIA)’s shadow. If indeed that is happening, it sure has taken a long, long time to come into its own since the carrier was first formed in 1976 under the Tradewinds name before it was renamed in 1992.

The SIA subsidiary announced a Boeing deal of up to 68 aircraft, of which 54 are firm orders worth S$6.1 billion (US$4.9 billion) – growing its fleet from the current 21 aircraft. Outgoing chief executive Marvin Tan has been reported to say: “The last couple of years have been strong and moving forward; while there will be business cycles, we believe in the long-term potential of travel in this region.”

That underscores a shift in the SIA Group’s strategy rather than one that is entirely SilkAir’s. Since its inception, incurring losses in its early years, the regional carrier has often been viewed as supplementary to parent SIA’s operations, filling in gaps that SIA has vacated or does not deem viable for its full-service operations. Indeed, as SIA chief executive Goh Choon Phong reportedly told The Straits Times (Aug 5, 2012), the group could no longer just bank on the parent carrier to keep flying high.

The recent economic crisis and its continuing uncertainty that has affected premium travel and SIA’s long-haul operations has shifted the Singapore flag carrier to focus more on the Asian region, especially when low-cost operators are growing at a faster rate than full-service airlines. Changi Airport itself is testimony to this. Asia continues to be its key growth driver, accounting for some 80 per cent of all passenger traffic. Low-cost carriers make up close to 30 per cent of all flights.

Besides refocusing on SilkAir, SIA is also giving more attention to partially-owned budget carrier Tiger Airways and has started a new budget subsidiary Scoot which has commenced operations to Sydney in Australia. Surely SIA cannot ignore rival Qantas’ efforts at pushing its budget Jetstar brand in the region. While it at the same time raises the question of SIA approaching the crossroads of an identity crisis, it is time too for SIA to allow room for its babies to grow!

 

 

Alaska Airlines considers fee for choice seats

THE next time that you book an air ticket, be aware that the fare may not come in the usual package when you last travelled. And I’m not talking about just budget carriers, known for their add-on model that charges a base rate and customers pay additionally for options such as meals. Full-service airlines (the appellation is becoming a misnomer) have adopted this same principle to beef up revenue.

Some legacy carriers are already charging for meals and in-flight entertainment. More airlines have followed the United Airlines example of levying a fee for checked baggage. Singapore Airlines levies a fee for preferred seating with more legroom. And now Alaska Airlines is considering going down that same road, considering a fee for “choice seats”.

Ancillary revenue has become a significant source of boosting profitability for these airlines – as if it is really a new income stream for providing new and additional services to their customers. According to Alaska Airlines CFO Brandon Pedersen, this amounts to about US$300 million annually for the airline, 40 per cent of which is derived from checked baggage. He felt Alaska Airlines was somewhat a laggard in the game. Mr Pedersen said: “We recognize we haven’t done as much as other carriers… We think there is more to do here.”

Alaska Airlines is even considering upping its checked baggage fee from US$20 to US$25 for the first bag – to be in line with the industry norm – and why when it looks like many passengers will travel with at least one checked bag? At the current rate, this is already contributing US$120 million annually.

Lest it be too hasty, Mr Pedersen warned that Alaska Ailrines’ major rival Southwest Airlines does not charge passengers for checked baggage. So how far can Alaska Air go before its customers decide to switch allegiance?

What next, you may ask, and wish for the good old days when the airfare was less complicated and entailed certain basic services without your having to stuff down an early meal before boarding or agonize over what you should throw out of your only bag that is allowed as a carry-on?

Indeed, competition is the air traveller’s last bastion of hope for a fair fare deal. And it behooves upon the authorities to ensure that that stays alive and is not abused through collusions and fare-fixing. Airlines should know that what has happened in recent times is that travellers have become more conscious of the numbers. And that more of them are shopping around than they used to, especially when the product becomes increasingly uniform and the only reason for travelling is to get from one point to another.

Jetstar Hong Kong stirs up a storm

JETSTAR Hong Kong, a new budget joint venture of equal partnership between Qantas and China Eastern Airlines, is stirring up a storm – and not quite in a tea-cup considering the market potential of 450 million passengers by 2015. The carrier is expected to commence operations in mid-2013.

The announcement drew mixed reaction from aviation analysts. Some of them think Qantas made a strategic move in penetrating the lucrative Asian market, following failed talks with Malaysia Airlines to set up a premium carrier to be based in the region. However, Qantas chief Alan Joyce insisted that it was not the end of the road for that project. “We are still in dialogue with both the Singaporeans and Malaysians but nothing is happening in the short term,” said Mr Joyce. “It’s more of a long-term issue.” By that, he meant a likely delay of two to three years.

The RedQ project got on to a rough start when it was announced a year ago as part of the Qantas restructuring to rescue the Australian flag carrier from further losses – it lost A$200 (US$207) – incurred by its international operations. Qantas flies less than 20% of Australia’s international passengers compared to a market share of 65% for domestic travel. Asia became its Holy Grail. Unfortunately, disruptive labor action in protest for fear of the loss of jobs at home put the brakes on the project. What started with a big bang simmered down to a proposal for a joint-venture instead. Singapore and Kuala Lumpur were identified as the possible Asian base, and Malaysia Airlines – which is also muddling in red ink – the only known interest in the partnership so far.

Mr Joyce explained that the project was put on hold “because the requisite traffic rights couldn’t be secured in Singapore while Malaysian Air (sic) is going through a restructuring plan of its own, so that reaching an accord with Qantas proved too ‘complex’.” It is to be seen as a matter of timing. Interestingly, Mr Joyce mentioned difficulties with Singapore, which is a strong supporter of open skies and where Qantas already enjoys hubbing privileges. While Jetstar Hong Kong – a budget carrier – is not a replacement for RedQ, would Qantas face similar impediments even though it had inked an understanding with China Eastern?

According to aviation consultant Andrew Pyne who had held senior positions at Cathay Pacific, Viva Macau (as CEO) and Avianova (as founding CEO), the deal is far from being final, in case we missed the fine print that reads “subject to regulatory approval”. In his opinion, neither Qantas nor China Eastern which is “controlled in effect from Sydney and from Shanghai can be said to have its principal place of business in Hong Kong” and therefore does not comply with Hong Kong’s Basic Law. This means the law would have to be tweaked to legitimize the union, but with pressure from Beijing, this is not likely to be an insurmountable hurdle.

But if that came about, Mr Pyne opined that two things could happen, both of which undesirable for Hong Kong. First, there would be a long line of other airlines wanting to operate from Hong Kong, which would end up being “a flag of convenience”. A bad thing? That would depend on the Hong Kong administration’s objectives, priorities and vision of growth – it has already given the green light for a third runway to be constructed at the Hong Kong International Airport (HKIA). Uncontrollable? Not quite.

Second, Cathay Pacific would probably look for a new home elsewhere. It could, but would it? Besides, it is unimaginable that the region’s most successful airline should be so ruffled by a new budget carrier on the same turf or be so terrified of the competition it poses that it should shake out of the territory where together with subsidiary Dragonair it has 50% total capacity share compared to 5% for all low cost carriers (LCC) at HKIA. Jetstar Asia on its own manages only 0.5%.

Yet there is suggestion that Cathay Pacific is not quite happy about Jetstar Hong Kong setting up base at HKIA – manifested in renewed speculation that it would withdraw from OneWorld (of which Qantas is a member) and consider joining Star Alliance. But it is really much ado about nothing if you consider that China Eastern is a member of the Sky Team, and not OneWorld.

A more pertinent question to ask is whether Jetstar Hong Kong would do much better than the average LCC at HKIA, and in particular for Qantas whether the new budget joint-venture was strategically the right move in its Asian plan, which looks set to employ the Jetstar branding as the growth vehicle. The Jetstar brand – including services within Australia and New Zealand – already connects eight cities in mainland China in a network of almost 60 destinations served by some 3,000 weekly flights. Besides Jetstar Asia that operates out of Singapore, Jetstar Japan in partnership with Japan Airlines and Mitsubishi Corporation will commence domestic services out of Tokyo’s Narita Airport in July. Jetstar Pacific in joint venture with Vietnam Airlines will follow on a date yet to be finalized.

However, the less optimistic group of analysts doubt that the Jetstar Hong Kong would work as hyped for Qantas (and China Eastern). They think that Hong Kong is just not the right market for budget travel. The volume out of HKIA is much too small and the yield very low especially if the target is the leisure market. For now, the options seem limited as destination rights are strictly rationed by the Chinese authorities. Cathay Pacific has said it would not follow in the footsteps of regional rivals such as Singapore Airlines and Japan Airlines in setting up budget offshoots. It is already complemented by subsidiary Dragonair that operates shorter regional routes. But Qantas chief Joyce had this to say: “Cathay will always be talking down (LCC opportunities) because it is in its interests to do so.”

Both Qantas and China Eastern are confident that Jetstar Hong Kong – which is eyeing the market beyond Hong Kong – would turn in a profit within three years. China Eastern chairman Liu Shaoyong estimated a market share of 6 to 7%. All this despite high fuel costs that have increasingly become the bane of LCC operations. Mr Liu said the costs would be offset by high aircraft utilisation and through surcharges. That, of course, would be premised upon a growing market and the elasticity of the demand vis-a-vis costs.

Jetstar CEO Bruce Buchanan said costs would be kept low, as much as 50% compared to full-service airlines, and fares would similarly be as much as 50% below what the latter are charging. By charging low fares, Mr Bachman has latched on to the promise of the theoretical economic model that it will generate new demand – the first principle of the budget business. Ceteris paribus, you may add, and given that the economy will fully recover and strengthen then on. He has also placed his bet on compensation by ancillary revenue, a new and convenient source of income that many airlines have begun to adopt. Jetstar is said to be amongst the cohort of high ancillary revenue earners.

Mr Joyce said Hong Kong Jetstar would enjoy “first-mover” advantage, but sceptics are apt to cite how two other airlines namely Hong Kong Airlines and Hong Kong Express are still struggling with a 60% load factor despite charging fares that are said to be 50% lower compared to full-service airlines. Both airlines are backed by Chinese conglomerate HNA Group and garner a combined 5% market share. Besides fuel costs, operations at HKIA do not come cheap for LCCs, particularly in the absence of a low-cost budget terminal.

Whatever the outcome, the storm stirred up by Jetstar Hong Kong has surfaced a few hard realities. First, Qantas is determined – almost desperate – to spread its wings far and wide over Asia, eyeing in particular the huge potential of China. Jetstar Hong Kong may not have been ideally timed, but it is a significant stepping stone if its sceptics are proven wrong. Mr Joyce is waiting in the wings to celebrate the fortune that China’s “booming middle class” would bring when the floodgates finally open fully, a key part of his bruised five-year plan to restructure Qantas. The Australian carrier badly needs a new lease of life.

Second, while still commanding a very strong presence in Hong Kong – and no reason to believe this would change any time soon – Cathay Pacific may have to brace itself to have to fight even more tenaciously to uphold its dominance. Elsewhere in the region, a visible shift in the market is taking place. In Singapore, LCCs have increased their market share to 27% and are continuing to grow, while flag carrier Singapore Airlines has seen its share reduced to 33%. In Australia, LLCs have a market share of 43% compared to Qantas’ share of 37%. The competition has broken down the barriers of segmentation. No doubt, the competition will intensify.

Third, Hong Kong may be undergoing policy changes in the wider China context. Past encumbrances may make way for new opportunities. Things can change.

And, lastly, the jury is still out on which way the wind will blow.

New revenue source: Easyjet to introduce reserved seating

EASYJET will be introducing reserved seating and charge passengers for it although the budget airline said the objective was not to make money since the initiative would be “revenue neutral”. Its chief executive Carolyn McCall said: “Our aim is to make travel easy and affordable for all our passengers.”

Emergency exit seats with extra leg room come at a cost of GPD12, front row seats at GPB8 and seats elsewhere at GPB3. If you still want a free seat, you will be allocated what`s left. That means possible split seating for passengers not travelling alone.

Rival UK budget carrier charges GPB10 for reserved seats in the first two rows and those next to emergency exits. Full-service airlines have also introduced charges for preferred seating.

For all that Easyjet may be saying about making it convenient for passengers, you cannot deny that the move is revenue generating, even if it is “revenue neutral” at the start, conceding that the carrier – as it said to support its argument – would incur additional expenses to tweak its booking system.

Many airlines are already charging for ancillary services that were previously offered as part and parcel of the ticket fare – and reportedly made good money from them. This helps when you are flying in the red. Easyjet lost GPB153 million in the first half of last year and is expecting further losses of between GPB110 million and GPB120 million for the six months to the end of March.

Ms McCall additionally commented that some passengers found the free-for-all boarding “a nuisance”. That cannot be denied. It can be an ugly sight if the situation gets out of control, and there have been instances of scuffles. But that is what the budget model is premised upon: you sacrifice a certain amount of comfort for the lower fare that comes with no boarding passes, no reserved seating, fewer staff members to assist you and some degree of stress depending upon your constitution.

In the bigger picture (as I have maintained previously), the cost-gap between the low-cost and full-service products is narrowing. That being the case, the cost differences may not fully justify the gap in service. Easyjet and the like are drifting out of a niche market into the bigger arena where value more than cost – whether budget or full-service – will drive the business. Clearly, Easyjet wants to attract more than just people who do not mind sitting anywhere for the low fare; others who may have been deterred to fly budget because of the inconvenience may now come on board. Even more so is the case as Easyjet tries to attract more business passengers.

Budget carriers go long haul

The latest budget carrier to announce its intention to join the long haul race is new upstart AirAsia Japan – a joint venture between Malaysia’s Air Asia and Japan’s All Nippon Airways (ANA). The carrier, based in Tokyo’s Narita, expects to commence domestic operations and flights to destinations in nearby Korea, China and Taiwan in 2012. But by 2013, it has set its eyes further afield, to Singapore and destinations in Thailand, Indonesia and Australia.

Earlier, Singapore Airlines (SIA) in introducing its new budget subsidiary Scoot has said the carrier will operate beyond the 4-to-5-hour limit of the traditional budget model, to destinations in China and Australia – though not quite as far as AirAsia’s AirAsia X which operates scheduled services from Kuala Lumpur to destinations that include Paris, London and Christchurch.

This is yet another sign of how the budget business is changing its form to take on the inter-airline competition in an arena that has hitherto been considered the domain of full-service airlines. Thus the competition is increasingly becoming a free-for-all anybody’s game.

Especially in Asia, considering the geography of the region with the exception of China and Indian with its vast expanse, it is not surprising that budget carriers will push further than originally planned as they grow. If there is any concern, it is whether the budget model will be able to support or sustain their operations, hence somewhere down the line it is likely that hybrids or compromised versions will evolve. But AirAsia X’s success has lifted the dark clouds that once enveloped the fate of the now defunct forerunner Oasis Airlines which used to fly from home base Hong Kong to Vancouver and London. In July, AirAsia X reported a healthy passenger growth of 56 per cent for the first half of the year.

While in the past full-service airlines would dismiss any competition posed by budget carriers because they served different markets, this is no longer true as the lines of segmentation continue to blur. If budget carriers want to go where the full-service airlines tread, it is only to be expected that the latter too will react to rewrite the rules of the game, as exemplified by SIA’s Scoot strategy (as with other main rivals) to secure its interest in the shifting market.

A spokesman for ANA said: “Scoot might be a competitor but the target of AirAsia Japan is to create new demand for air transport. In Japan now, there is no low-cost carrier and we are sure we can do this.”

It is true that budget carriers have largely stepped into a vacuum to provide air services where there were none or to reach places that were under-served by air and as a consequence were able to generate new demand. That does not seem to be quite where the competition is heading today, considering how many of them too want to operate to the more lucrative business or tourist destinations.