Jetstar Hong Kong confident its application to fly will take off

IT has been a long wait for Jetstar Hong Kong since its application, (See Jetstar Hong Kong’s long and costly wait to fly, Nov 21, 2014). Almost two years after its launch, the airline has yet to receive approval from the Hong Hong Kong authorities to fly. But Jetstar HK chief executive officer Edward Lau is confident that the approval will come eventually, now that the partnership has been expanded to include local conglomerate Shun Tak with its managing director Pansy Ho appointed to the chair. Jetstar HK was originally a partnership between Qantas and China Eastern Airlines. The question remains: When?

Courtesy Jetstar Hong Kong

Courtesy Jetstar Hong Kong

In an exclusive interview with Aspire Aviation, Mr Lau said Jetstar HK has been in close dialogue with the regulators. Asked about the objection by Hong Kong airlines, particularly Cathay Pacific, which is a full-service carrier while Jetstar HK is a budget operator, Mr Lau said this was expected “as we propose to bring a very competitive offering to the table.” He added: “Before the announcement of Jetstar Hong Kong’s arrival in March 2012, the existing Hong Kong airlines had no incentives to lower fares or offer low fare options to the Hong Kong travellers. Our arrival forces airlines already in Hong Kong to be more competitive.”

Central to the argument is how Jetstar HK’s entry would benefit the consumer. “The people of Hong Kong deserve a choice,” said Mr Lau, refuting Cathay’s insistence that Hong Kong does not have a market for budget travel. He countered:  “The average global LCC penetration rate is now claiming 27% and growing while in Hong Kong, low cost carriers account for only 8% of travel. There is much room for LCC to grow in Hong Kong.”

The comparison with other Asian markets, particularly Singapore, is inevitable. Mr Lau said: “Hong Kong has a population of 7 million and unlike other major Asian hubs like Singapore and Japan, does not have its own LCC. We see a great opportunity to bring the low fares revolution to Hong Kong. Singapore has a smaller population but has three local LCCs (Jetstar Asia, Tiger and Scoot). The airlines are successful and growing, alongside a large Full Service Airline and its regional subsidiary (Singapore Airlines/SilkAir). There is no reason why that shouldn’t also happen here in Hong Kong.”

So, granted the approval, what are Jetstar HK’s operating plans? Consumers can look forward to flying the airline’s short haul services to destinations within five hours of Hong Kong, in Southeast Asia, Japan, South Korea and Greater China. Jetstar Hong Kong will operate a fleet of Airbus A320-200 aircraft, configured for 180 passengers in a single class. Mr Lau said the carrier plans to grow to a fleet of 18 aircraft.

You can read the full text of my interview of Jetstar HK CEO Edward Lau on aspireaviation.com.

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Jetstar Hong Kong’s long and costly wait to fly

Courtesy Jetstar

Courtesy Jetstar


Twenty-one months after Qantas announced the birth of its fifth Jetstar venture in March 2012, initially in partnership with China Eastern Airlines, the airline (Jetstar Hong Kong) has yet to receive approval from the Hong Kong authorities to fly. No doubt it is a costly affair waiting, with three remaining Airbus A320 aircraft sitting in Toulouse after six of the orders have since been sold. But prime mover Qantas is confident that Jetstar HK will eventually take to the sky, expecting its case to be heard some time next year although no firm date has been set.

Qantas chief executive Alan Joyce said: “We are confident that Jetstar Hong Kong’s case is solid for the approvals. The process has taken longer than anyone expected, it’s taken longer than any jurisdiction hat we’ve seen in the world, but this is going to be a good business venture which we believe will make good profits.”

If you detect any hint of frustration at the lumbering approval process, you may be right. Yet could you blame Mr Joyce for running out of patience? Indeed it is surprising that Hong Kong as a thriving air hub is taking so long to reach a decision.

Cathay’s objection

Courtesy AIRBUS

Courtesy AIRBUS

It is widely believed that Cathay Pacific’s objection to Jetstar HK is in no small way attributive to the delay. Cathay remained confident that the Hong Kong authorities would not rule in favour of the budget carrier, the argument being that it is foreign controlled, effectively from Australia. That runs contrary to Hong Kong law. In a move to make the carrier more Hong Kong in character, Qantas and China Eastern inducted a third local partner, Shun Tak, whose managing director Pansy Ho assumed appointment as Jetstar HK chairman. Shun Tak would have the majority 51 per cent shareholder voting rights, reducing that of the other partners to 24.5 per cent each. Presumably the authorities will now have to decide whether that is enough, notwithstanding Mr Joyce now saying that the new airline is more local than Hong Kong’s other airlines.

But is there a bigger issue than one about ownership, which by its legality should be indisputable? Right from the beginning, Cathay has made its objection heard, arguing that such a business model does not have a place in Hong Kong. While many of its rivals such as Singapore Airlines (SIA) and Japan Airlines besides Qantas have spawned budget offshoots, Cathay has pooh-poohed the idea. Cathay may deny it, but its opposition to Jetstar HK is an issue of competition. Though in name a budget carrier, Jetstar HK backed by strong parents with international connections will compete with not only Dragonair but also Cathay, the same pressure that other mainstream airlines such as SIA, Air France and Lufthansa are already experiencing. The likes of Ryanair and easyJet in Europe, Southwest and JetBlue in the United States, and AirAsia and Jetstar in Asia are the new threat to the legacy business as the global economy continues to flounder. The market has become that less clearly demarcated.

Is there a case for Jetstar HK?

To say that budget carriers cannot thrive in Hong Kong is a supposition without much experiential evidence to support it. With the large China market at its doorstep, the potential cannot be overplayed. By comparison, the growth of budget traffic outstrips that of full service traffic in Singapore; the low-cost business makes up 30 per cent of Changi’s throughput. It is higher in Indonesia and India. Asia in particular has seen an increased number of budget carriers in recent years to cater to the growing number of travellers responding to the offer of affordable fares. It is no exception that Cathay together with Dragonair which account for almost half the seats sold out of Hong Kong will want to protect their dominant market share.

So, are Hong Kong air travellers worse off than their counterparts in the region, being denied cheaper alternatives? Jetstar group chief executive Jayne Hrdlicka would like to think so. She said: “The travelling public in Hong Jong have clearly signalled that they are fed up with paying high fares relative to their colleagues around the region.” That at best is an assumption, though not entirely baseless. At the same time it does not mean Cathay and Dragonair will immediately lose chunks of their business to Jetstar.

The onus on Jetstar HK is to show that its entry will not diminish the market size but will instead generate an increase in demand for seats, something that all airport authorities like to hear. Almost always that is the wistful thinking that goads airports to open their doors to more carriers. Then there are the arguments for competition to grow the airport. Hong Kong cannot be the air hub it is today without the competition.

Qantas CEO Alan Joyce/Photo courtesy bloomberg.com

Qantas CEO Alan Joyce/Photo courtesy bloomberg.com

Lest anyone thinks that Jetstar HK would not survive the competition even if given the go-ahead, Mr Joyce cited the success of Singapore-based Jetstar Asia, which had been profitable in the four years before last year. Even though it lost S$40m (US$32m) last year, it outperformed SIA’s Tigerair which lost S$200m. The losses were the result of market overcapacity. However, with Tigerair cutting back, Mr Joyce said: “We see a path through for that business to go back into profit like it was in the previous four years. I’m comfortable it will get there.” Now, is not excess capacity the very apprehension of Cathay and Dragonair? Indeed, many airlines are returning to profitability on the back of reduced capacity, the short supply helping to hold up airfares. It is equally valid to ask if Hong Kong as a major regional hub airport is already facing that issue.

At some point Jetstar HK partners will have to reflect on the worthiness of waiting indefinitely for the sanction to fly. No pun intended, if you think of sanction’s other meaning of being punitive. Questions are being asked if Qantas was putting in money chasing a rainbow that seems too far out of reach. And one is apt to ask too: Is the prolonged delay intended to allow time to resolve the issue, one possibility being a stillbirth?

This article was first published in Aspire Aviation.

Is ASEAN Open Skies a myth?

LESS than a year to its full implementation, the ASEAN Open Skies remains an uncertainty. First mooted some 20 years ago, it has been a long time coming. While there was some open discussion in its early days, all seems somewhat quiet of late. Is it likely to be postponed? Or is it after all a myth?

The issue really hinges on how ready the ten-nation association are collectively. Even deeper than that, how prepared are they to overcome the hurdles, real or perceived, that stand in the way of full implementation. Unlike the European Union, ASEAN is by definition an “association” and not a common government with binding law enforcement obligations. The bloc is made up of a disparate string of nations that are vastly different in their stages of economic development. How they weigh the opportunities that such a common policy could bring against possible losses at home would determine their readiness for participation. Some nations may still prefer the seeming protection of local businesses accorded by bilateral exchanges. This was already tacit when at the outset, the various nations agreed on “the importance of the development of Competitive Air Services Policy which may be a gradual step towards an Open Sky Policy in ASEAN.”

Yet the good news is that against the uncertainty, the skies are already becoming more liberal as a number of airlines have stepped up expansion plans across the region. The battle for dominance has begun.

ASEAN nations

Courtesy The Bangkok Post

Courtesy The Bangkok Post

Indonesia is the largest nation in the association, occupying a land mass made up of more than 13,000 islands that is almost 75% the total area of the other nine nations put together. It is also the most populous with 250 million people, followed by the Philippines (98,000,000) and Vietnam (90,000,000). While ASEAN has a combined population of over 600 million – which speaks a lot about its huge market potential – expectedly the focus is likely to be Indonesia. But Indonesia, hampered by slow infrastructural enhancement and the past poor safety records of its carriers, fears the loss of domestic markets to better endowed foreign competitors. In May 2010, Indonesia declared it was not ready to fully open its skies and would limit access to only five airports, namely Jakarta, Surabaya, Bali, Medan and Makassar. Other ports would be subject to bilateral agreements and foreign carriers would not be permitted to ply domestic routes.

So it is with the less developed nations of Myanmar, Laos, Kampuchea and Vietnam even as they seek more foreign investments and ways to boost their exports. Accessibility to the landlocked outback of these nations could open up opportunities for growth, as noted at a meeting of ASEAN transport ministers in 1996 that the association aimed “to promote interconnectivity and interoperability of national networks and access thereto taking particular account of the need to link islands, land locked, and peripheral regions with the national and global economies.” The question really is how ready they are to embrace this objective to see to its implementation.

At the other end of the spectrum is Singapore, which is the smallest of the nations but the most advanced economically and most ready to go full hog with the implementation of the ASEAN Open Skies policy. After all, Singapore has been a pioneer in advocating liberal skies on the global stage. A concern among its ASEAN neighbours may be that of how they perceive Singapore carriers as benefitting from an enlarged Asean hinterland. It works both ways. Foreign carriers, particularly short-haul operators with limited capacity and resources, will benefit from Changi Airport’s hub connections to tap into other markets in the region. Besides its strategic geographical position, Changi offers excellent infrastructure and has appeal aplenty for transits,

Middle-of-the-road Malaysia and Thailand seem less passionate about the push. Brunei Darussalam, which has the smallest population, appears quite comfortable the way it is for now. However, the Philippines with a similar geography as Indonesia could benefit from more liberal connections.

Which airlines will rule the ASEAN skies?

The region’s growth is likely to be led by budget carriers. With the focus on Indonesia, its home-based carriers are not sitting by idly. Flag carrier Garuda Indonesia is acquiring smaller 100-seat planes more suited to the shorter runways of secondary airports, which will be largely served by its budget subsidiary Citilink. Asked how Garuda was gearing up for the ASEAN Open Skies, Garuda president and chief executive Emirsyah Satar said: “The ASEAN Open Skies Agreement will open up the Indonesian market to carriers from other ASEAN member countries, but our position is very strong in Indonesia and we are prepared for the competition. Our network’s aggressive international expansion and continual developments and service improvements will also prepare us for competing in a more liberal environment.” (Interview: Emirysah Satar, president & chief executive, Garuda Indonesia, 4 September 2013) He projected that Citilink would carry 19 million passengers by 2015 and there were plans to add international routes to several destinations in Southeast Asia. Garuda is also developing a new hub in Bintan, which is a hop away from Changi Airport.

Courtesy Lion Group/Picture by Rudy Hari Purnomo

Courtesy Lion Group/Picture by Rudy Hari Purnomo

Compatriot Lion Air, which is Indonesia’s second largest airline, is also expanding its fleet and gearing up its regional subsidiary Wings Air to service smaller airports. Lion Air has long expressed its intention to hub through Changi although it has also announced plans to develop Batam as an alternative transit hub to the congested Soekarno-Hatta Airport in Jakarta for both domestic and international flights. Lion Air president Rusdi Kirana said: “The distance is actually shorter if you transit in Batam rather than flying south to Jakarta to transit. The shorter flying time makes flying more convenient for passengers and it means aircraft burn less fuel, leading to significant cost savings.” From Batam, which, like Bintan, is a stone’s throw away from Changi, Lion Air hopes to fly to destinations such as Guangzhou, Hong Kong, Bangkok, Jeddah, New Delhi and Mumbai.

It is to be seen how the plans of Garuda and Lion Air to develop Bintan and Batam respectively will impact on Changi, which is likely to see higher growth as Singapore becomes an attractive destination in itself and as a desirable feed port for international and regional traffic. In introducing a direct non-stop service from Jakarta to London in May this year, Mr Satar has hoped that Indonesian travellers would fly Garuda instead of routing their travel out of another airport such as Changi.

Other smaller carriers are expected to go for a bigger slice of the growing pie and new carriers launched to serve secondary airports.

Courtesy Airbus

Courtesy Airbus

Not to be left out of the race, AirAsia and Tigerair made early moves to establish their presence in the huge Indonesian market. Until a full open skies policy is in place, joint ventures are the expedient way to gaining a foothold. Indonesia AirAsia, which is 49% owned by AirAsia, operates beyond Indonesia to Singapore, Kuala Lumpur, Phuket and Ho Chi Minh City. AirAsia chief Tony Fernandes’ ambition is to dot the region with the AirAsia brand. The Malaysian budget carrier has also set up joint ventures in Thailand and the Philippines. This means AirAsia, which is headquartered in Kuala Lumpur, and its joint-venture airlines are serving destinations in all the ten Asean countries, as summed up by Mr Fernandes: “Think we are done in Asean.” But liberalization offers more than just opportunities within Asean; AirAsia is well positioned to connect its passengers beyond to destinations in Australia, Japan, Korea, China, India and the Middle East.

Responding to AirAsia’s thrust into Indonesia, Lion Air teamed up with Malaysia’s National Aerospace and Defence Industries to launch Malindo Airways for services from Kuala Lumpur across Asean and to China, India and Japan, a move that Mr Fernandes had rebuffed as no match for AirAsia’s strong brand and positioning as Asia’s largest budget carrier. So far Lion Air appears to be one with the biggest plans, which include an airline leasing company to be situated in Singapore, a new full-service airline Batik Air which was launched in May last year and which plans to fly to Singapore as its first international destination sometime this year, and a premium charter under the Space Jet brand.

Not so lucky is Tigerair, whose partnership with Mandala Airlines Indonesia is teetering on the brink, as was its partnership with SEAir in Tigerair Philippines which has since been sold to Cebu Pacific Air. Its attempt to spread its wings across the region had met with a string of failures added to a blemished record of poor service. Its ambiguous relationship with sibling airlines within the Singapore Airlines (SIA) stable has not improved its fortune; today Tigerair and Scoot are competitors on some routes. Scoot, which is 100% owned by SIA, looks likely to overtake Tigerair in the game. It has partnered Nok Air to operate a domestic service in Thailand. Nok has hoped that this will be its vehicle for expansion overseas. Regional carrier SilkAir continues to fly in the shadow of parent SIA, which may have to continue to shore up the fortunes of its offshoots with feeder traffic from and into its long haul services.

Jetstar Asia, the only other airline based in Singapore that is not part of the SIA group, has proven to be a tough competitor. Parent Qantas has been actively promoting the Jetstar brand across Asia, having also set up joint ventures in Japan, Vietnam and Hong Kong.

Whether the Asean Open Skies is finally formalized or not, regional carriers have already started to prepare for the eventuality. The question as to whether it is a myth is no longer relevant. Clearly, the end-date is not as important as the progression towards it.

The times they are a-changing: Singapore Airlines may reintroduce executive economy

Photo courtesy Singapore Airlines

Photo courtesy Singapore Airlines

THE word goes round that Singapore Airlines (SIA) may be introducing premium economy, or rather reintroducing executive economy, pending the outcome of a secret study. Ever since the Singapore flag carrier did away with the short-lived though allegedly popular executive economy on its non-stop services from Singapore to New York and to Los Angeles when they were converted into exclusive all-business class flights, SIA has been adamant about not going down that road again. The non-stop services to New York and Los Angeles have ceased operating since the end of last year.

However, any turnabout if it happens should not be a surprise. One cannot turn a blind eye to the reality of the changing business landscape, and certainly SIA cannot ignore the apparent success of rival Cathay Pacific’s premium economy. It is quite normal for any business entity, and a visionary one at that, to change course to stay in the competition.

So it was when SIA turned its nose up on the budget travel business, challenged by Singapore’s first budget carrier Valuair which was founded in 2004 by no other than former SIA chairman Lim Chin Beng who together with predecessor J Y Pillay were largely credited for the airline’s astronomical growth in its early days and its reputation as one of the world’s best loved airlines, ranking it amongst the industry’s top earners. Today SIA is a majority stakeholder of Tigerair besides its wholly owned budget subsidiary Scoot. The threat posed by budget carriers has all but broken down the belief that they were different and exclusive markets for legacy and budget operators. SIA could not remain outside the circle when Qantas set up Jetstar Asia based in Singapore itself and as Malaysian carrier AirAsia spread its wings across the region. It could even be said to be a late starter.

When the business class first emerged in Europe, Swissair which was in many ways like SIA having earned the reputation for efficiency and good service, and which some observers might even suggest was an early model that SIA might have tried to emulate, similarly rejected the concept. But it changed its tune when the trend became entrenched. The national carrier of Switzerland ceased operations in 2002, and today’s Swiss International Air Lines is a subsidiary of the Lufthansa Group.

Whether SIA will eventually put premium economy on its flights will depend on how it perceives air travel will trend as befitting its modus operandi and situation of time and place. It would be unfair to suggest that SIA should ape Cathay, in the same way that Cathay cannot be faulted for not jumping on the budget travel bandwagon – at least not for now – although it has expressed dissatisfaction that Qantas and China Eastern Airlines should be given the licence to jointly operate Jetstar Hong Kong in spite of its insistence that Hong Kong cannot sustain budget operations.

Timing has plenty to do with Cathay’s successful implementation of its premium economy. As the global economy continues to wallow in uncertainty but with some signs of recovery, Cathay is catering to hitherto business class travellers who may otherwise downgrade to economy for not wanting to spend as much and to those economy class travellers who may want a better product but are not willing to pay that much more for business class. Yet Cathay is not the only airline that has introduced this sub-class of travel. EVA Air pioneered this in the 1990s on a very limited basis. The difference is that Cathay has made premium economy a different product – and a class of its own – rather than one that is only marginally better more in name than in the actual product that could be nothing more than just slightly wider seats further up front, orange juice served in glasses instead of plastic cups, and on the ground priority check-in and boarding. In a way, Cathay makes the difference visible, something that we can expect SIA to match or do better if it decides to go down that road.

As a leading premium carrier making about 40% or more of its profits from the upper classes of travel, SIA has been banking on the good times returning when the premium economy may well become redundant. The downside is that if premium economy is proven to be too good, it can grow at the expense of the business class and impact the overall yield negatively over the long term. For an airline that wows in the upper classes and provides an adequately impressive economy class service, this may result in dilution and compromises across the classes that will narrow the differentiation so critical in the sale pitch. The question is whether SIA can afford to wait – or has it already waited too long – to see how the landscape pans out while the rest of the industry moves in the direction of premium economy. Historically, the business class has replaced the first class for some airlines and for some routes even for those which generally offer a three-class configuration.

Geographically, there is a place issue. The premium economy is a more likely product for the long-haul routes. It may make sense for an airline like SIA which is largely a long-haul operator although the recent global economic crisis has increased its focus on the mid-range Asian market. With the competition intensifying between Changi Airport and Dubai International Airport for the Europe run, and between Changi Airport and Hong Kong International Airport as an Asian gateway for trans-Pacific traffic, SIA’s modus operandi in this connection may to some extent depend on the fortune of Changi as a hub airport, noting that Changi has in recent years been seeing higher growth presented by budget carriers than by legacy airlines. SIA’s cessation of its non-stop flights to New York and to Los Angeles may be a case in point.

In the end, it all boils down SIA;s vision of the kind of airline it will be in the years ahead against a constantly changing landscape. It seems a superfluous question, but it is a necessary soul-searching exercise. As the airline prepares to announce its full year result ending March 31, with little to celebrate judging by the penultimate quarter performance and the slow take-up in the closing months, SIA may yet excite with announcement of new initiatives moving forward. One of these could be the re-introduction of its executive economy

Move over, Ryanair, the new low-cost model is Jetstar

Courtesy AFP/Getty Images

Courtesy AFP/Getty Images


REPORTING a net profit of 602m euros (US$831m) for the six months to end-September and despite an increase of 1% year-on-year, Ryanair yet again warned that profits are likely to fall for the full year. The airline reiterated an earlier exhortation about the numbers dipping as low as 500m euros compared to last year’s 570m euros, thus negating the gain made in the first half.

It is bad news that profits will fall despite an expected drop in fares by 10% over the winter months. Ryanair attributed this to “increased price competition, softer economic conditions in Europe and the weaker euro-sterling exchange rate.” As a result, the airline may ground some aircraft.

The truth is that Europe’s biggest low-cost carrier is beginning to feel that its hitherto successful modus operandi, hailed as a true budget model, may be finally running up against the wall. Surprise, surprise, surprise it is that the airline is talking about change, and more specifically in the department of customer service when previously it may even be said to have been sitting pretty comfortable and breathing arrogance about being labelled brusque, unfriendly and uncompassionate. Ryanair chief Michael O’Leary acknowledged it is now time to “listen to customers” in a somewhat belated but hopefully never too late attempt to retain customers and attract new ones.

Among the measures to be introduced are: the return of allocated seating in February next year for a smoother boarding process and to enable families and other groups of passengers to sit together; the allowance of a small second carry-on bag, which will be a bonus compared to other low-cost operators; and a 24-hour grace period to allow passengers to correct minor booking errors, a far cry from the alleged erstwhile practice of faulting or penalizing passengers on the slightest technical inaccuracy. It is a lesson learnt that in an increasingly competitive environment, customers do have a choice.

But, of course, many upstarts in the same niche market as Ryanair have failed to make the same strides as the Irish carrier. Some of them tried in vain to tweak the low-cost model to do one better and then ran the risks of evolving an expensive but misplaced hybrid model. Ryanair made no secret about flying the dollar and that everything else was baloney. Can you blame it that in its robust years it had not anticipated that this day of reckoning would arrive?

Image courtesy ABC

Image courtesy ABC


Younger Jetstar Airways and its sister airlines operating in a different part of the world might have gleaned some valuable lessons from the doyen’s experience. A subsidiary of Australian flag carrier Qantas, Jetstar has made its mark not only domestically but also in New Zealand and across Asia with local partners in Singapore, Vietnam, Japan and soon Hong Kong. It is fast becoming the region’s favourite low-cost carrier, competing with AirAsia and Tigerair whose founding fathers included Ryanair. Ranked tops in Australia, Jetstar Airways was second to AirAsia for best low-cost carrier worldwide in the Skytrax 2013 survey. Singapore-based Jetstar Asia was ranked seventh in the same category, but there was no mention of either Ryanair or Tiger Airways (now Tigerair) in the top ten list. In the Asia category, Jetstar Asia was ranked ahead of Tiger Airways. For Europe, Ryanair was outside the radar.

Jetstar is spreading its wings across Asia as Ryanair has done in Europe. It is enjoying an Asian boom, posting double-digit passenger growth. Since 2009, it has flown 23 million passengers within Asia and 10 million passengers from Australia to Asia. However, as pointed out by Jetstar CEO Jayne Hrdlicka, “low fares are just part of the story.” For too long while the going was good, competing on the lowest fares was everything for Ryanair. Price leadership has to be complemented by good products and services. Jetstar has identified “customer advocacy” as one of its drivers for growth. Providing a consistently good experience each time that a passenger flies is the surest way of attracting returning as well as new customers. It is the best advertisement that you can get.

Jetstar has contributed positively to the bottom line of the Qantas Group even though its last full year (ending June 2013) profit dipped by 32%, attributable largely to start-up losses in Jetstar Japan and Hong Kong. Is Jetstar, compared to standalone Ryanair, advantaged by its being an offshoot of an established legacy brand? Jetstar may attribute its success largely to its focus on local and independent management, but you cannot rule out parental influence. The airline is not alone in that aspect, if you consider the many others so conceived. This could well be the reason why AirAsia failed to work with partner All Nippon Airways (ANA) in the Jetstar Japan venture which has since been fully assimilated by ANA and the airline renamed Vanilla Air. Yet Qantas and Japan Airlines so far seem to have done all right in the case of Jetstar Japan.

It is not a given. The parental association can benefit or be detrimental to the offshoot carrier. United Airlines and Delta Airlines were reluctant parents to Ted and Song respectively. Or, it can disappoint. The magic of Singapore Airlines has not seemed to rub off Tigerair, not even Scoot that it wholly owns.

Good bloodline may provide an advantageous lift-off; the rest depends on the offspring coming into its own. Jetstar has scored many firsts since its inception, among them the first LCC in Asia-Pacific to introduce customer self-service for changes and disruptions, SMS boarding passes, and the unbundling of check-in bags. It was also the first LCC to put on board iPADS with the latest content and the first LCC to offer interline and codeshare flights. Soon it will be the first LCC to launch avatar chat (“Ask Jess”).

In all fairness to Ryanair, it is an equally innovative airline and it should be commended for being a bold one too. Here is where the path diverges for both airlines. As a true blue low cost carrier, Ryanair is focused on measures aimed at reducing costs further. The first principle of economics is that ceteris paribus, consumers will go for the lowest cost. If, for example, you do not fancy eating up in the air, why should you subsidise the cost of meals that other passengers tuck in? You pay only when you want to eat. Budget carriers, including legacy airlines – notably North American carriers – operating domestic or the short haul routes are already subscribing to that principle. Ryanair goes further with other measures such as charging a fee for counter check-in and has no compunction about bumping off a passenger who arrives at the airport without a pre-printed boarding pass. Scrimping on staff numbers to provide customer service also helps to reduce its operating costs. Mr O’Leary raised some brows when he suggested charging for the use of the aircraft loo and providing standing room only fares. The vibes turn out to be negative.

Jetstar on the other hand offers more positive solutions to perceived constraints that may be considered by many travellers as necessary evils of the budget travel mode. It has adopted a consolatory approach that has earned it brownie points. What little additional costs it incurs on the swings, it more than makes up for it on the roundabouts. Ancillary services are a major earner for the airline.

Move over, Ryanair, the new low-cost model is Jetstar. Still, it is quite something to hear Mr O’Leary say: “Listen to customers.”

The Tiger continues to bleed

Courtesy Bloomberg

Courtesy Bloomberg


IF you get the impression that Tigerair is finally turning around because it reported a net profit in Q2, you have missed the trees for the woods.

In the quarter ended September, Tigerair posted a net profit of S$23.8 million (US$19.2 million). This was attributed largely to its sale of 60-per-cent ownership to Virgin Australia. Tigerair actually suffered an operating loss of S$12.8 million, which was higher compared to last year’s loss of S$11.5 for the same quarter. The Virgin trade-off was a one-off gain as Tiger Australia continues to underperform.

While traffic volume for Tigerair’s Singapore operations increased by 22 per cent, resulting in an increase in revenue of 14 per cent to $151.3 million, net yield deteriorated. Tigerair Group CEO Koay Peng Yen attributed this to “higher airport and handling charges following our relocation from Changi Airport’s Budget Terminal to Terminal 2.” The poorer yield was also the result of Tigerair’s inability to fill up the increase in capacity by 27.5 per cent.

Overall, while the partial stake sale to Virgin Australia raked in some money, Tigerair suffered from poor investments in Indonesia (Mandala Airlines) and the Philippines (SEAir) which added losses to its bottom-line and look likely to continue to bleed red. Clearly Tigerair is not making much headway in competition outside its Singapore base. Yet it is in an untenable position caught between the a rock and a hard place that without a foothold in the region pending the full implementation of Asean Open Skies in 2015 and as the region beyond becomes more liberal may be more detrimental to its future than sticking it out with present pain – perhaps with a little help from parent Singapore Airlines.

Even in Singapore, Tigerair is facing tough competition from rivals such as Jetstar Asia and AirAsia. The airline is now looking to tapping the corporate market. Mr Koay said: “We are introducing ourselves to the corporate customer segment because we offer good value to companies; not just the small and medium enterprises, but companies of any size, because with Tigerair, you can halve your costs of flying to your destinations.”

That sentiment smacks of a presumptuous attitude. For an airline that complained about the higher costs of operating out of a main terminal at Changi Airport which had since demolished the erstwhile Budget Terminal to make way for a fourth terminal, that comes across as an unlikely ambition. We recall the days when Tradewinds (and later as the rebranded SilkAir) decided to shed its leisure image and entice the business market, but not all too successfully even as the Singapore-Jakarta that it eyed was one of the most popular and lucrative business routes in the region. The business class market is quite a different kettle of fish. No doubt Tigerair may be able to offer much lower fares – halved as it said, and very attractive on that count – but is that enough to entice business travellers who may not only have the propensity but also the willingness to spend more on the short sectors?

Tigerair may do better sticking to the budget model and focusing on improving its low-cost product to offer the best value for the fares it charges vis-à-vis the competition. That should not change even as it flashed a new logo recently, apparently to project a friendlier and less aggressive animal, and tweaked its name to be trendier and hip. But it has to do more than just that to prove to its customers that the new Tiger can actually change its stripes. The test of the pudding is in the eating.

The low-cost business in the early days was largely propelled by emerging markets – new destinations in the outback and new travellers yet to acquire the habit of flying. While Southeast Asia and beyond in the wider Asia-Pacific environment may still offer a lot of opportunities for airlines such as Tigerair to reach into the outback and create niche demand, the gestation period for growth and development has been shortened markedly. As the market matures, with more airlines entering the arena and the more established legacy airlines suddenly become threatened by cheaper alternatives, the game is all about competition. In that environment, Tigerair has to adopt a less self-deserving and blinkered strategy that entails a greater awareness of what its rivals are capable of.

Today’s market is extremely volatile, fickle and constantly shifting. Maybe a tamer tiger is not such a good idea after all.

Comeback kid Garuda Indonesia is Asean’s rising star

garuda imageEveryone loves a comeback kid, and Garuda Indonesia is the newest comeback kid on the aviation block.

The Indonesian flag-carrier has come a long way from a speckled past to becoming the new star of Asean. It is no mean feat for an airline that in June 2007 was banned (along with all other Indonesian carriers) by the European Union (EU) from flying to its member countries over safety issues, and that for a good 50 years or so it has all but maintained a very low profile.

In fact, we hear more of rival Lion Air – Indonesia’s second largest airline after Garuda – and its grand plans to expand across Asia with record plane orders. In the 60s, Garuda flew beyond the region to Amsterdam, Frankfurt, Rome and Prague in Europe, and to Honolulu and Los Angeles in the United States. Services to Amsterdam were resumed a year after the EU in 2009 lifted the ban, but services to the US had long ceased since 1997.

garuda image1 courtesy garuda
Image courtesy of Garuda Indonesia

In the 2013 Skytrax survey, Garuda Indonesia was listed among the world’s best 10 airlines. If that was not impressive enough, consider how it was also ranked fifth in the Asia category, behind Singapore Airlines (SIA), All Nippon Airways, Asiana Airlines and Cathay Pacific – ahead of some other presumably better known brands. There is more: Garuda was voted in the same survey as best economy class, and this is worthy of note considering that many top-rated airlines are reputed for their first and business class but not necessarily for economy which across the industry is increasingly becoming very much the same.

Surely the Indonesian flag carrier must be doing something right. Mr Emirsyah Satar, president and CEO whom I had the privilege to interview, attributed Garuda Indonesia’s success to a strategic 5-year transformation programme known as Qantum Leap implemented in 2009, the same year that the EU lifted its ban on the airline. The makeover gives Garuda a fresh corporate identity complete with new livery, a name change to Garuda Indonesia in full instead of merely Garuda, and new crew uniform. Embedded in the “Garuda Indonesia Experience” that it offers – typified by the warm hospitality inherent in the Indonesian culture at every point of customer contact – is the drive to improve customer’s perception.

emrisyah satar
Image courtesy of Garuda Indonesia

Mr Satar said: “Service experience is what sets us apart.” He added, “We want passengers to experience the warmth of the Indonesian hospitality whenever they fly with us. Before, we were lacking a distinct uniqueness and the idea behind the branding strategy in 2009 was to create a new culture for Garuda based on the traditions and values of Indonesia hospitality.”

What does the rise of the mythical bird to new heights mean to the competition in the region, particularly in the offing of the Asean Open Skies policy which is expected to be fully implemented in 2015?

First, regional carriers including SIA cannot afford to ignore the competition posed by Garuda Indonesia. Going forward, the airline is increasing not only its fleet but also capacity as it expands its network. It will offer more seats between Jakarta and Singapore, which is its largest destination outside Indonesia. Naturally, it can only mean that airlines currently operating the lucrative short route will have to fight harder to retain its market share or generate new demand, the latter case being good news for Changi Airport in terms of traffic growth.

Garuda Indonesia will also be introducing a direct service between Jakarta and London in February next year; the flight was originally scheduled for November this year but has been delayed because of limitations faced by Soekarno-Hatta International Airport. Mr Satar believed that Indonesia is a high growth market for the United Kingdom (UK), a market that is currently underserved. Considering the double-digit growth of traffic carried through other Asian hubs, Mr Satar was confident that Garuda Indonesia is in a dominant position to capture a good share of the market.

However, there is a less rosy flipside for other regional airlines and airports that have hitherto benefited from the connecting traffic of Indonesian travellers if more of them choose to fly direct from Jakarta instead. The impact may be softened by Garuda Indonesia’s scheduled landing at Gatwick instead of Heathrow, but it may all hinge upon how the airline packages its offer in light of the fluid global economy that has made cost a significant driver of consumer behaviour.

Second, product-wise Garuda Indonesia has made strides to match or be nearly as good as some of the best airlines in the industry. Mr Satar said: “It took us a lot of hard work and major restructuring over the last few years but we’re now finally back on track. Customers can continue looking forward to warm exceptional service, high safety standard and cutting-edge technology.” The airline boasts features that are no longer exclusive to its competitors such as comfortable ergonomic chairs, spacious leg room, flexible head rests, individual touch-screen LCDs equipped with Video-on-Demand (VOD) offering a range of movies, music, TV shows and games.

Third, Indonesia being the most populous member nation when Asean Open Skies kicks in should offer Garuda Indonesia home ground advantage. Mr Satar said the airline is in a strong position and ready for the competition. He dismissed Lion Air as a veritable competitor, insisting that Garuda Indonesia is a full-service carrier and “we’re not competing with the LCCs in the region”. Besides, the domestic market of 240 million people is large enough to admit more competition.

For the budget market, which looks set to grow with liberalization, Garuda Indonesia has its own budget subsidiary Citilink to compete with the like of Lion Air, AirAsia, Tigerair and Jetstar. The carrier has an ambitious growth plan to support a projected 19 million passengers by 2015, increase its fleet by another 75 planes to its current 26 by 2017, and operate beyond Indonesia to destinations in Southeast Asia in 2014 ahead of Asean Open Skies.

Garuda Indonesia will not be working alone, as it has decided to join the SkyTeam alliance, and the agreement will be officially formalized in March 2014. Is it any wonder why it has not opted to join Star Alliance of which SIA is a member or OneWorld of which Cathay Pacific is a member? It indicates the carrier’s serious intent to up the ante in competition with its regional rivals. It should be interesting to see how these other airlines react to Asean’s rising star.

You can read the full text of my interview with Mr Emirsyah Satar at http://www.aspireaviation.com.