Scoot to go where others failed

Courtesy AFP

Courtesy AFP

IT will happen, as it must. So it seems, but a matter of time. Scoot, the medium to long-haul low-cost subsidiary of Singapore Airlines (SIA) has made known its intention to extend its network to possibly include a destination as far away as London from Singapore. After all, London is a prime destination for SIA, and one that has helped it flourish in its early days, so it should be an encouraging start for Scoot to test the budget long-haul.

Scoot chief executive Campbell Wilson said: “The West is definitely on our cards.” Lest, you forget by definition it is a medium to long haul low-cost operator and think its fortune is confined to regional flights. It is eyeing the Middle East up to London.

Never mind the failure of others that tried, most memorably Hong Kong’s Oasis Airlines that inaugurated its route from Hong Kong to London in October 2006. The budget airline added Vancouver in June 2007, and won several awards that year including “World’s Leading New Airlines: and “Asia’s Leading Budget Airline” at the Annual world Travel Awards. But barely into its third year, it folded its wings in April 2008.

Another low-cost carrier that faced a similar fate was Canada’s Harmony Airways that ventured beyond North America from Vancouver to Manchester (UK) and planned to expand into Asia, eyeing in particular the China market. That was not to be, when the airline collapsed in 2007, three years after it repositioned itself for the long-haul.

More recent and closer to home is AirAsia’s subsidiary AirAsia X in yet another attempt to keep budget pioneer Freddie Laker’s dream alive. In fact, its first aircraft was named “Semangat Sir Freddie” (“Spirit of Sir Freddie”). The budget carrier operated from Kuala Lumpur to two European destinations – London and Paris, connecting traffic from other destinations such as Melbourne – which it has since suspended, together with others, but it continues to operate some shorter hauls. Parent airline AirAsia is unlikely to admit to its offshoot’s failure as being final as its chief Tony Fernandes had said it planned to return some day.

So is Scoot going where angels fear to tread or where the brave dare not go to prove it is not an impossible dream after all?

On a more optimistic note, it is certainly a welcome breath of the erstwhile spirit and vigor that characterised the success of SIA when as a new airline it quickly became the world’s most envied operator that could do things that others were reluctant or afraid to consider. Indeed, it is difficult to think of Scoot without parent SIA – a quiet overshadowing that sibling SilkAir has for years tried and still does to dispel, and into which increasingly 55-per-cent owned Tigerair is moving. While pedigree connections cannot guarantee success, experiential wisdom is not something to be scoffed at. The issue is also one of relevance. SIA is very much a premium carrier that has been pushed into venturing into the lower end by increased competition from low-cost carriers and by peer rivals that have sprouted budget subsidiaries, a good example being Qantas and its budget subsidiary Jetstar.

There are questions: Is the SIA stable getting a little crowded with intra competition even as Scoot and Tigerair now claim they are performing better with cooperation? Scoot and Tigerair will soon be combining their reservations systems. Can SIA define the market such that they do not overlap and that it merely shifts the business from one pocket to the other? The move seems to be towards more commonality. SIA’s Krisflyer perks are now open to customers of subsidiary carriers.

And the big question: Is it Scoot in its own right flying to London or is the operation under the SIA banner, the way it is so difficult to tell AirAsia X from parent AirAsia? But then, AirAsia is itself a budget carrier. Nevertheless, the bet is likely to favour the probability of SIA (driving Scoot) succeeding if anyone should finally succeed in the budget long-haul.

This is not forgetting that SIA itself has not had lemons in its basket – its failed stake in Air New Zealand, its lacklustre investment in Virgin Atlantic, and the premature termination of its all-business class flights. While its slow entry (or re-entry if you consider the short-lived non-stop Los Angeles and New York runs) into the premium economy (PEY) market may have been the result of an over-cautious retreat, its performance thus far may have also emboldened it to take a more adventurous approach. Additionally, the PEY is doing well on the Vistara joint-venture in India, even as Cathay Pacific, a forerunner of the new PEY, has decided to take it off Indian routes.

Besides, the climate for expansion is encouraging. Mr Wilson said: “We are on an upward slope towards profitability. We see yield maturity building over time and we are observing that across our routes.” The SIA Group has just announced Q1 (Apr-Jun) profit of S$111 million (US$81 million), an increase of S$72 million. Parent SIA made a profit of S$108 million compared to S$45 a year ago. Tigerair broke even. And Scoot recorded an operating loss of S$20 million, an improvement of S$5 million over last year. Passenger load factor for Scoot increased 2.9 percentage points to 81.4% on the back of increased passenger carriage by 11.0%, far exceeding the 6.9% capacity injection. And, of course, the industry is blessed with the continuing low costs of jet fuel.

What about the competition? Without any indication of AirAsia X’s resumption of the long haul services, Scoot has a pretty much open field although Norwegian Air Shuttle operates from Oslo and Stockholm to Bangkok. In fact, with airlines such as Garuda Indonesia offering low fares to London in the attempt to retain direct traffic between Indonesia and the UK, Scoot may become the alternative SIA in the competition. Mr Wilson said: “We might be a bit more niche when it comes to long-haul operations.” Generally, the budget market is driven by the dollar, and the niche factor, whatever Mr Wilson meant by it, may make the difference. But note how many a budget operator that came and went had always maintained that they were not like the others, and that too may be predicated on the expectations of long-haul travellers.

Nevertheless, it is invigorating news although Mr Wilson said the plan “is not immediate but it is not something we are closed to.” It has been almost 50 years since Sir Freddie founded Laker Airways in 1966, and it is still a field where few dare venture. We wish Scoot good luck when it finally happens, and hope it succeeds.

This article was first published in Aspire Aviation.

Is budget long haul but a pipe dream?

Courtesy PA

Courtesy PA


Only days after announcing plans to launch transatlantic flights in five years, Ryanair retracted its position, abandoning the plans. In a statement, it said it “has not considered or approved any transatlantic project and does not intend to do so.” This ran contrary to the earlier announced approval by its board to mount budget flights between various European and US cities. Why the sudden turnaround?

The budget long haul challenge continues to entice entrepreneurs who dare go where others fear to tread. We hark back to the days when Sir Freddie Laker pioneered the low-cost model and Laker Airways took to the sky in 1977 flying between London Gatwick and New York’s JFK Airport. It went bankrupt in 1982.

Others have tried and failed. Most notable among them, Oasis Hong Kong Airlines that operated scheduled non-stop services from Hong Kong to both London Gatwick and Vancouver International Airport. Voted “World’s Leading New Airline” at the Annual Travel Awards 2007, Oasis folded its wings a year later, ending a three-year run. It went down the same path as Canada’s Harmony Airways which started services within North America in 2001, then mounted a service to Manchester in UK and announced plans to expand into Asia. It collapsed in 2007, a lesson that might have come too late for Oasis.

AirAsia X, which is an offshoot of Asia’s largest budget carrier AirAsia, commenced services in 2007, flying from Kuala Lumpur in Malaysia to the Gold Coast in Australia. It was a tactical move to build up Australian traffic feed into its subsequent services to London and Paris. Three years seem to be as long as such services could last. In 2012 AirAsia X withdrew its services to both European destinations, along with others including Delhi, Mumbai, Abu Dhabi, Tianjin (China) and Christchurch. It cited high fuel prices and taxes, and a weak market. But AirAsia X is keeping the dream alive with plans to reintroduce services to London and Paris, and adding other new destinations such as Sapporo in Japan. As recent as the end of last year, AirAsia chairman Tony Fernandes announced that “reopening of KL-London is definitely on the card.”

Courtesy Norwegian Air Shuttle

Courtesy Norwegian Air Shuttle

The latest foray into that arena is Oslo-based Norwegian Air Shuttle, which began services in 2013 to the US and Bangkok in Thailand. It has plans to also fly to Hong Kong and India. The airline, which has been profitable before flying long-haul, is reporting losses and blamed it on the costs of expansion and disputes with US regulators and competitors who aren’t too welcoming of its intrusion.

Yet the temptation to prove that the budget long haul formula can work is irresistible to many a visionary, to whom we must give credit for their derring-do. In a price sensitive market, it should work but it seems not for the long haul as the short haul. It is widely accepted that beyond four hours, at most five, passengers have different needs and their demands begin to change inversely to cost. For one thing they are likely to carry more bags and could do with some pampering to break the monotony of the journey. Harmony Airways boasted low-cost with full service, and Oasis Airlines too tweaked the Spartan low-cost model to include some element of that. But running an extremely lean outfit in an unpredictable environment of volatile fuel prices, uncertain travel demand, potential flight delays and cancellations, and unforeseen natural disruptions among other things, is a big challenge.

There are other factors such as aircraft utilization with quick turnrounds, fleet support in the event of delays and cancellations, and competition. Legacy airlines can no longer afford to ignore budget carriers as niche players outside their turf for the short haul, as they spawn offshoots to check the competition. Air France-KLM and Lufthansa introduced Transavia and Germanwings respectively to compete with the likes of Ryanair and easyJet. Australian flag Qantas carrier has its Jetstar brand. Even Singapore Airlines reputed for premium service is adding yet another budget carrier, Scoot, to its fold, the new carrier literally sharing the same arena with older sibling Tigerair although it is pitched as a medium-range operator. So if the competition heats up, you bet the big boys will flex their muscles.

It is so tempting for an airline such as Ryanair as it succeeds and grows to look for new opportunities. That it did not work for others in the past does not necessarily dictate the formula cannot work for Ryanair, which has succeeded in the short haul where many others too had failed. Others such as AirAsia and Norwegian Shuttle which have gone ahead are still testing the ground. Apparently Ryanair is treading carefully as it has been seven years since it first expressed the desire to cross the big pond in 2008. In the earlier announcement before it changed its mind, it said, quite rightly so, it would be “dependent on attaining viable long-haul aircraft”. Consider how when the oil price soars, budget carriers are the hardest hit. It will take another four to five years in Ryanair’s estimate for such an aircraft to emerge. The airline’s spokesman revealed that it was talking to plane manufacturers. So, again, the question: why the turnabout?

Is the answer close to what easyJet chief Carolyn McColl said about sticking to what it does best? Ms McColl reportedly told the BBC: “We have no intention to do long haul because we think it’s a different kind of business.” It would be too high a risk to change its short-haul strategy. But Ryanair chief Michael O’Leary is known for suggesting game-changing ideas, as revolutionary as “standing room only” flights and charging for the use of the aircraft loo, and for setting trends in the industry such as charging for printing a boarding pass at the airport, so we wait to be surprised.

Interestingly, a new “ultra low cost” concept is rearing its head. While an airline such as Qatar Airways is demonstrating that there is almost no limit to dressing up a premium product with its latest offering of a private cabin furnished like a hotel suite, a new airline in Canada, Jetlines, has big plans to offer rock-bottom airfares said to be below 40 per cent what rivals Air Canada and WestJet are charging. Jetlines chief David Solloway said the airline is ready to take to the sky. He cited Ryanair, easyJet and Allegiant Air as models. “The model of buying a seat and a seatbelt and only paying for goods and services each passenger may choose individually,” he said, “is known all over the world and is the fastest growing segment in the airline industry.”

Apparently some five million Canadians cross borders to board flights out of neighbouring US airports because of ultra low fares offered by US airlines such as Allegiant Air. Mr Solloway hopes to stem the outflow by offering not only very low fares but also the convenience of flying from the home base. The question is: How low can you go? So much for nomenclature. The only thing certain about Mr Solloway’s proposal is that Jetlines will be much cheaper than other Canadian carriers. He probably already knows that the leaner the model, the stricter is the demand on discipline and efficiency. And the best bet for survival is flying into secondary airports rather than the main hubs, though this is somewhat tricky considering customer preferences. You fly where customers want to go. Apparently Mr Solloway has done his homework. He said: “If you’re asking the question whether Canada could have a third airline, the answer is no. But if you ask whether Canada can support an ultra low-cost, low fare airline, the answer is overwhelmingly yes.”

While US carriers are trying to stop the thrust of Norwegian Air Shuttle, the same question may be asked of the budget long haul: Is there a market, if not ready but potential, for the business? There has to be something out there for the many enterprising founders since Freddie Laker to wager their millions. Yet as they came and went all too soon, something seemed to be missing in the formula. Or is the budget long haul but a pipe dream?

This article was first published in Aspire Aviation.

Ryanair attributes success to its business model

Courtesy PA

Courtesy PA

FOLLOWING the good results announced by rival easyJet (See easyJet rides on Air France’s troubles, Oct 8, 2014), Ryanair too has good news for its shareholders. The budget carrier reported a half-year net profit of €795m (US$998m), an increase of 32 per cent compared to last year’s performance. While passenger numbers rose by 4 per cent, the “slightly higher” summer fares were also contributory to the good result.

Consequently Ryanair has revised its forecast for full-year profit upwards from €650m to between €750m and €770m. Although passenger numbers are likely to continue to grow, the carrier expects the first half-year to make up for lower winter fares which would flatten the profitability curve somewhat.

Ryanair chief executive Michael O’Leary said: “The strong H1 results demonstrate our business model is performing.”

This only exacerbates the concern of legacy airlines about the market within Europe shifting in favor of low-cost carriers. Air France and Lufthansa are trying to compete with the likes of Ryanair and easyJet through their respective budget offshoots: Transavia (Air France) and Germanwings (Lufthansa). The International Airlines Group (IAC) which also owns British Airways and Iberia Airlines have successfully turned round budget subsidiary Vueling Airlines.

However, as many budget operators too have come and gone. The issue may be one of staying true to the “no frills” model in a price sensitive market for the short haul. Monarch Airlines which is cutting 700 jobs as well as the pay of employees of up to 30 per cent is ending long-haul operations to concentrate on scheduled short-haul European leisure routes.

Beyond five or six hours of travel time, passenger demands change drastically and the market becomes less price sensitive. But that has not stopped pioneering airlines such as Norwegian xxx to boldly go where others fear to tread, noting the number of failures that include Hong Kong’s Oasis Airlines. (See Norwegian venture into budget long-haul raises the same viability question, Jun 18, 2013) Ryanair too talked about doing a Freddie Laker, but that would mean tweaking the “business model”. What works for the short-haul may not necessarily guarantee success for the long-haul.

Europe’s aviation challenges

HOPE of Europe-based airlines bouncing back into good times on the back of an improved economy is not turning out to be as expected. Much of the good news reported last year seems to be short-lived.

Air France-KLM is among the airlines that have issued profit warnings, even though it expects higher earnings compared with 2013. The issue is the trending back down in growth. The airline is expecting to fall short of the forecast with revenue falling from 2.5 billion euros (USD 3.39 billion) to between 2.2 billion and 2.3 billion euros. It has cited rising competition from other carriers on the long-haul especially to North America and Asia, over-capacity as a consequence of the competition, weak cargo demand, and currency restrictions in Venezuela for the negative impact on its profitability.

Courtesy Reuters

Courtesy Reuters


Lufthansa has already announced a similar profit warning ahead of Air France-KLM. The German flag carrier is expecting lower than forecast profits – 1 billion euros compared to a high of 1.5 billion euros. Consequently it is also reducing its 2015 earnings forecast from 2.65 billion euros to 2 billion euros. Also citing competition for its woes, Lufthansa faces the same currency restrictions in Venezuela, which would reduce its profitability by 60 million euros. Additionally, the airline was plagued by a pilot strike in April that cost it another 60 million euros. The slowdown is evident in reduced seats offered over the winter, according to Lufthansa chief financial officer Simone Menne.

Irish airline Aer Lingus has also issued a warning on reduced profits estimated to be 10 to 20 per cent lower than last year’s, following a strike by cabin crew last month that caused disruption to some 200 flights and, according to a statement issued by the airline, “significant damage to Aer Lingus’ trading and forward bookings for several months into the future.”

The International Air Transport Association (IATA) was optimistic about a positive year for the global industry, expecting 2014 profits (US$3.2 billion) to almost double that of 2013 (US$1.7 billion). Although it has revised its forecast a little downward on account of new uncertainties in fuel prices as a consequence of geopolitical risks threatening Ukraine and the Middle East, and of capital outflows moving away from emerging economies largely to a strongly revived US economy, it will still be a much better year globally. But compared with other regions, the latest performance statistics for June showed that breakeven load factors are highest in Europe – the result of low yields and high regulatory costs. So, even though the region scored the second highest load factors, its financial performance fell behind the United States, the Middle East and Asia Pacific.

Of the top 10 countries ranked by the number of international passengers identified by IATA, five are in Europe: United Kingdom, Germany, Spain, France and Italy. About a quarter of the world`s tourist arrivals are concentrated in Europe (excluding Russia). Yet the situation is not all that rosy. The weakness of Europe seems to stem from inherent issues that have caused home airlines to direct their umbrage at the competition posed by foreign carriers, rather than the other way around as impacted first by external factors.

While foreign carriers in the Middle East and Asia Pacific have often been accused of unfair competition from a lower cost base and in some cases allegedly supported by government subsidies, the corollary is that airline operations in Europe are faced with high costs that include wages and airport charges, high taxes, cumbersome regulations and the propensity of costly industrial strikes. Some of the costs are levied directly on air travellers or through the airlines, since invariably the fees are passed on to the passengers. The UK is notorious for the suite of fees, among them the Air Passenger Duty which continues to escalate and which has become a significant source of revenue for the authorities. A new carbon tax would have been introduced in 2013 if not for the protest by the international community.

Courtesy Etihad Airways

Courtesy Etihad Airways

On the competition posed by foreign carriers, the biggest threat appears to come from cash-rich Middle East airlines. When Lufthansa`s newly appointed CEO Carsten Spohr took over the helm in May, he identified the Gulf carriers as the most daunting challenge for his tenure, and that tackling this would be a priority for him. The Gulf carriers are widely recognized as the big three in the Middle East, namely Emirates Airlines, Etihad Airways and Qatar Airways. Mr Spohr suggested that Gulf carriers are not competing on a level playing field. The rate at which Etihad picked up stakes in European carriers (and around the world) has raised concerns of a Middle Eastern dominance that would be detrimental to their survival. Among the carriers that Etihad has bought into are Air Berlin, Air Serbia, Darwin Airlines and most recently Alitalia. Etihad`s CEO James Hogan defends his airline`s strategy as one of rescuing ailing European carriers on the brink of collapse, though not denying it is at the same time seeking growth through partnership.

Yet, to be fair, European carriers themselves have seen much consolidation among themselves too. Air France and KLM have merged. Lufthansa owns Swiss International. British Airways, Iberia and Vueling make up the International Airlines Group. According to IATA, improved profitability in Europe may be attributed in part to efficiencies brought about by consolidation, not necessarily among airlines within the region itself but also across borders such as the partnership between British Airways and American Airlines and the acquisition of a 49-per-cent stake by Delta Airlines in Virgin Atlantic. But it is a hard fact to swallow when, as an example, Air France-KLM could have had upped their ante in Alitalia and become majority stakeholder but have had their stake reduced substantially instead with the participation of Etihad.

Mr Hogan said: “Gulf carriers are not the cause of Europe’s aviation challenges.” Rather, an airline like Etihad has seized the opportunity availed by the region’s weakness, itself blessed by its rich resources and thanks no less to Europe’s liberal aviation policies for which it (Europe) should be commended.

European carriers have said that the competition has forced down ticket prices and resulted in over-capacity. It is easy to see what happens to margins if costs are not similarly managed, Interestingly Lufthansa sees the answer in low-cost services to be launched to Asia and possibly extended to Australia, packing in more seats in its wide-body jets to lower seat costs which will in turn mean lower fares. The elusive dream of a viable budget long-haul in spite of the failed Hong Kong-London run by Hong Kong’s Oasis Airlines and the short-lived services to London and Paris from Kuala Lumpur by AirAsia X continues to lure. Norwegian Air Shuttle became the latest operator to take up that challenge when it launched services from London’s Gatwick Airport to Los Angles, Fort Lauderdale and New York. But Norwegian’s derring-do is on a different plane as Lufthansa’s strategy aimed at countering the cheap fares offered by the competition, that if you can’t beat them, join them and hopefully beat them at their game.

On that score, Lufthansa may have already been defeated if Mr Spohr is thinking of targeting the Gulf carriers, which have so far deemed it not necessary to go down that road which continues to be lined with the usual financial risks of high costs and low yields, and the traveller’s reservations about the lack of basic creature comforts for the long hours of flying. It is therefore not the safest of bets for Lufthansa.

Mr Spohr has not decided whether Lufthansa would go it alone or join hands with Turkish Airlines. There is a redeeming feature here. Turkish and Istanbul’s Ataturk Airport could be the challenge to Gulf carriers and Dubai International in the race to be the hub connecting Europe and the rest of the world with some help. This is the kind of counter move that can really reshape the competition rather than merely playing the same game that has been mastered by the competitor.

This article was first published in Aspire Aviation.

The lure of the budget long-haul dream

THE elusive dream of the budget long haul continues to lure the few venturists who are bold enough to go where others had failed and many would shun, ever since Sir Freddie Laker launched the first such service in 1977. The Laker Airways flight flew from London Gatwick Airport to New York’s JFK Airport, a journey that would take some eight to nine hours, double the conventional budget standard. Laker ceased operations five years later.

It is a bigger dream today, to fly budget long-haul over a greater distance, say, between Europe and Asia.

Notable failures that followed include Hong Kong’s Oasis Airlines that operated services from Hong Kong to London and to Vancouver. It launched its first commercial flight in 2006 and ceased operations two years later. That it was voted “World’s Leading New Airline” at the Annual World Travel Awards in 2007 did little to save it from falling over the edge. A subsidiary of Malaysian budget carrier AirAsia based in Kuala Lumpur, AirAsia X which introduced services from Kuala Lumpur first to London in 2007 and then to Paris had a relatively short run too when it suspended operations in 2012.

Courtesy Norwegian

Courtesy Norwegian


Norwegian Airlines became the latest operator to take up that challenge when it launched thrice-weekly services from London’s Gatwick Airport to Los Angles, to be followed by flights to Fort Lauderdale and New York.

So it looks like what’s in there for pioneer Laker and his followers is but a commendable dash of derring-do!

Not quite the same story for established carriers faced with the stiff competition posed by rivals offering lower fares. Singapore Airlines launched Scoot (which in reality is still very much a short to medium range operator). Air Canada launched Rouge for services from Toronto to the Caribbean and to Europe with its eye also set on Asian destinations. Lufthansa has announced plans to launch similar services to Asia and possibly to Australia as well, packing in more seats in its wide-body jets to lower seat costs which will in turn mean lower fares.

Lufthansa’s CEO Carsten Spohr has taken issue in particular with the competition posed by the Gulf carriers – Emirates Airlines, Etihad Airways and Qatar Airways – which, advantaged by lower cost bases and plenty of cash, he alleged, are not competing on a level playing field. But if it is a matter of joining them when you can’t beat them, hopefully to beat them at their game, it is clear that Lufthansa and the like are no longer in command of the market.

Can AirAsia X succeed the second time round?

Courtesy AirAsia

Courtesy AirAsia

AirAsia X, the long-haul offshoot of Malaysian budget carrier AirAsia, plans to revive its European operations. It commenced operations from Kuala Lumpur to London in 2009 and to Paris in 2011, a bold move following the collapse of Hong Kong’s Oasis Airlines in 2008. But AirAsia X’s inability to sustain the operations, which were suspended in 2012, continued to cast doubt on the viability of the budget business for the long haul.

Announcing the carrier’s order for 25 twin-engine Airbus A330 aircraft valued at US$6 billion, AirAsia chief executive Tony Fernandes said: “It’s time to really take that next step and build the equivalent of an Emirates in the low-cost arena.” He added: “The world doesn’t wait.”

Apparently the older aircraft that AirAsia X previously used were not economical. Will AirAsia X be more successful in its “next step” with the new equipment? The jury is still out on this as the economics must depend on the demand given the state of the global economy, volatility of the fuel price, the preference of consumers vis-à-vis not just the cost of flying but the value of such a proposition. Not quite sure about the world not waiting, but it is also known that fools rush in where angels fear to tread.

Interestingly, Mr Fernandes is ditching its nemesis Singapore Airlines (SIA) for Emirates as the model to emulate. He may have just sounded a timely alert to SIA on the way the competition is shifting in the bigger arena.

Is there room for budget carriers in Hong Kong?

Cathay Pacific Airways has said there is no room for budget carriers in Hong Kong, following the announcement of a joint-venture between Qantas’ Jeststar and China Eastern Airlines, to be named Jetstar Hong Kong. Cathay has also made it clear that its subsidiary Dragonair is not a low-cost carrier but a regional airline. Now that Hong Kong Express is also diving into the budget market, will Cathay be proven wrong?

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons

Inevitably the demise of Oasis Airlines in 2008 is often quoted to support Cathay’s argument, but there is a critical difference here: Oasis was a daring long-haul venture that could not be sustained by the traditional budget model, and at a time when fuel prices were spiralling. But there is no reason why both Jetstar and Hong Kong Express cannot succeed if they stick to regional routes within the 4 to 5 hours radius, although it is to be recognized that the competition can only get more intense – perhaps the real reason behind Cathay’s apparent skepticism.

Hong Kong Express, controlled by the HNA Group, already operates to regional destinations in mainland China, Taiwan and Southeast Asia. Its transformation into a low-cost operator means it already has an existing market and network to its advantage, while it plans to add destinations such as Kunming and Chongqing in China and Kota Kinabalu in Malaysia. Deputy CEO Designate Andrew Cowen said: “Some of our lowers fares will be 30% below the existing lowest fares in the market.” Now, Cathay and Dragonair should be concerned.

With the large and growing hinterland population of mainland China, the demand for seats is almost a given. While the budget market may have developed its own niche of travellers more concerned about stretching the dollar than with the frills and comfort of travel, increasingly as the aviation landscape changes with the vicissitudes of the global and regional economies, the choice of air travellers is fast becoming one of between airlines as to which offers the best value for money rather than strictly between budget and full service airlines.

Budget carriers no longer need to operate solely from exclusive budget airports to compete. In fact, being away from the main stream may limit its reach especially when the mode of some travellers may involve a mix of operators. Hong Kong, very much like Singapore for its land size, may not find it feasible to designate a separate airport for budget carriers. The solution may be a separate terminal within the same airport just so that budget operators, as they are so designated, may similarly avail themselves of “budget” facilities for lower ground costs. Even then, some budget carriers in Singapore were reluctant to be so isolated, and today Changi Airport has relocated budget carriers previously handled at the Budget Terminal to the main terminals as the facility makes way for the construction of an additional terminal to the airport’s existing three main terminals.

It may then be said that the Hong Kong authorities are not themselves sufficiently convinced of Hong Kong’s propensity to fan the budget airline growth, or that they somehow have not been encouraging enough the way that Singapore goes about spearheading that drive that has seen in recent years the budget business growing at a higher rate than legacy airlines. Hong Kong International Airport is an expensive airport, so it is said, and that in itself is not an inducement for potential budget operators. In spite of that, Jetstar and Hong Kong Express may yet have the clout to slowly shift the market, to the dismay, of course, of Cathay and Dragonair which realistically should not fear the competition.

Norwegian venture into budget long-haul raises the same viability question

Photo: Norwegian Air/Hans Olav Nyborg

Photo: Norwegian Air/Hans Olav Nyborg

IS budget long-haul viable? It is not a new thing, as some airlines had tried and failed. And not many – even the most adventurous, so to speak – are convinced the model that works for the short-haul would work for the long-haul. Yet ever so often enough some daring spirit will step forward to prove otherwise.

Norwegian Air Shuttle (NAS) recently launched flights to New York and to Bangkok. The carrier plans to add new destinations pending the delivery of eight B787 Dreamliners, the first of which it expected to receive by the end of this month.

NAS co-founder Bjorn Kjos is not discouraged by the failure of others, notably pioneer Laker Airways that operated services between London and New York in the late `70s and Hong Kong-based Oasis Airlines that plied between Hong Kong and London as well as Vancouver in more recent times. Another airline – Malaysia`s AirAsia X, an offshoot of Asia`s largest budget operator AirAsia – has suspended operations between Kuala Lumpur and destinations London, Paris and Christchurch although founder Tony Fernandes is cherishing hope of resuming the flights. Perhaps, after NAS is proven unequivocally successful.

Mr Kjos said: “New aircraft technology and the forecasts for growth in passenger traffic make it possible.” He explained: “When we did the calculations we could not get the numbers to add up with the old aircraft. We needed the new aircraft. The others did not have the possibility of the Dreamliner and the A350. Before, when you attempted to do low-cost when flying more than eight hours, it just didn’t work.”

No doubt more efficient aircraft help. So too would it benefit all other airlines. It may make the proposition more enticing, but ceteris paribus it does not give budget operators an added advantage over legacy airlines which may even be better positioned in the competition as a consequence.

Clearly the selling point has to be the low fare. But Mr Kjos said it would be a “proper long-haul”, whatever that means. NAS will offer economy and premium economy classes, with ticket options that include meals and checked luggage. Not quite different from most other airlines whether budget or legacy.

Unfortunately NAS`s inaugural flights to New York and Bangkok did not live up to that expectation when passengers without credit cards were refused food, water and blankets. NAS spokesman Lasse Sandaker-Nielsen told AFP: `This is totally unacceptable. Norwegian must ensure its passengers are treated well and we apologise deeply.” He added: “We are the first to admit that we have had some start-up problems on the long-haul flights.”

There is hope yet, but the stormy start underlies the kind of issues that are likely to deter many travellers from flying budget long-haul. What you can put up with for a flight less than six hours may become intolerable beyond that time limit.

Air Canada goes budget

AS the popular folk ballad ‘Blowing in the Wind’ goes, “When will they ever learn?” In announcing plans to consider launching a long-haul budget carrier, has Air Canada not learnt from the failure of Hong Kong-based Oasis Airlines, which commenced operations first between Hong Kong and London in 2006 and then between Hong Kong and Vancouver in 2007 only to fold up its wings in 2008?

So also is it said that fools rush in where angels fear to tread, but can Air Canada do it any differently in order to succeed where other hopefuls had so quickly failed?

Besides Oasis Airlines, Air Canada could have also considered very carefully the case of defunct fellow carrier Harmony Airways, which started as HMY Airways in 2002 and was renamed in 2004, operating to various destinations within Canada and beyond to the United States, Mexico and United Kingdom. The airline received favourable customer feedback and was eyeing the growing China market, but that was to be an unrealized dream when it ceased operations in 2007.

Harmony Airways preferred to be called a niche player than a low-cost carrier as it took pride in providing good service and serving hot meals on board. But it was hurt by soaring fuel prices in a highly competitive environment. It did not have the muscles to stand up against the larger carriers like Air Canada and WestJet. According to spokesman Peter Bruecking at the time, Harmony Airways had banked its future on gaining access to the China market, but delays in agreement between the two countries inevitably forced it to reshape its course, hence its demise.

Perhaps it was this very disappointment expressed by Harmony Airways then that has given new hope to Air Canada today as both China and Canada relax the rules for more Chinese travellers and carriers to enter Canada. Vancouver International Airport (YVR) has been working hard to promote itself as the gateway to North America and not just Canada. As admitted by President of the airport authorities Larry Berg, “Much of Vancouver Airport Authority’s focus in attracting new routes, passengers and airlines over the past number of years has been on Asia, given the growth potential of markets in the region.”

Three major airlines from China, namely Air China, China Eastern Airlines and China Southern Airlines, are already operating to Vancouver. A fourth airline, Sichuan Airlines, will inaugurate services on 22 Jun. YVR is also well served by other Asian carriers such as Cathay Pacific, China Airlines (Taiwan), EVA Air, Japan Airlines, Korean Air and Philippines Airlines.

How well the new Air Canada carrier will fare against the competition is a real poser, especially when the parent airline itself is highly prone to industrial disruptions and not as highly regarded for service as some of its competitors. However, as a low-cost operator, the new carrier will understandably compete on price, but considering the low fares charged by some of the established carriers, the differential may not be adequately compensatory for the deprivation of creature comforts on a long-haul flight.

Yet again, this raises the question as to whether the budget long-haul is a viable proposition, having seen the dissolution of Oasis Airlines and, lest you cite AirAsia X otherwise, you will note that the Malaysian carrier has ceased its long-haul operations from its home base in Kuala Lumpur to London, Paris and Christchurch, and is refocusing on shorter runs.

All said, Asia is still the Holy Grail that most airlines are after. Interestingly, when Air Canada chief executive officer Calin Rovinescu first mooted the idea of a budget carrier, he was thinking of Europe, But with the economic crisis hanging over Europe, the priority shifted to tapping the potential of Asian destinations instead.

Unfortunately, geographically, Air Canada is not as fortuitously positioned as, say, Qantas, to penetrate the region, which leaves it to either dress up or dress down its operations and to rely on sustaining the flow of long-distance traffic between Asia and North America. That is why China, with its growing nouveau riche, is an attraction. Yet, unlike Qantas, which believes the demographics favour a regional premium carrier (however, understandably so considering the proximity of Australia), Air Canada intends to go low-cost to attract the masses.

Almost paradoxically too, when the Harper government of Canada has been courting businesses in China to connect with Canada, and its successes would boost traffic between the two countries.

 It may be said that Air Canada has been somewhat slow in latching on to the frenzy of budget travel beyond its national borders. Mr Rovinescu has said the launch of a budget carrier is a top priority. In a speech to shareholders, he said: “We need to participate in this segment of the market in one manner or another.”

A more interesting development in the plans allegedly is for Air Canada to eventually operate only domestic flights and flights to the United States, Mexico and the Caribbean. All other flights beyond these countries will be handled by the new budget carrier in which Air Canada will participate as a partner. When that happens, Air Canada will have completed its transformation from full-service to budget status, since its domestic and regional flights are already largely no-frilled. O Canada, can you see that day coming?

AirAsia X suspends flights to Europe, not a surprise

SCEPTICS doubtful of the viability of the budget long haul will be quick to state that it is not surprising AirAsia X has announced suspension of its services to Europe. The budget carrier, which is a subsidiary of AirAsia, commenced operations from Kuala Lumpur to London in 2009 (at first to Stansted before switching to Gatwick) and to Paris (Orly) in 2011. Services to London and Paris will cease on Mar 31 and Apr 1 respectively.

There are echoes of the now defunct Hong Kong`s Oasis Airlines which commenced services to London`s Gatwick in 2006 followed by services to Vancouver in Canada in 2007 before collapsing in 2008. Mind you, Oasis Airlines was voted “World`s Leading New Airline” at the Annual World Travel awards in 2007.

So it was with impressive panache that AirAsia chief Tony Fernandes launched the AirAsia X long haul budget venture amidst doubts that the budget model was not really apt for the long haul especially after Oasis Airlines (and others such as Canada’s Harmony Airways which folded its wings in 2007) had failed only but too recently. Once again it raises the question as to whether airlines can replicate short-haul success flying the long haul.

But note that AirAsia is still flying to other destinations nearer home. In fact, that has been cited as one of the reasons for its decision, i.e. to focus on key markets in Australia and East Asia (namely China, Taiwan, South Korea and Japan) and development of new markets in the region. This suggests that Europe is not the market it should be after in its revised strategy, or rather, its failure to develop the market it had once set out to prove that the budget long haul could work.

Of course, there is the issue of cost – rising fuel prices and the new carbon emissions trading scheme being mentioned – that is adding pressure on the already low yield. The sluggish European economy has not helped, if not being contributory to the carrier’s woes.

Some analysts have questioned AirAsia X’s deployment of the Airbus A340-300 aircraft for its services to London and Paris, the way that they have wondered whether SIA’s transfer of the older Boeing 777-200s to its new budget subsidiary Scoot (which is expected to commence flying by mid-year) might not place it in good stead to compete with rivals that are operating with more efficient equipment. If cost is the main driver, then equipment efficiency which has an impact on costs should be a primary consideration.

But the long haul market also has different demands that may not be compensated by low costs. For example, AirAsia X’s choice of Stansted might not have been the best of decisions to begin with. In some way perhaps, all this came as a painful awakening for AirAsia X when it recognized the limited wiggle room allowed by the traditional budget model to accommodate these other considerations.

The decision to suspend operations to London and Paris was inevitable in order to “improve operating cost efficiencies” according to a statement issued by the carrier. Yet with this suspension of the truly long-haul flights, AirAsia X CEO Azran Osman-Rani said: “AirAsia X remains focussed on maintaining its global leadership position in the low cost, long haul segment.”

However, the crack for AirAsia X may be deeper than it appears. Besides suspending flights to Europe, the carrier will also be ceasing operations to Mumbai and Delhi in India – not quite the long haul by comparison. Mumbai will be off-line by Jan 31 while Delhi will see reduced flights until end-date Mar 22 although Mr Osman-Rani did not rule out the possibility of service resumption if certain issues such as visa restrictions that apparently had a negative impact on travel between Malaysia and India were resolved. Cost inefficiencies were again cited as reasons, and these according to Mr Osman-Rani had resulted in a “structure not conducive to the low-cost model.”

Yet again it raises the question of whether the low-cost model has been stretched to beyond its limits. Perhaps not in this case, noting the flight time between AirAsia X’s home base and Indian ports and if you consider the apparently successful operations by rivals Jetstar Asia and Tiger Airways as well as similar operations by these and other airlines including AirAsia X to other regional destinations. And as expectations run high in our anticipation of Scoot`s entry to prove otherwise, it is fair to conclude that AirAsia X is feeling more the pinch of the competition than the model it has adopted to shape its operations.