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.”

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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.

World’s best airlines are from outside Europe and America

ANY surprise that the world’s best ten airlines according to the 2013 Skytrax survey are sited east of Europe and west of the Americas? Not anymore, when Asian and Middle-Eastern airlines consistently outdid their European and American counterparts.

Look at the Skytrax list, ranked as follows:

1 Emirates Airlines
2 Qatar Airways
3 Singapore Airlines
4 All Nippon Airways
5 Asiana Airlines
6 Cathay Pacific
7 Etihad Airways
8 Garuda Indonesia
9 Turkish Airlines
10 Qantas

qantasQantas, which is geographically situated within the broad borders of the region, is about the only airline that may be considered not Asian or Middle-Eastern, although Australia has increasingly moved to be closer to its neighbours – economically at least.

Clearly this tells us that Asian and Middle-Eastern airlines have beaten their European and American masters at their game, as far as image and customer service are concerned. Service appears to be a natural part of the eastern culture, whereas European and American airlines tend to be more functional than to be bothered with frills.

SIASingapore Airlines in its early days took the aviation world by surprise to set the benchmark for customer service, and that was the beginning of the end of western supremacy in the field. Today, it is the Middle-Eastern airlines such as Emirates and Qatar that have taken over the lead, but Asian airlines from Singapore to Japan continue to be among the top airlines. It is the region, rather than an isolated case that wins.

garudaThat may be explained by the heightened competition among the airlines within the region to beat each other at the game. An encouraging sign is the emergence of Turkish Airlines and Garuda Indonesia in the top ten list. While Turkish may have been an underrated airline in the past, Garuda has been very much sidelined by travellers and authorities for a speckled history of safety incidents, but the Indonesian flag carrier has recently embarked on a makeover program to gain traction in the competition. The comeback is a big honour for the airline.

Conversely, it is this absence of competition among airlines in the west that may have resulted in a happy co-existence of average performers and the resignation of consumers to the limited options. A dollar spent on one is not much different from a dollar spent on another – just get me there safely and in good time, sort of. It becomes a vicious circle.

cathay emiratesQantas on the other hand may be feeling the pressure of the competition by its neighbouring airlines, since it is very much operating in the same arena. Besides, Qantas has identified Asia as its Holy Grail to turn round its losing international arm. SIA and Cathay are definitely strong rivals, and Emirates before the two airlines enter into an extensive partnership that is likely to shake up the competition on the kangaroo route and in the Asia-Pacific region.

Can European and American airlines make their way back into the coveted list? A more pertinent question would be, do they even want to?