The Asia-Pacific travel market is rebounding fast and low-cost carriers from almost every country in this vast region are reaping the rewards. Tony Harrington surveys the market
In the Philippines, the grand growth plans of low-cost carrier Cebu Pacific are cleverly reflected in its advertising slogan, ‘Let’s fly every Juan.’
Late last year, in an upbeat briefing to investors, the airline confirmed not only its recovery beyond pre-Covid traffic levels, but intentions to order 100-150 narrowbody jets from Airbus or Boeing.
The announcement highlighted not how far Cebu Pacific has come but how far it intends to go, with its fleet increasing this year from 79 to 92 aircraft, and deliveries from the foreshadowed big order expected from as early as 2027.
Suddenly, flying every Juan seems a very low target. With growth like that, the airline could potentially fly every Juan, Dick and Harry.
Cebu ideally illustrates the trend of low-costs (or locusts, as some legacy players disdainfully describe the genre) progressing in Asia what has already occurred in Europe and North America: low cost bases and high growth trajectories.
While it is the biggest airline in the Philippines, Cebu is nowhere near the biggest in the vast and diverse Asia-Pacific (APAC) region, which aircraft lessor BOC Aviation once described as up to eight complex and disparate geographies residing under an APAC umbrella, among them the world’s second- and third-biggest aviation markets, China and India.
Of February’s 10 biggest airlines by seats deployed in the busy Southeast Asia sector, aviation data group OAG said six are LCCs (low-cost carriers), including Cebu Pacific, ranked sixth.
The leader is Indonesia’s Lion Air, whose home market is Southeast Asia’s most populous with more than 275 million people dotted across a 5,150-kilometre archipelago, and whose motto, ‘We make people fly’, is one way to explain its success.
The largest LCCs
“Before the pandemic, LCCs like Lion Air and Air Asia were already significant players,” said Linus Bauer, founder and Managing Director of BAA & Partners, a Dubai-based consultancy which last year opened a Singapore branch to participate in the booming APAC growth.
“These carriers have expanded rapidly, capitalising on the growing middle-class population and the increasing desire for affordable travel options.
“The post-pandemic recovery trajectory for LCCs has been robust, primarily driven by the rebound in domestic and regional travel.”
Malaysia’s Air Asia Group, an APAC pioneer of low-cost flying, has narrowbody jet divisions based and locally branded in Malaysia, Thailand, Indonesia and the Philippines as part of a broader travel and lifestyle platform owned by parent company Capital A.
Last year the Air Asias, operating up to 162 Airbus A320-family jets, increased their collective number of passenger journeys by 67%, average flight stage length by 21%, and revenue passenger kilometres by 98%, compared to 2022.
Scoot, the low-cost sibling of Singapore Airlines, boosted its first half-year passenger numbers by 95% and deployed capacity by 62%; by comparison, Singapore Airlines’ traffic grew by 36% and its deployed capacity rose by 22%.
Cebu, meanwhile, increased its capacity in the first three quarters of last year by 41% over the same period of 2022.
That’s not to say it’s been smooth flying for all LCCs, though.
The separately-run long-haul cousin of the Air Asias, AirAsia X, flying widebody jets from Malaysia and Thailand, spent two years restructuring after being issued a ‘Practice Note 17’ designation by Bursa Malaysia, the national stock exchange – a “financially distressed” categorisation which threatened its exchange listing and seriously impacted investor confidence.
In January, the renewed and resurgent entity won an appeal to remove its PN17 status and has now reached an agreement to acquire the other Air Asia carriers from Capital A to form a larger, stand-alone airline group with plans for significant growth.
Malaysian start-up MY Airline suspended flights late in 2023, having lasted barely a year, while Vietnam’s Bamboo Airways ditched long-haul flying and retreated to narrowbody domestic and regional operations, and Thai Airways, against the flow, absorbed its LCC, Thai Smile, into the core airline. Others also struggled to regain altitude.
But for the most part the region’s LCCs, particularly those with strong domestic markets, are flying ever higher, said OAG’s Head of Asia, Mayur Patel.
He recalled an industry conference in Hong Kong back in 2002, during which a panel of executives from major Asia-Pacific carriers discussed emerging trends.
“Every single full-service airline on the stage said LCCs would never work in Asia,” said Patel. “Yet look what happened. Never say never.”
In its latest 20-year forecast of global aircraft requirements, Boeing said APAC’s airline fleet numbers will almost quadruple in the next 20 years, with roughly half going to LCCs.
That aligns perfectly with Cebu Pacific’s assessment that airline fleets in the Philippines will need to grow “3.8X by 2042” to accommodate projected demand.
Boeing predicts Southeast Asia will be the fastest-growing region for single-aisle aircraft, not just in APAC but globally, and confidently stated that LCCs will be “the dominant business model”.
In many APAC markets, they’re already that.
Historically dominated by state-owned or – controlled airlines, the region is now swarming with low-cost carriers, reflecting not just middle-class economic growth and desire to travel, or the commerce which that trend drives, but also a marked shift in buyer preferences.
APAC outlook
OAG has just released its 2024 outlook for Asia Pacific airlines, highlighting a solid and continuing pattern of growth for LCCs across three key sub-markets in the region: Northeast Asia, South Asia and Southeast Asia.
Since 2011, OAG data for the three surveyed APAC markets has shown a net gain of 14 legacy operators, from 412 to 426, or 3%, compared to net growth of 84 LCCs, up 158% from 53 to 137.
Patel singles out Vietnam as a textbook example of a market transformed by low-cost flights.
“[Vietnam] has rapidly moved from an emergent market to one of Asia’s largest and most competitive in the last decade,” he said. “Scheduled airline capacity has more than tripled since 2011, the number of airport pairs operated has doubled, and the low-cost airline sector has secured a 40% share of the market.”
In 2011, legacy carriers provided 83% of Vietnam’s capacity, compared to just 17% by LCCs. By 2016, legacy share had plunged to 54% versus 46% for LCCs. Today it is 60% legacy and 40% LCCs.
Outside China, India is by far the biggest market in the region, largely carried by LCCs – one in particular.
The rise of IndiGo
IndiGo is the biggest airline in India, with some 60% of the huge domestic market, and in January was ranked by OAG as the world’s eighth-biggest airline by flight frequencies, up almost 30% over 2019.
Since ordering its first A320 in 2005, it now has more than 300 aircraft, mostly A320-family jets, and continues to promote seemingly limitless growth plans, reflected in its announcement during last year’s Paris Air Show of orders for as many as 500 more of the European narrowbodies, atop existing deals.
“An order book now of almost 1,000 aircraft well into the next decade enables IndiGo to fulfil its mission to continue to boost economic growth, social cohesion and mobility in India,” explained the airline’s CEO, ex-KLM boss Pieter Elbers.
That monster commitment overshadows mega-expansion by the rival Tata industrial group’s evolving Air India collective which, one day after IndiGo’s 500-jet deal was revealed, announced its own orders for 470 narrow and widebody jets and options for 140 more to supply its full-service and low-cost brands.
IndiGo’s growth also eclipses big orders by other LCCs in the region.
CH Aviation, a global data analytics firm focused on airline fleets, collates every known aircraft acquisition or disposal.
Outside the eye-catching and eye-watering orders by IndiGo and Air India Group, and excluding China, CH Aviation’s latest data paints a picture of sky-high LCC growth across APAC markets, with just four of the biggest operators accounting for up to 1,170 outstanding orders.
Three Lion Group airlines (Lion Air, Batik and Wings Air) have ordered 422 units (229 Boeing 737 Max twinjets, 177 Airbus A320s and 321s, and 16 ATR 72-600 turboprops); the consolidating Air Asia Group is taking another 397 Airbus jets (362 A321s for Air Asia, and 20 more for AirAsia X, which also has orders for 15 widebody A330-900s); VietJet Air has ordered 258 Boeing and Airbus narrowbodies (150 737 Max and 108 A321s); and Jetstar Australia is inducting 93 new A320s and A321s.
That’s the equivalent of dropping into the APAC market the combined UK and European fleets of Ryanair, easyJet, Wizz Air and Jet2.
And it doesn’t include current orders by multiple other low-cost operators, among them Cathay Pacific’s Hong Kong Express, Garuda Indonesia’s CitiJet, Singapore’s Scoot, or Cebu Pacific (excluding the new jet deal it has flagged).
Many of the APAC orders include new, ultra long-range Airbus A321XLRs, designed to seat up to 220 passengers and fly up to 8,700 km, enabling medium-to-long reach flights more frequently or economically than can be delivered by older, larger jets, and presenting opportunities to rescale operations in existing markets, or commence all-new routes.
Kuala Lumpur–Sydney, Melbourne–Hong Kong, Singapore–Auckland, Sapporo–Vancouver and Delhi–London are among the many possibilities promoted for these jets, which Airbus also promises will reduce fuel consumption by around 30% below current-generation aircraft of equivalent size.
Changing flight patterns
Cindy Hui is Commercial Director, Asia Pacific, for the global flight booking platform Skyscanner. From her office in Singapore, she can see flight patterns forming and changing across Asia’s skies – not physical trails, digital ones.
Because APAC recovered from Covid more slowly and disconnectedly than the rest of the world, said Hui, full-service airlines took longer to reactivate, resulting in lower capacity and higher prices.
But as illustrated by airline re-growth, particularly among LCCs, that hasn’t deterred travel.
“The nimbleness of low-cost carriers allowed them to add back capacity to meet traveller demand faster than some full-service carriers,” said Hui.
“Many airlines or airline groups in the region are pursuing strategies to create integrated airline businesses, catering to a broad range of travellers and routes, whilst optimising fleets and aircraft types.”
Research from Skyscanner’s latest Horizons report on travel trends indicates that APAC’s consumers are primed and prioritising travel in 2024, and increasingly sophisticated at finding the best deals.
“Price is still a major decision-making factor,” said Hui. “Travellers are increasingly looking for value from their airfares and are willing to put budget towards ancillaries such as insurance, seat selection, baggage and lounge access.”
Conversely, they are also able to exclude specific elements to keep costs down.
Although travellers do not always book the flights presented on Skyscanner’s primary web display, the company’s Travel Insight data shows more of those redirected to airlines or online booking agencies are choosing LCCs than was the case before the pandemic.
Hui said that trend is clear in multiple markets including New Zealand, the Philippines, Singapore, Thailand and Taiwan, and expects even greater LCC penetration of long-haul markets.
Many APAC low-cost airlines have not only challenged full-service brands, but increasingly overtaken them domestically and internationally, added Bauer.
“LCCs play a significant role in intra-nation flights within the APAC region,” he said. “Over the past few years, they have expanded their networks to cover a broad range of destinations, making air travel more accessible and affordable for the population within the region.
“In terms of revenue passenger kilometre growth, LCCs often outpace full-service carriers, especially in emerging markets such as Indonesia, India, Vietnam, Malaysia and Thailand.”
Many leading airline brands, among them Singapore Airlines, Qantas, Japan Airlines and Cathay Pacific, have long operated their own LCCs, and since Covid have expanded their coverage in existing markets, or added new ones, as have independents such as VietJet, Cebu, or Air Asia variants.
But bigger plans are emerging.
Japan’s largest airline group, ANA, has just launched Air Japan, an international LCC with a fleet of widebody Boeing 787s initially serving Bangkok, Seoul and Singapore from Tokyo’s Narita Airport.
Australia’s Jetstar has announced it will refurbish its 11 Boeing 787-8s to include lie-flat rest areas for crew, a doubling of budget Business Class cabins from 21 to 44 seats, the installation of WiFi for streaming or surfing on personal devices, and installation of six-way headrests in Economy Class, all paving the way for new, long-haul operations.
While not yet committing to additional routes, the airline has specifically flagged the potential of low-cost services linking Australia to India, Sri Lanka or Africa, much longer sectors than its current widebody operations to North and Southeast Asia and the mid-Pacific US state of Hawaii.
Jetstar is also adding new, longer-range Airbus A321neo aircraft, growing from nine to 18 by the end of this year, and by 2029 will introduce 20 even longer-range versions – five A321LRs and 15 A321XLRs, opening significant new opportunities to fly to regional international destinations currently unserved, under-served, or inefficiently served by widebody jets.
Downscaling is also in, with Scoot adding nine Embraer E190-E2 regional jets to its fleet of narrowbody A320 and widebody 787 family aircraft, to crack new opportunities on short-haul or non-primary routes from Singapore. The first is due to enter service this year, followed by eight in 2025.
Cost differences
Just as expenses vary between low-cost and full-service airlines, they also vary between LCCs, from fuel pricing and airport charges to labour costs in various jurisdictions, said Aurelius Noell, Vice-President of Strategy for Skailark, a Munich-based aviation intelligence firm providing a ‘digital twin’ of more than 250 airlines globally for cost, network and revenue benchmarking.
“There are significant cost differences for LCC models in APAC,” he said. “Regulatory requirements such as productivity rules, access to key infrastructure such as departure and arrival slots, runways and terminals, all have a huge impact on the product offering and competitiveness.”
Noell compares some of the most efficient LCCs in Europe with those in Asia, then overlays regional elements to highlight their importance and impact.
“In the EU,” he said, “Wizz Air and Ryanair, at 5.1 and 5.7 US cents per available seat mile (CASM) over a 1,000 miles stage length, are in a league of their own.
“But in APAC,” he added, “they were comparable to Cebu and VietJet at 5.4 cents and 4.5 cents CASM, excluding fuel, in Q3 2023.
“The interesting thing to note here when fleets are compared is that aircraft utilisation for Ryanair and Wizz Air is higher than Cebu and VietJet – yet there’s a big cost advantage for those two (Cebu and VietJet) which comes through lower flight deck and cabin crew costs.”
Market structure also matters, said Noell, with the EU’s single market much cleaner than the disparate nature of the Asian jurisdictions. But that swings back, with higher taxes in EU versus APAC markets “favouring the APAC model – though that’s eroding”.
Boeing and Airbus are bullish about the growth of APAC’s low-cost airline sector.
“Expanded connectivity, tourism and low fares will continue to stoke new and increased travel, especially among a growing middle class across the region,” said Dave Schulte, Managing Director, Asia Pacific, of Boeing Commercial Marketing.
“The role of LCCs will continue to rise to fill that demand for air travel. LCCs will transport 56% of passenger traffic in 2042 compared to 22% in 2012. And LCCs in Southeast Asia will add more than 2,000 new single-aisle jets over the next 20 years, nearly two-thirds of the overall projected 3,390 single-aisle deliveries in the region.”
That’s plenty for every Juan.
