LCC growth prospects strong but some clouds in 2005

Low cost carriers (LCC) should grow rapidly in China, India, Japan, Southeast Asia and the Middle East in 2005. But government, regulatory and other barriers still exist to realising the potential offered by LCCs, according to Mr Peter Harbison, of the Centre for Asia Pacific Aviation.

Speaking on the opening day of the Second Annual Asia Pacific Low Cost Airline Symposium in Singapore, Mr Harbison said that present and planned LCC start-ups face the challenge of more expensive aircraft, higher interest rates, and the prospect of limited route opportunities as competitive conditions become more crowded.

“LCCs are here to stay. They have a big future, but there’s certainly some road bumps ahead,” Harbison said.

Mr Harbison says that LCCs account for 16% of the current announced 916 orders for aircraft in Asia, India and the Middle East, but this figure understates the actual situation as it excludes unconfirmed orders and those of operators still finalising launch plans.

LCCs should emerge in China this year, and continue to expand in India, he says. Indications are that Japan should also see more start-ups in 2005.

The two-day symposium, organised by the Centre, attracted 300 delegates from all sections of industry, including many chief executives of LCCs, investors, airports and suppliers. This is the fourth LCC-focused event held by the regional consultancy, information services and conference group (others were staged in Singapore, New Delhi and Macau in 2004).

Mr Harbison added that governments need to play a pro-active role in LCC development by moving to liberalise air service agreements, ownership and control and entry rules and competition legislation. 

Now established, the market could grow quickly (and should – because the demand is overwhelming) - but it depends on government still,” he said. “The rate of liberalisation will decide the speed and success rate of LCCs.

“Governments must quickly come to the party. This is in the interests of their major flag carriers, of potential new entrants and of the travelling public, the tourism industry, regional development – the list is endless. This is the biggest win-win-win show there has ever been.

“The growth of low cost/no frills airlines is one outcome of relaxing entry rules - but Asia’s carriers have been so homogeneous that there is room for diversity, as entry is relaxed. There will be many new types, but with one common factor – their culture will be based around cost, cost, cost.

“The potential for route expansion, as economic development pushes millions more people through the travel threshold, is vast.”

Some 130 cities have populations of more than one million people, and a further 105 cities have more than 500,000 people. And the “vast majority” of these currently have no international links, Mr Harbison says.

As well, 339 airports throughout the region are capable of taking B737NG or A320 equipment, the most popular aircraft type for LCCs.

Mr Harbison said that Asia Pacific airports also have to adapt their operations to accommodate requirements of LCCs, including the development of dedicated low-cost terminals, as at Singapore Changi, and, in some cases, LCC airports.

This will mean addressing access and pricing issues, such as the question of whether charges should be levied on a discriminatory or uniform basis between carrier types or there should be an unbundling of costs through the introduction of a user-pays regime.

Other speakers at the conference include Bill Franke, the head of investment group Indigo Partners, Jan Skeels, the secretary-general of European Low Fares Airlines Association, Brett Godfrey, the chief executive of Virgin Blue, Tony David, the CEO of Tiger Airways, Con Korfiatis, the CEO of Jetstar Asia and Udom Tantiprasongchai, Chairman of One-two-go.

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