May 20 2016
From left to right, bottom row: Katsuya Goto, president of Vanilla Air; Robert Sharp, CEO of Tigerair Australia; Lee Lik Hsin, CEO of Tigerair, Campbell Wilson, CEO of Scoot; Piya Yodmani, CEO of Nok Scoot; Patee Sarasin, CEO of Nok Air; Ken Choi, CEO of Jeju Air and Michael Szucs, CEO executive adviser of Cebu Pacific
In a bid to tap
burgeoning unserved regional markets, eight Asia Pacific budget carriers have
launched the largest budget airline alliance in the world. Airlines in the
group, called Value Alliance, served more than 47 million passengers from 17
hubs in 2015, while rivals AirAsia Malaysia and its subsidiaries flew more than
51 million passengers. Founding Value members include Cebu Pacific, Jeju Air,
Nok Air, NokScoot, Scoot, Tigerair Singapore, Tigerair Australia and
Vanilla Air.
The
formation of the alliance represents a response to access to new markets and
secondary airports resulting from the Association of Southeast Asian Nations (ASEAN) Open Skies
policy. Depending on slot availability, ASEAN airlines can now launch
unlimited flights from their home bases to any other airports within the
region. The policy took effect last month after delayed ratification by Laos
and Indonesia.
Value
passengers can book connecting flights for multi-destination itineraries in a
single transaction on the first dedicated multi-carrier interlining and booking
system developed by UK-based
Air Black Box. They can also book the full suite of ancillaries—seat, meals,
variable baggage allowances and other in-flight options—at once.
The
world’s first low-cost carrier alliance—Asia’s U-Flylaunched in January by Hong
Kong’s HK Express,
Kunming’s Lucky Air, Urumqi Air and Chongqing’s West Air “to connect travelers
from Asia and Greater China to an ever-increasing network of cities,” according
to Andrew Cowen, CEO.
“The move by Scoot and
its backers is an attempt to assert themselves not just in Southeast Asia but
Northeast Asia [with Korea’s Jeju Air and Japan’s Vanilla],” said Shukor
Yousof, founder Malaysia-based Endau Analytics. The grouping “smacks of a
cartel,” said Yousof, adding the alliance amounted to “a concerted effort to
squeeze AirAsia.”
“India’s Indigo has its
plate full so far,” he added, referring to failure to join the group. “It is
not advisable to bite more than it can chew.” Indigo in the past has maintained
it does not want to add complexity to its model. “This will add further to
costs of system integration, distribution and airport site operations,” said an
airline official.
The
alliance provides positives on the revenue side, however. Until now, intense
competition among budget carriers has forced them to forfeit yields for volumes
through low fares. “Value Alliance is a sign budget airlines are keen to work
together and stabilize airfares, so there won’t be a wide disparity in prices
across the region. The days where a one-way flight could cost less than a jug
of beer are over,” said Yousof.
A
day after the launch, on May 19, as part of an extension plan to streamline
operations, Singapore Airlines (SIA)
merged its two budget carriers—medium-/long-haul airline Scoot and
short-haul unit Tigerair—under a holding company called Budget Aviation
Holdings. “The holding company will drive a deep integration of our low-cost
subsidiaries, part of the airline's portfolio strategy in which we have
investments in both the full-service and budget aspects of the airline
business,” said Singapore Airlines CEO and Budget Aviation
Holdings chairman Goh Choon Phong.
“This is not the final
chapter in the evolution of SIA’s
budget airline strategy,” according to the Center for Aviation global
consultancy. “A transition to a single low-cost carrier brand and full
merger are the likely outcome in the medium term.”
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