As Legacy Carriers Reduce Fleets, Budget Carriers Await Deliveries

News

Aviation Daily Jan 29 , 2010 , p. 10
Neelam Mathews

As Japan Airlines is reducing its fleet by 53 aircraft, Singapore’s budget carrier Tiger Airways is adding 51, albeit not quickly. This was the general trend noted at the Low Cost Airlines World conference in Singapore.

That low-cost carriers are working at cutting expenses is obvious in the pressure they are putting on legacy carriers. For example, Peter Harbison, executive chairman of the Center for Asia Pacific Aviation (CAPA), said Lufthansa is offering a business-class fare from the U.S. West Coast to Europe for a mere $859.

The budget sector also triggered an ancillary revenue revolution, with airlines worldwide expected to generate $58 billion in non-fare income this year, said CAPA, about 12% of total revenues. The percentage suggests that “we are just at the start of the movement to monetize services and products passengers used to receive as part of the ticket price,” said Harbison.

Baggage fees are one of the fast-growing items in the ancillary portfolio, which also includes seat allocation, inflight services and products, related travel products (such as insurance, car rental and accommodations), inflight advertising, airport lounge access and increasingly diverse opportunities, including concert tickets, mobile phone credits and more.

Harbison warned, however, that the forecast 20% increase in fuel spells danger for budget carriers because 50% of their total costs goes into fuel.

The market is more efficient today because of budget carriers. We have been the catalysts for change,” said Brett Godfrey, CEO of Australian Virgin Blue. “We have to evolve or risk redundancy,” he said. The carrier has 83 aircraft and flew 20 million passengers in 2009.

Godfrey hinted that since innovation is essential to evolve, by 2011, his aircraft could be split into three classes.

The future for the wholly owned subsidiary of the Qantas Airways/Jetstar/AirAsia alliance signed early January, is bright, said Jetstar CEO Bruce Buchanan, because the two carriers, which have similar Airbus A320 fleet types, can now share aircraft parts and pool procurement.

We are trying to influence the narrowbody design for the low-cost model. International Aero Engines signed with Jetstar Airways to provide V2500 engines to power a new fleet of 50 A320 family aircraft, with options and purchase rights on up to 40 more aircraft.

The Engine Purchase Agreement, which is for the latest V2500 SelectOne build standard, is worth about $1.5 billion if all the options and purchase rights are exercised. In addition, the airline has signed a $2 billion long-term IAE Aftermarket Services agreement covering these new engines, and also those installed on 40 IAE-powered aircraft that the Jetstar businesses currently operate.

Budget Cebu Pacific Air took delivery of eight ATRs and five A320s last year, and has 15 more A320s on order, said acting CEO Garry Kingshott. The carrier grew to half the total market in the Philippines in the fourth quarter of 2009.

Tiger Airways, which currently operates a fleet of 18 A320s, will have 68 aircraft by 2016, The first owned aircraft is the first of two purchased through a financing arrangement with Standard Chartered Bank. The owned aircraft allows Tiger to reduce its operating costs, said Tony Davis, president and CEO.

Indonesia’s Mandala Airlines too is looking at increasing its fleet to 24 planes by 2011.