The rise of low-cost airlines is making Asia’s sky become a fierce battlefield, completely changing state-owned airlines.
On January 3, Singapore Airlines made a surprise announcement about plans to charge up to SGD50 ($ 37) for customers using credit cards to make reservations. The customers reacted very violently and were really angry. One of the comments wrote, “Shamefully stealing money.”
Singapore Airlines “changed its mind” again the next day. In a three-line statement, the airline said: “After further review, Singapore Airlines will no longer conduct” credit card charges.
For an airline with the best customer service and the most luxurious image, this is a rare mistake. But the case of Singapore Airlines also shows a harsh reality facing the national airlines in Asia.
They have to compete with low-cost low-cost airlines with the lowest prices in the market, like AirAsia, while the long-haul flights of Persian Gulf carriers like Emirates Airline and Qatar Airways ” dominate “long-haul flights. At the same time, Chinese airlines are increasingly competing in both flight segments. Although this competition brings many benefits to Asian customers, it leads to lower and lower fares and overinvestment will have consequences in the future.
Airlines are currently working hard to restructure, find new ways to make money and cut costs.
16 years after AirAsia brought its low-cost model to the region, national carriers like Singapore Airlines finally had to “follow” a number of strategies. “What Singapore Airlines is doing is not new to the industry. They are just following trends,” said Brendan Sobie, an analyst with the Aviation Center.
Cathay Pacific also embarked on a restructuring after the 2016 loss, the airline plans to reduce fares for economy class passengers. The airline’s new Boeing 777-300 will increase from 9 to 10 seats in a row. Even more fragile is Malaysia Airlines, which has been fighting AirAsia for a decade and has been privatized after two tumultuous accidents in 2014. However, the process ran into trouble when the CEO suddenly announced his resignation in October, just a year after taking office.
The common worry of the national airlines of Asia is lower and lower fares. According to the International Air Transport Association (IATA), average revenue per passenger per kilometer has decreased for three consecutive years from 2014 to 2016.
It is also worth noting that this region has the fastest growing air travel passengers in the world. Passenger traffic is estimated to have grown 10% in 2017, according to IATA, for the third consecutive year of double-digit growth.
Due to the growth in passenger numbers, Asian airlines are investing heavily in new aircraft. Boeing estimates that, in the next 20 years, the Asia-Pacific region will receive about 16,050 new aircraft, nearly 40% of the total current aircraft. According to CAPA, Southeast Asian airlines currently have 1,600 orders for new aircraft to have a fleet of nearly 2,000 and low-cost airlines account for about 70% of orders.
According to CAPA, Southeast Asian airlines currently have 1,600 orders for new aircraft to have a fleet of nearly 2,000 and low-cost airlines account for about 70% of orders.
IATA released a forecast last year that more than half of new aircrafts passengers in the next 20 years were from Asia. In addition, China will replace the United States as the world’s largest aviation market by 2022. Others, however, worry that the investment in this sector is not sustainable.
“Productivity in Asia is too great … to keep fares stable,” said Mark Webb, an analyst at market research firm GMT Research (Hong Kong). Governments of some countries are trying to control this excess. South Korea rejected the Aero K and Fly YangYang applications on the grounds that the low-cost airline market is saturated.
During an AirAsia X flight from Kuala Lumpur to Wuhan (China), Fabian Kong paid extra for a premium bed cabin, which costs twice as much as an economy class ticket with a full range of services. service. “I feel really comfortable, I can rest during the flight at midnight,” Kong said.
AirAsia X’s long-haul flights are more profitable for the airline to compensate for its declining passenger volume. But Tony Fernandes, CEO of AirAsia Group is considering increasing the surcharge.
He is planning to expand the company to ramp up operations into digital payments, e-commerce and retail. It is also working on strengthening AirAsia’s digital infrastructure, focusing on customer service processes using technologies such as artificial intelligence and the internet of things (IoT). “With customer data, we can provide more services like what Alibaba and Amazon did,” he said.
“I hope people don’t see AirAsia as just an airline but as a digital company that helps people move like Uber,” he said.
The digitization initiative is also part of a group reorganization to create a tighter organizational structure. AirAsia established affiliated companies in India, Indonesia, Japan, the Philippines and Thailand, and has offered to swap a partner’s shares for shares in a parent company. The purpose of this is to streamline the corporate structure, with the long-term goal of achieving full ownership of each entity.
The move comes as AirAsia, which controls nearly 50% of the Malaysian market, is facing increasing competition from Malindo Air, a premium airline owned by parent company Lion Air – Malaysia. 2013. Currently, Malindo is concentrating on exploiting regional routes to compete with AirAsia. A July CIMB report found that Malindo bookings were up 18% in 2017, 6% higher than AirAsia.
Malindo has opened more routes to Indonesia, North and South Asia, directly competing with AirAsia’s routes. According to CIMB data, with a third larger size than AirAsia’s, Malindo competes in 71% of short flights and 20% for long distance. With the goal of equipping 10 more aircraft each year, the airline will have an advantage over AirAsia on long and medium flights.
Focus on super long flight paths
Yumiko Tanaka moved between Hong Kong and Toronto (Canada) between 1995 and 2005 with Cathay Pacific, but recently she has also started looking for low-cost carriers. The arrival of Chinese low-cost airlines gives Tanaka many choices.
During her recent trip, she chose HongKong Airlines (part of China’s HNA Group), which was about 600 CAD cheaper (483 USD) cheaper than Cathay. She shared that although the food on the plane was not as good as Cathay’s, she was still very satisfied with this flight.
Tanaka’s case shows more clearly the challenges faced by the many times the world’s best-voted airline. 2017 was a turbulent year for Cathay when it reported a serious loss of HK $ 8.46 billion ($ 1.08 billion) due to fuel price mismatches. Veteran CEO Ivan Chu Kwok-leung was forced to resign in August 2017, which has received its worst six-month loss in 20 years. In November, Qatar Airways bought a 9.6% stake in Cathay for $ 662 million. The restructuring plan included a 600 job cut, which once led to union disputes. Most notably, the leading airline of Hong Kong continues to lose customers to low-cost carriers at home and abroad.
Chinese airlines are ramping up long-haul flights, with Air China and Hainan Airlines adding new routes to the US. In particular, Cathay is inferior to HongKong Airlines itself. Last year, the airline launched cheaper flights from Hong Kong to Auckland, Vancouver and Los Angeles. The airline is also planning new routes to San Francisco, London and New York in 2018.
Cathay’s plan to add one seat per row on the Boeing 777 this year could cut costs, but could also leave some customers unhappy. For that reason, Cathay has expanded international routes by increasing super-long flights. Last year, the airline announced the opening of direct flights from Hong Kong to Washington.
Analysts said that Cathay should increase its advantage on long-haul flights and serve business people instead of competing with low-cost airlines on short routes. Geoffrey Cheng, Head of Transportation and Industrial Research at BOCOM International, said that despite losing market share to competitors, it still has a reputation among wealthy customers willing to pay extra to fly on time. and better service.
* Source: Young intellectuals