Low-cost carrier boom in Asia (Part II)
As mainline carriers like Air India, Malaysia Airlines and Philippine Airlines struggle to contain their losses and keep losing market share in their domestic markets, somebody has to fill in the void between the demand and lack of capacity. Yet keeping up with the demand in the region is not easy, as passengers have very different consumption practices compared to the markets in Europe or North America. Such conditions are the perfect breeding ground for one type of carrier – a no-frills one.
Read the first part of the Asia-Pacific market overview right here:
Filling the gap
The recent collapse of Jet Airways has left a 10.3% gap in the Indian domestic market, including its low-cost subsidiary Jet Lite. While Jet crumbled in Q1 of 2019 and carried only 0.2% of domestic traffic in India, low-cost carriers pounced on the opportunity to increase their market share. Spice Jet increased its presence by 0.9%, Go Air carried 1.8% more passengers in Q2, while AirAsia’s Indian subsidiary saw 0.8% more passengers. But IndiGo increased its presence by a country mile – the airline carried 4.7% more travelers on its low-cost network, increasing its total market share to 49%. Meanwhile, Air India’s growth was the smallest out of all the airlines – only 0.7% more passengers in Q2 compared to Q1 of 2019. Vistara added 1% to its previous result of 4% of the total market share.
In Indonesia, the battle is tighter – Garuda Indonesia and Lion Air are butting heads for the number one domestic spot. In 2017, Lion Air controlled 51% of the domestic share with Garuda and its low-cost subsidiary, Citlink, controlling 33% of the market. In third place was Sriwijaya Air, followed by AirAsia Indonesia with 13% and 2% of the market, respectively. When Garuda Group took over Sriwijaya’s operations in a partnership, only then the airline managed to catch up and overtake Lion Air as the number one airline group in the country.
But the Indonesian Ministry of Economic Coordinator got into the fistfight for the number one spot – as ticket prices soared and passenger numbers dropped, the ministry imposed a ticket price cap, making some of the routes low-cost. To further help reduce costs, the Indonesian government will prepare “fiscal incentives” to airlines. But the price cap imposed on certain, popular routes like Jakarta – Surabaya or Denpasar – Jakarta. While incentives will help, Garuda, the mainline carrier, has a problem – reducing its operational costs is difficult, as Garuda’s business model of providing a full-service is limiting the flexibility of the airline. While its subsidiaries can be flexible, both Lion Air and AirAsia have the ability to lower its ticket prices and try to increase ancillary revenue, thus reducing the impact of the lower ticket prices.
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