Alliance gives budget airlines good fighting chance

Alliance gives budget airlines good fighting chance

In a simple but calculated move, eight low-cost carriers have joined hands to give the bigger boys a run for their money.

It was a show of solidarity when the chiefs of Scoot, Tigerair, Tigerair Australia, Cebu Pacific (including subsidiary Cebgo) in the Philippines, South Korea's Jeju Air, Vanilla Air in Japan, and Thailand's Nok Air and NokScoot announced on Monday (May 16) that they were launching the world's largest low-cost carrier grouping - Value Alliance.

The group, set up earlier this month, excluded common rivals and, more notably, Malaysia-based AirAsia, Jetstar and Indonesia's Lion Air.

The trio are among the region's biggest budget airlines.

Mr Campbell Wilson, chief executive of Singapore Airlines (SIA) subsidiary Scoot, did not mince his words when asked why.

The aim of the alliance is to grow distribution channels and networks, he stressed.

"Would we want to share that with other airline groupings? We are doing this for our own strategic reasons. The fact that you don't see some airlines here is self-explanatory," Mr Wilson said.

Formed to create inroads into new markets for its various members, the new alliance has no cons for travellers, only pros.

When the different carriers fully integrate their systems in the coming months, travellers will be able to access and book seats on flights from any of the eight member carriers in a single transaction from each partner's website.

They will also be able to confirm seats and meals, as well as baggage allowances and other on-board features, in a single itinerary.

For now, there are no provisions for baggage transfers, which means those with connecting flights will have to collect their bags and check in again.

The alliance members - in particular, Scoot, which has clearly been the key driver behind the initiative - are excited about the expanded networks the partnership will bring.

Together, the eight airlines operate 176 aircraft to more than 160 destinations across the region, and carried more than 47 million travellers last year.

But will they be able to really hurt AirAsia, Jetstar and Lion Air?

There will be some impact but it is unlikely to be significantly detrimental, given the trio's size and brand-name recognition.

The AirAsia group has about 200 aircraft run by eight carriers in five countries - Malaysia, Indonesia, Thailand, the Philippines and India - that fly to over 120 destinations.

Lion Air is Indonesia's largest privately-run airline and the second-largest low-cost airline in South-east Asia after AirAsia.

It has more than 100 planes flying to over 80 destinations in countries including Singapore, Malaysia and Vietnam.

Jetstar, with airlines in Singapore, Australia, New Zealand, Japan and Vietnam, has a total fleet of 122 aircraft that fly to 17 countries and 75 destinations.

Within the South-east Asian market, AirAsia and Lion Air each have a 30 per cent market share.

Jetstar has a much smaller presence in the region but, within the Asia-Pacific, it commands about 9 per cent market share, with a substantial presence in Australia.

Apart from their scale of operations, a key benefit the three big guns have over the Value Alliance carriers is a common booking platform for travellers.

So an AirAsia customer, for example, can book flights on different carriers across the group in a single transaction.

For entrenched players AirAsia and Jetstar, the other big plus is a brand that resonates with travellers across the region.

This is not so for members of the new alliance.

Cebu Pacific, for example, is a household name in the Philippines but relatively unknown outside its home turf.

The same is true for Jeju Air and Vanilla Air.

On their own, the eight carriers within the alliance know they will probably never be able to grow as big as AirAsia, Jetstar and Lion Air.

Setting up joint-venture carriers in different countries is also difficult, with national sensitivities at play and local carriers almost always kicking up a big fuss and doing all they can to block foreign players from coming in.

In such an environment, the launch of the alliance gives its member carriers the best fighting chance against the giants.

Working together across national boundaries will not be easy, and convincing regulators of the need to further co-operate will be an uphill task.

But the first key step has been taken, and it will be up to the carriers to put aside their differences and work as a team.

A potential area for future co-operation is enhanced interlining, which will allow travellers to switch between airlines without having to go through check-in and immigration after each flight.

SIA subsidiaries Scoot and Tigerair are already offering this service at Changi Airport. For instance, a traveller could fly from Bangkok via Tigerair, transfer to Scoot at Changi and head to Sydney.

Joint marketing and promotional activities in key markets are another possible area for deeper co-operation.

If they play their cards right, the sky is the limit for the Value Alliance airlines.

Travellers have much to gain too.


This article was first published on May 18, 2016.
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