CAPA’s 2017 LCCs in North Asia Summit was hosted last week and included a variety of high profile industry leaders discussing topical issues related to aviation.
Below is a snap shot of the key points raised during the event:
Jeju Air CEO Ken Choi, stated:
- Since the 2014 CAPA LCC conference in Incheon the carrier “almost quadrupled” its capacity to Osaka Kansai Airport, increasing frequency from four to nine per day within three years. Mr Choi expressed his hope to operate from the airport’s terminal 2, which is the low cost terminal, in the future. Peachand Spring Airlines are currently the only operators at T2.
- South Korealow cost carriers don’t have the luxury to choose airports or slots due to the highly saturated market. Mr Choi added, as an emerging LCC, it is important to “put a lot of density” on routes with high demand.
- Airports should reward airlines for bringing in high traffic which contributes to their retail and non-aeronautical revenues. Mr Choi noted during initial partnership, airports are often willing to offer various subsidies, but once the carrier expands and traffic is established, the benefit stops. It is something “I wish” airport operators will improve on said Mr Choi. University of British Columbia & MIT-ChinaNSCIIC Institute professor Tae Hoon Oum agreed stating “airlines are taking a greater risk than airports” in such situation, “it makes sense” to share revenue, at least during the first several years.
VietJet director Cuong Chu, stated:
- “At the moment we are looking for partnership” with Middle Eastern carriers to connect our passengers to Europe. Mr Chu believes with updated technology, the cost for transferring baggage will be reduced.
- VietJetplans to cooperate with Japan Airlines to serve routes in Australia and the US. Mr Chu stated the agreement will be “classic at first” but the carrier is looking into ways to minimise cost. However Mr Chu said according to their calculations, the codeshare will not make a huge difference to CASK.
- The carrier is considering interline and codesharing with Japan Airlines(Travel Vision, 14-Jun-2017). He said: “We would like to provide services to Vietnamese living in North Asia through partnership with Japan Airlines”.
- Operating daily depending on slot (Travel Vision, 14-Jun-2017). It also plans to launch Hanoi/Ho Chi Minh-Tokyo Narita in May-2018. As previously reported by CAPA, VietJet Air plans to launch scheduled Hanoi-Osaka service in Feb-2018. He said: “I’d like to start selling tickets this September”.
- The carrier is working to launch Hanoi-Osaka by Feb-2018. Mr Chu said “we have secured slots” at Osaka Kansai Airportbut “are waiting for a permit” and new aircraft. The carrier expects to finalise the service in 4Q2017. Mr Chu added the carrier is considering Ho Chi Minh-Osaka service soon after.
HK Express/U-Fly Alliance director strategy & regulatory affairs Philip Herbert, stated:
- He believes IATAneeds to develop standards that are more suited for low cost carriers, existing standards are “rather rudimentary” whereby it feels like “everything will work itself out”.
- Due to Hong Kong’s wide income distribution gap, low cost carriers opened up air travel for the lower income population “allowing a lot of people to fly for the first time”.
- He believes LCCs should maintain a simple product, “if you create too much expectation, you are going to create more complications”, responding to a question on how the carrier plans to respond to full service carriers introducing basic fares to compete with LCC.
- The carrier offers more direct services to Japanthan Cathay Pacific. Mr Herbert believes its frequency, pairing with a flexible fare, allows it to attract business travellers.
- He believes the balance between full service and low cost airline models is shifting, “it’s a bit old fashion to say there needs to be a segregation” in terminal allocation based on airline models. University of British Columbia & MIT-ChinaNSCIIC Institute professor Tae Hoon Oum noted sharing terminals is only reasonable if the airport has sufficient capacity to accommodate both. If terminal capacity is exceeded, it would be cheaper for the airport to develop an LCC dedicated terminal instead of developing one to fit both models.
Vanilla Air senior EVP Mio Yamamuro, stated:
- “Sooner or later” the carrier will need to look into some form of interline agreement as “we cant expand our network” beyond “what we have now” with our fleet of A320s. However Ms Yamamuro said the agreement will not be done “traditionally”, LCCs will need to look into a new model that will avoid further ticket discounts for the carriers.
- The carrier is considering a sum of sector pricing model for connecting itineraries with other airlines. Ms Yamamuro explained customers will book the two sectors operated by the airline and their partner on either website and customers will pay the total cost of ticket A plus ticket B, airlines will then receive the respective value of the ticket. It will be a simple “split”, without further complications or discounts as “I think our [LCCs] tickets are already well discounted” said Ms Yamamuro, and customers will bear the risk of the connection.
- Its Amami O ShimaAirport route is proof that the LCC model works in stimulating the market by introducing competition. Traffic to Amami O Shima grew from 14,000 passengers to 21,000 passengers within three years of Vanilla Air’s service launch. Ms Yamamuro emphasised the need for airlines to work with local government and community in engaging their support for new routes.
AirAsia X CEO Benyamin Ismail, stated:
- “The beauty of AirAsia” is “we have five different AOCs” within Asia Pacific, providing business travellers the connectivity and frequency they need. HK Expressdirector strategy & regulatory affairs Philip Herbert added customers know LCC has better on time performance, which is important for a business traveller.
- Every new product is incremental to the low cost model, “it’s all about keeping it [Cost] low…anything extra should be at a cost”, responding to a question on how LCC should respond to full service carriers introducing basic fares to compete with LCC. HK Expressdirector strategy & regulatory affairs Philip Herbert agreed “we wont change our product”.
- AirAsia XCEO Benyamin Ismail, speaking at CAPA LCCs in North Asia, reported (13-Jun-2017) corporate businesses, especially in Malaysia, lowering business travel expenses, stating “anything below three hours should go low cost [fare]”.
CAPA – Centre for Aviation
CAPA – Centre for Aviation senior analyst Will Horton, stated:
- Northeast Asia’s LCC growth is dependent on greater market share in the domestic market. Being able to expand LCCs on China’s domestic routes will create a huge effect on the wider Asia Pacific region, simply because of population size.
- Spring Airlinestook 10 years to increase its fleet to 50 aircraft due to restrictions with Chinese aviation regulation. During the same time period, AirAsia was able to surpass Spring Airlines in fleet size despite being based in a smaller market.
- Within the last two years, most full service carriers in Northeast Asia have appointed a younger generation of leadership in executive positions. FSCs have come to terms with the market’s acceptance for LCCs and are evaluating their cost strategies in order to stay competitive.
- In order for Japanto reach its target of receiving 40 million inbound tourists by 2020, there should be 72 additional aircraft operations per day for the next four years. With current capacity and infrastructure, Tokyo and Osaka airports “simply do not have the capacity to accommodate this traffic” and airlines will need to utilise other airports in Japan.
Narita International Airport Corporation
Narita International Airport Corporation EVP Futoshi Osada, stated:
- Low cost traffic will account for 50% of total capacity at the airport by 2020. The airport plans to consider reducing landing fees to facilitate this growth.
- Transport accessibility to the city and cost is important for LCC passengers. Mr Osada said before the airport launched its own bus service to the city, airfares would cost around JPY5000 while bus fare cost JPY3000. Lowering landing costs and airfares is only relevant if the ground transportation price matches the LCC rate.
- Plans to expand its low cost terminal or develop a new terminal as traffic has exceeded designed capacity. The airport handled 39 million passengers in 2016.
- The Chinese government to deregulate restrictions on Japanand China air travel capacity. Mr Osada said he received expressions of interest from Chinese low cost carriers wanting to fly to Tokyo Narita Airport, however “they cannot land at Narita” due to regulation.