Proliferation of budget airlines

The proliferation of budget airlines, and their new moves into intercontinental flights, spells good news for travelers. Increased competition will further drive down air fares as the line between low cost and full-service airlines becomes increasingly blurry.

But it will also mean an even tougher fight to stay profitable for both budget and regular carriers as they grapple with high fuel costs.

The International Air Transport Association has forecast Asia-Pacific Airlines to earn combined profits of $3.7 billion this year, down from $7.6 billion in 2010.

In Malaysia, budget airlines account for nearly half of seat capacity, in Singapore, they account for 22 percent and in Thailand about 17 percent, eating into the business of flag carriers in the three Southeast Asian countries.

Yet, it came as a surprise to the industry when Singapore Airlines Ltd. — one of the world's most profitable carriers — announced last month plans to set up a budget airline to operate medium and long-haul routes next year.
The move follows the appointment of new management this year and is a major gamble for the national airline, which relies heavily on business and first-class travelers who make up a small percentage of seats but account for up to 40 percent of revenue. It will be only the second flag carrier to launch a low-cost unit after Qantas Airways Ltd.

Singapore Airlines already owns a third of low-cost carrier Tiger Airways, which flies short-haul routes. It also owns SilkAir, which occupies a niche between premium and low cost for medium-haul flights. Singapore Airlines will be able to cater to travelers it currently doesn't reach by adding a budget long-haul airline.

Singapore Airlines hopes to echo the success of AirAsia X, which started in 2007 and became profitable just three years later with flights to 15 cities in Asia, Australia, Europe and the Middle East.

While route details are unknown, CAPA said Singapore Airlines could target fast growth markets in China, India and Europe in a direct challenge to AirAsia X, which is partly owned by AirAsia and Richard Branson's Virgin Group, and JetStar.

Elsewhere in Asia, other flag carriers are only just getting around to venturing into the low cost approach to short-haul routes.