LCCs Can Be Blessing And Curse For Asian Majors

By Adrian Schofield
Source: Aviation Week & Space Technology
February 03, 2014
Credit: Michael B. Ing/

For Asia's legacy airlines, the rapid rise of low-cost carriers is something of a double-edged sword. The LCCs offer both threat and opportunity for the full-service giants—and which outcome prevails depends on how deeply they embrace the trend and shape it to their advantage.

The Asia-Pacific region is experiencing by far the quickest growth in LCCs. This can obviously be a major headache for established legacy carriers, as their home markets become battlegrounds for the budget upstarts. And the challenge is only increasing thanks to new developments in the long-haul low-cost segment, which could seriously eat into the majors' revenue streams.

But the irony of the situation is that most of the Asian LCCs have been spawned by the majors themselves. Many have been launched to combat the threat of large independent LCCs like AirAsia, but the major airlines have also found that their low-cost subsidiaries present new ways to attack their legacy rivals. Creating LCC joint ventures has enabled them to establish offshore bases that would be prohibited for the mainline parent.

Taiwan is the latest Asian market where the incumbent full-service airlines are entering the low-cost sector. Overseas LCCs have been steadily encroaching on key international routes into Taiwan, and more are planning to start service soon. So Taiwan's China Airlines and TransAsia Airways have each revealed plans to launch LCCs of their own, which will help them compete against budget carriers based elsewhere.

TransAsia says it will set up a wholly owned subsidiary within a year, which will fly Airbus A320-family aircraft from Taipei. China Airlines, meanwhile, is forming a joint venture with Singapore-based Tigerair—an LCC that is, in turn, partly owned by Singapore Airlines.

One of the overseas budget carriers that has begun operating to Taiwan is Japan's Vanilla Air, which is owned by All Nippon Airways (ANA). Just a few years ago Japan was at the same stage that Taiwan is now—with two major carriers looking to establish LCC joint ventures to ensure that others did not beat them to it.

The first three Japanese joint ventures began operations in 2012. ANA established two; Peach Aviation and AirAsia Japan. The latter airline was a rare example of a major carrier allying with one of the independent LCC giants, in this case AirAsia. However, this was short-lived, as the two parent airlines found that their LCC and full-service DNA did not match and the partnership was dissolved. ANA started Vanilla Air in December 2013 as a wholly owned subsidiary.

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