Soaring High Amid Economic Turbulence?
There is little doubt that the global economic downturn has already hit the aviation industry. In view of the expected declines in industry revenues, passenger traffic and cargo traffic, the International Air Transport Association (IATA) has predicted an industry loss of US$2.5 billion this year. All regions, except the US, are expected to report larger losses in 2009 than in 2008, says the international trade body which represents some 230 airlines comprising 93 per cent of scheduled international air traffic.
Amid the bleak outlook for the aviation industry this year, a silver lining is likely to be the expected growth in revenues of low-cost carriers (LCCs), say aviation experts.
Following an analysis of the respective projections by the International Civil Aviation Organisation (ICAO) and the IATA which indicate that LCCs will outpace full-service carriers in traffic growth and earnings this year, Sydney-based Centre for Asia Pacific Aviation (CAPA) is predicting a “shift in the balance of world aviation”.
In its recently released report titled “LCC traffic and profits to boom in 2009 as legacy airlines suffer”, CAPA noted: “Falling premium demand and pressure on revenues will drive further merger and acquisition activity in the full service sector in 2009. The LCC sector meanwhile will focus on organic growth via fleet and network expansion. The result: a shift in the balance of world aviation.”
According to statistics from leading travel agencies, the current global crisis has led to more Singaporean travellers opting for cheaper airfares to nearer destinations such as Malaysia, Indonesia, Vietnam, Macau, Hong Kong and Philippines. Instead of Paris or London, travellers are now spending their holidays in Kuala Lumpur and Macau – destinations which are served by LCCs such Tiger Airways, Jetstar Asia and AirAsia.
“Comparatively, we have more than 50 per cent increase (in the number) of customers opting for LCCs in year 2008 as compared to year 2007,” says Ms Alicia Seah, Senior Vice President, Marketing and PR of CTC Holidays. Expecting the economic slowdown to worsen, Ms Seah reckons that the number of customers who opt to travel with the budget carriers will continue to rise this year.
The LCCs will also benefit from the ASEAN Open Skies Agreement which allows more competition on key routes in this region. “This should translate into more opportunities for LCCs to grow, and will likely increase the pressure for airlines to offer competitive fares in general,” says Dr Terence Fan, Assistant Professor of Management at Singapore Management University’s Lee Kong Chian School of Business.
This, in turn, will lead to significant cost savings for the consumers. For instance, travellers who have to make frequent trips between Singapore and Kuala Lumpur can now do on a budget carrier at just $78 – a fraction of what it will typically cost on the respective national carriers Singapore Airlines and Malaysia Airlines (please refer to sidebar on page 67).
