Asia’s budget airlines seek collaboration

December 16, 2013 8:54 am

Asia’s budget airlines seek collaboration

By Jeremy Grant in Singapore

Four low-cost Asian airlines have unveiled a range of deals in a sign that intense competition and overcapacity is forcing the pace of industry collaboration on the region’s busiest routes.Taken together the moves, which include two new low-cost operators in Thailand and Taiwan, are a sign that the region’s low-cost carriers – of which there are nearly 50 – are feeling the strain of excess capacity and fierce competition on the same routes.

Tiger Airways, 32.7 per cent-owned by Singapore Airlines, on Monday said it had struck an alliance with Scoot, a no-frills carrier launched by Singapore Airlines last year, that will involve the joint operation, sales and marketing of routes that both of them fly.

If approved by antitrust regulators, this would allow each airline to use the other’s aircraft on routes where the planes are not full. The airlines said the tie-up could eventually involve “alignment of pricing and scheduling . . . to pave the way for a seamless integration of systems and improved connectivity”.

Separately, Tiger signed a three-year agreement withSpiceJet, a low-fares Indian airline, aimed at allowing more efficient connections between the Indian city of Hyderabad and Singapore.

Koay Peng Yen, Tiger Airways chief executive, said the alliances would allow the airline to “tap into the strengths of our strategic partners and extend our presence into existing and new markets without taxing our balance sheet”.

Andrew Orchard, airline analyst at CIMB, said that with government regulations in many countries preventing outright takeovers, airlines were instead finding ways to collaborate in a first step towards consolidation.

“It’s happened in the US and in Europe with KLM and Air France, for instance, and now airlines in Asia are finding ways around these government restrictions to try and rationalise capacity. I think what we’re seeing is this is the first wave of consolidation,” Mr Orchard said.

Yet in a sign of how carriers remain keen to capitalise on a rising middle class beginning to afford air travel for the first time, even as the region struggles with too much capacity, Tiger also formed a joint venture with China Airlines to establish a Taiwan-based budget carrier. It will operate under the livery of Tiger, which will hold 10 per cent.

Separately, Scoot agreed with Thailand’s Nok Airlines to invest S$80m (US$64m) in a new Bangkok-based low-cost carrier that would fly unspecified medium- and long-haul routes in the region. Scoot would hold 49 per cent of that venture.

CIMB says industry earnings this year have “failed to meet expectations” amid intense competition and “overly exuberant capacity expansion”, which has compressed yields for most carriers in southeast Asia.

Tiger Airways shares have fallen 26 per cent so far this year, and were down 2 per cent late Monday afternoon in Singapore.

Shares in AirAsia, the largest regional low-cost carrier and run by Malaysian entrepreneur Tony Fernandes, are down 14 per cent year to date.

Shares in Singapore Airlines have fallen 6.5 per cent, while those of Hong Kong flag carrier Cathay Pacific are up 15 per cent.