Bright prospects for low-cost airlines in 2009

Posted at 01/18/09 11:26 AM

KUALA LUMPUR - Low-cost carriers will soar to higher earnings in the year ahead, as customers migrate from full-service airlines which face steep revenue declines and forced mergers, industry experts said.

The Centre for Asia Pacific Aviation (CAPA) said that as the global downturn bites, low-cost carriers will outpace traditional airlines "in terms of traffic growth and earnings in 2009."

"Stormy conditions in 2008 have already helped the low-cost segment gain a larger slice of global aviation," the Sydney-based aviation thinktank said in an outlook report.

"Now predicted tougher economic conditions and lower fuel prices will give the sector a major advantage in 2009," it said.

Tony Fernandes, chief executive of AirAsia and the pioneer of low-cost aviation in Asia, said that as the recession hits, many passengers will not cancel trips but instead hunt for the cheapest ticket.

"They will fly with a low-cost carrier instead of a legacy airline to save money," he told AFP.

Fernandes said that the fortunes of British low-cost airline easyJet and Ryanair, Europe's biggest budget airline, will soar as the downturn depresses European economies.

"Full-service carriers will try to compete with us, but we have the upper hand," he said.

Airbus chief Thomas Enders last week warned of a "very challenging year for the aeronautics industry," saying he expected a sharp drop-off in orders for Airbus.

And aviation industry group IATA has said it expects the industry to lose 2.5 billion dollars in 2009 due to the economic crisis after losses of 5.0 billion dollars in 2008.

But Frost and Sullivan also said that Asian budget carriers were in a good position and that most of the damage to the aviation industry would occur in the United States. Asia-Pacific would see passenger traffic rise 5-7 percent this year.

"The market will see reasonable growth in low-cost carrier (LCC) passenger traffic within Asia-Pacific and even in the long-haul segment," Amartya De, an analyst at the consultancy, said in a report.

Airlines worldwide have cut back growth plans and axed loss-making routes to weather spiralling fuel prices which last year sent at least 27 carriers out of business.

CAPA said that as they have done in previous downturns, low-cost carriers had a relatively good year in 2008, while "plummeting premium demand quickly put the full-service carriers under the blowtorch."

"The European region, which accounts for nearly 41 percent of international traffic, grew by 5.2 percent in 2008, thanks mainly to the performance of its fast-growing LCC segment," it said.

Falling demand for premium aviation services together with pressure on revenues will drive further merger and acquisition activity among traditional airlines in the year ahead, it said.

"The low-cost sector meanwhile will focus on organic growth via fleet and network expansion. The result: a shift in the balance of world aviation."

CAPA said that new-generation long-haul LCCs, such as AirAsia X and Jetstar, will be emboldened by the current lower fuel prices.

"As we enter 2009, many of the world’s leading LCCs are still growing their capacity at double-digit rates," it said, pointing to Ryanair, easyJet, Vueling, SkyEurope, AirAsia, Virgin Blue, Jetstar and Tiger Airways.

Fernandes said that AirAsia's fuel costs had fallen from 40 percent of total operation costs to just 20 percent.

"We are now in a strong position to offer more low-cost tickets and new routes," he said. "For 2009, we are optimistic that we can achieve our best-ever profits."