Low Cost Long Haul Airlines: Slowly expand in the Europe-Asia market

Summary

• There are now 13 long haul low cost routes between Asia and Europe operated by five LCCs.
• However, LCCs account for only 2% of Asia-Europe capacity and there are no long haul low cost Asia-Europe routes that are operated daily.
• Scoot recently overtook Norwegian and Beijing Capital to become the largest LCC in the Asia-Europe market.
• Iceland-based WOW air will become the sixth LCC in the Asia-Europe market in Dec-2018 as it launches services to India.
• Three more long haul LCCs - Malaysia AirAsia X, Thai AirAsia X and Thai Lion Air - also plan to enter the Asia-Europe market over the next two years.

Five long haul LCCs now compete in the Asia-Europe market

There are currently 13 long haul low cost routes connecting Asia and Europe. Each route is at least eight hours long and 11 of the routes have a scheduled block time of at least 11 hours. No routes are served daily.
Each route is served by just one LCC. There are currently only five widebody LCCs competing in the Asia-Europe market - Beijing Capital, Eurowings, Lucky Air, Norwegian and Scoot.
Beijing Capital and Norwegian are the largest players in terms of number of routes, but Scoot is the largest in terms of capacity. Scoot overtook Norwegian and Beijing Capital to become the largest LCC in the Asia-Europe market by capacity when it launched flights to Berlin in Jun-2018.
However, Norwegian will retake Scoot's position later this year when Norwegian adds frequencies on its three Bangkok routes during the northern hemisphere winter season. Scoot reduces frequencies on its two European routes during the northern winter.
This analysis excludes routes connecting North Asia with eastern Russia. There are five such routes currently operated by LCCs, but they are all less than five hours long and are operated with narrowbody aircraft.
There are also six LCCs routes connecting Central Asia with Eastern Europe. These routes are all less than six hours and are also operated with narrowbody aircraft.

Asia-Europe Long Haul Low Cost Capacity By Airline*

Source: CAPA - Centre for Aviation and OAG
Note: * Seat figures are approximate: 16-Jul-2018 to 22-Jul-2018

AirAsia X will eventually resume Asia-Europe services

LCCs have been expanding in the Asia-Europe market, with nine of the current 13 long haul routes having been launched over the past two years.
However, the pace of capacity expansion has been relatively slow, and LCCs currently account for only 2% of total capacity in the Asia-Europe market. This figure includes the 11 narrowbody routes; if only long haul segments are considered, the penetration rate is even lower.
The oldest routes, Bangkok to Oslo and Stockholm, were launched by Norwegian in Jun-2013. These marked the resumption of long haul low cost services between Asia and Europe following the early 2012 suspension of services by AirAsia X from Kuala Lumpur to London Gatwick and Paris Orly.
AirAsia X has since shelved plans for re-entering the Malaysia-Europe market multiple times. However, AirAsia X remains keen to serve Europe again and is now aiming to launch services from Bangkok to Eastern Europe in 2019 followed by Kuala Lumpur to Western Europe in 2020.
Bangkok-Eastern Europe routes can be operated with existing A330-300ceos rather than waiting for A330-900neos. CAPA stated in a 2016 analysis report that Thai AirAsia was considering launching services in 2017 to Budapest, Prague and Warsaw using A330-300ceos. None of these routes have yet materialised, but recent reports indicate that Thai AirAsia X is now aiming to launch services to Eastern Europe in 2019.

Asia-Europe Long Haul Low Cost Routes Ranked By Weekly Seat Capacity*

Source: CAPA - Centre for Aviation and OAG
Note: * Seat figures are approximate: 16-Jul-2018 to 22-Jul-2018
Scheduled time based on Asia-Europe sector; scheduled times for the Europe-Asia sector are generally shorter

Prague and Moscow are the most likely initial European routes for Thai AirAsia X. Bangkok-Moscow is a highly competitive nine hour route that is currently served by Thai Airways and several Russian carriers. The longer Bangkok-Prague route is not currently served nonstop, but several airlines offer one-stop services in this market.
AirAsia X intends to serve Western Europe from Kuala Lumpur using a high gross weight variant of the A330-900neo. The AirAsia X Group recently increased its order for A330-900neos to 100 aircraft for delivery from the end of 2019. Malaysia AirAsia X will likely use one of the group's first A330-900neos to resume services to London in 2020.

WOW air to operate first A330neo route in Asia

Malaysia AirAsia X and Thai AirAsia X are two of 12 Asia Pacific-based widebody LCC operators. Only three of these airlines (Beijing Capital, Lucky and Scoot) currently serve Europe.
Scoot and Beijing Capital are the only Asia-based widebody LCC operators with any routes of at least 11 hours. The longest LCC route from Asia Pacific that does not touch Europe is Melbourne-Honolulu, which is operated by Jetstar and is over 10 hours. The longest AirAsia X route is also to Honolulu (from Osaka), which is slightly over nine hours.
While AirAsia X could potentially use its existing fleet of A330-300ceos to serve Eastern Europe from Bangkok, it needs the A330-900neo to open routes to Western Europe and from Kuala Lumpur.
WOW air is now in line to operate the first A330-900neo route to/from Asia. WOW air has set a 06-Dec-2018 launch date for services from Reykjavik to Delhi. The 11hr50min route will become the 14th Asia-Europe long haul route and WOW air will become the sixth LCC competing in the Asia-Europe market.

Thai Lion plans to serve Europe from 2020

Although it has not yet been disclosed by Airbus as an A330-900neo customer, the Lion Group is now in line to become the first Asian operator of that type.
Thai Lion is slated to receive two A330-900neos in 2Q2019 as part of an initial four aircraft commitment from the Lion Group. Indonesia based Lion Air has been allocated the other two A330-900neos and the group could acquire more A330-900neos for delivery in 2020 and 2021. The three year tentative fleet plan for Thai Lion includes five more A330neos in 2020 and five more A330neos in 2021, in addition to the initial two aircraft in 2019.
Thai Lion has decided on a two class configuration for its future fleet of A330-900neos, whereas Lion Air has decided on an all economy configuration. Lion Air currently operates three A330-300ceos in 440 seat all economy configuration, while Thai Lion operates three A330-300ceos in 392 seat two class configuration. Lion's A330ceos were delivered in 4Q2015 and Thai Lion's A330ceos were delivered in 4Q2017, making it the newest widebody LCC operator.
Lion Air uses its A330s on some domestic trunk routes and on long haul flights to Saudi Arabia. Lion plans to use its new fleet of A330neos to expand in the Indonesia-Saudi Arabia market. At the moment Lion has no intention of serving Europe from Indonesia and instead plans to serve Europe by offering connections via Bangkok using its Thai affiliate.
Thai Lion currently uses its A330ceos on domestic flights between Bangkok and Phuket and to China from both Bangkok and Phuket. Its longest A330 route is currently Phuket-Tianjin, which is slightly more than five hours.
Thai Lion plans to launch services from Bangkok to Tokyo Narita in Nov-2018, which will become its longest A330 route at approximately six hours. Thai Lion also plans to launch services in Dec-2018 from Bangkok to Nagoya, a slightly shorter route, and in 2019 from Bangkok to Osaka.
Thai Lion Air managing director Darsito Hendroseputro recently told CAPA that Thai Lion plans initially to use the A330neo fleet to North Asia and wait until 2020 for launching longer flights to Europe. He said that Thai Lion is not interested in serving Eastern Europe and was planning to evaluate several potential destinations in Western Europe. Frankfurt, London and Paris are among the destinations being studied.

LCC growth in Asia-Europe market will remain relatively slow

The anticipated launch of flights to Europe from Thai Lion and Thai AirAsia will result in four LCCs competing in the Thailand-Europe market, along with the current competitors Eurowings and Norwegian. However, LCCs will still account for a relatively small share of the gigantic Thailand-Europe market, which is already intensely competitive.
Aggressive competition from the Gulf airlines, as well as airlines from Europe and Asia, has so far made it challenging for LCCs to compete in the Asia-Europe market. Most of the current LCC competitors are more focused on expanding elsewhere. For example, Scoot plans to add at most one new European route per annum as it considers new routes within Asia Pacific more attractive and lower risk.
Norwegian is more attracted to opportunities across the Atlantic than new routes to South East Asia. North Asia routes could be more appealing to Norwegian and would also be of interest to WOW air, but Russia overflight issues make such routes infeasible for at least the near term. China's new crop of long haul LCCs do not have these issues and will continue to add flights to Asia, but do not follow the typical LCC model.
While LCCs will inevitably expand in the Asia-Europe market with more new routes and additional frequencies on existing routes, the amount of LCC capacity will remain relatively small. LCCs are now hardly scratching the surface in the Asia-Europe market and even if they double in size over the next few years, their market share will remain less than 5%.