LCCs in Asia Pacific: two decades of steady market share gains
Low cost airlines were late to arrive in Asia. At the turn of the century there were only two very small LCCs operating in all of Asia Pacific, whereas LCCs had already captured significant market share in Europe and North America.
LCCs in Asia have since expanded rapidly and successfully, despite fierce resistance from legacy full service airlines. LCCs now account for nearly 30% of capacity within Asia Pacific.
There are still opportunities for further capacity share gains as several major markets in Asia remain well below the global average. China particularly is punching below its weight in terms of LCCs.
- LCCs accounted for 29% seat capacity within Asia Pacific in 2018, compared to 14% in 2008 and virtually zero in 1998.
- LCCs now account for more than 50% of domestic capacity in seven Asian markets.
- LCCs now account for more than 30% of international capacity in six Asian markets.
- Of the 20 largest markets in Asia Pacific, the international penetration rate is higher than the global average in 16 of those markets.
The low cost travel revolution in Asia Pacific and the challenges confronting the sector as it continues to pursue rapid expansion will be discussed at the CAPA Global LCC Summit in Singapore on 25/26-Feb-2019
LCCs grow rapidly in Asia Pacific
LCC capacity in Asia Pacific has more than quadrupled over the past decade: LCCs flew nearly 600 million seats within Asia Pacific in 2018, compared to approximately 130 million seats in 2008.
Asia Pacific LCC annual seat capacity (red within and blue to/from): 2008 to 2018
LCCs accounted for 29% of seat capacity within Asia Pacific in 2018, compared to 24% in 2013 and 14% in 2008. The LCC penetration rate to/from the region has also increased steadily – but on a much lower base – and reached a still modest 8% in 2018, compared to 3% in 2008.
In the prior decade, from 1998 to 2008, the LCC penetration rate within Asia Pacific grew from virtually zero to 14%. Therefore, the percentage point gain achieved in the first decade of LCCs in Asia was almost as much as the 15ppts growth achieved in the second decade (from 2008 to 2018).
Asia Pacific’s LCC penetration rate approaches global average, despite the late start
Twenty years ago there were only two LCCs operating in Asia Pacific – Cebu Pacific from the Philippines and Freedom Air from New Zealand. Cebu Pacific launched operations in 1996 and is now the largest airline in the Philippines. Freedom launched its operations in 1995 as a subsidiary of Air New Zealand, but suspended operations in 2008.
Despite the relatively late start of the Asian LCC sector, the LCC penetration rate in Asia Pacific is now almost as high as the global LCC penetration rate. In 2018, LCCs globally accounted for 33% of domestic seat capacity and 13% of international seat capacity.
However, the LCC penetration rate in Asia Pacific varies significantly, depending on the market. Some markets in Asia now have among the highest LCC penetration rates in the world, whereas others still have relatively low LCC penetration rates.
China still has a very low LCC penetration rate
China has a relatively weak LCC presence and drags down the overall average as it is Asia’s largest market (by a wide margin). In 2018 LCCs accounted for only 10% of seat capacity in the Chinese domestic market.
Regulatory constraints limit the rate of LCC growth in China but slowly LCCs are starting to make inroads. In 2008 LCCs accounted for only 2% of domestic seat capacity in China.
China has a stronger LCC presence in its international market, driven mainly by foreign airlines. LCCs captured a 14% share of international seat capacity in China in 2018, compared to only 3% in 2008.
Seven Asian countries have domestic LCC penetration rates above 50%
Japan, Asia’s second largest market, also has a relatively strong international LCC penetration rate of 26%. But Japan’s domestic penetration rate, at 17%, is also well below the global average.
Seven Asian markets now have domestic LCC penetration rates above 50%: India, Indonesia, Malaysia, the Philippines, South Korea, Thailand and Vietnam. In 2008 none of these markets had domestic LCC penetration rates above 50%.
Of the 20 largest markets in Asia Pacific, 16 have LCC international penetration rates above the global (international) average of 13%.
Domestic and international LCC penetration rates for top 20 markets in Asia Pacific: 2018 vs 2008
Asia Pacific poised for more LCC growth
LCC growth in Hong Kong has been constrained by infrastructure constraints.
Bangladesh and Sri Lanka are very small markets that do not currently have a local LCC.
In a recent analysis report CAPA highlighted New Zealand’s very low international penetration rate (which is the lowest among the top 20 markets in Asia Pacific). The fact that New Zealand is at the very bottom of the list is somewhat surprising, given that it had the first LCCs in Asia Pacific.
See related report: New Zealand LCC market: AirAsia pulls out again, leaving only Jetstar
There is clearly still ample space for LCCs to grow in Asia Pacific as the sector enters its third decade.
While in some countries market share gains will become smaller, given that LCCs already account for a majority of short haul capacity the overall market is growing rapidly. There are also several markets that should continue experiencing large increases in the LCC penetration rate, resulting in further penetration rate gains for the Asia Pacific region as a whole.