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Long haul low cost airlines: the model grows globally; Australia slows

Australia was the initial testing ground of the long haul low cost model and has since had a higher concentration of long haul low cost capacity than any other market. However, long haul low cost growth in Australia has slowed in recent years as competition intensified, whereas globally the rate of expansion has accelerated significantly.

Jetstar, the pioneer of the current long haul low cost model, has not pursued significant long haul growth for seven years. AirAsia X, the other long haul low cost pioneer, has cut back in Australia over the last three years. Scoot, the third main long haul low cost player in the Australian market, has not added capacity in more than two years.

There is still growth from smaller foreign long haul LCCs: Cebu Pacific is adding its second Australia route in Aug-2018, and VietJet Air is planning to enter the market in 2019. However, these two new routes will generate growth of less than 5% – a very modest figure given the rapid double digit rate of growth for long haul low cost operations globally.

The long haul low cost sector will be reviewed in detail at forthcoming CAPA events:
- LCCs in North Asia Summit, in Seoul, Korea 11/12 June
- Australia Pacific Aviation Summit, in Sydney, 1/2 August
- Long Haul LCC Summit, Seville, Spain, 4/5 October

Summary: long low cost airlines and Australia 

  • There are currently 24 long haul low cost routes from Australia, operated by five airlines and generating approximately 100,000 weekly seats.
  • In Aug-2018 Cebu Pacific plans to launch three weekly flights between Melbourne and Manila, which will become the 25th long haul low cost route from Australia.
  • There has been virtually no growth in Australia's long haul lost sector over the past five years, whereas global long haul low cost capacity has more than tripled.
  • In the first part of this decade Australia accounted for close to 50% of total long haul low cost capacity; it now accounts for less than 20%.
  • Australia-based Jetstar, a pioneer in the long haul low cost space, has not pursued significant long haul expansion since 2011.

Melbourne-Manila to become 25th long haul low cost route from Australia 

There are currently 24 low cost long haul routes (at least 4000km) from Australia, generating approximately 100,000 weekly seats. This excludes seasonal or temporary routes such as Cairns-Seoul, which has been operated by the Korean LCC Jin Air for two to three months over the past two summers.

Melbourne-Manila will become the 25th regular long haul low cost route from Australia when it is launched with three weekly flights from Cebu Pacific on 14-Aug-2018. 

Brisbane-Ho Chi Minh is now in line to become the 26th long haul low cost route from Australia, following a recent commitment from VietJet to begin serving Brisbane in 2019.

Australia's long haul low cost routes ranked by weekly seat capacity: Apr-2018

Rank Origin Destination

Year 

launched

Weekly

Seats

Operators

1 Melbourne Kuala Lumpur 2008 10,556 AirAsia X
3 Melbourne Bali 2006 9,380 Jetstar
2 Sydney Kuala Lumpur 2012 8,294 AirAsia X
Gold Coast Kuala Lumpur 2007 5,278 AirAsia X
Perth Kuala Lumpur 2008 5,278 AirAsia X
Sydney Singapore  2012 5,250 Scoot 
7 Sydney Bali  2006 4,690 Jetstar
8 Brisbane Bali 2014  4,690 Jetstar
9 Gold Coast Tokyo Narita  2008 4,690 Jetstar
10 Melbourne  Singapore 2010 4,670 Jetstar, Scoot
11  Manila Sydney  2014 4,360 Cebu Pacific 
12 Sydney Honolulu  2006 4,020 Jetstar
13 Cairns Tokyo Narita  2008 4,020 Jetstar
14  Gold Coast Singapore  2012 3,330 Scoot
15 Cairns Osaka  2007^ 2,680 Jetstar
16 Melbourne Phuket 2006 2,680 Jetstar
17 Sydney  Ho Chi Minh 2006* 2,010 Jetstar
18 Melbourne Honolulu  2006 2,010 Jetstar
19 Melbourne Ho Chi Minh 2017 2,010 Jetstar
20 Sydney Phuket 2006 2,010 Jetstar
21 Melbourne Bangkok 2006 2,010 Jetstar
22  Melbourne Qingdao 2016 1,832 Beijing Capital
23  Sydney Qingdao  2017 1,832 Beijing Capital 
24 Melbourne  Zhengzhou  2017 1,340 Jetstar 
  Melbourne Manila 2018 Not yet launched Cebu Pacific
  Brisbane  Ho Chi Minh 2019  Not yet launched VietJet

The first eight long haul low cost routes from Australia were launched in late 2006, when Jetstar began long haul operations with a fleet of A330s inherited from parent Qantas.

Jetstar was the first in the current generation of long haul low cost operators. Jetstar is not generally considered to be the first long haul LCC, but the airlines that came before it followed different versions of the model and all ceased operations several years ago.

Australia accounted for most long haul low cost routes a decade ago

Jetstar launched five long haul destinations during the last two months of 2006 – Bali, Bangkok, Honolulu, Ho Chi Minh and Phuket. By the end of 2007 Australia had seven long haul low cost destinations as Jetstar added Osaka and AirAsia X launched Kuala Lumpur.

Kuala Lumpur-Gold Coast was AirAsia X’s very first route. AirAsia X added Melbourne and Perth in 2008, while Jetstar added Tokyo. At the end of 2008 Australia already had 14 long haul routes and about half of all of the world’s long haul low cost routes.

Australia’s long haul low cost network has continued to grow over the past decade, but at a much slower pace. The biggest phase of expansion came in 2012 as AirAsia X began serving Sydney and the Singapore Airlines long haul LCC subsidiary Scoot launched operations, with Sydney and Gold Coast its very first two destinations.

Global long haul low cost expansion has been rapid in the past five years 

Over the past five years there has been very limited expansion in Australia while the long haul low cost model has finally started to spread to the rest of the word. Five years ago, in early 2013, there were only three long haul low cost airlines, consisting of one based in Australia (Jetstar) and two from Asia that counted Australia as their largest market (AirAsia X and Scoot).

In mid-2013, Air Canada rogue and Norwegian became the first long haul LCCs from North America and Europe respectively. Both airlines now have much bigger long haul operations than Jetstar's. 

Jetstar has not pursued significant long haul low cost expansion since 2011, when it expanded its A330 fleet to 11 aircraft. With the transition to an all-787 widebody fleet in 2013 to 2015, it elected to replace its A330s on a 1:1 basis without any growth.

Jetstar has launched a few new routes since taking delivery of 787s, including Brisbane to Bali in 2014 and Melbourne to Ho Chi Minh and Zhengzhou in 2017. However, it has also suspended routes such as Gold Coast-Osaka (which operated from 2008 to 2014) and Gold Coast-Wuhan (which operated from 2015 to 2016). 

AirAsia X and Scoot stop expanding in Australia 

Meanwhile, AirAsia X has reduced capacity to Australia. Its Australia-Malaysia operation peaked in 2014, with 77 weekly flights to five destinations. One of AirAsia X's Australia routes, Adelaide-Kuala Lumpur, was cut in early 2015, and at about the same time capacity was reduced to Gold Coast, Melbourne, Perth and Sydney.

In 2016 AirAsia X added back capacity on these four routes, but the group suspended services from Melbourne and Sydney to Bali (which were operated by its Indonesian affiliate for only a year and a half). In early 2018 AirAsia X again reduced capacity to Gold Coast, Melbourne and Sydney, giving it just 39 weekly long haul flights from Australia (with slight increases during peak periods).

See related report: AirAsia X slashes capacity to Sydney, Perth and Gold Coast as focus shifts from Australia to Asia

Concurrently, Scoot's capacity to Australia has been lowered after the launching of Melbourne in late 2015. Over the past two years Scoot has maintained a schedule of 19 to 27 weekly frequencies (depending on the time of year) to four destinations in Australia.

Scoot is slightly increasing capacity to Australia in Jun-2018 when it upgrades Melbourne to daily, but its capacity will still sit below its late 2015 peak, in terms of seats to Australia. Scoot's Australia capacity includes Singapore-Perth, which was launched in late 2013, although this route is slightly less than 4000km and is therefore not counted under the overall long haul low cost capacity figures in this report.

AirAsia X (yellow), Scoot (red) and Indonesia AirAsia X (pink) weekly seat capacity from Australia: Sep-2011 to Aug-2018

Although Australia has secured new long haul routes from two new players, Cebu Pacific and Beijing Capital, they currently operate only nine weekly flights from Australia. Even with the new Manila-Melbourne route from Cebu Pacific, these two airlines will operate a relatively modest 12 to 17 weekly flights from Australia (depending on the time of year). The cuts at AirAsia X have taken away more capacity, resulting in an overall slight decline in capacity for the Australian long haul low cost market, given the relatively flat capacity at Scoot and Jetstar

Australia still has 10% of its international capacity operated by long haul LCCs

While long haul low cost capacity has been relatively flat in Australia the past few years, globally it has been increasing rapidly.

However, Australia still has a relatively high ratio of long haul low cost to overall capacity. Globally long haul low cost operations still account for less than 1% of total capacity, and less than 4% of international capacity. In Australia long haul low cost operations account for approximately 4% of total capacity and nearly 10% of international capacity.

Australia still accounts for more than 15% of global long haul LCC capacity. This pales in comparison to the 50% proportion for Australia a decade ago, but is still a significant figure given that Australia has only the tenth largest aviation market globally (based on total seat capacity) and the growth of other markets.

Long haul narrowbodies to drive new phase of growth 

Australian long haul low cost capacity should expand again over the next few years, driven primarily by new generation narrowbody aircraft. All long haul low cost 25 routes from Australia are currently operated with widebody aircraft. The longest narrowbody LCC route from Australia is Adelaide-Bali, which is approximately 3760km.

However, an increasing proportion of long haul low cost routes (at least 4000km) globally are operated with narrowbody aircraft.

Jetstar plans to use a portion of its new fleet of A321neoLRs, which will be delivered from 2020, to operate routes over 4000km. This includes existing routes from eastern Australia to Bali, which will free up the equivalent of three 787s for new long haul routes deeper into Asia.

Jetstar is also considering the use of A321neoLRs to launch a small number of new routes in the 4000km to 5000km range, including Perth to New Zealand, which cannot be operated using its current narrowbody fleet.

See related report: Jetstar Airways' new routes for A321neoLR fleet: Perth-New Zealand could be at the top of the list

VietJet could also use A321neoLRs to serve Australia. VietJet has not yet determined which aircraft type it will use for Ho Chi Minh-Brisbane or set an exact launch date, which will hinge on delivery of new aircraft.

VietJet has been evaluating the acquisition of widebody aircraft, which could be a more sensible option for Brisbane and other potential Australia routes in future. Ho Chi Minh-Brisbane is 6600km; while the published range of the A321neoLR is 7400km, it is likely VietJet would have payload restrictions to Brisbane, given its typical high density all economy configuration.

Jetstar, which has selected a 232-seat high density all economy configuration for its A321neoLR fleet, is not considering routes of more than 5000km.

Australia long haul low cost growth not likely to accelerate significantly 

While new generation narrowbody aircraft should drive a new phase of growth in Australia’s long haul low cost segment, the number of potential long haul narrowbody routes from Australia is relatively limited, compared to other markets such as the trans-Atlantic.  

Long haul low cost routes will likely account for 10% to 15% of total international capacity in Australia over the next several years, remaining well ahead of the global average. However the gap will continue to narrow, as the global average will gradually approach 10%.

While the party started in Australia, the focus has now shifted to the rest of the world.

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