15-Apr-2019 8:16 AM

North Asia LCC market's 24 LCCs and active start-ups

Analysis

LCCs arrived in North Asia much later than in the other major sub-regions of Asia Pacific - Southeast Asia, South Asia and Australasia. However, North Asian LCCs have grown rapidly over the past five years, narrowing the gap with their Asian peers.

There are now 24 LCCs based in North Asia, compared to only 11 LCCs five years ago. The North Asian LCC fleet has quadrupled over this period, from 165 aircraft in Apr-2014 to 662 aircraft in Apr-2019.

However, North Asia is still relatively unpenetrated by LCCs; in 2018 LCCs accounted for only 14% of total seat capacity within North Asia.

There are huge opportunities for rapid LCC growth across all the region's markets, from gigantic China and Japan to tiny Mongolia. The existing LCCs are well placed to benefit from the anticipated growth and there is yet another group of several proposed start-ups waiting in the wings, eager to launch services in the promising North Asian market.

Summary

The number of LCCs based in North Asia has more than doubled over the past five years, from 11 to 24 airlines.
The North Asian LCC fleet has quadrupled over the same period, from 165 aircraft to 662 aircraft.
LCCs currently account for only 14% of total seat capacity within North Asia.
Several new LCC start-ups are planning to launch in multiple North Asian markets, potentially increasing the total number of LCCs to 30.
South Korea has the highest LCC penetration rate among North Asian markets, with LCCs accounting for approximately 50% of seat capacity in the domestic market.
Japan and China have relatively low LCC penetration rates, but both markets are expected to experience rapid LCC growth in the coming years.

Summary

North Asia's LCC sector has expanded from 11 to 24 airlines over the past five years.
Another wave of start-up activity is expected over the next two years as several new LCCs are planning to launch in multiple North Asian markets.
There are now more than 650 aircraft operated by North Asian LCCs, compared to less than 200 aircraft five years ago.
China has the most LCCs in North Asia but LCCs only account for 13% of Chinese domestic seat capacity.
South Korea has the highest LCC penetration rate among North Asian markets and is poised for more rapid LCC expansion.

The rapid growth of LCCs in North Asia and the current new wave of start-up activity will be discussed at the CAPA LCCs in North Asia Summit in Cebu on 24/25-Jun-2019. For more details on the summit click here.

North Asian LCC sector expands, with 13 start-ups in five years

There are currently 24 LCCs based in North Asia, operating a combined fleet of 662 aircraft in service (source: CAPA Fleet Database as of 8-Apr-2019). Narrowbodies (A320s and 737s) account for 94% of the fleet, or 622 aircraft; there are only 19 widebody aircraft and 21 regional aircraft in the North Asian LCC fleet.

There are more than 20 proposed LCC start-ups in North Asia. Several of these airlines will likely launch by the end of 2020, bringing the total number of LCCs based in North Asia to 30.

North Asia has already experienced a staggering amount of LCC start-up activity in recent years. Of the 24 LCCs now operating, 13 have launched operations over the past five years (since Apr-2014).

North Asian LCC fleet expands by 500 aircraft in five years

The North Asian LCC fleet has quadrupled over the past five years. In Apr-2014 there were only 11 LCCs based in North Asia, operating a fleet of 165 aircraft.

In addition to the launch of 13 new LCCs, all 11 of the existing LCCs have expanded. Spring has added the most aircraft (53) followed by West Air (21), Jeju Air (19), T'way Air (19) and HK Express (18).

Spring and Jeju are the oldest LCCs in North Asia. Both launched operations in 2005 and are now the largest LCCs in their home markets of China and South Korea.

A decade ago, in Apr-2009, Jeju and Spring were among only seven LCCs in North Asia, operating a combined fleet of 44 aircraft. The other five North Asian LCCs consisted of three Korean LCCs which started operations in 2008 or the beginning of 2009 - Air Busan, Eastar Jet and Jin Air - and two airlines which suspended operations in 2010 - Japan's Air Next and Viva Macau.

North Asia LCCs ranked by fleet size (number of aircraft in service): Apr-2019 vs Apr-2014 and Apr-2009

Rank	LCC	Year launched	Country	Apr-2009	Apr-2014	Apr-2019
1	Spring Airlines	2005	China	11	51	84
2	Beijing Capital Airlines	2014*	China	N/A	N/A	82
3	Lucky Air	2015*	China	N/A	N/A	54
4	China United Airlines	2015*	China	N/A	N/A	49
5	Chengdu Airlines	2014*	China	N/A	N/A	43
6	JEJU air	2005	South Korea	6	21	40
7	West Air	2013*	China	N/A	13	34
8	Jin Air	2008	South Korea	4	11	27
9	T'way Air	2010	South Korea	0	7	26
10	Air Busan	2008	South Korea	4	12	25
11	Jetstar Japan	2012	Japan	0	18	25
12	HK Express	2013*	Hong Kong	N/A	6	24
13	Peach	2012	Japan	0	12	24
14	Eastar Jet	2009	South Korea	2	9	19
15	Urumqi Air	2014	China	0	0	17
16	9 Air	2015	China	0	0	17
17	Vanilla Air	2013^	Japan	0	5	15
18	Tigerair Taiwan	2014	Taiwan	0	0	11
19	Air Guilin	2016	China	0	0	11
20	Jiangxi Air	2016	China	0	0	10
21	Guizhou Airlines	2015	China	0	0	9
22	Air Seoul	2016	South Korea	0	0	7
23	Spring Airlines Japan	2014	Japan	0	0	6
24	AirAsia Japan	2017^	Japan	0	0	3
	Air Next	2005	Japan	15	0	0
	Viva Macau	2006	Taiwan	2	0	0
	TOTAL			44	165	662

Notes: *originally operated under a full service airline model; year launched is the year the LCC model was adopted.
^The second iteration of AirAsia Japan launched in 2017. The first iteration launched in 2012 but was rebranded as Vanilla Air in 2013 as AirAsia exited the joint venture.
Air Next and Viva Macau suspended operations in 2010.
Six 737 MAX 8s are excluded from the Apr-2019 figures because they are currently grounded.
V Air not included as the short-lived Taiwanese LCC began operations in 2014 and suspended services in 2016.
Source: CAPA Fleet Database.

North Asian LCC fleet has expanded by 15% over the past year

Over the past year, North Asia's LCC fleet has expanded by 15% - from 576 active aircraft in early Apr-2018 to 662 aircraft in early Apr-2019. These figures exclude the 737 MAX 8.

When the six 737 MAX 8s at North Asian LCCs that are currently grounded are included, the year-over-year growth figure would be 16%. The six 737 MAX 8s that were operating in the North Asian LCC sector until last month's global grounding include three aircraft at Lucky Air, two at Eastar Jet and one at 9 Air.

China dominates North Asia start-up activity

While the number of LCCs operating in North Asia has more than doubled over the past five years, there have not been any new airline launches since 2017.

Most of the LCC start-up activity in the 2014 to 2017 period was in China. There were nine Chinese LCC start-ups during this period, along with four start-ups outside China: Tigerair Taiwan (2H2014), Spring Airlines Japan (2014), Air Seoul (2016) and AirAsia Japan (2017).

The nine Chinese airlines that have started low cost operations over the past five years include four pre-existing airlines that adopted the LCC or hybrid model and five pure start-ups.

Beijing Capital, Chengdu Airlines, China United and Lucky Air all adopted the LCC or hybrid model in 2H2014 or early 2015. The five new Chinese airlines following the LCC or hybrid model since their launch are: Urumqi Air (2H2014), 9 Air (2015), Guizhou Airlines (2015), Air Guilin (2016) and Jiangxi Air (2016).

China's domestic market LCC penetration rate remains very low

Spring Airlines was China's only LCC until 2013, when China adopted new policies encouraging LCCs. West Air adopted the LCC model in 2013, becoming essentially the second LCC in the Chinese domestic market.

(CAPA fleet and capacity data now includes 11 Chinese LCCs, using CAPA's LCC methodology and definition, however most of these airlines are not traditional LCCs and are not universally considered to be LCCs.)

There are several more proposed LCC start-ups in China. However, only a few will likely launch over the next year or two, and for some it is debatable whether they fall under the LCCs category.

Even applying a relatively liberal LCC definition, the LCC sector in China is tiny compared to the overall market. The 410 aircraft currently operated by the 11 Chinese LCCs represent 11% of China's total fleet (according to the CAPA Fleet Database).

LCCs currently account for only 13% of domestic seat capacity in China (based on CAPA and OAG data for the week commencing 8-Apr-2019). However, the LCC penetration rate has been inching up in recent years as several more LCCs have entered the market - and as Spring has expanded.

Spring is the largest LCC in China (and all of North Asia), operating a fleet of 84 aircraft. Spring's fleet has expanded by 61% over the past five years, enabling it to maintain the leading position among North Asian LCCs.

Japanese LCC sector expands rapidly

Spring is also the only North Asian LCC to launch an affiliate in another North Asian country. Spring Airlines Japan launched operations in 2014 and currently operates six aircraft.

Spring Airlines Japan is one of five Japanese LCCs but none operate more than 25 aircraft. Jetstar Japan is the largest (based on fleet size) followed by Peach, Vanilla Air, Spring Airlines Japan and AirAsia Japan.

LCCs currently only account for a 9% share of domestic seat capacity in Japan, giving Japan an even lower domestic penetration rate than China. Both countries have much higher international LCC penetration rates, driven primarily by LCCs from Southeast Asia.

Japan's LCC sector will expand in 2020 as the widebody LCC start-up Zipair Tokyo launches operations.

Vietnam's VietJet has also been considering the launch of an affiliate in Japan (as well as in China and Taiwan, although Japan seems to be the priority).

Peach and Vanilla are in the process of merging, which will result in a reduction in the total number of Japanese LCCs but will not impact the size of the market, since the new combined entity (branded Peach) is preparing to expand. Japan will likely experience rapid LCC growth over the next several years.

South Korea has North Asia's strongest LCC presence

South Korea has more LCC capacity than Japan, although the total market is half the size. LCCs currently account for approximately 50% of seat capacity in South Korea's domestic market, which is primarily limited to Jeju Island, and 40% of total seat capacity.

Of all the North Asian markets, South Korea has had the fastest LCC growth over the past decade and now has a similar LCC concentration as the leading LCC markets in Southeast Asia and South Asia.

In 2009, LCCs accounted for 23% of domestic seat capacity in South Korea and 1% of international seat capacity. In 2018, LCCs accounted for 53% of domestic seat capacity and 35% of international seat capacity.

South Korea annual LCC seat capacity: 2008 to 2018

More South Korean LCC start-ups prepare to launch services

There are currently six LCCs in South Korea, operating 144 aircraft. Although four of these airlines are now all at least 10 years old, the pace of expansion has picked up in recent years.

South Korea's LCC fleet has nearly tripled over the past five years. Over the past year the fleet has expanded by 19% (from 121 aircraft in Apr-2018).

South Korea recently awarded business licences to another three proposed LCC start-ups - Fly Gangwon, Air Premia and Aero K. All three are now working on securing operator's certificates and plan to launch services in 2020, increasing the playing field to a staggering nine LCCs.

Fly Gangwon and Aero K are following pure LCC models, with plans to operate single class narrowboody aircraft on regional routes. Air Premia is following a hybrid model with plans to operate 787s primarily on long haul routes in a relatively low density two class (economy and premium economy) configuration.

South Korea could end up with even more LCCs as small existing airlines that now follow regional or charter models may adopt the LCC model. Some of the proposed start-ups that were unsuccessful at securing any of the three recently awarded business licences could also lodge new applications.

There are still plenty of opportunities for LCC expansion in Korea - particularly in the Korea-China market, which is starting to open up to LCCs. However, it is hard to fathom the South Korean market sustaining more than six LCCs over the long run.

Hong Kong, Macau and Taiwan ripe for LCC expansion

North Asia also includes Hong Kong, Macau, Taiwan, Mongolia and North Korea. Currently there are LCCs based in two of these markets - Hong Kong and Taiwan - but only one in each country.

Hong Kong could potentially support more LCCs but it is unlikely that any new LCC will enter the market until after a third runway opens in 2024, which will ease the current slot constraints. Cathay Pacific is in the process of taking over Hong Kong's only LCC, HK Express, which accounts for 5% of seat capacity in Hong Kong. Foreign LCCs account for another 7% of seat capacity in Hong Kong, giving the Hong Kong market only a 12% LCC penetration rate.

Taiwan had two LCCs from late 2014 to late 2016, when V Air suspended operations. Taiwan will likely again have two LCCs at some point. VietJet Taiwan could potentially fill that void as the VietJet Group has been looking at establishing an affiliate in Taiwan.

At least for the time being foreign LCCs will continue to dominate the Taiwanese LCC market. LCCs account for 18% of total seat capacity in Taiwan; local LCC Tigerair Taiwan has just a 4% share, and foreign LCCs have a 14% share.

Macau has not had a local LCC since Viva Macau suspended operations in 2010. However, AirAsia recently expressed interest in potentially establishing an affiliate in Macau.

AirAsia is already the largest LCC in Macau. LCCs account for 35% of seat capacity at Macau, including a 14% share for the AirAsia Group.

North Korea and Mongolia may also attract LCCs

North Korea is an unlikely market for a local LCC but several South Korean LCCs have expressed interest in launching services to Pyongyang.

As CAPA highlighted in a Jan-2019 analysis report, Korean LCCs are well positioned to benefit from the potential liberalisation of the North Korean market because the future North Korean market will consist mainly of price sensitive leisure passengers. CAPA stated that Korean LCCs could provide very low fares from Busan and Seoul to Pyongyang, "stimulating demand and resulting in large volumes of ethnic traffic as families reunite, as well as local tourism".

Mongolia is a small market without any local LCCs and service from only one foreign LCC - Air Busan, which has three weekly services on the Busan-Ulaanbaatar route. However, Mongolia could soon get its first local LCC and should also be able to attract more foreign LCCs as its air transport market liberalises.

The privately owned Mongolian carrier Eznis Airways is planning to relaunch services later this year, operating 737s on international routes under a hybrid or LCC model. Eznis initially launched in 2006, following a regional full service model, but suspended operations in 2014.

A new ownership group has taken over Eznis and secured preliminary approvals to relaunch the airline. Eznis has already acquired a 737-700, which is now sitting at Ulaanbaatar pending the airline's launch.

North Asia LCCs sector poised for more rapid expansion

Eznis, Zipair, Fly Gangwon, Air Premia and Aero K may all launch by the end of 2020, expanding the total number of North Asian LCCs to 28. (Although there are currently 24 LCCs in North Asia, the Vanilla-Peach merger will result in a reduction of one.)

The number of North Asian LCCs could reach 30 by the end of 2020 as there are several potential LCC start-ups in China, as well as potential new North Asian affiliates for AirAsia (in Macau) and VietJet (in China, Japan and Taiwan).

While another round of start-ups will grab headlines, most of the growth will again come from the existing LCCs. The leading LCCs in the three main North Asian markets (China, Japan and South Korea) are particularly well placed to benefit from the anticipated growth in budget travel in North Asia.

LCCs currently account for 14% of seat capacity within North Asia - a very small figure for a short haul market. In 2018, LCCs generated 145 million seats within North Asia, compared to 904 million seats for FSCs.

LCC and FSC within North Asia seat capacity: 2009 to 2018

LCC capacity within North Asia has expanded rapidly in recent years, driven by a new wave of start-ups and rapid expansion from the pioneers. However, the market is clearly ripe for more LCC growth, driven by yet another wave of start-ups along with more rapid expansion from the now large pool of existing LCCs.