What Lies Ahead For LCCs In North Asia?

Transcript

Stephen Pearse:The theme of the conference this year is very much driven around this notion that the LCC operational model is clear, is now, you know, it's now very well disciplined. If you're going to launch a new LCC in any part of the world, You know, there's a very clear and established sort of track record of what needs to be done in order to succeed. So many successful examples around the world. But the market is becoming more complicated. So here we have, as I say, the general discipline's well understood— fleet selection, network choice. Obviously, you've got to drive high utilisation, high load factors. Yeah. Distribution setup is usually direct, certainly in initial stages. And that absolutely laser-like, cost-conscious mindset that underpins the low-cost carrier, particularly in startup mode perspective. But— try and get the next one up. Go ahead. Good. But to explore in this conference, the market environment is becoming ever more complicated, particularly, of course, when you're flying internationally. You've got regulatory issues to overcome— what's actually available, what capacity is allowed to be flown— a lot of restricted infrastructure, particularly around North Asia, slots, airport, Airways themselves as well, particularly in China, I think, in terms of the military closure of, or ownership of airspace. So these become sort of real factors that make life a little bit more challenging. Then there is this growing need for connectivity, which complicates what is otherwise the simple basic model. As soon as you go international— domestically, it's pretty straightforward for an LCC. As soon as you start to travel international, as soon as you want to sort of grow a little bit of incremental revenue, you start talking connectivity, the complexity very, very quickly rises. And that then follows on with distribution. If you're going to try and go after more than just direct, more than just the sort of the core segment that you've identified early on in the business plan, that too becomes more complicated, potentially bringing in established GDS as well as direct distribution. managing that, managing the conflict between it, making the choices. And then certainly you've got then the growth of groups, the full-service carrier groups, the strategies that they put in place, therefore the sort of particular markets, geographies, and sectors that individual LCCs within that group would be seeking to explore. So again, this is all a slight difference from the original sort of pure, I guess, North American and European-based original LCCs, which was pretty much get into the market and grow everywhere as fast as possible. And within that, North Asia has enormous, enormous opportunity. The region as a whole is generally underpenetrated by LCCs, certainly versus Southeast Asia. I think Will will have a couple of figures there, but essentially you're looking at sort of around about 12% in the region versus something like just a shade over 50% for Southeast Asia. Obviously, different circumstances, but that is an enormous gap, as I say, an enormous opportunity, within which China, as I mentioned, is actually— is still a very, very significant part of that, both domestically and internationally, and that's driven, of course, by a variety of factors. Technology is continuing to find ways to make growing more efficient, bringing together, say, whether it's interlining or cooperation in ways that previously did not seem possible and certainly didn't necessarily seem cost-effective, is increasingly coming to the fore. And that brings with it then the growth of the LCC alliances, interestingly at a time when the major alliances continue to be the major original full-service carrier alliances, continue to be somewhat stressed by being able to change and cope with the changing landscape that they are in. So interesting juxtaposition there. And then lastly, there is, of course, unfulfilled customer need. That goes without saying. Not only for low-cost carriers, but ultimately long-haul low-cost carriers in this region too. So, as I say, a lot of opportunity. And regulatory barriers are— we always say this— slowly, glacially changing. So the whole point of the conference today really is to put that in context and explore those issues, not from us, but with all of you and with the panels of experts that we've put together. So we've got airports talking with airlines, the tussle over costs, but also when they cooperate as well in terms of trying to develop markets and and talk to regional shareholders, lobbyists, governments, et cetera. You've got all the— we've got some regional sessions on Japan, China, and Korea. We've got there the role of technology, which I talked about enabling low-cost carriers to increasingly differentiate and also to cooperate. And then that vexing task of fleet, which really is at the heart, I guess, of starting up becoming ever more complicated in terms of variety of options and options to choose depending upon what market you're going to tackle. So I hope we're going to cover all of those in this conference. And we're going to kick off therefore with our first poll question because we're going to come back and ask you this one at the end of the day and a half as well and see whether we've had any change of opinion. That is just a snapshot of the global fleet by business type, and that really is just showing you that LCCs are just a shade over, currently, about 17% of the global airline fleet today, and that's taken from the CAPA database as of yesterday. But if we could go to our first poll question, which is, North East Asia LCCs currently have 529 aircraft, How many— so in other words, what kind of growth— will there be by 2020? And you've got sort of 4 options there, I guess, from— I guess if you're in the seat of a full-service carrier, even the first one looks like a large number, but 30% growth, up to 70%, 125%, or greater than that? So we're going to record those answers and see whether we shift during the course of a day and a half as we uncover As we uncover everyone's responses.

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