CAPA LCCs in North Asia

The LCC operational model is clear, but the market environment is increasingly complex, competitive and interconnected: what lies ahead for LCCs in the region? CAPA Outlook. Latest research and perspective on LCC performance and outlook for LCCs with focus on North Asia/APAC. CAPA - Centre for Aviation, Managing Director, Stephen Pearse

CAPA Outlook. Latest research and perspective on LCC performance and outlook for LCCs with focus on North Asia/APAC. CAPA - Centre for Aviation, Senior Analyst – North Asia, Will Horton

Japan’s aviation market is increasingly complicated with overlap between carriers and ownership within larger aviation groups. Overall in Japan however the percentage of LCC seats is relatively low. How can LCCs increase their market share – is the number one priority access to slots – especially at Haneda? And should there be consolidation, more new carriers, or development of more alliances? Moderator: Tokyo Institute of Technology, Associate Professor, Shinya Hanoaka Panel:

• Jetstar Japan, Chairman & Representative Director, Masaru Kataoka
• Kansai Airports, Corporate Exec VP/Chief Commercial Officer (Aeronautical), Gregory Jamet
• Peach Aviation, Deputy CEO & COO, Takeaki Mori
• Vanilla Air, Senior Executive VP, Mio Yamamuro

Airports can be either drivers or brakes of LCC growth, depending upon the costs and facilities offered. What more needs to be done – and how can airlines and airports work together to maximise opportunities, especially if ownership/government changes? For example, some LCCs are worried about Kansai following recent commercial ownership change. Can the divergent needs of LCCs and FSCs both be met by airports? Moderator: CAPA - Centre for Aviation, Managing Director, Stephen Pearse Panel:

• Hong Kong Express, Director, Strategy & Regulatory Affairs, Philip Herbert
• Jeju Air, CEO, Ken Choi
• Kansai Airports, Co-CEO, Emmanuel Menanteau
• Narita International Airport Corporation, Executive VP, Futoshi Osada
• Peach Aviation, Executive VP Operations, José Oller
• University of British Columbia & MIT-China NSCIIC Institute, Professor Tae Hoon Oum

Peach Aviation has grown ancillary revenue to be 19% of total revenue. Bag and seat selection fees are the most common purchases. Peach is looking to expand its international flights from Okinawa and launch a new base at Sendai. Peach underwent a shareholder change in 2017 that saw ANA take a majority position.

Skymark Airlines is balancing minority owner ANA while planning for an IPO in two to three years. Skymark plans to grow its all-737 fleet from 26 aircraft to 28 or 29 within two years. Skymark wants to enter the international market and is evaluating what foreign destinations and local departure points would be best.

Osaka Kansai Airport has been privatised and is now planing growth. Osaka Kansai is the launch point for AirAsia X's first destination in North America, Honolulu. Kansai expects most growth to be around Northeast Asia. New NEO and MAX destinations can increase connectivity to Southeast Asia. Kansai expects some return of European traffic.

Vanilla Air is hoping to improve performance of its Taipei-Ho Chi Minh fifth freedom route. Most passengers are not connecting onwards to Tokyo. The connecting Tokyo flight is more popular with Taipei-Tokyo local passengers. Vanilla is not actively considering more fifth freedom routes but would consider opportunities. Vanilla is also considering longer-range aircraft and ways to grow ancillary revenue.

LCCs are no longer islands in a sea of uncompetitive legacy airlines – to prosper many are having to embrace behaviour previously seen as the preserve of FSCs. To attract every last passenger, LCCs are having to learn how to cooperate with each other and with FSCs across many new platforms and in new ways. However cooperating is not always easy and the costs versus benefits may initially look unattractive. Moderator: CAPA - Centre for Aviation, Managing Director, Stephen Pearse Panel:

• Hong Kong Express/U-Fly Alliance, Director Strategy & Regulatory Affairs, Philip Herbert
• Vanilla Air, Senior Executive VP, Mio Yamamuro
• VietJet, Member of Board of Directors, Cuong Chu
• Spring Airlines, VP, Jonathan Hutt

Fleet selection is one of the most important elements of airline planning and influences not only the network but ultimately what can be provided to customers. For LCCs there are a variety of options to consider: only go with new aircraft (Peach), or exclusively very old aircraft (Jeju)? Lease or direct order from an airframer? What are the financial benefits of parent group purchasing (Jetstar Japan) versus independent action (Spring Japan uses 737s while Spring China is A320)? And decisions around aircraft type – operating not just widebodies but also larger narrowbodies (T’way 737-900ER)? What are some of the driving forces to consider regarding up-gauging: economics, new aircraft developments, slots or traffic rights? And finally, is there a role for dedicated airline leasing subsidiaries – such as Lion/Air Asia? This session will explore a range of fleet & finance issues relevant to LCCs. Moderator: CAPA - Centre for Aviation, Senior Analyst, Will Horton Panel: 

• Airbus, SVP Sales Japan, Jean-Pierre Stainnack
• BOC Aviation, Head of Strategy & Market Research, Peter Negline
• Boeing, Director of Marketing Japan, Yukio Kojima
• Cranfield University, Lecturer in Air Transport Economics, Dr Chikage Miyoshi
• Jeju Air, Head of Business Development & Fleet Planning, Hyuk Park

South Korea’s LCC fleet is now over 100 aircraft, with a domestic traffic share of over 40%, and international share also climbing. But where to from here? Seoul and Busan are maxed out on slots, and early 2017 restrictions on operating some international charter services to China, whilst a relatively small impact on overall capacity, did create some unwanted issues for Korean LCCs looking to continue expanding. Jeju has promised to achieve 10m pax in 2017.  Can South Korean LCCs grow revenue and yield in such a crowded and competitive market? Moderator: Embry-Riddle Aeronautical University, Assistant Professor June Lee Panel:

• Eastar Jet, CEO, Jong-gu Choi
• Jin Air, Managing VP, Corporate Strategy Division, Kwang Lee
• T'way Air, Managing VP, Hyung Yi Kim

 

Benyamin Ismail talks about the success of the Hawaii launch, with a strong response from Asia. Elsewhere in the network, China remains a growth focus, while resuming service to London is not a priority for now. The AirAsia X chief also discloses the airline’s financial turnaround has been built on cost discipline and a focus on improving yield.

The Philippines is experiencing record growth but tourism officials believe North Asia is an underserved market. The new terminal at Mactan-Cebu International Airport will open in mid-2018 and will help support this growth. The Philippines Department of Tourism is also encouraging Australian carriers to fly direct to island holiday destinations, not just Manila.

T'way Air faces saturation in the domestic market. It supports Korea-China open skies, and T'way is expanding services from secondary Korean cities. For infrastructure, T'way hopes for a LCC terminal at Seoul Incheon. T'way is looking for second-hand 737-900s.

How is technology enabling LCCs in the region to further develop – focusing on distribution, through evolution of working with basic intermediaries (travel agents) through to new tech intermediaries such as online aggregators, and big market players such as CTrip. And how is technology supporting LCCs with the sale of ancillaries? Moderator: WebinTravel, Founder & Editor, Siew Hoon Yeoh Panel:

• Booking.com, Director, Strategic Partnerships, APAC, David Peller
• Inmarsat Aviation, Vice President Asia Pacific, Otto Gergye
• OAG, Regional Sales Director JAPAC, Mayur (Mac) Patel
• SITA, VP Business Management, Passenger Solution Line, Asia Pacific, Chris Eite
• Travelport, Senior Commercial Director - North Asia & Pacific, Chris Ramm
• Unisys, Global Lead, Airline Passenger Business, Darko Todorovic

Peach Aviation, CEO, Shinichi Inoue

As business customers increasingly seek value for money, especially for short haul travel, and a new generation blends work and leisure when travelling, the distinction between travelling for business or personal reasons has become less relevant. This has provided LCCs with the opportunity to compete for ‘corporate’ business that may previously have not been considered a real revenue opportunity. This session will focus on the increasing role of LCCs in corporate travel, the development by some ‘LCC’ carriers of premium economy or business class products, and the opportunities and challenges of competing in this space. Moderator: CAPA - Centre for Aviation, Managing Director, Stephen Pearse Panel:

• AirAsia X, CEO, Benyamin Ismail
• Amadeus, Head of Commercial Asia Pacific, Airline Group, Cyril Tetaz
• Hong Kong Express, Director, Strategy & Regulatory Affairs, Philip Herbert

Three years after the CAAC gave sweeping support for LCCs, the transition remains gradual. What obstacles are there? Are CAAC's predictions of LCC growth attainable? Moderator: McKinsey & Company, Partner, Steve Saxon Panel:

• 9AIR, Director Marketing & Sales, Airline Network, Jianming Qiu
• AirAsia Group, President China & North Asia, Kathleen Tan
• Lucky Air, CFO, Jiawen Fu
• MIT SCALE NSCIIC, Director, Dr Shaoxuan Liu
• Spring Airlines, VP Jonathan Hutt