Low-cost long-haul

Think again. Low-cost long-haul is back in vogue and evidence is mounting that over the next few years, given favourable conditions, there will be a surge in transcontinental low-cost activity.

Right now there are four such carriers operating in the region: Qantas’s Jetstar, Malaysia’s AirAsia X, Singapore Airline’s Scoot and, since October this year, the Philippines’ Cebu Pacific. Essentially, the first three are currently only operating as medium-haul budget airlines, confining their operations to routes within the Asia Pacific region.

The newcomer, Cebu Pacific, launched Manila-Dubai in October using its newly-acquired A330s, offering ticket prices 35 per cent below its fullservice rivals. For Cebu, that makes a lot of sense as a first step because of the millions of Philippinos who work in the Gulf.

But the airline’s chief executive and president Lance Gokongwei is making no bones about his intention to spread the net wider, saying flights to Europe and the US are under consideration. In fact he disclosed Cebu will be making a formal presentation to European Union authorities in November about acquiring certification to fly to Europe. The airline now has two A330s and plans to get six more.

Using the Hong Kong Oasis and AirAsia X examples to shoot down the long-haul budget concept is nonsense. Oasis, which flew Hong Kong to Vancouver and London, failed because it tried to use ageing, fuel-guzzling 747s at a time fuel costs were at their peak. AirAsia X withdrew from Europe citing high airport charges, fuel costs and, significantly, the dreadful state of the European economy, which put a damper on all sorts of travel.

Given an improvement in economic conditions and a more stable fuel price landscape, the carrier will eventually return. Indeed, AirAsia X is expanding. It has agreed to set up a joint venture in Thailand, giving it another hub in South-East Asia from which to strike out.

Ultimately, Jetstar and Scoot also have far flung destinations on their wishlist. Jetstar, particularly with the arrival of some 14 787s with their vastly improved operating efficiency, will be in a position to consider flying beyond current perimeters, probably to leisure destination presently not served by direct flights.

Another potential player in the long-haul market is ambitious Indonesian

There is no doubt a potentially huge market exists for budget longhaul.

operator Lion Air, which has also ordered 10 787s with deliveries beginning in 2015. While these are slotted to fly with its new full-service subsidiary Batik Air, it is understood Lion president Rusdi Kirana has no intention of letting his major competitor, AirAsia and its long-haul offshoot AirAsia X, corner any potential bonanza from that sector of the market.

These Asian players won’t have it all their own way. Already, European LCC Norwegian is flying Oslo-Bangkok to tap into Northern European travellers’ thirst for Thailand’s resorts. It has been using a 787 although this had to be replaced last month with a leased A340 because of repeated problems with the Dreamliner.

Another European budget operator making noises about flying further afield is Ryanair, while even Lufthansa has confirmed it hasn’t ruled out the possibility of becoming involved in some sort of joint venture long-haul LCC. Other potential entrants include Gulf carriers such as AirArabia, which also has big ambitions.

There is no doubt a potentially huge market exists for budget long-haul. Those who have tried it have been getting high load factors. Attracting customers has not been the problem. Market conditions have been the issue.

Leisure travellers appear to be more than willing to pay for the cheapest seat and add-on extras such as entertainment, food and even more legroom. While Cebu has configured its A330s with an all-economy 436 seats (the plane normally carries around 300 in a two-class configuration), most of the other long-haul budget operators have introduced a sort of poor man’s business class up front with a better seat and some extras thrown in.

This is an attempt to attract some corporate customers and, at least in the case of AirAsia X’s now withdrawn services to London and Paris, these seats did sell strongly.

Indeed it was Emirates chief executive Tim Clark who some years ago set his management team the task of working out whether a low-cost, long-haul operation between Dubai and Adelaide using an Airbus A380 (carrying somewhere between 700-800 passengers) would work. They found it would be profitable, although Clark ultimately denied the carrier would ever do such a thing.

Nevertheless, it’s not hard to imagine that in the airline business someone might just try it.