This article originally appeared in the October 2018 magazine edition of Australian Aviation.
The long-haul, low-cost carrier has been an Australasian and Asia Pacific success story, as a region with exploding travel demand meets the needs of a widening range of passengers with new generations of aircraft – plus new takes on what an airline is, and how to run it.
The big three in the region are AirAsia X, Jetstar and Scoot, with Cebu Pacific and Lion Air also operating widebody aircraft. But new generations of efficient narrowbodies are set to enable a surge of new business models for medium-haul, low-cost carriers operating single-aisle flights of six to eight hours along the lines of flydubai with its 737 MAX and WOW Air with its A321neo aircraft.
“Our business model is pretty simple,” says Alan McIntyre, the Jetstar Group’s executive manager for network, partnerships and revenue management. “We offer customers a seat at the lowest possible price and provide them a choice of extras depending on their individual needs and preferences.”
Continues McIntyre, “Customers who want to travel at a low price but want more in terms of meals, inflight entertainment, extra baggage, additional legroom, flexibility of last-minute flight changes or a choice of other extras are able to do so for a fee.
“We offer business class on our 787 services, and through our fare types and bundles, the choice is in the hands of travellers.”
That choice has been popular among its travellers.
“As the first and one of the most successful [long-haul] low-cost carriers in the world, we believe that we’re well placed to capitalise on this next wave of tourism to and from Australia, as well as within Asia,” McIntyre says.
“In the last two years, we’ve successfully grown our network to launch routes that have been previously unserved by low-cost carriers such as Ho Chi Minh City in Vietnam, and Zhengzhou in China.”
Pick and mix seating, bags and other options fit the way the world works
Onboard long-haul, low-cost carriers, one might think that the products are remarkably similar: tight seats with little legroom and no frills. But the reality is more complicated: it’s as much legroom and as many frills as you want to buy.
Jetstar and Scoot both operate the Boeing 787, with Jetstar having moved to the smaller 787-8 twinjet from the Airbus A330 and Scoot to a mix of 787-8 and -9 from the Boeing 777‑200. The basic product on each is an economy seat with about 31in of seat pitch in a 3-3-3 configuration.
Jetstar offers three options for economy seating: standard seats, Upfront seats ahead of the 787’s wing, and extra legroom seats at the front of each cabin section. Scoot, meanwhile, offers Super Seats where it promises 34in of pitch, Stretch seats at the front of the cabin, and a Scoot in Silence section with no under-12s.
Both airlines also offer a premium cabin they brand as business class, which is essentially international premium economy-style recliner seats pitched at 38in in a 2-3-2 layout.
AirAsia X is a bit different, and apart from some recently-arriving leased aircraft it doesn’t plan to reconfigure, it offers both a tighter economy and a more spacious premium cabin.
Down the back of the A330 it too is nine-abreast, although with narrower seats on the thinner A330 cross-section than on the Dreamliner, and a section of 2-3-2 seating in the last rows of the aircraft as the fuselage narrows.
Hot Seats are on sale at the front of each cabin, while the Quiet Zone bans under-10s. The premium cabin offers old-school sloping sleeper angled lie-flat seats in a 2-2-2 layout.
Bags, meals, airport services – everything else is up for sale. It’s a different strategy to that used by traditional airlines, but there is clearly a market for it.
New brands within existing carriers create challenges and opportunities
Long-haul low-cost carriers often engage passengers with a playful, energetic branding, with liveries, colours and uniforms to match.
“Scoot’s identity is one that says to its customers, ‘Hey, let’s go and escape the ordinary together’ and is a little tongue in cheek about it,” chief commercial officer Vinod Kannan tells Australian Aviation.
“We think, why not make our customers’ vacations start even before they arrive at their destination? And we choose to have a little fun with the way we interact with our customers.”
Approaches towards branding versus operating structure vary, however. AirAsia X, for its part, operates its main Malaysian carrier, as well as subsidiaries Thai AirAsia X and Indonesia AirAsia X, though branding and booking is largely aligned.
Jetstar’s McIntyre, for his part, highlights that “on top of our growth to and within Asia, we have been consolidating Jetstar’s presence in our Asian markets where we operate through our partner airlines in Singapore, Japan and Vietnam. This is key to sustaining our position in the Asia Pacific region where we’ll continue to look at new network opportunities that leverage the geographic advantages we have here in Australia.”
“While customers in different markets may prefer to use different booking platforms, and are attracted to different types of activities, destinations and peak travel times, our role here at Jetstar remains the same,” says McIntyre, focusing on costs: “to allow more people to travel, more often, through affordable airfares”.
Passenger market segments are rarely fixed, says Kannan. “As people move through different life stages, their travel needs and preferences change and the different airlines in the Group exist to service those changing needs. Scoot may be the best choice for customers wanting a greater level of flexibility with their travel costs and needs today, but they may want a full service experience in the future, in which case Singapore Airlines may best fit their needs then. This means that across the SIA portfolio of airlines, every traveller can find a product that best meets their needs at that stage of their life journey.”
Even the same passenger may choose different options for different purposes, Kannan explains. “A traveller might opt for Singapore Airlines while travelling for business because of the level of service and comfort it offers, but choose to travel with Scoot for a family vacation because of Scoot’s friendly price points and great value proposition.”
Scoot and Jetstar also benefit from frequent flyers buying down from Singapore Airlines and Qantas, whether on the basis of price or experience, with both Qantas Frequent Flyer and Singapore Airlines’ KrisFlyer programs allowing earning and burning on both the parent and child companies. Yet the branding of the airlines is and has always been separate, and the companies are careful not to cross the streams.
“One of the key reasons for Jetstar’s success has been its distinction as a standalone brand with a commitment to offering customers low fares and choice when it comes to the type of travel experience they are after,” says McIntyre.
“Having a dual brand also makes us stronger as a group. We have a deep understanding of our respective target markets and work collaboratively in areas like network, scheduling and sales decisions to ensure our low‑cost model complements Qantas’s full service offerings. We have great flexibility to target segments of the market and quickly make changes as market dynamics change.”
Using Sydney-Denpasar as a guide, suggests McIntyre, “Qantas provides the full service premium offering for those looking for a luxury escape. Jetstar, on the other hand provides frequency and affordability for families and young people.”
And more widely, he notes, “unlike many LCCs, Jetstar has embraced one-on-one alliances with other airlines, and we have active codeshare agreements where it makes sense for us. Some of the codeshares we have are with airlines as diverse as Emirates, Ethiopian Airlines, Jet Airways, LATAM and United.”
For Scoot’s part, says Kannan, there are many benefits from being part of the Singapore Airlines group. “Without going into too much detail, we have some commercial advantages, and are able to share certain resources like fuel purchase, engineering, infrastructure, and, now and again, aircraft orders.”
However, Kannan notes, “we have to be extremely transparent with our customers. The Singapore Airlines product and service is very different from the Scoot product and service – but I don’t believe that means a negative experience for the passenger. In fact, Singapore Airlines and SilkAir have been codesharing on certain routes that only Scoot operates for some time now, and by and large, customers do understand the difference in product propositions and manage their own expectations. Communicating upfront the differences in products and services is key.”
Neither Scoot nor Jetstar wanted to talk about greater integration with the Star Alliance or oneworld alliances, of which their parent airlines are key members, respectively.
“At this stage,” Kannan said, “this isn’t in Scoot’s plans. We were one of the co-founders of the Value Alliance comprising several low-cost carriers in Asia Pacific, which we find to be more suited to our business model and objectives. We are also working on securing more interline partners to improve connecting traffic feed and boost our customer catchments.”
Networks and operations work differently to traditional airlines
As originally conceived, most long-haul, low-cost carriers are designed as point-to-point operations, either supplementary to or in addition to shorter-haul routes operated under the same brand or that of one or more siblings. Globally, there was until recently some reluctance on the part of long-haul LCCs (and indeed regular LCCs) to provide connecting traffic, not least because the lower cost operational backend systems available did not support it.
AirAsia X and Jetstar, however, expanded existing short-haul operations into medium and long-haul routes, while Scoot “focused on medium to long-haul routes since inception, and it was only with the acquisition in 2016 of Tigerair Singapore by the Singapore Airlines Group and the subsequent merger of Tigerair into
Scoot that Scoot added short haul routes to our network,” says Kannan.
Following the integration of the former Tigerair Singapore, Kannan says, “It’s certainly more complex now, operating multiple aircraft types and putting in place various initiatives to improve connecting traffic between short and long-haul points via our Singapore hub. But it also creates greater fleet flexibility, and therefore increased network opportunities.”
This complexity is anathema to the lower cost operations of a theoretical LCC, and indeed creates a number of challenges – especially around the expectations airlines set to their passengers about what customer service they are likely to receive in a disruption — which has not always been a rosy picture for Scoot.
Wrote then chief executive officer Campbell Wilson on Facebook to irate customers in 2013 following a nightmare weekend of disruptions, “I’d still like to remind, however, that we are a no-frills airline. We believe that most of you understand this travel model enough to know that the only way we can offer fares as low as we do is, in part, by not keeping the same large teams of airport or customer support staff as our much more expensive full-service brethren, and that some degree of self-reliance is a quid-pro-quo for a cheap, safe ticket”.
“We have always tried to be as clear as possible in our terms and conditions of carriage, which must be acknowledged as read and accepted before a ticket can be issued, that we do not provide meals, drinks or accommodation in the event of disruption, and repeatedly state that travel insurance is highly recommended.”
Two and a half years later, Wilson was still reminding customers that, “as readers will be aware, Scoot has never shied away from the fact that low airfares come with a quid pro quo, which is that hotel accommodation is not assured in the rare event of disruption, and that travel insurance is highly recommended. These conditions are made known to and are acknowledged by every passenger at the time of booking.”
Route networks are evolving to add truly long-haul flights
Despite the name, long-haul low-cost carriers have often tended more towards the medium-haul, partly for operational reasons and partly because of their lower level of comfort when compared with traditional airlines.
“We presently have three truly long-haul routes,” Scoot’s Kannan notes: “Athens and Berlin in Europe, and Honolulu in the US. Of these, Berlin has been our most recent launch in June 2018, with Athens and Honolulu via Osaka having launched in June 2017 and December 2017 respectively. For now we are concentrating on building our Honolulu services and have no other plans to expand further into North America.”
Says Jetstar’s McIntyre, “Our focus is firmly on Asia and other destinations which can be served directly from Australia and which are popular with leisure travellers. We are already the biggest carrier operating from Australia to Bali – over 70 services per week – Phuket and Hawaii. Recently we became the only Australian and low-cost airline flying direct to Vietnam. Jetstar operates 14 return flights to Honolulu every week and together with Qantas we fly more than 130,000 Australians to Hawaii each year. It continues to be one of the most popular holiday destinations in our network.”
AirAsia X chief executive officer Benyamin Ismail, meanwhile, highlights to Australian Aviation that with additional aircraft en route “we’ve recently introduced a number of new routes in response to demand like Kuala Lumpur to Amritsar and Jaipur, Bangkok to Sapporo, Bangkok to Nagoya – and we increased flights from four times weekly to daily return services in August on our popular Osaka to Honolulu route.”
New-generation and re-engined aircraft will change the LHLCC landscape
As we come towards the end of 2018, we sit at an aeronautical inflection point in terms of aircraft. Modern composite jetliners like the Boeing 787 and Airbus A350 are maturing and becoming widespread, with the 787 in regular long-haul, low-cost carrier use and the A350 starting to filter down from top-drawer carriers as well.
Meanwhile, the re-engined Airbus A330neo won a further 34 orders from AirAsia X at this year’s Farnborough Airshow, with chief executive officer Benyamin Ismail stating that “AirAsia X’s confirmation of 100 A330neo aircraft to facilitate future growth of the airline group is testament to our confidence in growing our long-haul low-cost business model.”
“The new widebody A330neos,” Ismail says, “offer greater range capability enabling nonstop services between Asia and Europe, for example. This is the aircraft type that allows us to fly to many longer-haul destinations, such as the UK, Europe and into North America, for example, providing greater fuel efficiencies, improved flying range and exceptional passenger comfort.”
Boeing had hoped to steal AirAsia X out from under Airbus’s nose with the 787, operated by both Scoot and Jetstar.
“We were one of the first low-cost carriers in the world to fly the Boeing 787 in October 2013, and the first airline in Australasia. Over seven million people have flown on our Dreamliner aircraft since,” says Jetstar’s McIntyre.
“The introduction of the Boeing 787 into our fleet prompted the revamp of our international network and opened the opportunity to fly to new destinations, such as Australia to Hawaii. The Dreamliner also means more efficient operations, which in turn means cost savings to support Jetstar’s low fares commitment.”
Compared with the A330 aircraft previously used, McIntyre says, “This Dreamliner has improved the travel experience for our customers and it has given us a competitive advantage in the rapidly growing Asian LCC sector. Our customers tell us they enjoy the extra space and comfort, reduced noise, bigger windows and gate to gate entertainment.”
However, while your author reports regularly on the advances made by aircraft seatmakers in creating additional living space at similar or reduced seat pitch, it is hard to see how markedly narrower seats at the same pitch are an improved travel experience or give extra space.
The cost basis of the 787 cited by airlines is impressive, though. “When Scoot first introduced the 787, we saw a 20 per cent improvement in fuel efficiency compared to the 777 aircraft we had been using previously,” says Kannan.
“The 787 made previously uneconomical routes viable for our model and allowed us to significantly reduce unit costs. In addition, while more low-cost carriers are using widebody aircraft now, Scoot was one of the first few low-cost carriers to do so with the 787s. It allowed us to elevate the low-cost carrier experience and provide better value for our customers.”
It’s not just cost, though. “The advanced technology on the 787 means it can also land in more diverse weather conditions, with increased situational awareness for flightcrew through enhanced displays,” says Jetstar’s McIntyre, citing the vertical profile and head-up displays as particularly beneficial.
Re-engined narrowbodies — and the A321LR in particular — shift the paradigm
“New aircraft types, whether it be the Boeing 787-10, 777X or the Airbus A350, bring further fuel efficiency which allow airlines like Jetstar to offer great value long-haul flights,” says McIntyre. “In addition, these new aircraft types will add further range to enable airlines to fly routes not currently served.”
McIntyre highlights that the Qantas Group has 45 options and purchase rights for 787s of various sizes across the next decade, compared with Jetstar’s current 11 unit 335-seater 787-8 fleet.
Many other airlines are seeing operational benefits from the 787-9 and forthcoming -10 stretches, though McIntyre would not be drawn on Jetstar’s intentions for larger aircraft, saying that “we are not able to comment further on these aircraft types which are not in our operating plans.”
While larger aircraft are more efficient in a number of ways, long-haul low-cost carriers have special considerations to take into account, as Kannan explains.
“When you look at the overall utilisation of the aircraft type the carrier must ask itself, what kind of customer am I most likely to attract on a particular route, what product class are they most likely to book, how much resources are required to cater to the various product classes, et cetera? As a low-cost carrier, our proposition is to make travel more accessible to everyone, so it didn’t make sense to pack in a high number of premium seats. Besides, a high number of premium seats would necessitate an accompanying increase in the amount of crew resources in order to deliver the expected level of service.”
On the near horizon for all three of these airlines is the option for Airbus’s middle-market, mid-range Airbus A321neo and its extended-range variant, the A321LR, which offers additional centre fuel tanks for increased range.
These aircraft also offer the Airbus Cabin Flex door arrangements that enable either more passengers via an increased exit capacity, or more floor space by deactivating doors on premium configurations – less likely, of course, among long-haul LCCs.
Crucially for low-cost carriers, the extra range of the A321LR allows increased utilisation by opening up medium-haul overnight flights that keep aircraft flying through the night earning money instead of sitting idle on an apron incurring costs.
All three long-haul LCCs in the region have the A320neo family on order, and Airbus is only too delighted to upgrade any A320neo to an A321neo, given that it is a more expensive aircraft that still takes up the same production slot on the final assembly line floors.
At Jetstar, which already operates the A321, McIntyre explains, “the 18 A321neoLRs will be delivered between 2020 and 2022. These new aircraft will allow us to operate from the east coast of Australia to Bali, opening opportunities to redeploy some of our Boeing 787s to other international destinations. We’ll release our cabin fitout for the A321LR closer to their arrival.”
The wider AirAsia group has bought into the A321neo in a big way, largely for capacity reasons at Asia’s constrained airports. Yet the airline group has kept mum on the A321LR despite swirling rumours of another hundred-aircraft order. Most recently, AirAsia X group chief executive officer Kamarudin Meranun kept the cards close to his chest when talking more widely with Australian Aviation at the Farnborough Airshow.
While Scoot has yet to order the A321neo, it “expects to receive its first A320neo in the last quarter of 2018,” says Kannan, and will install an all-economy configuration.
Long-haul LCCs tell Australian and Asian success stories
Low-cost carriers have changed the way the airline world operates, especially within the Asia Pacific region.
“37 million people flew with Jetstar last year and, of these, 24 million customers paid under $100 for a flight,” says McIntyre.
“The value we offer consumers is extraordinary. We are making it possible every day for people to live their lives adventurously and be connected to their family, friends and the region.”
The arrival of LCCs revolutionises a market, as McIntyre explains. “When we started in Japan five years ago, low-cost carriers in Japan did not exist. Today LCCs have 10 per cent of the market, with Jetstar the largest carrier. We expect the low-cost carrier presence in Japan to grow significantly in coming years and with new aircraft on order we are ready to capitalise on that growth.”
“A year ago,” McIntyre notes, “Jetstar was ranked 58th in the top 100 most recognised brands in Japan after only just five years of operation. The company that was ranked first, Panasonic, has been operating for 99 years. The national carrier and our close partner, Japan Airlines, was ranked 57th. It’s not a bad start for an airline brand that started right here in Melbourne.”
Postscript: Since this article was published, Scoot announced on November 22 2018 it would end its Singapore-Osaka Kansai-Honolulu flights from July 2019 due to weak demand.
This article originally appeared in the October 2018 magazine edition of Australian Aviation. To read more stories like this, subscribe here.