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SEPTEMBER 2018

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Second time round for long haul LCCs

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by CHIEF CORRESPONDENT, TOM BALLANTYNE  

September 1st 2018

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When the AirAsia Group pioneered long-haul, low-cost flying in 2009 with the launch of Kuala Lumpur-London and then Kuala Lumpur-Paris in 2010, naysayers abounded. Read More » Unfortunately, they were right. A combination of a fragile global financial environment and fuel prices that were going through the roof shut down the routes in 2012.

Eight years on, although fuel is again on the rise, the operating economics of new generation aircraft have convinced some forward thinkers in the industry that the era of viable long-haul low-cost flying has arrived.

In recent months, Japan Airlines announced it would join early adopters, AirAsia X and Singapore Airlines-owned Scoot, in setting up a subsidiary to fly long-haul low-cost from 2020. The LHLCC, called TBL (To Be Launched) Ltd will commence yet to be announced services with two B787s.

In Vietnam, already home to big spending LCC Vietjet, new LCC, Bamboo Airlines, is targetting destinations in North America and Europe for its privately funded network.

Europe’s Norwegian Air and Lufthansa-owned Eurowings already are operating into Asia. LEVEL, the LHLCC of the International Airline Group (IAG) is flying to North and South America from Europe. Analysts predict it won’t be long before it turns its attention to the Asia-Pacific, home of the world’s fastest growing airline market.

At present, the LHLCC market share is tiny, at around 2% on Asia-Europe routes, but it is increasing. An indication of the future was demonstrated by the AirAsia Group’s mid-July decision to order another 34 A330neo. The Farnborough Air Show signing increased the company’s commitment for the type to 100.

The order by Bamboo Airlines for 20 B787-9s should raise a red flag among its domestic competitors. These aircraft were built to fly long haul. It is evident that increasing numbers of Asia-Pacific’s middle class travelers are enjoying budget flying within the region and are now looking to do the same further afield.

They will accept a no-frills cabin and ancillary charges for food and services if they can fly to their desired destinations at prices they can afford. When the trend for LHLCC flying takes off in the region, the foresight of AirAsia X, Qantas-controlled Jetstar, SIA’s Scoot and JAL’s TBL Ltd in moving into the market early should give full service carriers pause. They have been there once and have suffered as budget flying absorbed 50% plus in some Asia-Pacific markets from a standing start 16 years ago.

A broad church of thought among analysts is that full service carriers who ignore the threat of the LHLCC market do so at their peril.

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