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Asian budget carriers spread wings as demand surges
by Staff Writers
Singapore (AFP) June 17, 2011

Multi-billion dollar orders for more than 100 new planes this week underscored the difference between the thriving budget airline sector in Asia-Pacific and the gloom-hit global aviation industry.

India's GoAir and Cebu Pacific of the Philippines on Thursday said they had each signed deals with European planemaker Airbus that would see them massively boost their fleets.

"A low-cost carrier boom is undoubtedly taking place in Asia-Pacific," said Daniel Tsang, chief analyst of Hong Kong-based aviation consultancy Aspire Aviation.

"Low cost carriers could easily capture up to half of air travel within the next 20 years or so, which is, quite frankly, a conservative figure," said Tsang.

The International Air Transport Association, which represents 230 carriers that account for more than 90 percent of worldwide scheduled air traffic, but excludes many budget operations, has halved its 2011 profit forecast for the world airline industry to $4 billion.

The figure, which would represent a 78 percent fall on profits last year, reflects the challenges posed to the industry by the March tsunami in Japan, unrest in the Middle East and North Africa and high oil prices.

But Asia-Pacific budget carriers appear unfazed and have continued to ramp up their service.

GoAir said it had placed an order for 72 new A320 Airbus aircraft in a deal worth up to $7.2 billion at list prices, while Cebu Pacific announced it had ordered 37 new Airbus jets worth an estimated $3.8 billion.

Industry players expect Malaysia's AirAsia, which sparked the growth of budget travel in the region, to ink a new deal with Airbus for up to 200 aircraft at next week's Paris Air Show.

US plane maker Boeing on Thursday hiked its 20-year forecast for the size of the global commercial aircraft market by eight percent to 33,500 planes worth $4.0 trillion, with the Asia-Pacific region accounting for a third of sales.

AirAsia chief Tony Fernandes said in May that he may boost the firm's Airbus fleet five-fold to 500 as more people in the region demand cheaper flights.

"We have 600 million people just in ASEAN," he said, referring to the 10-member Association of Southeast Asian Nations.

India and China, which are already served by budget carriers from ASEAN cities, have a combined population of two-and-a-half billion.

Rapid economic growth in ASEAN, China and India, coupled with falling air fares means millions more can now fly rather than travel by land or sea compared to the pre-budget airline era.

"The exponential growth for low-cost carriers in Asia-Pacific is supported by emerging economies and their citizens' soaring income," Tsang said.

The European and US markets, by contrast, are facing "sluggish economic recoveries and cautious consumers," he added.

The boom in budget travel has prompted more established airlines to explore the no-frills market as well.

Singapore Airlines, a leader in premium travel, announced in May that it will launch within one year a no-frills brand that will fly on medium- to long-haul destinations -- an indication it could fly as far as Europe.

"Legacy carriers previously did not do a good job of developing and taking advantage of the rising demand for leisure and cheap travel as well as leveraging on the significant change that the Internet introduced to the consumer," said Singapore-based Standard & Poor's analyst Shukor Yusof.

AirAsia's long-haul arm, AirAsia X, already flies to 15 destinations including London, Taipei, Tehran, Paris, Seoul, Tokyo, Christchurch in New Zealand and several cities in Australia, China and India.

Brendan Sobie, Southeast Asia specialist at aviation intelligence firm Centre for Asia Pacific Aviation, said established names like Singapore Airlines have realized they can no longer bank on their current clients for growth.

"As low-cost carriers continue to grow more rapidly than full service carriers, we expect low-cost carriers to continue growing their share of the market by roughly two percentage points per annum," he said.

It's not only the Asian middle class that benefits from the boom in low-cost carriers, which are able to slash fares by cutting out in-flight entertainment, using cheaper airports and charging for food and amenities.

Filipino domestic worker Nida Jumawan, 49, told AFP she had no wish to return to the old days when ferries were the only affordable means of transport between the Philippines' far-flung islands.

She said the plane fare from Manila to her hometown of Pagadian in the southern Philippines, could drop to as low as 800 pesos ($18.35) compared with the ferry fee of about 3,000 pesos.

"Flying is much easier compared to ferries. It is terrifying at sea when you are caught up in a typhoon -- you can't sleep, you get dizzy and you throw up," Jumawan said.

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