Plenty of buzz in the air as LCCs spread their wings

LONDON -- The low-cost carrier concept is spreading worldwide, or at least it's trying to. But continued global expansion depends on whether enough aviation markets become deregulated.

Many executives attending the third annual World Low Cost Airlines Congress here in September predicted that such deregulation was likely and would be driven by consumer demand.

"This is where the action is and is going to be, at least for the rest of the decade," declared Lorne Clark, former general counsel and corporate secretary of IATA.

Europe, with market leaders Ryanair and EasyJet, has the most intense low-cost competition. In all, LowCostAirlines-Europe.org counts 103 European low-cost airline ventures that flew or made plans to fly, and reports that 57 of them still are in the air.

EasyJet has expanded its service beyond Europe to Morocco, and Ryanair is about to do the same and may open up a second home base.

Asia was once considered resistant to the LCC concept because of the culture's emphasis on service. But the continent is home to billions more people than the European Union, with lower disposable income and fewer land transportation options, and that appears to have left an opening for low-fare offerings.

AirAsia now carries more than a million passengers a month, and LCCs account for one in every 10 seats in the market, up from 1 in 100 five years ago, according to the Centre for Asia Pacific Aviation and OAG.

Tiger Airways, 49% owned by Singapore Airlines and 16% owned by the Ryan family of Ryanair fame, is planning to open a second base in Asia this year.

One big difference in Asia and the South Pacific, however, is that many of its LCCs were launched by full-service airlines to defend their market share, the CAPA noted. That includes low-cost units started by Qantas (Jetstar), Singapore (Tiger), Thai Airways (Nok Air), Air India (Air India Express) and Air New Zealand (Freedom Air).

LCCs also are beginning to take hold in South and Central America. Brazil's Gol, profitable and growing, has been the biggest LCC success story in recent years. CFO Richard Lark said the airline has set a goal to become known by 2010 as "the airline that popularized air transportation in South America."

In North America, Interjet became Mexico's first new LCC in December (Click Mexicana is a Mexicana subsidiary) and now claims it has already captured 8% of domestic traffic; four more LCCs are said to be in the works there, thanks to domestic deregulation in Mexico.

In the Middle East, Sama, with private and Saudi Royal Family financing, is hoping to take off soon. It will be playing catch-up with 3-year-old Air Arabia, a United Arab Emirates-based airline that reported a profit last year.

There are also, among many others, Kulula in South Africa and a low-cost carrier trying to get off the ground in Russia. Even the Chinese government launched a low-cost carrier, Spring Airlines, last July.

"It seems to be the buzzword of the moment, that everyone should have a low-cost carrier," Air Arabia CEO Adel Abdulla Ali said at the conference.

Growth, challenges, 'daft' ideas

Low-cost growth, however, faces different challenges in different regions of the world.

For example, in Europe, EasyJet CEO Andrew Harrison identified costly, congested and poorly run airports and environmentalists with "daft" ideas such as a "green tax" on airlines as the two biggest barriers to continued LCC growth there. Some European environmentalists are attacking low-cost carriers, which fly primarily short-haul routes, as bad for the environment because their low fares are attracting many customers who previously used trains.

European LCCs also voiced concern about the effects of the new carry-on limits at U.K. airports, now the strictest in the world, and about security officials' ability to process passengers quickly.

Competition also is more intense in Europe, and many industry observers predict that a period of consolidation is both inevitable and imminent.

Low-cost carriers in Asia have far different concerns, largely because unlike airlines in Europe and North America, they face regulatory restrictions on airline competition that inhibit LCC growth, particularly for flying between countries.

For that reason, most of the LCCs there have confined themselves to domestic routes. Tiger Airways broke out of that box, but President and CEO Tony Davis said he is spending a great deal of his time trying to overcome regulatory barriers.

Those barriers remain a big concern in many other regions as well.

"Everybody in the Middle East dreams of open skies, but it's not there," Air Arabia's Ali said.

Nonetheless, airline representatives and analysts at the London conference saw plenty of room for LCC growth worldwide, and they were optimistic that governments would loosen regulations in response to consumer demand.

Ali, for example, said he was expecting to see movement in the Middle East within the next 12 to 18 months.

In fact, the proliferation of low-cost carriers had some observers at the conference already contemplating the next step, if there is one.

"Who's going to connect the dots?" wondered Jay Sorensen, president of IdeaWorks in Shorewood, Wis.

By that, Sorensen meant: Which new or existing low-cost carrier is going to operate the low-fare, transatlantic, scheduled service that connects low-cost carriers on the European and North American continents?

Most LCCs don't even own or lease aircraft that can fly that far. Besides, long-haul service is more difficult to operate at low cost because of elements such as crew layovers and equipment-backup requirements, and because the distance makes it difficult to attain the high aircraft-utilization rates and frequency many LCCs rely on for maximum efficiency.

Breaking long-haul barriers

Nonetheless, some low-cost carriers are trying to break through the barrier.

Viva Macau, based in Macau, a gambling center on the southern coast of China, is using 767 aircraft with a maximum range of 12 hours to begin service to Jakarta, Indonesia, and the Maldives this year and to Australia, the Middle East and other points in Asia next year.

Hong Kong-based Oasis plans to begin flying this month with service to London on 747 aircraft.

Jetstar, which started flying within Asia and Australia in 2004, begins its first long-haul service later this year to Vietnam, Japan, Thailand, Bali and Honolulu, and said the 787 aircraft it is scheduled to begin receiving at the end of 2008 could expand its reach to the U.S. West Coast.

Aer Lingus has tried to reposition its transatlantic services as low-fare and low-cost, but it remains somewhat of a hybrid on those routes with a business class.

The closest thing to Sorensen's vision may be Ottawa-based Zoom, which flies 767 aircraft from eight Canadian cities to five U.K. destinations, including London (Gatwick), and from four Canadian cities to Paris.

The Bank of Scotland this August acquired a minority stake in Zoom for about $11 million, which the airline plans to use to establish Zoom U.K., which would fly to non-Canadian destinations.

But Zoom, at least so far, isn't making any effort to become a link between low-cost carriers in different countries. To the contrary, it reportedly rejected an overture for an alliance with Canadian low-cost carrier WestJet.

Clark, a former IATA secretary general who is also a former chairman of DJ Air Group and now a senior advisor to an international aviation law firm, said he is working with a consultant on a project to study the feasibility of a low-cost service to link low-cost carriers on both sides of the pond.This isn't just a theoretical study; Clark said someone was interested in getting such an enterprise started, if the study finds it can work.

There's also plenty of buzz right now about the possibility of LCC alliances to create bigger networks. Alliances add cost and complexity, however, so whether this concept can work -- and whether many LCCs would participate -- remains to be seen.

To contact reporter Andrew Compart, send e-mail to acompart@travelweekly.com.

Get More!

For more details on this article, see "OK, so what do you call an LCC when it grows up?"