Low-cost carriers are changing Asia

In Matsumoto, Japan, from left, Aya Aso, Agora Hospitalities, Japan; the writer; Melissa Yang, Tujia, China; and Diana Teo, D Ventures, Singapore.
In Matsumoto, Japan, from left, Aya Aso, Agora Hospitalities, Japan; the writer; Melissa Yang, Tujia, China; and Diana Teo, D Ventures, Singapore.
Yeoh Siew Hoon
Yeoh Siew Hoon

Shinich Inoue was a student at Beijing University during the Tiananmen protests of June 1989. The tragedy that unfolded, the deaths that occurred, made him determined to get into aviation because, "Airlines build bridges and understanding between people."

He joined All Nippon Airways as an engineer and worked his way up the ladder until, by the time Peach was set up in March 2012, Inoue, who speaks Mandarin fluently, was picked to run the low-cost subsidiary. And rightly so, since Peach is pretty much the embodiment of Inoue's vision.

"Whether it's going back to your hometown, traveling someplace new or going to a concert, the greater the number of these occasions, the more smiles you're bound to see," he said. "I think the impressions and joys that are born from connections between people, the feeling of excitement and the smiles, these are sure to bring people happiness. It's what we call a 'love of humanity' at Peach."

The Osaka-based CEO wants people to see Peach not as a Japanese airline but as "the low-cost carrier for Asia." The name was chosen because Peach is "a symbol of good luck, not a Japanese symbol," he said.

Peach seems to be lucky indeed. In 2015, it carried 4.5 million passengers (52% of them women and 56% ages 20 to 30), with more than 70% from outside Japan and more than 90% of bookings coming through its website.

Kathleen Tan in Avatar land – destinations such as these are becoming more accessible, thanks to low cost airlines.
Kathleen Tan in Avatar land – destinations such as these are becoming more accessible, thanks to low cost airlines.

 Driving tourism to Japan

This plays right into Japan's newfound inbound tourism ambitions. Prime minister Shinzo Abe declared a target of 40 million visitors by 2020, essentially doubling last year's number.

Inoue, who sits on the Abe-appointed inbound tourism committee, said he believes Japan has lots of tourism opportunities, in particular the ryokans (traditional Japanese inns), which are being made more accessible to foreign travelers by Japanese-based brands like Peach.

Another advocate for inbound tourism and champion of ryokans is Yoshiharu Hoshino, who in 1991 took over the business started by his great-grandfather in 1904 and four years later rebranded it Hoshino Resorts. Hoshino's ambitions are similar to Inoue's, marking a new generation of Japanese businesses that want to use technology to evangelize about Japan's unique attractions to overseas travelers.

Hoshino Resorts has 35 properties and will open the first ryokan in Tokyo in 80 years with Hoshino-ya.

"All the ryokans have disappeared, and we are re-creating the concept," he said. "Comfortable, efficient, functional, ryokans are very different from Western-style hotels. In Western hotels, privacy is in your room, the outside is public space. In ryokans, privacy is still in your room, but outside your room is semi-private spaces."

The company runs two resorts outside Japan: Hoshino Resort Kia Ora, Tahiti and Hoshino-ya Bali. 

"We want more hotels outside Japan, and I'd like to see more Japanese-style hotels in big cities," he said. "New York, Paris, London, they have Japanese automobiles, sushi bars but no Japanese hotels, and I see a market for that. In Bali and Tahiti, our hotels reflect local culture, but we create a ryokan atmosphere so that it becomes like your home. It is challenging outside Japan to communicate that concept, but ... if we do it well, it's something we can transfer and people can learn and enjoy."

Making travel accessible to everyone

Back in 2001, Tony Fernandes, who like Richard Branson came from the music business, saw the potential for low-cost carriers to change societies and influence how people in Asia work, live and play. He started AirAsia in Malaysia with the slogan "Now everybody can fly," and today his airline group enjoys a strong  leadership role, with operations all over the region sparking a new wave of travel in Asia.

In 2015, the AirAsia group carried 50.7 million passengers, up 11% from 45.6 million the preceding year. It became the first Asian airline outside China to carry 50 million passengers in a year. AirAsia's opening of the market has led to low-cost carriers rising regionwide. Today, the Centre for Aviation (CAPA) in Sydney estimates that low-cost carriers form about 50% to 60% of Southeast Asia capacity and under 10%, but growing fast, in North Asia.

Names like Lion Air (Indonesia), Nok Air (Thailand) and Cebu Pacific (the Philippines) are the change-makers in Southeast Asia, and traditional carriers have also stepped up expansion into the low-cost market with their subsidiaries: Singapore Airlines' Tigerair and Scoot and Qantas' Jetstar.

Their influence has been felt at three levels:

• Intraregional travel. More than 70% of travelers in Asia are from within the region. Singapore, at the hub of it all, derived 80% of its total 15.2 million visitors in 2015 from Asia, with the top five source markets being Indonesia, China, India, Australia and Japan.

• Making long-haul destinations more accessible and affordable. Australia, for example, has benefitted greatly from long-haul, low-cost carriers like AirAsia X, Jetstar and Scoot so that today travelers in Southeast Asia no longer bat an eye at the thought of taking weekend holidays in Sydney or the Gold Coast.

Asia has had the most profound effect on Australia's inbound tourism industry. It now accounts for 3.4 million visitors compared with 4 million from its traditional markets in the West. Total overnight spending in Australian dollars has grown from $70 billion five years ago to $96.2 billion in March. It is expected to reach $115 billion by 2020.

The sweet spot, said Frances Anne Keeler, deputy CEO of Tourism Australia, is the young and emerging middle class.

"Asian visitors are independent, value-driven, luxury-oriented and connected," she said. "They are digitally savvy, and they travel with their bellies."

This growth has been made possible with investments in more than 20 airlines across Asia, with low-cost carriers a main driver, bringing in 2.2 million additional seats to Australia from the region.

• Making Asia more accessible from outside the region. More than 50% of AirAsia X's traffic, for example, are long-haul passengers connecting with the various AirAsia joint venture entities.

Singapore is also a key connecting hub. At Singapore's Changi Airport between 2004 and 2012, the year Singapore Airlines launched its low-cost subsidiary Scoot, low-cost share went from zero to 26% of annual passenger through traffic.

Today, according to CAPA, low-cost capacity share at Changi is just over 30%.

 The most powerful effect of low-cost carriers is that as diverse as the countries and peoples in the region are, they have brought us closer together and to appreciate and understand each other as neighbors, enabling us to celebrate our similarities rather than differences.

North Asia, the future hot spot

North Asia is where the biggest transformation is about to take place. Currently at just at under 10% of total air capacity, low-cost carriers are mushrooming in markets like Japan, Taiwan, South Korea, Hong Kong and China. These players know that to win in the overall Asian low-cost sector, they have to win in North Asia.

In South Korea alone, there are five low-cost carriers and two full-service carriers. In Japan, AirAsia failed with its first market entry following a break-up with All Nippon Airways, which subsequently went on to launch Vanilla Air.

It will relaunch AirAsia Japan this October with investment backing. Last month, it announced the return of its former commercial head, Kathleen Tan, who worked with Fernandes for the first nine years of the airline's existence before taking a two-year stint as CEO of AirAsia Expedia.

"Working in aviation and pioneering the low-cost sector in Asia for 10 years, followed by two years of working for a global travel tech company, learning from the smartest brains how e-commerce is powered, I can return to AirAsia and look at it in a different light," Tan said.

"Most people only think of China and India when they think of Asia. But there's Korea, Taiwan, Japan, and I am coming in at the right time. It's all about timing."

Members of the Value Alliance (from left): Katsuya Goto, president, Vanilla Air; Robert Sharp,CEO, Tigerair Australia; Lee Lik Hsin,CEO, Tigerair; Campbell Wilson, CEO, Scoot; Piya Yodmani,CEO, Nok-Scoot; Patee Sarasin, CEO, Nok Air; Ken Choi, CEO, Jeju Air; and Michael B. Szucs, chief executive adviser, Cebu Pacific.
Members of the Value Alliance (from left): Katsuya Goto, president, Vanilla Air; Robert Sharp,CEO, Tigerair Australia; Lee Lik Hsin,CEO, Tigerair; Campbell Wilson, CEO, Scoot; Piya Yodmani,CEO, Nok-Scoot; Patee Sarasin, CEO, Nok Air; Ken Choi, CEO, Jeju Air; and Michael B. Szucs, chief executive adviser, Cebu Pacific.

Alliances changing the game

There's another trend at play that's interesting and augurs well for travelers, in particular long-haul travelers who want to move about Asia with ease.

In May, a low-cost partnership, Value Alliance, was set up between eight carriers: Scoot, Tigerair Australia, Singapore, Vanilla, JejuAir, Cebu Pacific, Nok Air and Nok-Scoot. This enables customers to book all eight airlines on a single website, an amazing breakthrough if you think about it.

What's interesting is that this alliance is powered by Air Black Box (ABB), a Manchester, England-based startup, demonstrating that in the world of technology and travel, there are no geographical barriers.

ABB was founded by Timothy O'Neil Dunne and Paul Addy in 2012 to address a fundamental gap in the marketplace: Airlines could not cross-sell and upsell each other's products seamlessly, in real time.

"As low-cost carriers rose and full-service airlines retreated, we saw a gap in the market," said O'Neil Dunne. "Low-cost and full-service carriers are fundamentally different models, and no existing technology could fix it. People have tried to put Band-Aids on it for years, so we set about understanding how a carrier in their home market, irrespective of their model, could cross-sell and upsell another airline's products."

O'Neil Dunne said that Asia had more need than other markets for such a solution because of its geography. "There's a higher proportion of low-cost airlines in the region than elsewhere, and there's lots of headroom for growth," he said.

See the future in the demographics

Andrew Cowen, CEO of HK Express, Hong Kong's first low-cost carrier, has spent most of his aviation career with low-cost airlines in Europe, the Middle East and now in Asia.

A true believer in the power of low-cost carriers, he said, "Just consider the sheer demographics and economic considerations. The numbers are huge. Hong Kong is a major component of the Pearl River Delta, which has 70 million to 80 million people. EasyJet and RyanAir enabled British hairdressers to have holidays in Spain. The same thing is going to happen in Asia."

HK Express is part of the U-Fly Alliance, formed in January 2016, which also comprises Lucky Air, Urumqi Air and West Air, all of which belong to the HNA Group.

Leaders like Inoue, Fernandes, Tan, O'Neil Dunne and Cowen clearly see an Asia that is more integrated than it is disparate and are acting on their beliefs and in a world that seems to be getting increasingly divided and fearful of differences (I am writing this in London, just days after the Brexit vote in which the U.K. voted to leave the European Union). That can only be a good thing in spreading the "love of humanity."

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