AUG 29 – Over the past decade, the Asia-Pacific region has maintained a steady economic growth rate superior to that of North American and European growth rates. This stable growth has resulted in the ascent of a newly affluent middle class across Asia.
An increase in disposable income in the Asian middle class has increased demand for transportation services, particularly for air travel. This article outlines this growth, the prospect for low cost carriers (LCCs) to meet this demand, and restraints on LCCs in the region.
Asia is the fastest growing airline market in the world, both in terms of aircraft orders and passenger volume. Boeing reports that by 2032, almost half of the growth in airline passenger traffic will be attributable to transportation to, from, or within the Asia-Pacific region. Airbus concurs, stating that “Asia will be the key driver of growth” over the next 20 years.
Resulting from the sustained increase in consumer demand for commercial airline travel, Asia will become the largest market for commercial aviation.
Resulting from the difference in income threshold level, Asian consumers seek air transportation that is cost and time efficient. Legacy carriers, by nature, aim to provide higher levels of service, reward frequent fliers, and establish alliances with sister airlines.
Asian consumers who have recently ascended to the middle class see less value in legacy carriers and the extensive services offered. Instead, LCCs provide a business model more aligned to the emerging Asian middle class dynamic.
To better meet consumer demand, LCCs have rapidly increased their operations in the Asian market since 2001. This increase has occurred largely on a regional level: while Southeast Asia is experiencing LCC penetration rates of over 50 percent, legacy carriers continue to dominate the North Asian commercial airline market.
Despite this growth opportunity, LCCs have encountered serious challenges to their business operations in the Asia-Pacific region.
Bureaucratic regulations comprise the principal challenge to LCCs moving forward. LCCs operating in Asia must also build and strengthen relationships with airport authorities. To frame these regulatory challenges, public aviation policy does not include LCCs since they operate as private carriers and do not reflect public interest.
In addition to navigating regulations on the ground from one government, LCCs must secure approved airspace from multiple governments. Bilateral air service agreements (BASAs) are the main forms of aviation agreements for airspace use across Asia.
Under a BASA agreement, a given flight is cleared to fly between two adjacent national airspaces. To operate in a given airspace, carriers must obtain permission to operate in the given airspace, which is viewed as a question of state sovereignty.
Governments in the region have an interest in ensuring that legacy carriers remain stable business operations. As legacy carriers “fly the national flag,” they are still viewed as a national symbol abroad. In order to maintain stability, governments perceive airlines as an infant industry, highlighting their role as a national public utility.
Therefore, for the LCC model to become successful across the Asia-Pacific region, LCCs must build alliances with relevant government officials and further develop the LCC brand with Asian consumers. Strategy must vary in each country, but LCCs have the potential to reshape the Asia-Pacific commercial aviation industry.