Why budget airlines fail
Several years ago, foreign low-cost carriers started to significantly occupy parking lots at Taiwan Taoyuan International Airport. They operated about 10 routes from Taipei to other Asian cities and held about 20 percent capacity at the airport. Some experts, including government offices, advocated that three primary carriers in Taiwan should establish local low-cost carriers to face the increasing challenge.
In 2013, Taiwan’s first local low-cost carrier was established in a joint venture by Kuala Lumpur-based Tiger Air and China Airlines, the flagship carrier of Taiwan. In 2014, V Air was established, operated by TransAsia Air. This year, both said they are quitting the low-cost carrier market.
Since foreign low-cost carriers still have a market share in Taiwan, why did the two local low-cost carriers fail to meet the challenge? Some experts say that the tight geopolitical situation is the main reason. However, there might be some “human factors.”
First, the two low-cost carriers’ strategies might be wrong. For low-cost airlines, the first thing to do is sell tickets. Conventional airlines use agencies or third parties; the more people involved in the selling process the higher the cost.
By contrast, direct ticket sales is not only a way to ensure a profit, but also offers passengers a lower price.
However, both Taiwanese carriers are still selling tickets through agencies. Although they have their Web sites to sell tickets, a large part of their seats are sold to tourist agencies. Also, the price policies of both carriers might be lacking in flexibility. For instance, last-minute prices should be attractive for potential travelers, yet they could not be found on either Web site. Numbers talk; the passenger load factor on every route the two carriers operate is below average, which means their marketing ability is limited and their sales channels are rigid.
Second, neither carrier has a sophisticated long-term plan. Since competition between low-cost carriers in Asia is incredibly intense, each should illustrate their survival plan. For instance, Fly Scoot, the first low-cost carrier to fly from Singapore to Tokyo via Taipei, used the profit from its cargo business to compensate the deficit from its passenger business. After four years of running deficits, the route is expected to turn a profit this fiscal year. Other foreign low-cost carriers also show that long-term preparation is needed. AirAsia, based in Kuala Lumpur, waited for the fifth freedom of the air for years, and after the freedom opened, it entered not only the Taiwanese market, but also extended the market to Japan.
Taiwanese low-cost carriers announced they would quit the market after only two or three years; their decisions are imprudent from the beginning to the end.
Some aviation and marketing experts said that political and administrative factors are hampered by an authority that is too stiff to accept a new type of industry. Meanwhile, they are also concerned that the geopolitical situation across the Taiwan Strait is undermining the industry.
However, the reasons do not answer the question: Why have the same routes operated by foreign low-cost carriers not failed? The reasons for failure might be partially correct, but the primary cause of the failure might be strategic.
Cinco Yu
Taipei
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