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Mergers, failures forecast for Asia's low-cost airlines

The tail of a Jetstar Asia plane is seen in the foreground as it steers pass two Valuair planes at the Changi International Airport in Singapore yesterday. PHOTO: AP

Asia's highly competitive low-cost airline industry is set for a wave of mergers and failures, analysts said yesterday, following Jetstar Asia's tie-up with Singapore-based Valuair.

High oil prices, government restrictions and the competition created by the sheer number of budget airlines that have taken to the air over recent years are the prim-ary factors behind the expected upcoming turbulence, they say.

"We are going to see consolidation, whether that's [through] mergers, some players dropping out or reverting to their old business models," said Chris Eng, a Kuala Lumpur-based aviation analyst with OSK Research.

Eng said the number of low-cost airlines in Southeast Asia, which currently stands at around eight, could be reduced to three of four in the coming years.

Aside from the consolidation that is already happening in Singapore, Eng said Thailand would also likely be unable to sustain its three domestic budget carriers -- Thai AirAsia, One-Two-GO and Nok Air.

"In India as well, there are a huge number of low-cost carriers happening there, which will eventually lead to consolidation," he said.

The chief executive officer for consulting at the Sydney-based Center for Asia-Pacific Aviation, Andrew Miller, said the Asian budget-airline phenomenon was similar to events in the US after its domestic market was deregulated.

"There was an absolute rash of low-cost start-ups. In the end four out of five failed," Miller said.

While Miller did not expect the failure rate to be as high in Asia because of enormous growth opportunities in places such as China and India, he said "there will be some form of consolidation."

Miller and Eng said the Singapore scenario offered a glimpse of what could happen in other Asian nations when too many carriers saturated the market.
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