Tiger Airways says outlook bright for low cost carriers
By Ryan Huang, Channel NewsAsia | Posted: 20 November 2009 0043 hrs

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SINGAPORE: Singapore-based budget carrier Tiger Airways is keeping a positive stance. It said the outlook for the low cost sector is bright, despite the challenges facing the airline industry as a whole this year.

The International Air Traffic Association predicted that the industry will lose nearly US$5 billion this year. It expects the Asia-Pacific region to be hit the worst, losing an expected US$1.7 billion this year. However, it added Asia will present the best growth opportunities ahead.

Despite the gloomy forecast for the wider industry, Tiger Airways believes low cost carriers will enjoy growth. Their ability to run a tight ship has largely helped them weather the financial crisis.

Tiger Airways said its studies showed that while business costs for the industry have been rising, there is pressure on airfares to remain low.

Tony Davis, president & group chief executive, Tiger Aviation said: "The reality in the aviation business is that costs have continued to increase. You know we have seen volatility in oil and so on.

"And the fares that passengers want to pay keeps coming down. The best and most successful airlines in the world now are low cost airlines like Ryanair, and people like Southwest Airlines in the US."

According to Tiger Airways, Asia presents the best growth opportunities for low cost carriers, largely due to the region's booming tourism sector. Moreover, Asia is under-served compared to saturated markets like Europe.

Recent data showed that low-cost carriers accounted for about one in five flights at Changi Airport – a spike from 2004, when it was just one in every 20 flights.

Mr Davis said: "We certainly look at those markets that have the opportunity to grow, and certainly in Asia you are seeing high GDP growth, you are seeing disposable income levels increase, and you are seeing propensity to travel - how often people actually want to fly.

"The tourism opportunities in Asia are increasing. And I think that trend is a positive one for companies like us that are involved in the tourism sector."

With cost pressures building up, airlines are starting to look for new revenue, by charging for more services.

Mr Davis added: "Well you know, Ryanair is certainly looking at it, but I think that is a step too far for us. But we are certainly looking at making sure that we can get people to spend as much money as possible with us when they fly with us.

"Don't be surprised if you don't see other services that we try and sell to our customers. But charging for toilets at the moment isn't on the radar."

Going forward, low cost carriers are expected to lead in innovating new ways to monetise their assets, such as in-cabin advertising or using barter trade for the services it needs.

For example, Tiger Airways had signed a deal with clothing label Giordano to design and supply its uniforms in return for advertisement space in its inflight magazines.

Tiger Airways said its bookings are healthy and some 60 days in advance, compared to 14 days when it first started some five years ago.

It expects the aviation industry to shift towards a polarisation of business models, within the niches of either as a legacy carrier or as a low cost carrier, while those that try to merge the two will suffer.

Mr Davis said: "Historically, a lot of traditional airlines have invested in low cost airlines and it has worked out very badly. In the US, there are a lot of US carriers that have established low cost subsidiaries, and they try to combine those.

"Passengers got very confused, they are buying a ticket on one airline, and they end up flying on another different type of airline. They can't understand why that would be the case.

"I think our experience is that you are better keeping the distance between the two businesses. You don't try and sell it as a network expansion but you just say that these are two different airlines."

Meanwhile, according to Tiger Airways, the ground handlers that cater to budget airlines will be important in helping low cost carriers grow. This will allow them to pass on their cost-savings to passengers.

It is welcoming news that Singapore's Changi Airport has plans to appoint a third ground handler to cater to more growth.

"I think it is a good sign that the growth in the airport is there, and we need more competition in these important services like ground handling," Mr Davis said.

- CNA/sc