Jetstar Airways

New Cebu Pacific long-haul operation could push out Philippine Airlines but may require hybrid model

The new plan from leading low-cost Filipino carrier Cebu Pacific to offer long-haul services from 3Q2013 represents not just the fourth low-cost long-haul operation in Asia, but the first time such a carrier has potential to force a full-service rival – Philippine Airlines (PAL) – out of business.

Cebu Pacific will benefit from the Philippines’ extremely price sensitive market that has seen LCCs achieve a staggering 80% share of the domestic market and a fast-growing share of the regional international market. Demand for low-cost long-haul services will come primarily from the large visiting friends and relative (VFR) and migrant worker market. But Cebu’s new low-cost long-haul operation will also benefit from growing tourism and potentially the ability to transfer passengers over a geographically convenient hub if Cebu decides to stray from its original point-to-point model.

While PAL is the nation’s sole long-haul carrier, its lack of global alliance membership, relatively small domestic operation and higher cost base create low barriers for entry. National sentiment for Asia’s oldest airline may run high, but as seen in the Philippines’ domestic market, passengers vote with wallets.

AirAsia X route changes spotlight ownership complexity post MAS deal, but also growth opportunities

Doomsayers will be quick to look at a series of route cancellations from Malaysia-based AirAsia X and proclaim the demise of the modern low-cost long-haul model AirAsia X pioneers. The context for the changes – ending service to London Gatwick, Mumbai, New Delhi and Paris Orly – expands beyond fuel costs, rising taxes in Europe and new visa restrictions in Malaysia. AirAsia X was already struggling in Europe and particularly in India. The recent cross-ownership deal between Malaysia Airlines (MAS) and the AirAsia Group was also clearly a big factor.

That is not to suggest AirAsia X's changes are simply a matter of submission to MAS. The biggest advantage, besides brand awareness, of the high profile London and Paris routes was their ability to put passengers on multiple AirAsia short-haul flights as they travelled around southeast Asia. MAS' deployment of the A380 later this year will lower unit costs to London, narrowing the gap with AirAsia X, currently using more fuel-thirsty A340s. With the AirAsia-MAS partnership, and plans for the two to facilitate passenger transfers, the AirAsia group can still gain feed on its short-haul network while AirAsia X will benefit from redeploying capacity in Asia Pacific and, notably, China.

Peach to launch Japan's LCC sector with two-tier fare structure and basic ancillary options

2012 will see the rapid entrance of the low-cost model in Japan, a market whose high focus on service had been used as an excuse for why a la carte LCCs could not gain a standing in the country. The country's first LCC to come to market, Peach Aviation, has released its launch fare structure that offer discounts upwards of 58%. Despite fares significantly lower from full-service competitors, its ancillary options are so far basic, leaving room for improvement from established LCC brands AirAsia and Jetstar, who will enter the market in 2012 with their AirAsia Japan and Jetstar Japan subsidiaries.

While Peach's offerings may be underwhelming for those versed in LCC commercial strategy, they will still come as a shock to the Japanese, who have broadly not experienced a home-grown LCC. While Peach will have the first mover advantage in the market, it will also be the first to help the market adjust to LCC pricing strategies, which AirAsia and Jetstar will build on. Peach too can also be expected to expand its offering.

Sydney Airport divides terminals along alliance lines but risks alienating new carriers

Sydney Airport will narrow its competitive disadvantage of having separate domestic and international terminals with a plan to split its terminals by 2019 into two alliance-based precincts: one for Qantas and its partners and one for Virgin Australia and its partners. The two groupings will account for 81% of all movements. Leftover international carriers will in most cases use the Virgin terminal while a plan is underway to address leftover domestic and regional airlines, notably Tiger Airways and Regional Express. While the plan may placate the two big airline groupings in Australia, Sydney airport may face a shortfall of placement options for new carriers looking to offer their passengers onward domestic connections.

Sydney airport expects to formally begin stakeholder consulting with the aim of including the proposal in its 2014 master plan, which will be drafted in late 2013. Qantas and Virgin Australia, Sydney's two largest occupants based on movements and seats, have already given their support with the signing of a non-binding memorandum of understanding. The proposal will critically increase gates but not change slot restrictions, the airport's curfew or noise regulations.

In selecting Sydney as its first route, Scoot favours a low risk market with little competition

Scoot's selection today of Sydney as its first destination from its Singapore hub is a solid move from Singapore Airlines' new low-cost long-haul carrier. Scoot previously said it was looking to initially concentrate on Australia and China. There is no existing low-cost long-haul service from Singapore to Sydney or fifth-freedom rights from Emirates, unlike at Australia's second largest city, Melbourne.

The Singapore Airlines (SIA) group decided earlier this year to launch a low-cost long-haul carrier to re-capture some of the growth the group has lost over the past decade, especially to LCCs. Sydney is still a high O&D market SIA and Scoot can try to keep, unlike at Melbourne or the Gold Coast where AirAsia X and Jetstar have firmly planted themselves. Scoot's entry could be expected to galvanise the Malaysian government to finally let AirAsia X serve Sydney – likely before Scoot – and could cause the Qantas Group to consider unleashing its LCC subsidiary Jetstar in one of its last premium markets.

Qantas and Jetstar change 787 strategy to support Asian growth and unit cost improvement

The continuous high-growth in Asia as well as opportunities to achieve better unit costs are the drivers behind a broad change of strategy for how the Qantas Group will deploy the B787-8 and B787-9 across its Qantas and Jetstar brands. Rather than have B787-9s replace Jetstar’s B787-8s, which would have been sent to Qantas for domestic use, Jetstar will keep the B787-8 and operate it alongside the B787-9. Qantas will further reap the B787’s efficiency by deploying the aircraft almost entirely on international routes, leaving domestic routes to A330s and B737s.

Jetstar will be able to better match capacity with demand by operating the smaller 300-seat B787-8, whereas its low-cost long-haul pan-Asian competitors AirAsia X and Scoot will primarily operate 370-seat aircraft, equivalent to the B787-9. Keeping the B787-8 will allow Jetstar to fit out the aircraft to its specification rather than a common spec Qantas could operate with a simple change in seat covers. This has implications for seating density, type of seat and whether or not to install a bulky and expensive in-flight entertainment (IFE) system, which affects unit costs.