Airlines blur boundaries between full-service and low-cost

Low-cost and full-service airlines in the Asia Pacific region are diversifying their business models and could eventually “meet in the middle”, according to a senior industry professional.

Speaking to Travel Daily, Ho Hoong Mau, division head of airline distribution at Abacus International, said he was speaking to more LCCs about selling via GDS channels, marking a shift from the traditional ‘pure play’ model that saw LCCs sell only direct to the customer.

“We’ve made some good announcements with LCCs recently, and continue to strengthen our LCC portfolio. Abacus LCC booking volumes are up over 80% year-on-year; some of our recent LCC customers are driving very good numbers in our system. Jeju Air is doing very well, as are StarFlyer, Air Busan and PAL Express, all of which are exclusive to Abacus. Mihin Lanka also joined us last year. We’re gaining a lot of traction in this market,” said Ho.

He added that as more LCCs move towards hybrid models, they will be more suited to the GDS.

“Some pure play LCCs may decide they don’t want GDS representation, and that’s fine. But we are having great conversations with LCCs and many airlines are starting to realise that multi-channel distribution will drive the best returns.

“As the LCC models get more complex, more airlines are deciding to work with us. Many new LCCs, such as Scoot, decided to deploy a GDS from day one. Others will develop over time. Cebu Pacific for example, used to be pure play, but now they’re going medium-haul they’ll need to expand their sales channels,” he added.

Ho also noted that the development of multiple brands among both full-service and low-cost airlines is blurring the boundaries between the two sectors.

“We have seen more airlines in Asia forming multi-brands as well as new JV companies to build up a portfolio of assets to capture more of the market. Lion Air now has Batik Air, which is full-service, and Malindo Air, which is a hybrid model. VietJet has just announced a JV in Thailand (with Kan Air) and we all already know about Tiger and AirAsia spread of JV companies across Asia.

“The full-service airlines are also forming multi-brands; Singapore Airlines now has Scoot and Tiger to access the low-cost segment and SilkAir to assess the premium regional segment. Thai Airways has Thai Smile and Nok Air. The lines are getting increasingly blurred between full-service, hybrid and low-cost, and eventually these airlines could eventually meet somewhere in the middle,” Ho said.

But Ho noted that one area the low-cost and hybrid carriers have still not conquered is the long-haul market.

“The economics are against it,” Ho said. “On long-haul flights you carry more fuel, so fuel becomes a larger percentage of your costs, and if fuel prices remain high that becomes a major factor. Long-haul also makes it harder for airlines to get away with a pure low-cost product. On flights of 10 hours you want some frills, but these add weight and cost. Also for consumers there is still a mental cut-off for long-haul. On flights of two hours, low-cost is no problem. Four or five hours – perhaps. But 10 hours? Many consumers are not buying into it yet.”

And while there are several so-called ‘long-haul low-cost carriers’ in the marketplace, Ho predicted that players like Scoot, AirAsia X and Cebu Pacific “will try to build up their regional networks first” before going long-haul.

And as the boundaries between business models are lowered, Ho believes that Abacus is now well-paced to serve the market.

“In the last couple of years we’ve got better at segmenting our product. We have different versions of our products for LCCs, and now our portfolio is quite large,” he said. “We just did a North Asia conference in Seoul in June, which brought together about 50 of our high value customers for two days of discussions, and a lot of new business leads were generated.

“So overall we’re in a good place. Our LCC portfolio continues to grow and our mainstream full service airlines continue to rely on Abacus to drive high yield corporate business,” Ho concluded.