1 Dec, 2003
Low Cost Airlines Set to Revolutionise Asian Travel
Like in other parts of the world over the past few years, the entry of low-cost airlines into Thailand is causing much hand-wringing amongst established players like Thai Airways International as well as struggling players like Orient Thai.
However, unable to project them as potential commercial failures for the simple reason that they have proved eminently successful in Europe and the US, Thai airlines are playing the nationalistic card and seeking to cast doubt about safety levels of the low-cost operators.
Neither of these reasons is likely to dent the impact and growth of low-cost airlines as they secure their roots and grow in a region with virtually limitless potential.
The reality is that low-cost airlines like Air Asia have upset all the traditional rules of the game. They do not need travel agents to survive, nor do they have to be part of a mega-alliance, nor do they need a frequent flyer programme. They also prove that travellers don’t particularly want all the superfluous trims and fittings that established airlines have spent fortunes on.
Even the Global Distribution Systems are being forced to revisit their rigid booking fee structures to accommodate the growth in low-cost airlines. Charters and the concept of tour packaging have also been affected.
Most important, low cost airlines are taking the sword to the ‘Big is Better’ management buzzword while proving true the ‘Small is Beautiful’ philosophy. They are giving hope to the small and medium sized entrepreneur especially among the hotels and tour operators that they don’t have to be cowed by the geographical spread, distribution power and loyalty programmes of multinational chains and travel conglomerates.
Their only block on growth is likely to be the restrictions on traffic rights, and even these will inevitably fall by the wayside as consumers become more aware of the benefits and advantages of flying low-cost.
Perhaps most embarrassing for the major airlines in Europe and US is that their predictions about why the minors would never be able to take on the majors are being proved horribly wrong. Indeed, the majors are being forced to go back to basics in the real sense of the term, after years of losing sight of which business they were in.
Originally in the transportation business, the majors became confused with the restaurant business on the assumption that passengers could be attracted by fancy food. Then they moved into the entertainment business on the notion that passengers wanted better quality of in-flight movies and video-games.
While that may be true on the long-haul sectors, the reality is that on the vast majority of short and medium haul routes, passengers just want to be transported from A to B safely and punctually, and their bags come on the same flight. They want to pay the least possible cost for that privilege, just like a bus or railway.
Further angering the established airlines is that the low-costs are coming virtually cost-free into markets that the former have spent millions of dollars and man-hours cultivating. For years, they had to struggle with the old rules of rigid growth bilateral traffic-rights and other restrictions even as they invested millions in marketing, while the new guys are coming in clean to take advantage of the new rules of open skies.
But that is the brutality of market forces and changing business conditions.
Orient Thai is using the nationalistic argument by questioning the justification of Malaysian investors running a business that Thais can do just as well. That is a spurious argument because promoting travel and investment within ASEAN as well as with the giant neighbours of China and India is one of the major political and economic goals of the regional governments.
Whether this is done by a Thai or Malaysian company is irrelevant.
It is being suggested that sooner or later, the low-cost airlines will cut corners, especially on safety and maintenance. That argument, too, is questionable. Some of the other airlines (not THAI) are known to be operating ageing aircraft. Established airlines, too, suffer accidents despite their high maintenance standards. It goes with the territory.
There is also much consternation about the links between Air Asia and the Shin group of companies. But the usage of ‘connections’ to get special privileges, too, is nothing new.
Bangkok Airways’ owner Dr Prasert Prasartthong-Osoth was known for his close links to the former Air Force chief and THAI chairman Air Chief Marshal Kaset Rojananil, one of the leaders of the abortive May 1992 coup. For a number of years, Bangkok Airways operated a virtual monopoly route to Siem Reap, shutting out THAI.
The reality is that no major business operators want to see their apple carts upset by upstarts. While the majors will always be attractive to passengers for long-haul flights as well as business-class passengers, the minors will suck away a large customer segment for whom cost is the over-riding factor.
The good news is that it will grow the market and attract new tourists and travellers, the kind of people who will stay not in the properties with chandeliers in their lobbies but in equally back-to-basics hotels and guest-houses, thus ensuring that small investors, too, get a larger slice of the travel industry cake.
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