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Vibrant low-cost airline market to get even busier

The low-cost airline market in Thailand is expected to see higher competition next year after even more new players enter an already busy sector

Bamrung Amnatcharoenrit (The Jakarta Post)
Bangkok
Tue, October 29, 2013

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Vibrant low-cost airline market to get even busier

T

he low-cost airline market in Thailand is expected to see higher competition next year after even more new players enter an already busy sector.

VietJet Air will launch its first flights between Thailand and Vietnam in the first quarter of 2014, while Indonesia's Lion Air will launch a Bangkok-Jakarta route next month and also plans to cover many other major destinations in Thailand.

Both VietJet Air and Lion Air have joined with Thai partners to set up joint ventures in Bangkok.

Mandala Airlines of Indonesia, Tiger of Singapore, Cebu Pacific Air of the Philippines and JetStar of Australia are already flying to Thailand from their home countries.

Among the present major players in the low-cost-carrier market in Thailand are Thai AirAsia, the country's biggest, and Nok Air.

Analysts have said a number of carriers are choosing Bangkok as hub. Next year will be when they try to prove themselves in this competitive market. It is likely that the weaker players will find it increasingly difficult to stay here.

Pricing-cutting is considered a common weapon to lure passengers.

Siam Tiyanont, an analyst at Phillip Capital, told The Nation the market here was open for new players, but the challenge was how they can survive in a competitive market.

"The more they drop their ticket prices to fight in this competition game, the more they will lose their margins," he said.

Rusdi Kirana, co-founder and chief executive of Lion Group, based in Jakarta, said he chose Bangkok as a base because of its strategic location for network connectivity. And one of the key strategies to promote its brand in the Thai market is to offer passengers a truly low airfare.

Lion Air will launch its inaugural Bangkok-to-Jakarta flight next month.

Tassapon Bijleveld, CEO of Thai AirAsia, has shrugged off the higher competition, saying that AirAsia would still do well here by offering the best deals on airfares.

Ralph "Skip" Boyce, president of Boeing Southeast Asia, said new budget carriers were choosing Bangkok as a hub hoping to capitalise not only on Thailand, but also on other markets in the region, including Myanmar. Clearly, Thailand is a regional tourism destination. This means the number of foreign tourists will continue grow annually, even though the country has suffered from tsunamis, violent political demonstrations, and economic slumps.

There is no doubt that the number of people flying in and out Thailand and around the region will increase, thanks to growing economic prosperity and the rising middle-class population.

According to Boeing market research released recently, Southeast Asia is one of the fast-growing markets for low-cost carriers. It projected that budget airlines would increase their market share to 42 per cent by 2032, up from 22 per cent last year. Lion Air is one of Boeing's big buyers.

Amnart Ngosawang, an analyst at Finansia Syrus, said Thailand was strategically located in the region to connect to China, India, Japan and Australia. That gives it an advantage over Indonesia and Singapore. As well, the country's strong tourism outlook is another major reason budget airlines are eyeing the Kingdom as one of their hubs.

Amnart cited a report from Airports of Thailand showing that about 31 per cent of the country's air passengers chose to fly with a low-cost carrier in the first eight months of this year, up from 25.3 per cent during the same period of 2010. The increase was attributed to expanded choices, new routes, and larger fleet sizes. They do not mind spending two or three hours on board without services.

Siam said that in terms of airport capacity in Bangkok, Don Mueang International Airport would be a good base for the new players.

"Where will they fly to in Thailand? In fact, major cities are reached by all carriers right now. There are no good time slots left. Also, secondary provinces are still lacking airport facilities and demand for air travel."

Siam added that Thai Airways International and Bangkok Airways would have no choice but to slash their ticket prices occasionally to maintain their market share.

AirAsia still has a competitive edge over rivals because it has spent years expanding its network through joint ventures. This has allowed it to strengthen its connectivity from city to city to maintain its passenger traffic.

As this market matures, all players will have to adjust their strategies to survive in the changing business environment. They already know that from now on it will be more difficult to turn a profit.

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