Jeju Air plane at Seoul Incheon International Airport.
Benard | Andia | Universal Image Group | Getty Images
Low-cost careers (LCCs) are likely to have an advantage in a price-sensitive and regionally-focused air travel market, analysts told CNBC. However, one observer warned that the benefit can only be enjoyed if the demand recovers.
The coronavirus pandemic decimated the global tourism market when border restrictions were imposed, and airlines were no exception. The International Air Transport Association (IATA) said there was a growing demand for travel, but consumer confidence was weak because, in addition to fears about the virus, there were “concerns about job security and rising unemployment.”
More than now, now that individuals and businesses are considering cost-effective options, LCCs will obviously have an advantage.
Shantanu Gangakhedkar
Frost & Sullivan
In such a market, LCCs have an advantage over full-service carriers (FSCs), analysts said.
“That, I think, is the feeling at the moment … Also in next year it will become a price sensitive market, cheap carriers come from a lower base,” said Peter Harbison, chairman emeritus at CAPA Center for Aviation.
He told CNBC’s “Street Signs Asia” last week that full-service carriers were operating when airlines were able to generate higher revenues, so the profit margin was still “large enough.”
“The problem we have now is, if an airline is high cost, we will not see the kind of revenue for business travel, business travel that we have expected in the past. So the top line is starting to get a little lower, ” he said.
Shantanu Gangakhedkar of Frost & Sullivan said attractive prices have always been the “primary reason” for the success of low-cost carriers in Asia.
“More than now, now that individuals and businesses are considering cost-effective options, LCCs will obviously have an advantage,” he said, adding that competition between these carriers would be “fierce.”
Gangakhedkar, an Asia-Pacific aviation and defense consultant, also noted that domestic air routes open first, while many international travel restrictions remain in place.
“LCCs have already started flying domestic routes and are even offering discounts and promotions to attract passengers and so are expected to start much in green before most FSCs,” he said. Cheap airlines are ‘better suited’ to such short-haul routes because they mainly fly airplanes, he added.
‘Hibernation mode’
Greg Waldron, Asia’s managing editor of FlightGlobal, agreed that vacation and even business travelers can choose to fly low cost, but said that depends on a recovery time to begin with.
Southeast Asia in particular is in a “really tough hibernation mode,” he told CNBC via video call. “There’s some activity going on, but it’s very limited. It’s certainly not the stuff that repairs are built on.”
The problem is that the brand has just collapsed and … all the advantages they have in their model can not really be brought any more.
IATA predicts that worldwide passenger traffic will not return to pre-coronavirus levels until 2024.
Short trips and weekend getaways are “impossible” given current travel restrictions, Waldron said. “It’s a very challenging time, and so the cheap carriers will really suffer because their advantage is their business model, but no one’s business model is working at the moment.”
Rapid reversals typical of LCCs may not be possible if the aircraft needs to be sterilized, and reduced capacity due to social distance would be difficult for profitability, he said.
LCCs in the region such as VietJet and Jeju Air work “really well” if the market is good, he said. “The problem is that the market has just collapsed and … all the advantages they have in their model can not really be brought any more.”
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