Story ID: NMvaluealliance05202016
Asia-Pacific Budget Carriers Form Alliance
By: Neelam Mathews
Caption: ASEAN Open Skies seen as impetus for group’s formation
Word Count: 567
In a bid to tap burgeoning unserved regional markets, eight Asia Pacific budget carriers have launched the largest budget airline alliance in the world. Airlines in the group, called Value Alliance, served more than 47 million passengers from 17 hubs in 2015, while rivals AirAsia Malaysia and its subsidiaries flew more than 51 million passengers. Founding Value members include Cebu Pacific, Jeju Air, Nok Air, NokScoot, Scoot, Tigerair Singapore, Tigerair Australia and Vanilla Air.

The formation of the alliance represents a response to access to new markets and secondary airports resulting from the Association of Southeast Asian Nations (ASEAN) Open Skies policy. Depending on slot availability, ASEAN airlines can now launch unlimited flights from their home bases to any other airports within the region. The policy took effect last month after delayed ratification by Laos and Indonesia.

Value passengers can book connecting flights for multi-destination itineraries in a single transaction on the first dedicated multi-carrier interlining and booking system developed by UK-based Air Black Box. They can also book the full suite of ancillaries—seat, meals, variable baggage allowances and other in-flight options—at once.

The world’s first low-cost carrier alliance—Asia’s U-Flylaunched in January by Hong Kong’s HK Express, Kunming’s Lucky Air, Urumqi Air and Chongqing’s West Air “to connect travelers from Asia and Greater China to an ever-increasing network of cities,” according to Andrew Cowen, CEO.

“The move by Scoot and its backers is an attempt to assert themselves not just in Southeast Asia but Northeast Asia [with Korea’s Jeju Air and Japan’s Vanilla],” said Shukor Yousof, founder Malaysia-based Endau Analytics. The grouping “smacks of a cartel,” said Yousof, adding the alliance amounted to “a concerted effort to squeeze AirAsia.”

“India’s Indigo has its plate full so far,” he added, referring to failure to join the group. “It is not advisable to bite more than it can chew.” Indigo in the past has maintained it does not want to add complexity to its model. “This will add further to costs of system integration, distribution and airport site operations,” said an airline official.

The alliance provides positives on the revenue side, however. Until now, intense competition among budget carriers has forced them to forfeit yields for volumes through low fares. “Value Alliance is a sign budget airlines are keen to work together and stabilize airfares, so there won’t be a wide disparity in prices across the region. The days where a one-way flight could cost less than a jug of beer are over,” said Yousof.

A day after the launch, on May 19, as part of an extension plan to streamline operations, Singapore Airlines (SIA) merged its two budget carriers—medium-/long-haul airline Scoot and short-haul unit Tigerair—under a holding company called Budget Aviation Holdings. “The holding company will drive a deep integration of our low-cost subsidiaries, part of the airline's portfolio strategy in which we have investments in both the full-service and budget aspects of the airline business,” said Singapore Airlines CEO and Budget Aviation Holdings chairman Goh Choon Phong.

“This is not the final chapter in the evolution of SIA’s budget airline strategy,” according to the Center for Aviation global consultancy. “A transition to a single low-cost carrier brand and full merger are the likely outcome in the medium term.”