Low-cost carriers (LCCs) are likely to have an advantage in a price-sensitive and regionally focused air travel market, analysts told CNBC. However, one observer cautioned that the benefit can only be enjoyed when demand recovers.
The coronavirus pandemic decimated the global tourism market when border restrictions were put in place, and airlines were no exception. The International Air Transport Association (IATA) said there is pent-up demand for travel, but consumer confidence is weak because, besides fears over the virus, there are “concerns over job security and rising unemployment.”
In such a market, LCCs have an edge over full-service carriers (FSC), analysts said.
“That, I think is very much the feeling at the moment … Going into next year as well, it’s going to be a price-sensitive market, low-cost carriers do come off a lower base,” said Peter Harbison, chairman emeritus at CAPA Centre for Aviation.
He told CNBC’s “Street Signs Asia” last week that full-service carriers worked when airlines could generate higher revenues so the profit margin was still “sufficiently great.”
“The problem we have now is, if an airline is high cost, we’re not going to see the sort of business travel revenue, corporate travel revenue we’ve expected in the past. So the top line starts to become a bit 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.
Hibernation mode
Greg Waldron, Asia managing editor of FlightGlobal, agreed that leisure and even business travelers may choose to fly low cost, but said that depends on a recovery happening to begin with.
LCCs in the region such as VietJet and Jeju Air work “really well” when 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’t really be brought to bear anymore.”
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