On business -
Written by Administrator
Tuesday, 21 December 2010 06:12
AsiaViews, Edition: 14/V/Mayl/2008
JETSTAR Asia's success in turning in a profit in its second year of operations and Tiger Airways' reportedly strong year-end business results may have put to rest the skepticism surrounding the budget airline business model, especially when we recall how Singapore's first budget carrier ValuAir folded its wings soon after its first anniversary.
Interestingly, ValuAir ? subsequently acquired by the Jetstar stable ? was harboring dreams of operating flights to London. Will Jetstar Asia's better-than-expected performance tempt it to resurrect that ambition?
For Tiger Airways, group chief executive Tony Davis is sticking to the conventional budget model, preferring to set up regional hubs instead of running long-haul flights.
The writing is written clearly and boldly across the sky, following the grounding of Hong Kong-based budget carrier Oasis Airlines, whose demise replicates the fate of Sir Freddie Laker's "skytrain" service across the Atlantic in the 1960s and, more recently, that of Canadian budget carrier Harmony Airways.
What does this mean for AirAsia, as it prepares to spread its wings to fly beyond the budget convention of no more than five hours to any destination. The Oasis fiasco does not augur well for the Malaysian carrier even though chairman Tony Fernandes expresses confidence that his long-haul venture will one day carry more passengers than Singapore Airlines.
What would make Mr Fernandes different from Mr Laker (Laker Airways), tobacco heir David Ho (Harmony Airways) and property investment husband-and-wife team Raymond and Priscilla Lee (Oasis)? What can be learnt from them?
The problem is not the lack of a market for budget long-haul flights, whose shoestring fares had seen advanced bookings as far forward as six months for Oasis' flights between Hong Kong and London and between Hong Kong and Vancouver.
Both Oasis Airlines and Harmony Airways ? which also offered business class service ? enjoyed reasonably satisfactory ratings for budget travel. Some customers said the service was comparable to, if not better than, that of some full-service airlines. Yet, there was something not quite right about the formula.
The pitfalls are many.
Oasis and its predecessors were competing with the big birds, so to speak. That does not suggest competition is the culprit. Rather, it suggests that budget airlines are not ready to compete in the long-haul business.
The conventional budget model is designed for short-haul flights and characterized by the absence of frills, quick flight turnaround, high equipment utilization, and volume-based compensation. The long haul is a different game altogether. What you do not provide for the short haul becomes necessary for the long haul, such as comfort, more crew, in-flight entertainment and meals.
Oasis offered a three-course meal for its business class compared to the five or six courses offered by some full-service airlines. The issue is not whether the latter is better than the former. The real test lies in the compensatory difference that will entice the customer to switch. A budget airline like Oasis needs time to build up its reputation, and the public needs time to be convinced. And time costs money.
This is not helped by an industry that allows little room for the players to shift gear when dealt with sudden cruel blows, such as runaway fuel prices.
In the case of ValuAir, it had neither the stamina nor the deep pockets to last the bout when the big boys retaliated. Sustenance becomes even more critical for the long haul.
However, a budget airline's worst enemy is the temptation to over-stretch, which is difficult to suppress when overwhelmed by initial success. After London and Vancouver, Oasis had set its eyes on San Francisco, Chicago and New York.
Harmony Airways was lured by the huge China market. Expanding prematurely ? not growing the business ? is the main culprit.
Will Mr Fernandes commit the same mistake? AirAsia has established a fairly sizeable presence as a regional short-haul budget carrier. But for the long haul, can he get his sums right where Oasis has failed?
AirAsia has impressive expansion plans, having placed an order for 175 new Airbus aircraft and another 50 on option. Harmony Airways and Oasis, too, had ambitious expansion plans. AirAsia has been around for 15 years ? that helps to shore up confidence in its continuing viability. But that's one year short of the time Laker Airways spanned the skies.
Business realities are harsh and cold, often intolerable of failure and punishing in the end. It will be a big challenge for AirAsia. Mr Fernandes may yet surprise and pull it off with innovative pricing, such as when he recently decided that AirAsia passengers will be charged baggage fees, and with lots of luck.
The writer is a management consultant with more than 25 years of experience in customer service.
By: Liang Dingzi
Today 30 April 2008
Last Updated ( Tuesday, 21 December 2010 06:12 )