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Cheap and available: Asian low-cost carriers head for the altar

[SYDNEY] The creation of the world's biggest alliance of low-cost airlines may signal that some of Asia's struggling budget carriers are headed for the altar.

The Value Alliance, announced Monday, stretches from Japan to Australia and includes Singapore Airlines Ltd's Scoot and Nok Airlines Pcl in Thailand. The aim is to sell tickets, or even baggage allowance and in-flight meals across the group's eight airlines in a single transaction.

The coalition is a step away from a typical budget model, which shuns the cost of international alliances and frequent- flyer freebies. The union could be a step toward mergers in Asia, where low-cost carriers have flooded the world's fastest- growing travel market with plane orders, said consultancy Mango Aviation Partners Ltd.

"Eventually, at least in Asia Pacific, we're going to see some of that," Richard Laig, Manila-based partner for the Asia Pacific region at Mango Aviation, said by phone. "A lot of those markets are getting so saturated." At least a dozen low-cost airlines started operating in the Asia Pacific region in the past decade, ordering hundreds of aircraft from Airbus Group SE and Boeing Co.

The alliance includes Vanilla Air, a unit of Japan's ANA Holdings Inc, Tiger Airways Australia, controlled by Virgin Australia Holdings Ltd, Cebu Pacific Air in the Philippines and South Korea's Jeju Air. Scoot's chief executive officer Campbell Wilson told reporters in Singapore Monday that the alliance is open to any airline that wishes to join.

Missing from the group are the region's best-known low-cost carriers, AirAsia Bhd and Jetstar, which is owned by Qantas Airways Ltd. AirAsia Chief Executive Officer Tony Fernandes and Jetstar's media office didn't immediately respond to e-mails seeking comment. IndiGo, India's No 1 carrier, is not part of the group as well. Its operator InterGlobe Aviation Ltd declined to comment.

It will be tough for the new union to generate extra revenue for its members because low-cost carriers - which often shuttle the same plane between two cities several times a day - find it hard to match arrival and departure times, said Laig at Mango Aviation.

"They don't really have the ability to coordinate schedules," he said. "We're skeptical as to specific things they can offer."

According to Value Alliance, its members offer flights to more than 160 destinations with a fleet of 176 aircraft. AirAsia and AirAsia X Bhd have a combined fleet of 199 aircraft, while IndiGo has 108 planes.

The accord could be successful if travelers can hop from one member to the next as they fly around Asia, said David Miles, the head of advisory services at Ambidji Group, a Melbourne-based aviation consultancy. But that cooperation could rack up costs, eating into any benefit, he said.

The alliance partly reflects the challenge of making money as a low-cost carrier in one of the world's most competitive markets, Mr Miles said.

"With so many competitors in the market, some are going to suffer," he said. "A merger usually comes when one or more parties are struggling and they realize they need help."

BLOOMBERG