Eight Asia-Pac budget carrier rivals turn allies with new grouping

Singapore

IN the first-ever cross-border pact among low cost carriers (LCCs), eight competing Asian budget carriers have banded together to form an alliance.

The newly created Value Alliance intends to boost connecting traffic and make it easier for passengers to book flights on a common booking platform across a combined network of over 160 Asia-Pacific destinations.

Aside from Singapore-based Scoot and Tigerair, the other members are Philippines-based Cebu Pacific, Thailand's Nok Air and NokScoot, South Korea's Jeju Air, Japan's Vanilla Air as well as Tigerair Australia.

Though dubbed the world's largest LCC alliance, noticeable absentees in the tie up are heavyweights AirAsia and Lion Air. Also not in the alliance is Qantas Airways' Jetstar Group and India's IndiGo.

This is the second budget carrier alliance announced following HNA group's U-Fly Alliance, which counts four Chinese budget carriers as founding members and spans over 85 destinations. But Value Alliance is roughly double the size and includes carriers from six countries.

Talks to forge the sales and distribution alliance, which ultimately aims to boost revenue through incremental distribution and a bigger network, started back as far as mid-2014. The group of carriers tapped UK-based Air Black Box (ABB) to develop a technology that would allow passengers to book connecting flights from any of the airlines' individual websites in a single transaction. More importantly, unlike existing products in the market, the ABB platform enables passengers to tack on ancillaries such as meals, seats or Wi-Fi; this is important as LCCs can earn 10-25 per cent of revenue from ancillary channels.

At a Singapore press conference on Monday alongside the other members, Cebu Pacific chief executive adviser Michael Szucs highlighted that the different members will be able to leverage the branding power and geographical strength of their partners in their homebase markets. "(The) Cebu Pacific Air (website) is extremely powerful in the Philippines but it's not the first place someone would go to in Korea, Thailand or Australia. I have partners here who are very powerful brands in those markets."

For passengers, the alliance means greater convenience when it comes to booking as well as worry-free travel on member budget carriers. If they miss a connecting flight due to a delay, the alliance partner will be obliged to accommodate the passenger on a subsequent flight. Direct end-to-end check-through luggage, however, may only be available for certain connecting flights for now.

Scoot, Nok Air and NokScoot are already using the ABB platform while the other member airlines will follow suit in the coming months.

While the alliance isn't ruling out new members in the future, Scoot chief executive Campbell Wilson noted that it is off to a substantial start with over 160 destinations and 17 hubs covering South-east Asia, Australia, North Asia and the Middle East.

"We (are) doing this to expand our distribution (and) networks. We're doing this for our own strategic reasons," he said, before adding pointedly: "The fact that you don't see some (carriers) here is self-explanatory."

The budget carrier alliance, however, differs from those formed by full-service carriers such as Star Alliance, Oneworld and SkyTeam which offer perks such as code-sharing, frequent flyer programmes and seamless inter-connectivity with check-through baggage.

Analysts say that the partnership is a reaction to cut-throat competition in a fast-growing travel market, which is putting pressure on margins of budget carriers and full service carriers alike. The Asia-Pacific is expected to see over 500 million visitors by 2020, making the region's tourism industry the largest in the world.

"(The alliance) has been brought about by intense competition within the LCC segment," said Endau Analytics founder Shukor Yusof, describing it as an innovative solution. "The bottom line is to increase revenue."

Mr Yusof reckons that in time, the alliance could lead to streamlining in areas such as airfares. However, this - or other moves such as tweaking scheduling for better connection timings - would require regulatory nods from the relevant authorities.

The partnership could also help drive more traffic through Changi Airport - already a hub for regional LCCs - as airports around the region and in the Middle East raise their game with investments into brand new facilities.

"The combined route map shown is strongly Singapore-centric, reflecting the long term plan by Singapore to leverage low cost travel to grow its tourism industry and reinvigorate traffic flows through its Changi hub at a time when it was being increasingly bypassed by non-stop flights into China and losing some of its shine as a business centre and cross roads for South-east Asia," wrote Plane Talking editor Ben Sandilands in a report.

Meanwhile, Jetstar appears to be watching developments closely. Commenting on the formation of Value Alliance, a Jetstar Group spokesman said: "When our customers travel on Jetstar they can be assured of a consistent brand and with it, the same product, level of service and flight experience across any of our airlines. We will continue to have discussions with other carriers about providing our customers with even greater connectivity across Asia than we already provide."