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Competition heats up among budget airlines in Thailand

November 21, 2013

The market for budget airlines in Thailand is set to become even more competitive. Thai Lion Air and Thai VietJet Air are muscling in, starting next month.

Thai VietJet Air will launch its first flights between Thailand and Vietnam in the first quarter of 2014, while Thai Lion Air will start twice-daily flights to Chiang Mai and Jakarta and a once-daily flight to Kuala Lumpur in December.

Analysts said some routes may become over-serviced, making deeper price-cutting inevitable.

Thailand’s already-thriving Don Mueang Airport will get a new operator in December.

Indonesia’s largest airline Lion Air will join the competition, going head-to-head with other low-cost carriers (LCCs), with an aim to capture an initial 10 per cent of the market.

Thai Lion Air will also be the first airline in Thailand to operate the B737-900 ERs.

Voravuth Vongkositkul, director of flight operations at Thai Lion Air, said: “We have a lot of competitors here in Thailand. I cannot say that we will profit but we forecast that in the next two to three years, we will get everything back.

“We also think of expansion or using another hub, in the second half, we could consider Chiang Mai or Hat Yai.”

Lion Air is the latest airline to enter Thailand’s aviation market and Thai Lion Air will be commencing twice-daily flights from Bangkok to Chiang Mai in December. And to stand out from other low-cost players, Thai Lion Air is offering its passengers a free 15-kilogramme baggage allowance. Analysts said this just makes the competition even stiffer for incumbents such as Thai Air Asia and Nok Air.

Brendan Sobie, chief analyst (Southeast Asia) at the Centre for Aviation, said: “The LCC penetration rate in the international Thailand traffic is about 20 per cent, which means about 20 per cent of the international seats to and from Thailand are accounted for by LCCs. If you compare that to Singapore, the number is about 31 per cent, and in Malaysia, that number is 50 per cent.

“So I think the major LCC groups see that there are potential opportunities to go into the market. It is unknown whether so many new airlines can be supported, given that environment. So we could potentially see some consolidation in the medium- to long run. ”

What carriers lose on lower prices, they hope to make up by carrying more passengers in a low-cost market that accounts for just 20 percent of in- and out-bound travel.

In 2012, Jetstar Asia served two million passengers in the Singapore-to-Bangkok market alone.

Barathan Pasupathi, CEO of Jetstar Asia Airways, said: “The Thai market’s capacity has actually grown under 10 per cent year-on-year while Jetstar Asia has grown its capacity by 30 per cent at the same time.

“Today, we have 31 alliances and our alliance partners transfer feed into our Singapore hub and fill up seats from Singapore to Bangkok. Likewise, Bangkok being another important hub, our partner alliances actually fly into Bangkok and they fill up the leg between Bangkok to Singapore.”

But it is the growing traffic from China and the potential traffic from its newly-opened-up neighbour that offer the most potential.

Paul Ng, global head of aviation at Stephenson Harwood, said: “Thailand has an Open Skies Treaty with China so it is a springboard into Southern China like Guangzhou and the other southern states. The other is Thailand is intimately associated with one of the fastest and newest markets in ASEAN, Myanmar.”

That is a market with about 65 million people, and one that budget carriers will have their eyes on – especially if Thai visa restrictions are eased on Myanmarese travellers next year.

Mr Sobie said: “There is no denying that LCC opportunities in Southeast Asia are huge. They have been huge for the last 10 years.

“The rate of penetration for LCCs in Southeast Asia has gone from zero to over 50 per cent of the market. And there are still opportunities because you have the emerging middle class, you have growth and discretionary incomes, and you have frontier markets like Vietnam and Myanmar that are just starting to emerge.”

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