Cities Spur Plane Need as Brands Evoke Cocktails: Southeast Asia

Feb 16, 2014 10:43 pm ET

Feb. 17 (Bloomberg) -- Airbus Group NV and Boeing Co. spent a week with Asian companies sounding more like cocktails than airlines, some of which didn’t exist a year ago, highlighting the region’s status as one of the most dynamic aircraft markets.

From VietJet to Thailand’s Nok Airlines and Air Costa of India, short-haul startups dominated orders at the Singapore Air Show as Asia’s increasing urbanization and growing middle class fuel a surge in travel. New airlines are popping up all over Asia, including some exotically named Japanese carriers Vanilla Air and Peach Aviation Ltd.

The expo’s $32 billion of orders, while modest compared with a Gulf carrier-inspired $206 billion splurge in Dubai three months earlier, highlighted the emergence of the latest class of airline serving intra-Asian routes that are starting to criss- cross the continent. Startups such as Air Costa are jostling for position with new units at older carriers that range from ANA Holdings Inc.’s Vanilla and Thai Airways International PCL’s Smile division to the Tiger brand of Singapore Airlines Ltd.

“The Asia-Pacific is unique because of the number of cities with more than a million people,” Robert Martin, chief executive officer of Singapore-based aircraft lessor BOC Aviation Pte, said in an interview at the show. “In China there’s more than 100, India has more than 50. The number of city pairs we’ll have in the long term will be phenomenal.”

Asian Explosion

Close to half the world’s air traffic growth will involve Asian routes over the next 20 years, Boeing marketing chief Randy Tinseth said in Singapore, with carriers from the region requiring 12,820 more aircraft, or 36 percent of the global total. Competitor Airbus puts the figure at 11,000 planes.

Asia’s exploding growth, which is spurring the foundation of new airlines every few months, contrasts with the mature markets of the U.S. and Europe, where over-capacity has led to consolidation and fewer carriers for planemakers to sell to.

Even the Persian Gulf’s flood of wide-body orders is inspired by Asian economies, with Dubai-based Emirates, Etihad Airways PJSC of Abu Dhabi and Qatar Airways Ltd. vying to build hubs for long-haul links with Europe, the Americas and Africa.

In Singapore, smaller models used to provide point-to-point links predominated. Air Costa, based in Vijayawada in southern Indian and packing planes 87 percent full after three months of operations, ordered 50 Embraer SA jets worth $2.9 billion. Two- year-old VietJet, based in Hanoi, signed for 63 Airbus A320s with a sticker price of $6.4 billion, while Nok Airlines Public Co. announced a $1.45 billion commitment for eight Boeing 737s and Bangkok Airways Co. bought six ATR 72 turboprops.

Gravity Shift

“The center of gravity has shifted to Asia,” Norm Liu, chief executive officer of General Electric Co.’s world-leading leasing arm, said in an interview in Singapore. GE made its first deal in Myanmar last week with an accord to supply 10 Boeing 737s to Myanma Airways.

Competition is increasing. About 15 low-fare carriers started flying in the Asia-Pacific region over the past decade, according to the International Air Transport Association. And these make up for more than half of the seat capacity available in Southeast Asia, surging from about 3 percent a decade ago, according to Capa Centre for Aviation.

Not all budget carriers thrived in the region. Indonesia’s PT Adam Skyconnection Airlines ceased operations after running out of funds to keep flying, while Oasis Hong Kong Airlines Ltd., which tried to take on Cathay Pacific Airways Ltd. on long-haul flights, collapsed in 2008 after incurring losses.

AirAsia X Bhd., the long-haul unit of Asia’s largest low- cost carrier AirAsia Bhd., dropped services to London and Paris in 2012, three years after it introduced flights to Europe.

Regional Expansion

Regional routes are driving the expansion in Asia as economic growth put more people on planes from India to Indonesia, many for the first time. Startups and established carriers develop a range of business models to tap both the newly affluent and high-income frequent travelers.

“We’re seeing the gamut,” said engine maker Pratt & Whitney’s Mary Ellen Jones, who recently became sales chief for Asia after previously covering the U.S. “There’s a multitude of airlines from the little guys with a couple of planes to the major carriers. The vibe and energy level is high.”

Pratt’s haul at the show included engines for 15 A320neos ordered by Bank of China-owned BOC, plus the Air Costa planes.

Singapore Airlines illustrates the trend toward separate brandings aimed at specific markets, according to GE’s Liu.

Once simply a network operator, “now they have Silk Air for regional, Tiger in low-cost short-haul and Scoot for long- haul,” he said. “We see the same with All Nippon, which has Peach, and Japan Airlines with Jetstar Japan.”

Four-Figure Fleets

India alone has “huge potential,” with just 1 percent of its 1.2 billion of population so far traveling by air, Embraer’s Mark Dunnachie, head of commercial aviation for the Asia- Pacific, said after the Air Costa deal. “And we see something similar in Indonesia, Malaysia and the Philippines.”

Growth is evident in support services, as well as aircraft sales, with Airbus last week joining with Singapore Airlines to establish a pilot-training school and securing a 15-year-deal to provide support for Thai Smile’s fleet of 20 A320s. While Boeing provided 56 percent of the 5,000-plus planes flying in Asia today, the backlog shows Airbus with 69 percent of future narrow-body deliveries and a 53 percent share on wide-bodies.

Orders placed in Singapore barely scratched the surface, according to Tony Fernandes, CEO of AirAsia, which is vying with Indonesia’s PT Lion Mentari Airlines and Qantas Airways Ltd. affiliate Jetstar Airways Pty. for discount supremacy.

With the continent’s 3 billion people served by a fleet less than half the size of that in the U.S., which has a population of 315 million, the days of an Asian carrier with more than 1,000 jetliners can’t be far off, Fernandes reckons.

AirAsia already has about 140 A320 planes in operation plus 335 on order; Lion Air has a 105-strong fleet and a mammoth 650 Airbus and Boeing narrow-bodies yet to come.

--Editors: Christopher Jasper, Anand Krishnamoorthy