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Asia's budget airlines fuel-up

By Nick Easen for CNN

Low fair carriers are doing well in the Asia-Pacific region, but mainly on domestic routes.
Low fair carriers are doing well in the Asia-Pacific region, but mainly on domestic routes.

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HONG KONG, China (CNN) -- Budget airlines have changed the face of air travel in Europe, they've invaded the US, now there is talk of a sea change in the Asia-Pacific.

The number of budget airlines in the region is on the rise from Air Asia in Malaysia to Australia's Virgin Blue.

Singapore plans to launch ValuAir in 2004 and Thailand is talking about one based in Chiang Mai, yet there is still debate on whether the no-frills carrier model is suited for the region.

"I don't think there will be a surge in no-frills airlines, but they could take over secondary or short-haul routes," says Philip Wickham, airline analyst at ING Financial.

Their success to-date has reflected pent-up demand for cheap domestic fares and their popularity has generated a lot of interest from would-be rivals and other industry players.

Since low cost point-to-point airlines have lured millions in the West -- including business executives -- some believe Asia has even greater potential.

"Asia's regional carriers have operated in a virtual monopoly for too long and although they have taken some costs out, it's not enough to compete with the lean and mean start-ups," David Pettigrew of Business Travel International a corporate travel specialist told CNN.

With more than 130 cities with more than one million people and a rising urban population, budget air travel is not a market airlines can overlook, believes CEO of Qantas, Geoff Dixon.

"I do foresee a day when they will be a powerful force in this part of the world, particularly on shorter haul, international routes," he told the Asia Pacific Aviation Media Association.

"The population, geographic and income characteristics of the region are ideally suited to the development of low cost carriers."

No-frills revolution

To-date the no-frills revolution has been slow and Asian discounters have been limited, for the most part, to domestic flights.

In Asia regional hops tend to be longer than two hours and a step up to these routes for budget carriers has yet to occur.

Some suggest that it is because the regional players are already operating on the lean side.

"Already the operating costs for Cathay Pacific and Singapore Airlines are similar to that of Ryanair in Europe," says Wickham.

And budget carrier Ryanair, which flies to many European destinations, still has no Asian equivalent.

In fact Asia's major carriers already squeeze cheaper seats into their wide body planes, make money on cargo sales and use labor that is less expensive when compared to Europe.

Narrow-bodied planes used by no-frills airlines may not be able to supplement their income with extra cargo and many secondary airports in Asia are not cheap places to land.

These are not the only hurdles that they would have to overcome to be successful in Asia.

In many cases bilateral agreements between many airlines already make it hard for newcomers to make any headway.

And Governments in the region still control many of the major players and regulate airline consolidation and foreign investment.

"There is no true de-regulation or open-skies policy in Asia. Even if they are not government owned there is high degree of protectionism and favoritism towards home-based carriers," says Pettigrew.

Consumers in the region are also less likely to buy and compare air ticket prices online; instead many still use traditional travel agents.

Only recently was Zuji launched in the region, which allows would be passengers to effectively compare prices for flights online. It is the equivalent of Travelocity in the US.

However, optimism for no-frills continues.

"Virgin Blue has already succeeded; Air Asia has an impressive domestic share. I think ValuAir has a chance because the local market is very price sensitive. We could see them emerge in China once re-structuring has occurred. I give the market 6-18 months before we see success," adds Pettigrew.

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