Sky skirmish looms: Low-cost airlines face turbulence from price-dumping giants

The survival of emerging low-cost carriers in Southeast Asia could be threatened as dominant airlines may resort to price-dumping strategies to safeguard their market share. The airline industry’s seat recovery is also projected to take a decade to fully bounce back.

Really Cool Airlines’ Chief Executive, Patee Sarasin, previously the chief executive of Nok Air, expects to obtain the Air Operating Certificate (AOC) in January 2024, having received an air operation licence in this year’s third quarter.

Post-AOC approval, Really Cool Airlines aims to initiate full-service charter flights between March to May 2024 to destinations such as Tokyo, Nagoya, Hong Kong, Singapore, and Shanghai. The plan is to transition to scheduled flights in the third quarter.

Initially, the airline will deploy two Airbus A330-300 aircraft, aiming for a utilisation rate of 13 hours per day for each plane. The fleet expansion plan targets four jets by the end of 2024.

Contrary to other low-cost carriers, Really Cool Airlines differentiates its products and services as new airlines face tough competition in this segment. Sarasin warns that existing carriers could resort to price dumping to jeopardise new entrants, leveraging their more extensive networks.

Citing MYAirline, a Malaysian budget carrier that recently suspended operations due to financial complications, Sarasin emphasises the risk involved. He also indicates the low-cost segment’s price sensitivity, despite increased post-pandemic airfares due to limited seat capacity amidst soaring demand.

Price cuts

Large airlines capable of frequent price cuts to protect their market share could gain an advantage, putting smaller players who cannot afford to lower airfares at a disadvantage. This is especially pertinent when high operational costs push up prices beyond 2019 levels.

Sarasin revealed that Really Cool Airlines intends to target long-haul services, which, although fuel-consuming and costly, can be managed with an appropriate hedging strategy.

“We are 80-90% ready to fly while obtaining an AOC. We’ve already recruited pilots and will select 180 cabin crew by this month’s end after receiving 1,000 applications.”

The expectation is for the airline to recognise an operating profit within 18 months, faster than usual, due to significantly increased ticket prices post-pandemic. By 2026, the airline plans to operate long-haul flights to Europe, making it the second carrier after Thai Airways to serve those routes.

Sarasin suggests monitoring the model set by two new Japanese airlines, Air Japan and Zipair. With their unique strategy and Japan’s high travel demand, these airlines could initially offer low fares and increase them later.

“New airlines have to differentiate themselves to survive.”

While some industry analysts predict full aviation recovery in a few years, Sarasin believes seat capacity would take a decade to match pre-pandemic levels due to insufficient maintenance facilities, delayed delivery of new aircraft, lack of manpower, and airlines’ significant debts.

Unexpected external incidents such as ongoing conflicts in Israel and Ukraine could also disrupt growth said Sarasin.

“Based on my experience with Nok Air, it took five consecutive years to develop a steady profit until we could list the company on the stock exchange in 2013. It won’t be easy for airlines during this time to recover from the pandemic as the impact was greater than any crisis in the past.”

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