Tiger, Thai Air Challenge AirAsia With Bangkok Low-Cost Venture
Thai Airways International Pcl and another local company will own 51 percent of Thai Tiger Airways Pte, which is due to start operations in the first quarter of next year, the carriers said in a statement. Tiger Air will own the rest. The venture will fly domestic and overseas routes of up to five hours.
Tiger Air plans to add a Bangkok base to its operations in Singapore and Australia after rebounding economic growth helped fuel a 14 percent jump in first-half Thai tourism arrivals. The airline will compete with AirAsia, the region’s largest discount carrier, which already has a hub in the Thai capital and plans to list shares on the local stock exchange.
“This is a really big step up for Tiger Air in terms of its regional competitiveness,” said Peter Harbison, managing director at the Sydney-based Centre for Asia Pacific Aviation. “This puts it firmly in the competitive market place that AirAsia and Jetstar are fighting to be in. It’s about establishing a regional brand.” Jetstar is the budget carrier owned by Qantas Airways Ltd.
The companies need approvals before the new airline can start operation, according to the statement. The venture may break even within two years of operations, Melissa Yeap, an analyst at DMG & Partners Securities, said in a note today.
“Market Big Enough”
Tiger Air, AirAsia and Jetstar are accelerating expansion plans across Asia Pacific, which last year overtook intra-North America as the world’s biggest aviation market. Asia-Pacific airlines may post the biggest profit of any region this year, the International Air Transport Association has predicted.
The “market is big enough,” AirAsia Chief Executive officer Tony Fernandes said in an e-mail reply to Bloomberg queries today. “We deal with competition every day.”
There is also “no change in plans” for a possible dual listing of AirAsia’s shares in Thailand or the initial public offering it is considering for its Thai unit next year, he said. AirAsia has ordered 175 A320 planes from Airbus SAS, making it the biggest Asian customer for single-aisle models for the Toulouse, France-based planemaker.
Tiger Air rose 5.4 percent to S$2.16, a record close since it began trading in January in Singapore. Thai Air advanced 4.4 percent to 36 baht, the highest level in more than two and a half years. AirAsia increased 0.7 percent to 1.50 ringgit in Kuala Lumpur.
Including short-haul routes, budget carriers may account for 30 percent of Asia-Pacific capacity by 2015 from 20 percent now, estimated Derek Sadubin, chief operating officer at the Sydney- based Centre for Asia Pacific Aviation.
“It will be naive for AirAsia or anyone else to think they have a monopoly in the local service in the region,” Tiger Air CEO Tony Davis said in Bangkok. Competition in Asia’s low-cost airline industry is “still very small compared to Europe.”
Tiger Air failed to set up a budget carrier in South Korea in 2008.
For Bangkok-based Thai Air, the new airline will help boost passenger traffic after it lost 6 billion baht in revenue ($186 million) earlier this year from the worst political unrest in two decades. Thai Prime Minister Abhisit Vejjajiva has kept Bangkok under a state of emergency since May 19, when the military quashed two months of protests against his rule.
The new venture will have “enormous potential” as only 6 million of the 65 million Thais have flown before, Thai Air President Piyasvasti Amranand said in Bangkok today.
“Low-cost is the fastest-growing market and we want to take part in this market,” he said. “We have been losing market share to low-cost airlines and we think there is a lot of opportunity for us.”