David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

A specter is haunting Asian aviation -- the specter of AirAsia.

Don't make the mistake of thinking that Thai Airways' plan for a tie-up between 10 airlines in the region is about fighting off competition from the Value Alliance, a group of budget carriers formed last month.

After all, one of the Value Alliance's founding members is Nok Air, Thai's own low-cost affiliate. Indeed, of the grouping's eight constituents, all but two are connected with full-service carriers Thai, Singapore Air, Virgin Australia or ANA.

Both alliances are better understood as a circling of the wagons against the impending threat from Malaysia's AirAsia, the world's best-performing airline stock this year after its own long-haul arm AirAsia X.

Group CEO Tony Fernandes, never one to hide his light under a bushel, has admitted as much. The Value Alliance is "a little bit of an act of desperation from some airlines that are not doing so well," he said in an interview with Bloomberg TV's Haidi Lun last month. 

Taking Flight
Capacity growth at AirAsia and AirAsia X has been explosive
Source: Bloomberg data

Even as it's throttled back expansion in recent years in the face of a glutted Southeast Asian market, the carrier hasn't stopped growing. Available seat kilometers, a capacity measure, topped 10 billion for the first time in the three months ended March -- a 58 percent increase in five years.

Such growth can be dangerous for airlines if it runs ahead of demand, but AirAsia is in a strong position. With a load factor of 85 percent in the first quarter, the company was filling a bigger share of its seats than in any quarter since 2013. That suggests it was matching supply to demand pretty well.

Fernandes has also got an operational advantage that should stand him in good stead. While travelers in the U.S. and Europe may think locally dominant carriers Ryanair and Southwest are fanatical about costs, AirAsia puts both to shame. At 1.87 U.S. cents per available seat kilometer excluding fuel, AirAsia's costs are about 20 percent below Ryanair's and barely a third of Southwest's.

Bare Bones
Costs per available seat kilometer, excluding fuel, at select budget airlines
Source: Bloomberg data
*As of end-2015.

That's important in any looming market-share battle because most passengers aren't loyal, and can use comparison websites to pick the cheapest flight. With the lowest operating costs in the region, AirAsia can be matched in a price war only by rivals prepared to lose money on every flight.

Fernandes's holy grail is to see an open skies agreement across the Association of Southeast Asian Nations that would allow his carrier to take advantage of deregulation in the same way that Ryanair did in Europe in the 1990s and Southwest in the U.S. in the 1980s.

That vision remains remote, with the grouping's most populous nations, Indonesia and the Philippines, still choosing to protect their domestic markets. But in the meantime Fernandes has affiliates in both nations plus Thailand, and has started up a unit in India with another on the way in Japan.

Cheapest of the Cheap
Price-earnings valuations of low-cost carriers with market capitalization above $1 billion
Source: Bloomberg data
Note: Valuations are relative to analyst estimates for blended forward 12-month earnings. Definitions of "low-cost carrier" differ: some listed airlines also operate charter flights and have business-class services.

That backdrop, and the shares' run-up over the past few months, might suggest that all the benefit for AirAsia has been priced in. But on price-earnings multiples it's still the cheapest stock among 16 budget airlines globally worth more than $1 billion, according to data compiled by Bloomberg. A valuation of 7.1 times forecast earnings over the next 12 months is well below the median 10.3 multiple.

With growing inbound demand to Malaysia from Indian and Chinese travelers, and a big slice of fuel costs hedged for the next few quarters at close to current spot crude prices, there's little sign that AirAsia's run is over just yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Matthew Brooker at