Discount Airlines Take Flight in Asia

The expansion of discount carriers like Southwest Airlines (LUV) and Europe's Ryanair (RYAAY) has redefined air travel. Yet one area where the low-fare model hasn't clicked is in long-haul international flying. From Sir Freddie Laker's pioneering Skytrain of the 1970s to London-based Zoom Airlines, which folded in 2008, carriers that offered long-distance service on the cheap have failed. Despite that sobering record, both Qantas Airways and AirAsia are challenging long-haul companies like Singapore Airlines with a low-fare model.

There's a key difference in these latest discount assaults: support from large, existing airlines. Qantas' Jetstar Airways unit, which already offers cheap flights within Australia, will add budget long-haul flights from Singapore later this year. Jetstar intends to begin Singapore-Melbourne flights in December, followed by services to Auckland in March. Later it plans to add flights to other European and Asian destinations.

AirAsia X, 16 percent-owned by Air-Asia, the continent's largest budget carrier, already flies from its Kuala Lumpur hub to London and Australia and plans new service to Japan and South Korea. Its partnership with Air- Asia lets it tap connecting traffic to about 70 cities from Kuala Lumpur. And Jetstar shares some flights with Qantas and has a partnership with Air France-KLM Group, Europe's largest carrier. Such deals may help the upstarts avoid the fate of stand-alones like Zoom and Oasis Hong Kong Airlines, which also folded in 2008.

"Long-haul, low cost is transforming the whole aviation landscape in Asia," says K. Ajith, an analyst at UOB Kay Hian Research in Singapore. "If [budget airlines] have a strong network and are viable, they can potentially lure passengers from established carriers."

AirAsia X charges from about 1,286 ringgit ($402) for a flight from Kuala Lumpur to Stansted Airport, 40 miles outside of central London. An economy ticket from Kuala Lumpur to Heathrow Airport on Malaysia Airlines, the nation's largest carrier, starts at about 2,104 ringgit ($657).

AirAsia X cuts costs by using fewer flight attendants, since it only loads and serves hot meals that customers have preordered. That saves the carrier up to $100 per passenger, says Chief Executive Officer Azran Osman Rani. Jetstar formed a venture with Air- Asia in January, lowering costs for spare parts and ground-handling services.

The bottom line: New Asian discount airlines hope links to large existing carriers will help them succeed in long-haul markets that have long defied upstarts.

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