Asia’s low-cost airlines are at risk of losing their price advantage as rising fuel prices and tensions in the Middle East disrupt key routes, forcing them to raise fares and cut costs.
Because low-cost carriers rely on high passenger numbers and low fares, they have lower profit margins than full-service carriers and have less room to absorb fluctuations in fuel prices and route disruptions.
Airline executives speaking at the Aviation Festival Asia conference in Singapore said they were currently working to cut costs, adjust fares and change routes to avoid passing on too much of the increase to passengers.
“We need to adjust fares and at the same time stimulate demand,” AirAsia Cambodia CEO Visos Nam told CNBC’s Monica Pitrelli during a panel discussion Thursday. “Otherwise, there won’t be any tourists.”
India’s SpiceJet said that the Middle East conflict has increased traffic between India and the region, significantly impacting its operations.
SpiceJet chief customer officer Kamal Hingorani said: “Dubai alone has 77 weekly flights from India and this is absolutely a huge impact for us in terms of route and revenue loss.”
Hingorani said that while rising fuel costs have not yet completely hit airlines, prices are set monthly and could rise further in April.
On March 26, the Investment Information and Credit Ratings Authority of India changed its outlook for India’s aviation sector from stable to negative, citing the weakening of the Indian rupee against the dollar and rising fuel prices. Fuel prices rose 5.4% year-on-year in March and are expected to rise further in April.
Hingorani said if fuel prices rise to unmanageable levels, airlines “may have to absorb some (of the costs)” because passing on high fuel surcharges will hurt demand.
long distance strength
However, not all airlines are equally affected.
ZipAir Tokyo said it has performed relatively well compared to other low-cost carriers, partly because its routes avoid the Middle East and there has been no disruption from the conflict.
The company operates eight aircraft on medium- and long-haul international flights, and there was strong demand during Japan’s cherry blossom season, especially in April.
“Some routes have come out stronger as a result of this crisis, while others have weakened,” said Brendan Sobey, an aviation analyst at Sobey Aviation. Long-distance routes generally remain solid.
However, ZipAir’s incoming CEO and co-founder Yasuhiro Fukada said fuel prices still have a direct impact on costs, especially since airlines do not charge fuel surcharges.
Japan has domestic oil reserves and sources crude oil from the United States, but ZipAir told CNBC in an email that the supply situation could become even more difficult depending on how the conflict unfolds.
Its parent company is Japan Airlineshas implemented a special fuel surcharge policy on international flights from February 27 in response to the “unprecedented rise” in fuel prices.
Fukada said Zipair plans to double its fleet to more than 20 aircraft by 2032.
Airlines focus on technology
Low-cost airlines are also turning to technology to reduce costs.
ZipAir announced on February 26 that it will be introducing Starlink satellite internet on its flights free of charge to passengers.
The service allows airlines to stream entertainment to passengers’ devices instead of installing heavier in-flight entertainment systems, reducing maintenance and fuel costs.
SpiceJet said its subsidiary SpiceTech develops software and operational systems in-house for its customers, allowing the airline to eliminate nearly 80% of technology vendors and reduce costs.
Hingorani said this was “the basis for our survival…because[Spicetech]is a subsidiary and not our direct company. The company also does a lot of work for airlines around the world in these respects.”
