As fuel drops below US$100 LCC look to expand
Friday, September 12, 2008：Crude oil for a short time dipped below US$100 a barrel on Tuesday this week, signifying a significant 30% drop from its highs of US$147 in July, and with it LCCs could potentially move more aggressively.
As fuel moves to more manageable levels of US$125 a barrel for Grade A jet fuel, analysts at the Centre for Asia Pacific Aviation (CAPA) predict that low cost carriers will pounce on this period to expand.
“The rapidly deflating global economy and falling fuel prices are providing the conditions for an ‘LCC sweet spot’,” said CAPA in their latest report.
“Asia’s leadings LCCs are ready to promote structural change in the region, probing the weakness of their full service (and other unfocused ‘budget’) rivals in short-haul (and increasingly long-haul) markets.”
Citing examples, CAPA points to AirAsia’s recent giveaway of a million free seats, Cebu Pacific’s long awaited fourth hub, Jetstar’s Darwin hub along with the development of Jetstar Pacific.
Tiger Airways also offered sale seats, with 100,000 seats for SGD0.40 cents.? The Singaporean carrier also has just announced plans for a 12.5% increase in capacity at its Singapore hub next year.
“Protectionism could rise in an economic downturn, which could throw up some challenges for the region’s LCCs. But all [major players]... have sufficient diversity and untapped potential to redeploy capacity within their networks if offshore expansion opportunities are temporarily closed off,” says CAPA.
“Meanwhile, as the well of business and leisure demand dries up as economies slow, fares will inevitably come down. This plays right into the sweet spot of the region’s focused LCCs.”