Low-cost airlines have revolutionized the global air travel, bringing an end to the days of exorbitant prices and limited travel options. As the slogan of the world’s best budget airline says, AirAsia, “Now everyone can fly”. It seems like the slogan is true because affordable air travel is now available to the masses.

Before exploring how budget airlines will dominate the market, a short explanation of what they are (and what made them popular) is essential.

How are Budget Airlines Different?

The concept which differentiates low-cost airlines from others is a reduction of services, and therefore prices. Low-cost airlines give just that. They realize most passengers just want to get from one place to another with no special amenities.

This doesn’t mean that low-cost airlines don’t offer the services which others do.  They just don’t include most offerings in the default price. For example, if the passenger wants a meal they can order it at a surcharge to the airfare. Some airlines such as AirAsia have gone as far as making the luggage fee optional. Its default fare provides only 7kg of carry-on.

The concept is proven to be sound, as evidenced by the popularity and dominance of low-cost carriers all across the world. Over half of all airline seats sold in Southeast Asia are on a low-cost carrier.

Below are a few of the region’s success stories:

 

AirAsia

The largest low-cost carrier in the region, Malaysia’s AirAsia saw its quarterly profit rise almost 600%. Sales jumped nearly a third. Airasia is looking to leverage high growth in China to empower itself even further.

 

Vietjet

VietJet is one of the fastest growing low-cost carriers in Asia, owning a 40% share of the Vietnamese domestic market after just 9 years. It seeks to become a top low-cost airline by adding more than 100 planes to its fleet by 2019.

 

Scoot

Singapore’s Scoot has made itself known as one of few that operates medium to long haul flights with a widebody fleet. This diverges from the traditional low-cost carrier strategy of operating small planes for short distances.

Low-cost carriers look to advance their lead even more with the ASEAN Open Skies Agreement. They already dominate the market under normal circumstances.

The ASEAN Open Skies Agreement came into effect last year, providing better integration of air travel in Southeast Asia. It removes all restrictions which limit the number and routes of flights in the region, giving airlines the ability to launch international flights. The only constraint being the capacity of each individual airport.

With that said, it’s important to note that many of the biggest Southeast Asian airports are already at their full capacity. The maxed out list includes three airports that serve ASEAN’S largest domestic markets: Thailand’s Suvarnabhumi Airport in Bangkok, Philippines’ Ninoy Aquino International Airport in Manila, and Indonesia’s Soekarno-Hatta International Airport in Jakarta.

The unlimited flight capacity from the new agreement will revolutionize air-travel in Asia. But it might be limited to routes that include non-maxed out airports until the busiest airports expand their capacity.

Moving from a strictly regulated market to a greatly liberalized one, Southeast Asia’s budget airline industry has opened its doors for companies to expand even more aggressively.

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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