Business | Aviation
Sponsored By
Low-cost carriers fly high in China
The low-cost carrier (LCC) concept will next year celebrate its 60th anniversary, marking six decades since the first flight of now-defunct US-based Pacific Southwest Airlines.
- By Adel Ali, Special to Gulf News
- Published: 00:27 May 5, 2008
The low-cost carrier (LCC) concept will next year celebrate its 60th anniversary, marking six decades since the first flight of now-defunct US-based Pacific Southwest Airlines.
Here in the Middle East, where Air Arabia introduced the LCC model less than five years ago, the industry is an awful lot younger. But it is growing faster here than almost anywhere else on earth, with new LCCs now entering the region and even more on the way.
Considering that the LCC model was born in the US, the world's single largest aviation market, it's hardly surprising that the country remains home to the greatest number of LCCs.
There are currently 15 low-cost carriers operating in the US, including Southwest, which launched in 1971 and has turned an annual profit every year since 1973.
Guess which nation is number two on the global list of LCCs? Odds are, you'll think of Britain - home to the ubiquitous easyJet, owner of easyHotel, easyCruise and easy-just-about-everything-else.
With 13 currently operational low-cost carriers, Britain does figure very high on the list of most-served LCC markets. Until very recently, in fact, the country was second only to the United States in terms of LCC penetration. Times have changed, however, and Britain has since slipped to third place in the global rankings.
Home to Lucky Air and Deer Jet, United Eagle and Okay Airways, China is now the second most-served LCC market worldwide. With 14 low-cost carriers serving mainland China, the country hosts just one fewer LCC than does the US. And if you include on that list the three LCCs that serve exclusively Hong Kong, China suddenly becomes the world's number-one low-cost carrier market.
There's a similar category where China doesn't even figure on the list - and where the dominance of the United States is totally without challenge. From ValuJet to Eastwind, from Song to Hooters Air, the US is home to the greatest number of defunct low-cost carriers anywhere on earth.
Globally, some 38 LCCs have gone bust since the business model was first introduced nearly six decades ago; 24 of those business failures took place in the US. None of them happened in China.
In Europe for instance, when conventional airlines tried to establish LCCs, the result wasn't much of a success. When British Airways announced the launch of its own LCC, Go, in 1997, the new airline did not last long; after less than five years, Go was bought by easyJet.
You can read all kinds of things into these facts. But the rise of China's LCC market, especially compared to the US, makes a lot of sense given macroeconomic conditions in both countries. China has a population of 1.3 billion and an economy that expanded by 11.4 per cent last year alone. The US has a total population of just over 300 million and an economy that expanded by a paltry 2.2 per cent last year.
Eastward shift
The centre of the world economy has clearly begun to shift east, towards more dynamic regions, including South and East Asia and, of course, the Middle East. These rapidly emerging markets aren't just experiencing superior growth; they are also witnessing an entre-preneurial renaissance, spurred by government-led reforms and bold private-sector initiatives.
It comes as little surprise that LCC's are gaining across this landscape: LCCs, which are dependent upon superior efficiency, do best in open, dynamic economies. They also require agile management, who are expert at supply chain management.
For LCCs to thrive in these emerging markets in the longer term, however, something that hasn't happened yet should happen - once these markets begin to really mature and reach saturation, at least a few of these airlines should fail. In mature economies, entrepreneurs frequently shoot for the stars, fall flat on their faces, then pick themselves up and start again.
While celebrating the rise of this region, then, it's important to plan with foresight. The LCC model may be based on low costs, but the stakes remain very, very high.
- The writer is board member and CEO, Air Arabia.
Share this article
More from Aviation
More from Business
Popular in Business
Business Editor's choice
-
Credit swaps... a fair trade
Would you swap an unbuilt unit at the Lagoons for an apartment at JBR?
-
New face of safety
Volvo reveals a sleeker S60, ready to hit the roads early next year
-
When the Web lives worldwide
Cutting-edge firms are building massive data facilities all over the globe
-
Budget travel
Airlines in the region
Take a pictorial look at some of the budget airlines in GCC
