After wave of new low-cost carriers, booming Asia sees launch of premium business carriers

GDP growth, increased trade flows, the rise of a new middle class, and market liberalization are the main drivers behind the rapidly growing demand for air travel in Asia Pacific over the coming decade. Airbus, for example, projects that by 2030 the region will account for 33 percent of worldwide revenue passenger kilometres, up from 28 percent today.

The growth in the region’s aviation market is resulting in a large number of new airline launches. In the past year, full-service airlines such as ANA (Peach, AirAsia Japan) and JAL (Jetstar Japan) have announced their own low-cost initiatives in order to take advantage of market deregulation in Japan, while the region’s largest LCC’s – AirAsia, Jetstar and Lion Air – continued their expansion. Singapore Airlines, meanwhile, has launched a low-cost long-haul subsidiary, called Scoot.

At the other end of the spectrum, the region’s booming economies and the resulting growth in business travel have led ‘challenger airlines’ such as Skymark from Japan (low-density A380) and Hong Kong Airlines (Hong Kong – London ‘Club’ service) to announce all-premium long-haul flights, while in Southeast Asia, Qantas, Malaysia Airlines and AirAsia founder Tony Fernandes have all revealed plans to set up their own regional premium carrier.


Qantas ‘Red Q’
Because of intense competition from Gulf-based and Asian carriers, Qantas’ international market share in Australia has fallen from 39 to 14 per cent over the past decade. The airline’s cost base for its international operations is said to be 20 per cent higher than that of its competitors. With its dominance at home eroded, Qantas in August 2011 announced a plan to establish an Asian hub, which is is expected to reduce its operating costs with tens of millions of dollars.

Says Qantas CEO Alan Joyce: “Our aim is to position ourselves in the Southeast Asian marketplace in advance of planned aviation liberalisation. In five years we plan to have a hub in the world’s fastest growing aviation region, feeding traffic into both our Qantas and Jetstar networks. This is how we will end the disadvantage of being an end-of-the-line carrier.”

As part of the plans, Qantas will establish a premium short-haul carrier, which will likely be called RedQ (or alternatively OneAsia). According to Australian Business Traveller, Qantas’ Asian subsidiary plans to emulate British Airways’ all-business trans-Atlantic service from London City to New York with lie-flat beds, but will also have “superior” economy seats”. Says CEO Alan Joyce, “the airline will be better than anything else seen in Asia with lie-flat beds in the business cabin and [it] will have a private jet feel to it.”

Kuala Lumpur hub
After Singapore initially emerged as the most likely base, Qantas is now reportedly favouring setting up its new premium airline in Kuala Lumpur. A major reason for this shift is Malaysia Airlines’ (MAS) entry into the oneworld alliance, which paves the way for closer cooperation between MAS and Qantas and turn Kuala Lumpur into a major hub. There are also reports that MAS is also pursuing a tie-up with oneworld member British Airways – which currently does not serve Kuala Lumpur – leading to a potential joint venture in the UK-Malaysia market and beyond. Says MAS CEO Ahmad Jauhari Yahya, “MAS can be the link into intra-Asia, South East Asia, BA for Europe and US points, and Qantas for Australasia. By combining to scale they can beat Emirates and even Singapore Airlines.”

Malaysia Airlines ‘Sapphire’
At the same time, however, MAS has also announced plans to launch its own premium short-haul carrier in mid-2012, targeting short-haul routes to destinations in Asia. According to CAPA, MAS will begin to shift early next year all of its B737-800s to its new regional premium carrier, which has not yet been formally named, although could be called Sapphire. The new carrier will initially operate routes within four hours of Kuala Lumpur, such as Singapore, Jakarta, Manila, Hanoi, Ho Chi Minh City and Bangkok and would serve as a point-to-point commuter service, as well as a feeder for MAS’s long-haul operations.

Says MAS CEO Yahya, “In the first half of 2012, we will launch our new short-haul brand, flying an entirely new Boeing 737-800 fleet. Given a clean slate, a new business model can be designed from inception for sustainable commercial success without any inertial drag of legacy airline models. We also intend to create a separate management structure to focus on the unique customer needs of regional premium travellers. This new airline shall set new standards for product and service quality, cost efficiency, and operational excellence.”

Malaysia Airlines, Qantas, AirAsia
According to Australian Business Traveller, Qantas medium-range premium airline Red Q will complement the regional routes which MAS has earmarked for its own top-shelf carrier. The Malaysia Airlines offshoot will focus on destinations within four hours of Kuala Lumpur, whereas Red Q would run flights from Australia and destinations further afield in Asia.

According to MAS, AirAsia will play no role in the new premium airline. In August, AirAsia agreed to acquire 20.5 percent of MAS, which will likely see AirAsia picking up low-cost domestic and regional routes currently operated by MAS, allowing the latter to focus on the premium international market.

AirAsia ‘Caterham Jet’
But, to make matters even more complex, AirAsia CEO Tony Fernandes is rumoured to be setting up a new premium regional airline, likely be called Caterham Jet. The name comes from the recent purchase by Fernandes of British sports car manufacturer Caterham Cars, and Fernandes Formula 1 racing Team Lotus will also change its name to Caterham Racing.

Caterham Jets, which has yet to be granted an operating licence by the Malaysian government, is expected to fly out of Subang Airport, Kuala Lumpur’s former international airport, which is located considerably closer to the city centre than the current KLIA airport. According to CAPA, the cities named as possible destinations for the premium point-to-point service (as opposed to the feeder models of Qantas’ Red Q and MAS’ Sapphire) are Bangkok, Jakarta and Singapore.

Point to point
Caterham Jet reportedly has secured several Bombardier CRJ200 jets which have been sent for retrofitting. The CRJ200 typically seats 50 passengers, but the configuration will likely be much less dense and give passengers a private jet feel. Aviation Week reports that Caterham Jets will be led by Peter Leiman, who earlier launched European air taxi operator Blink.

Boom times
The various announcements to set up premium services in the Asia Pacific region are a telling sign of the economic boom times in Asia, and resemble the heydays of premium aviation in Europe about five years ago, which saw the rise (and fall) of premium airlines such as Eos and Silverjet. As CAPA rightfully warns, “Just as the North Atlantic market was flooded last decade with premium carriers eventually put out of business by their legacy rivals, a potential market does not mean the market is accessible.”

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