There is no way that the low-fare carriers in Asia-Pacific are going to take the corporate travel world in the region by storm and give the legacy carriers a run for their money.

Inevitably, however, the young upstarts here, among them AirAsia, Valuair, Tiger Airways, Virgin Blue, the yet-to-be-named Qantas Airways’ Singapore-based low-fare carrier, etc, will occupy the same space as the legacy carriers, and find their own level and market share in business travel.

The wheels have been set in motion by low-fare carriers for various airline models to exist and there is no turning back.

And why should there be just one airline model? Airlines, like any other business, have to go into greater segmentation, find their own niches and be successful in that niche. Gone are the days of the one-size-fits-all model – in fact, that was a big factor that broke the legacy carrier model. In truth, the legacy carrier model is outdated, inefficient and amazingly so far removed from being customer-centric. Corporate travellers in particular have for years been paying for these inefficiencies and subsidising travel at the back end. The crises of recent years have forced them to say, enough, we are not willing to pay through our noses anymore.

The advent of the low-fare carriers shows both legacy carriers and the flying public that there are better ways to operate an airline.

It has forced legacy carriers to reinvent their models.

In the US, legacy carriers such as United Airlines have launched their own low-fare carriers to fight on that particular turf, while the legacy United itself works on simplifying processes, cutting costs and putting the customer first. In Australia, Qantas alone is now “broken” down into six models; there is the traditional Qantas international; its low-cost subsidiary Australian; Qantas regional, domestic and low-fare; and the soon-to-be-launched Qantas’ Asian low-fare carrier based in Singapore.

As low-fare carriers become less of a novelty, they too have to keep reinventing their models in order to compete among themselves and among a crop of smarter and wiser legacy carriers. In Europe and US, some low-fare carriers have begun to add frills in order to distinguish themselves from competitors. Some say this is a dangerous move for the no-frills carriers, whose very success has been due to their ability to keep the unit cost low.

It is uncertain which models will emerge a runaway success, as there is clearly a “convergence” of various efforts now. Will Qantas, for example, be successful with six different models, or end up with a confused identity and confusing its staff and customers? Will low-fare carriers be able to survive greater competition and will they end up looking like a hybrid between low-fare and legacy?

What is certain is the whole airline industry worldwide is moving towards a low-cost base, simplified structure and customer-centric operation. That is the good piece of news in decades for corporates from the airline industry.

All of the above was discussed at the recent IATA AGM in Singapore. To be fair, legacy carriers are at their poorly state (particularly the ones in the US, not so much the Asian carriers) not because they were poor managers or lacked business acumen to run an organisation efficiently and profitably. The AGM painted a picture of how their hands were tied because of government regulations, labour issues, poor airport infrastructure, etc. Government regulations deny airlines access to global capital, freedom to operate where market exists and the ability to consolidate and go even right down to rules on seat pitches.

IATA’s director-general and CEO, Mr Giovanni Bisignani, contends that airlines do all the flying – everybody else but them profit from it.

There were other memorable quotes which encapsulate at once some of the issues facing the industry.

One of my favourites is British Airways’ CEO Mr Rod Eddington’s quip: “It is easy to be low-fare. Being low-cost is altogether difficult.” Or, Valuair chairman Mr Lim Chin Beng’s remarks on how airlines have ridiculously subjected customers to complex fare structures, taking care of themselves first before their customers. Or how Air New Zealand CEO, Mr Ralph Norris, demonstrated that a simple move to change his airline’s motto from “flying” to “flying people” was what it took to change staff mindset and make them put customers before shareholder profits. Obviously, the shareholders will benefit in the end anyway if the model is right.

If you are a corporation trying to reduce T&E costs, or a TMC hoping to add value to your services, the current changes in the airline industry can only mean one thing:
a dream industry that has you, instead of its problems, in mind.

At long last.

Raini Hamdi
Editor

On The Record is held over due to space constraints.