LCCs in AsPac may recover faster than full-service carriers

MANILA, Philippines — Low-cost carriers (LCCs) in Asia-Pacific, such as Cebu Pacific and AirAsia Philippines, are seen recovering faster from the COVID-19 crisis compared to their full service counterparts.

“In many markets in this region, the FSCs (full service carriers) were already under severe pressure from LCCs before the coronavirus pandemic, and the legacy airlines will likely find it even tougher in the next few years,” aviation think-tank CAPA–Center for Aviation said in a report.

CAPA said LCC market penetration is particularly high in Southeast Asia at 56.2 percent.

“It certainly appears likely that LCCs will enjoy an advantage as domestic and international markets open up because they will be structurally better suited to the prevailing market conditions,” it said.

CAPA said any post-COVID advantage could further entrench the LCCs in certain countries where they were already dominant.

AirAsia Group chief executive officer Tony Fernandes told CAPA that LCC business models would indeed be best suited to the post-pandemic market.

He said business travel would be slow to recover, partly because it would take a while before most conventions return, and people have gotten used to virtual meetings.

Initially, he said leisure travelers from Southeast Asia would also be more inclined to fly to short-haul international or domestic destinations, which would benefit short-haul LCC networks the most.

“I think long-haul hub carriers will not recover as quickly as low-cost carriers, not because we’re better, but just because the market is going to change,” Fernandes said.

Meanwhile, FSCs with no domestic networks are expected to be the slowest to recover, while those reliant on large transit hubs will also be at a disadvantage compared to LCCs, according to CAPA.

“But it is entirely feasible that the LCCs will still be in a somewhat strengthened position in many markets, even after demand is fully recovered,” CAPA said.

Operations and finances of local carriers have been severely hit by travel restriction brought about by the pandemic starting last year.

Budget airline Cebu Pacific posted a net loss of P7.3 billion in the first quarter, while PAL incurred a total comprehensive loss of P9.6 billion during the period.

AirAsia Philippines reported a 91-percent drop in passengers carried in the first quarter from the 1.79 million passengers carried in the same period in 2020, with the AirAsia Group posting a net loss of 767.4 million ringgit during the review period.