What Crisis? Budget Carriers Thrive Amid Gloom

KUALA LUMPUR — Budget airlines have found a silver lining in the global recession.

As travelers pinch pennies and opt for cheaper alternatives, AirAsia, Europe's Ryanair and other low-cost carriers are adding routes and buying new planes to grab a larger slice of global aviation at the expense of their more established rivals.

AirAsia airlines hostesses pose for pictures with a new banner following the announcement of AirAsia and Oakland Raiders partnership at the International Airport's low cost carrier terminal in Sepang on June 26. (Photo: Getty Images

Major players such as British Airways and Hong Kong's Cathay Pacific Airways have reported full year losses for the first time in years despite cutting costs and flights to cope with a downturn in premium air travel.

Full service carriers, which once completely dominated the skies, are banking on an economic recovery to restore their fortunes but they may find it tough to return to the growth levels they enjoyed before the crisis.

"Full-service airlines have a bit of conundrum on their hands," said Derek Sadubin of the Sydney-based Center of Asia Pacific Aviation. "We think low-cost carriers will become so much more entrenched in airports and corporate travel that it will be difficult for them to claw their business back" when the economy recovers, he said.

To be sure, all airlines have struggled as oil prices soared in the last two years. Oil prices have since tumbled and despite a rally early this year, are still half the level of a year earlier.

But major industrialized economies continue to contract and economic conditions are likely to remain tough even when a recovery is under way. The International Air Travel Association in June predicted airline losses worldwide to swell to $9 billion this year, nearly double its previous forecast.

Full service carriers are the worst hit as the downturn has hammered business and first-class travel, which make up a small percentage of seats but account for up to 40 percent of their revenues.

Their smaller, no-frills rivals are weathering the recession better with a low-cost model that relies on high passenger volumes, stripping out costs through strategies such as taking the cheapest landing slots at airports and turning full service features like meals and check-in baggage into profit-making extras.

In Asia, budget aviation has seen exponential growth since the start of the decade and now has a 16 percent market share, Sadubin said.

Airline staff pose in front of the first of flydubai's 50 Boeing 737-800 Next Generation aircraft during a ceremony in the Gulf emirate on May 18. (Photo: Getty Images)

The market share of low cost carriers could cross the 20 percent mark in the next one to two years, he said, as they open up new routes across the region and give travelers an option to fly at a fraction of the cost charged by full service airlines.

Malaysian-based AirAsia, the biggest low-cost carrier in the region, posted a record profit of 203.2 million ringgit ($56.4 million) for the quarter through March, up 26 percent from a year earlier. Passengers soared 21 percent to 3.15 million during the period while falling at regular airlines.

It has ordered new planes, made its debut in Europe with flights to London in March and is eyeing plans to enter the US market.

"We are in the McDonald's, Wal Mart category. Business is booming as people are looking for value," AirAsia Chief Executive Tony Fernandes told The Associated Press in a recent interview.

AirAsia's success has generated rivals, the best known of which are Singapore-based Tiger Airways and Qantas Airways-owned Jetstar.

Tiger, which is 49 percent owned by Singapore Airlines, is rapidly expanding and has a total 56 new aircraft on order for delivery through to 2016.