Economic Growth in ASEAN Drives Demand for Low-Cost Air Carriers
February 26, 2014
In mid-February, Singapore hosted Asia’s largest aerospace exhibition. Organizers of the week-long Singapore Air Show were hoping that $25 billion in deals would be signed, but by week’s end, expenditures had already surpassed that, reaching $32 billion in deals inked to help meet the demand for inexpensive, short-range travel. In 2010, sales amounted to what now seems a paltry $10 billion.
Rapid economic growth, urbanization, and a swelling middle class in emerging economies in China, India, and Southeast Asia are increasing demand for air travel. According to the Boeing Company, Asia-Pacific airlines will need almost 13,000 more airplanes worth $1.9 trillion over the next two decades. Estimates predict that by 2032 the total number of Asian carriers will reach 14,750, up from 5,090 in 2012. As Boeing noted in a statement around the Air Show: “Over the next 20 years, nearly half of the world’s air traffic growth will be driven by travels to, from, or within the [Asia] region.”
This comes at a time when the Association of Southeast Asian Studies (ASEAN) is striving to achieve economic integration by 2015, and transform the region with free movement of goods, services, investment, skilled labor, and a freer flow of capital. Encompassed in this integration effort is ASEAN’s single aviation market (SAM), which seeks to liberalize air services under a single unified air transportation market, also by 2015.
According to Amadeus, a travel technology company, budget airlines or low-cost carriers from Indonesia, India, Thailand, and Malaysia accounted for over half of global low-cost carrier seat capacity growth in 2013. These low-cost carriers made most of the purchases at the Singapore Air Show. VietJetAir, a privately owned carrier founded only in 2011, purchased 63 Airbus A320 jets for $6.4 billion. Thai budget carrier Nok Air has agreed to buy 15 B737s from Airbus’s rival, Boeing, for $1.45 billion. Although not a budget carrier, Myanma Airways, which for the most part had suspended international flights for the past two decades, signed a deal to lease 10 Boeing aircraft worth $1 billion to help boost tourism in the country. This lease, financed by GE Capital Aviation Services, is the largest commercial sale by an American company to Myanmar in decades given the U.S. sanctions policies that were in place until recently.
But reliable and comfortable cross-border travel requires improvements in infrastructure and convenient transit between metropolitan centers. There are 170 cities in Asia with populations of over one million people each, but there are few airports connecting them to the rest of the region. Moreover, based on existing aircraft orders over the next decade, Asian carriers will need 190,000 pilots. There is concern that there could be a 30-percent shortfall of pilots. Raman Narayanan, head of ASEAN affairs and government relations for Air Asia, recommends freeing up cross-border accreditations of pilots and aircrews by identifying and accrediting 12 to 15 flight academies and providing cross-border licensing. Such a development would be in sync with ASEAN’s goal of fostering the free flow of skilled labor in the region.
As 2015 approaches, ASEAN should follow through on its commitments in forging the ASEAN Economic Community and allow airlines to operate freely in the region. Lifting barriers, harmonizing standards, and investing in infrastructure and people will elevate the performance of airlines and make it easier and cheaper for people to move about. The spill-over effects into tourism and adding fluidity to business travel will also serve ASEAN’s regional agenda and the Asia-Pacific more broadly.
John J. Brandon is director of Regional Cooperation Programs for The Asia Foundation, based in Washington, D.C. He can be reached at email@example.com. The views and opinions expressed here are those of the individual author and not necessarily those of The Asia Foundation.
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