Mainstream airlines consider the budget route

Until now, the skies above Asia have been clearly divided. Customers can choose to scrimp on frills and fly with a budget airline such as Tiger Airways, Jetstar or AirAsia, or they can delve a bit deeper and enjoy the perks of flying with a full-service airline like SIA or Cathay Pacific. But is this line about to be blurred?

In April, All Nippon Airways (ANA) announced what looked like the beginnings of a new budget strategy for its quality, domestic offering. Under the new services, passengers must pay for any drinks they have on board, with the exception of water and Japanese tea.

Similarly SIA and Cathay have started charging between US$50 and $100 for extra legroom in their economy class seats. On some shorter routes, SIA is also charging passengers for the use of headsets.

"Many full-service carriers are looking for ways to limit operational costs in places where it doesn't significantly harm a passenger's total travel experience," says Stephen Li, MEC CEO for South & Southeast Asia and Australasia. "If an airline has a vibrant domestic network it's often easier to identify flights and services that may be cut. Flight times are shorter and fares are lower, so passengers expect less, even from a full-service carrier."

However, when developing the strategy Li warns that airlines need to be honest with their customers. "Given the flying public has access to a great deal of information through the internet, it is best for an airline to be direct when announcing any service changes. Any attempt to distract, tease or leak to the customer will likely backfire. It is equally important the airline presents a clear rationale for why it is making changes," he says.

This was what American Airlines and British Airways did when they cut services such as free pillows on some routes to save money. Both communicated openly what they were doing and why and, as a result, most passengers were even tempered in their response.

While this might suit short, domestic flights in Asia, what of the approach being adopted by quality airlines on their long-haul routes? Ian Thubron, group president TBWA Greater China doesn't think ANA's recent move is a harbinger of things to come.

"On long-haul flights you might see mainstream airlines slipping in a few little extra costs, but they wouldn't do anything drastic like taking away food in economy." Thubron points to the defunct Oasis Hong Kong Airlines. The carrier operated no frills, long-haul routes to London and Vancouver, but folded after just 18 months. "Oasis tried it and it didn't work," he says.

From a brand point of view the budget strategy is also a dangerous game. Subbaraju Alluri, CEO of Grey Group Singapore believes mainstream airlines are at risk of damaging their image. "To customers it comes across that they are climbing down the image ladder and trying to fight against low cost carriers," he says.

Li agrees. Instead he points to another strategy as one to watch. "For international flights, mainline carriers are more likely to increase revenue by providing greater access to additional services for a fee."

This is exactly what ANA has started to do with their 'My choice' programme that allows economy class passengers to upgrade their experience with a range of services previously unavailable to them. These include lounge access, business class meals and a car valet service. "This model is a viable way to increase revenue per passenger without damaging the
airline's brand and reputation," says Li.

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This article was originally published in the 3 June 2010 issue of Media.