Singapore Airlines’ recent troubles show how turbulent the Asian market has become. In the past few years Western airlines have poured into the Asian market, adding flights and pricey new long-range jumbo jets-a combination that is helping to strain capacity at many of the region’s major airports. Local carriers have joined the fray, too. Despite the industry’s troubles, Malaysia Airlines recently trumpeted its new direct service from Kuala Lumpur to Mexico City. And Singapore Airlines has rolled the dice by launching a new one-stop flight from Singapore to New York.
Why the interest? Simply put, Asia may be the final frontier for the world’s airlines, which are struggling to emerge intact from an industrywide period of consolidation. Passenger traffic, reflecting the boom in the Asia Pacific economy, is rising by nearly 10 percent a year, compared with a rate of less than 7 percent in the rest of the world. And by the year 2010, McDonnell Douglas forecasts, as many as two thirds of all international passengers will be flying to or between Asia Pacific cities. But despite those cheery figures, Asian-based airlines fear that a ferocious challenge from the West will make them second-class citizens in their own markets.
The real war for the Asian market was launched by United Airlines in 1986, when the Chicago company purchased Pan Am’s rights to use Tokyo’s Narita airport as the hub for an Asia network. Since then United has expanded its service in the region by 103 percent and isn’t letting up: it wants to increase flights to China and will soon add service to India and hopefully Vietnam. Says Don Curran, a United vice president, “[The Vietnamese] have been fighting for years, and now they’re focusing their energies on their economy.” Other airlines, including British Airways and even Delta Air Lines, have targeted Asia in a major way. Asian-based carriers worry that the Western airlines, which tap passengers from their extensive domestic routes, plan to muscle aside rivals like Singapore and Hong Kong’s Cathay Pacific Airways, that have no local feeder networks to their international flights. In the last three years alone Asian airlines have lost about 3 percent of their market share to outsiders. And British Airways boasts that it is steadily attracting more ethnic Chinese customers-40 percent of all passengers on its flights between Hong Kong and London.
But Western airlines have taken their lumps, too. American carriers, for example, complain that Asian governments are experts at awarding their national airlines the best routes and most convenient schedules-slots out of Hong Kong, for instance, that reach European capitals at the start of the business day rather than in the middle of the night. U.S. airlines now trying to enter the market are restricted largely to long-haul flights from North America.
Economics has also been on the side of the Asian carriers. Delta, which has been plagued by big losses and jet-delivery problems, has delayed plans to open an Asia hub. In addition, American Airlines has retreated from markets like Hong Kong and now serves only Tokyo from the United States.
But if the better Asian airlines are to compete successfully over the long term, their governments will be forced to make it easier for Westerners to do business. That means lowering trade barriers. An ambitious airline like Singapore, with expansion plans in the West, knows it will get a bigger piece of the new common markets in North America and Europe only if Asia plays by the same rules of openness.
The Pacific Rim carriers must also fight to keep their reputations for superior service. Asian carriers have always positioned themselves as “a BMW rather than a GM car,” says a Cathay executive. But the Westerners have caught on. United recently began offering more Asian-style meals. Cathay is retaliating with personal videos and other cabin amenities–“whatever it takes” to remain a service leader, says an official. Competition has also forced Singapore, Cathay and Thai Airways International to consider starting up a joint frequent-flier plan-a discounting scheme they had always avoided-to match the U.S. giants as well as British Airways.
So far it isn’t clear yet who will emerge on top in the battle for the skies of the Pacific Rim. What is clear is that the elite Asian airlines are bracing for deep fare cuts and consolidation over the next few years as competition accelerates. And that’s a fact that the Singapore Girl can ignore only at her own peril.
GRAPH: Land of Opportunity: Growth rates for Asian air travel should outpace traffic in the West. (SOURCE: AVITAS AVIATION)
