ILLUSTRATION FOR TIME BY GLEN BAXTER

Posted Monday, October 20, 2003; 21:00 HKT
In 1971, a hard-drinking Texas lawyer named Herb Kelleher started an aviation revolution. He and a client, businessman Rollin King, wanted to offer customers rock-bottom fares, and their brainchild, Southwest Airlines, did just that. Wildly popular, the upstart spawned a raft of low-cost mimics, first in the U.S., then Europe. Now, no-frills flying is coming to Asia.

"Everywhere low-fare airlines have started, there's always been a claim that it is a different market," says David Huttner, the head of communications and strategy at Virgin Blue. Half owned by flamboyant British entrepreneur Sir Richard Branson's Virgin Group, the low-cost operator has snapped up a third of the Australian domestic market for all passenger flights in just three years. "Certainly the European low-fare carriers were told that it would not work there, and we were told the same thing when we entered Australia," says Huttner. "But now you see this type of model succeeding from Brazil to Australia to Malaysia."

Virgin Blue is one of several minnows that have been making ever-larger waves in the region. For now, it only offers domestic flights, but an offshoot called Pacific Blue will start services between Australia and New Zealand in February. Connections to other Pacific states, Singapore and Indonesia may follow, the company says. Likewise, Qantas, Australia's dominant player, has said it will announce by next month whether it will set up a low-cost arm. In Thailand, Prime Minister Thaksin Shinawatra has repeatedly stated that he wants a budget flier based out of Chiang Mai and has asked Singapore Airlines to help set up a joint venture that could link the country's second city to China, Vietnam, Laos and Cambodia. Singapore Airlines has declined the invitation for now. However, a group of entrepreneurs in Singapore, led by aviation veteran Lim Chin Beng, a former chief executive of the Lion City's flag carrier, is touting a no-frills airline, ValuAir.

But it's Malaysia's AirAsia that has really been turning heads. Run by a former music executive, Tony Fernandes, it has grown from two planes to eight since it went low cost in January 2002—and it has revealed plans to have a fleet of 18 planes by next year. Passenger numbers have jumped almost 10-fold, to 150,000 a month, since the down-market change; once bleeding red ink, the carrier now turns a profit. "The model has gone very well," says Fernandes. "In many ways we were like cowboys going into the Wild West, not really knowing how people were going to react to us."

Now Fernandes finds Malaysians eager for bargains, and offers fares from Kuala Lumpur to Penang for as little as $2.63 (no kidding). The regular Malaysian Airlines fare for the one-hour hop used to be more than 14 times that. "Asia is the last bastion for low-cost travel," says Fernandes. Like Southwest, AirAsia keeps prices down by not offering free meals or other extras. There's often no assigned seating, either.

Despite the strong start by AirAsia and others, analysts remain cautious, pointing out that the skies are more regulated in Asia than in the U.S. or Europe. Flying rights are determined on a country-to-country basis—not by the more flexible open-skies model in the West. "It is not as if you decide to put up a low-cost carrier and the next step is to fly into another airspace," says Belinda Chan, a research analyst at investment bank ING in Hong Kong. Then there's the lack of secondary airports in many major Asian destinations—unlike in Europe, where cheap carriers have used them to great advantage.

But momentum, at least, is growing. "There is a lot of potential for it, and now is the time," says Nicholas Ionides, Asia-Pacific managing editor at industry journal Flight International. And the chief cowboy himself is optimistic.

"I think it is all to be done in the coming years," says Fernandes. "It is now up to us or ValuAir or whomever to prove that it can be done."

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