A newly-minted alliance among eight major Asia-Pacific budget carriers could translate into cheaper prices for customers, according to one of the founding members.
Campbell Wilson, chief executive of Singaporean carrier Scoot, told CNBC’s Street Signs on Tuesday that lower prices were a possibility if the alliance succeeded in boosting airlines’ bottom lines.
“To the extent that it augments our traffic, increases our load factors, and makes us more profitable, then yes of course,” he said, when asked about reduced fares.
Scoot, Tigerair Australia, The Philippines’ Cebu Pacific and its subsidiary Cebgo, South Korea’s Jeju Air, Vanilla Air of Japan, Thailand’s Nok Air and NokScoot announced on Monday that they had formed the “Value Alliance,” which reports called the world’s biggest grouping of budget airlines.
Under the scheme, customers will be able to book flights with any of the eight member carriers on any one of their websites, as well as get access to a wider list of destinations and routing options.
“This [alliance] is in recognition that the eight members are strong in their home markets, but their brand reach isn’t as universal as we would all like. So by working together, we can leverage on each other’s home market distribution and the trust each has built there.”
The low-cost carrier (LLC) business model was based on high volumes and low margins so the opportunity for its eight members to expand their distribution breadth was a major benefit, he continued.
Noticeably, the group excludes AirAsia and Jetstar, two leading Asian low-cost carriers (LCCs). There were no plans to include either carrier, Wilson said, adding that the group was happy with current membership.
Global airlines have benefited from cheaper oil prices, but Wilson said the Value Alliance wasn’t focused on seeking better negotiations on buying jet fuel or hedging.
“We could touch on those matters in the future, subject to regulatory approval. For now, we are more of a sales, distribution, and network augmentation alliance.”
Prices aside, there are multiple advantages to the Value Alliance.
“One of the benefits of the technology we’re using for this alliance is that it allows interlined sales to also sell ancillary products,” Wilson noted, referring to revenue from non-ticket sources. “That’s a failing of the current technology. When you sell a ticket to another airline now, you don’t have that ancillary opportunity.”
Seeing as ancillaries account for 15-20 percent of an LCC’s revenue, that’s a big opportunity cost, he said.