Growing pains - LCC subsidiaries getting too big for their booties?

(CAPA) The parents of some Asia Pacific LCCs are having to learn to live with the increasing independence of (and in some cases, direct competition with) their subsidiary airlines. It is a situation that will only increase, as LCCs (including the units of full service carriers) double their share of the Asia Pacific market to around 25% within five years, on the back of significant aircraft orders.

Some airlines may have to adopt new parenting strategies as their LCCs mature.

In Thailand, the relationship between the parent (Thai Airways) and sibling (Nok Air) is becoming increasingly strained. Nok Air CEO, Patee Sarasin, recently moaned that Thai “should stop bothering us”, to allow Nok Air to grow organically. Nok Air now competes with Thai on domestic routes from Bangkok to Chiang Mai, Hat Yai, Krabi, Phuket and Udon Thani.

Concerned that Nok Air is increasingly “undermining” the parent's interests and operating independently its strategy, Thai recently told a government Transport Committee it was considering raising its 39% stake in the LCC to 51%, to exert greater strategic control, or even reviving plans to establish another budget airline.

But Sarasin stated any move by Thai would override the national carrier’s original objective to create a “fighting brand” with a restricted shareholding, so Nok would not become shackled by its status as a majority-owned state enterprise.

According to Sarasin, Nok has helped to deter several LCCs from entering the Thai market – a similar rationale employed by several other full service airlines in the region, including Qantas, which established Jetstar to contain Virgin Blue's growth and deter other would-be entrants..

Jetstar this week announced plans to launch double-daily service on the important Sydney-Brisbane route in Dec-07 – a lucrative sector with over 3.8 million passengers p/a shared by Qantas and Virgin Blue. But with Tiger Airways’ impending launch of an Australian base, and the introduction of nine additional A320s to its existing fleet of 24 of the type between Dec-07 and Mar-09, Jetstar is looking to expand.

The carrier plans to operate the services from Sydney at 11:35 and 13:20, so as not go head-to-head with Qantas at the peak business times. But it does demonstrate the rising dilemma Qantas faces in the domestic market, and Jetstar, presumably, will be brought into the Melbourne Tullamarine market at some point in the future to help the Qantas Group defend against the Tiger threat.

Singapore Airlines (SIA) has been more sanguine about competing directly with Tiger Airways, with the carriers going head-to-head on services to Bangkok, Guangzhou, Hanoi, Ho Chi Minh City, Perth and Chiang Mai (with SilkAir). But with Tiger Airways' fleet potentially rising to 70 aircraft by 2014, the LCC will come into more competition with its parent, unless it can find more offshore bases, like Australia in which to grow.

Date posted: 29-Jun-07