Low-Cost Carriers Change Taiwan’s Skyscape

In early May, All Nippon Airways and Malaysian carrier Air­Asia announced that Air­Asia Japan, a joint venture between the two, would be entering the Taiwanese market. On July 3, the airline will commence flights between Tao­yuan International Airport and Japan’s Na­rita International Airport, with one-way flights starting from only NT$888 (before tax, which totals NT$1,100 across both airports). This means that return flights can cost as little as only NT$2,876 with taxes included, cheaper than a return Tai­pei–Kao­hsiung trip on the Taiwan High-Speed Rail!

With AirAsia Japan joining the competitive Taoyuan–Tokyo route, travelers can expect even more great deals on ticket prices to come.

Some may wonder, how can LCCs get their fares so low? What’s their strategy?

Lee Dong-Yang, chief of the Planning Section in the Air Transport Division of the Civil Aeronautics Administration (CAA) explains that LCCs generally offer fares in about 20 levels, getting progressively more expensive as the departure time gets closer. Then, a day or two out from departure, they will offer remaining tickets at clearance prices to maximize occupancy.

However, Alex Lu, assistant professor in Kai­nan University’s Department of Air Transportation, notes that consumers may see this battle to constantly lower fares and understandably wonder whether or not lower fares mean a lower class of aircraft.

Efficient transport and good service are the two main demands of air travelers, and LCCs operate by focusing primarily on the former and streamlining the latter. Air transportation is a high-risk venture, and so safety standards must be kept high, with everything from aircraft maintenance and placement of emergency exits to seating design and flight-attendant numbers being subject to strict international regulation.

In-flight service is where LCCs are able to focus on reducing costs. By not offering the spacious seating and upgraded service of first or business classes and instead filling the plane with economy class seating, LCCs can carry the maximum number of passengers.

LCCs also focus on a “user pays” system, charging passengers for such things as food and drinks, luggage, and being able to choose their own seat or reschedule flights. They also cut back on expenses by streamlining ground services, an aspect of flying that most passengers don’t pay attention to—for example, they generally will not use passenger boarding bridges, will opt to use more minor airports or older terminals, and will focus their flight times around off-peak hours like the early morning and the middle of the night.

Low-cost carriers set strict limits on the size and weight of carry-on baggage.

Southwest Airlines, founded in Texas in 1971, is the grand­daddy of LCCs. From the beginning, its focus has been clear—it didn’t aim to compete directly with other airlines, but rather to carve out its own niche in the unexploited low-cost space. As part of its effort to maximize efficiency, Southwest has no in-flight services and doesn’t provide seat selection.

It took Southwest only two years to start turning a profit, and at one point it was America’s largest airline in terms of passengers carried. Thanks to this, their model soon began to be copied, and since the 1990s, LCCs have popped up around the world, spreading from the US and UK to continental Europe and Asia, with no signs of slowing down.

In 2001, LCCs accounted for only 8% of the global air-travel market; by 2012, that number had grown to 26.1%. There has also been a clear differentiation across regions, with LCCs in Europe—where cross-border travel has long been common—providing 36.6% of all air travel. The expansive North American continent is next, at 30.1%, while in Asia, which has been relatively slow to develop but has what is considered a very promising market overall, they account for 24.1%.

Taiwan joined the LCC world in late 2004, with the first such carrier to fly to Taiwan being Singaporean-based Jet­star Asia. Offering flights between Taiwan and Singapore for just NT$2,700 one way (before tax)—between 50% and 30% the cost of ordinary airlines—Jetstar Asia quickly gained the attention of the local media.

Low-cost carriers maximize carrying capacity by offering only economy class, and lower costs by not providing in-flight entertainment services like movies and music.

While the appellation “low-cost” might make it easy to overlook the amount of careful planning and calculation that actually goes on behind the scenes, it is still the case that LCCs’ low-cost fares are what has given them their edge in the travel market.

In continental Europe, for example, before the advent of the LCCs, trains were the primary mode of international travel. Such trains are fast, safe, and comfortable, as well as offering a great way to take in the scenery, but tickets were very expensive, no matter how early you might have booked.

But with the advent of LCCs, point-to-point travel fares in Europe have dropped dramatically, and planes have taken the place of trains as the most affordable option.

LCCs have also experienced rapid growth in Southeast Asia in recent years.

Alex Lu of Kai­nan University says that with average incomes in Southeast Asia being lower and families being larger, people are very cost-sensitive, but unlike travelers in more developed countries, they’re less concerned with quality of service.

“Low fares and middling service are enough to satisfy the demands of most travelers in the region,” says Lu, “and that’s what makes these low-cost flights so suitable for Southeast Asia.”

Low-cost carriers often lower their costs by making use of older or less flashy terminals and forgoing other expenses like passenger boarding bridges. This photo shows a terminal at Singapore’s Changi Airport that was used by LCCs until its closure in September 2012.

Compared with other markets, LCCs in Taiwan have a lot left to do to convince the public—in 2012, LCCs accounted for only 3.55% of the air travel market. And with many who do fly with LCCs feeling the service and quality of experience aren’t good enough, there has been no shortage of disputes.

One of the main factors behind this is Taiwanese people’s tendency to rely on travel agents to book their tickets and organize their itineraries rather than doing it themselves. Additionally, aside from backpackers and students—who tend to have more flexible schedules—very few people can really plan their vacations six months in advance with any reliability, so even if they do buy their tickets well ahead of time, there’s a good chance they’ll have to make some changes later, and thus be subjected to significant fees from the airline.

Another factor is Taiwanese people’s general belief that if you’re going to go on vacation, you’d better make it a good one, which means that people are more likely to feel they’re being nickeled and dimed by being asked to pay extra for “expected” services like meals and seat selection. And with all the LCCs currently flying to and from Taiwan being foreign companies which don’t necessarily have offices in Taiwan, travelers have nowhere to file their complaints.

Lee Dong-Yang also notes that Taiwanese travelers are accustomed to the standard of service provided on “traditional” airlines, and expect the same even from LCCs, which can easily lead to strong feelings of dissatisfaction.

“LCCs are essentially fast-food hamburgers, simple and cheap, while traditional airlines are big, juicy steaks,” says Lee. “If you’re paying Big Mac prices, why would you expect to get a steak?”

 

While the locals might not be entirely on board with LCCs, demand for flights to Taiwan from overseas has skyrocketed, leading to some 11 carriers flying nine routes to Taiwan, primarily from Southeast Asia and Japan.

Thanks to this demand, LCCs have inadvertently become a big boon to Taiwanese tourism, with the Singapore–Tao­yuan and Kuala Lumpur–Tao­yuan routes particularly significant, accounting for 29.5% and 42.4% of travel to Taiwan from their respective points of origin. In other words, about three of every 10 visitors arriving in Taiwan from Singapore and four of every 10 coming in from Malaysia are flying with LCCs. As a result, the ROC Tourism Bureau has begun working with several LCCs from Singapore and Malaysia to create package tours to Taiwan and make the most of this opportunity.

With LCCs on the rise around the world, many have begun to wonder when Taiwan will get one of its own.

In August 2012, TransAsia Airways chairman Vincent Lin recommended that the government work with Taiwan’s three major airlines—China Airlines, EVA Air, and Trans­Asia—to establish Taiwan’s own LCC brand in order to compete in this growing market. More recently, in March this year, China Airlines said that it was investigating the feasibility of launching its own low-cost brand.

With all these expectations, the Civil Aeronautics Administration recently proposed an amendment to the Regulations on Civil Air Transport Enterprises to revise downward the threshold at which airlines are eligible to apply for licenses to start new carriers, from revenues of NT$10 billion a year for three consecutive years to NT$6 billion across the same timeframe. Additionally, they plan to push for a 20–50% reduction in fees for using “secondary” airports, encouraging airlines to make more use of the airports in places like Kao­hsiung and Hua­lien for international flights. There are also plans to establish tiered fees for landing at and taking off from Tao­yuan International Airport at different times of day, in line with the experience of overseas airports, in the hopes of further stimulating the Taiwanese air travel market.

It looks like the skies over Taiwan will be getting busier and busier in the foreseeable future, and Taiwanese travelers are set to enjoy cheaper, more flexible options for seeing the world.