| As per the new analysis by Frost & Sullivan the Low Cost Carrier (LCC) market in Asia Pacific is expected to witness an increase in the number of passengers from 116.0 million in 2008 to 217.0 million in 2012 at a Compound Annual Growth Rate (CAGR) of 16.9 per cent. The total aircraft fleet is expected to increase from more than 450 in 2008 to more than 830 in 2012 at a CAGR of 15.9 per cent. The Asia Pacific LCC market is slated for strong growth in the coming years due to booming economies, high Internet usage as a distribution channel, low-cost labour, easy access to debt and lower lease rentals. Favorable macro economic indicators and the prosperous inbound tourism market have buoyed prospects for this sector. With rising disposable incomes, the demand for aviation services will pick up. Moreover, the increasing average load factor will rise up profitability for airlines operating in this space. R Madusudanan, Financial Analyst, Frost & Sullivan said, "Decreasing lease rentals and aircraft market values are major triggers for growth in the LCC market in the Asia Pacific. The decrease in lease rentals/value of aircraft reduces the aircraft holding cost of airlines and enhances the profitability of LCCs." Market penetration of the LCCs has increased from 1.1 per cent in 2001 to 14 per cent in 2008. There is a high level of positive correlation between the demand for air services and the level of economic activity. The per capita income in Purchasing Power Parity (PPP) terms for Asia Pacific is one of the lowest in the world. It is expected to grow from USD 4,181 in 2008 to USD 6,426 in 2014. Although the outlook for the market looks bright, there are some challenges reining in market progression. High expenditure on fuel and oil has impacted the profitability of LCCs to a large extent. The fuel and oil expenses account for nearly 40 per cent of the revenues of LCCs; therefore, a hike in the price of crude oil will have ripple effects on the profitability of LCCs. Apart from crude oil price volatility, the lack of infrastructure has adversely impacted market participants. Typically, LCCs operate from secondary city airports, which offer a cost advantage to them as ground-handling charges in these airports are lower than those in primary ones. Airport charges account for approximately 20 per cent of the total cost of LCCs in Asia Pacific. The absence of low-cost terminals in the region increases the overheads of LCCs. The presence of numerous participants has led to the rapid increase in fleet capacity, leading to a situation where demand outstrips supply. |
Tuesday, May 18, 2010