The past decade has seen the rapid development of low-cost carriers, transforming some airlines in the aviation industry from full service to economical carriers. In this issue, Dr Peter Wong and Dr Johnny Wan at the Department of Logistics and Maritime Studies shared their views on the current status and development of low-cost carriers.

What is the current operating status of low-cost carriers?

Aircraft is a common medium to long-distance transportation nowadays. Passengers will mostly put punctuality and safety before extravagant services in airline selection. This tendency has thus opened up the market for low-cost airlines.

Reports released in 2013 indicated there are approximately 47 low-cost airlines in the Asia-Pacific region with about 1,000 airplanes. South Asia and Singapore take the highest market share at 27% and 25 % respectively. North Asia follows with a market share at 10% and Hong Kong at only 5%. According to the Transport and Housing Bureau, there are 16 low-cost carriers operating locally, among which only one is based in Hong Kong.

What are the differences in operation between ordinary airlines and low-cost carriers?

Adopting a "hub and spoke" model in setting up aviation network, ordinary airlines designate certain areas in various continents as transit points travelling to and from other regions. Offering mainly international flights, this approach stabilizes cost control and allows systematic monitoring of the aviation network.

On the other hand, the aviation network of low-cost airlines is mainly on "point-to-point" basis in which direct flights from one region to another are offered. As these airlines selectively offer flights in regions with higher profit ratio, local short to medium-haul flights are mostly offered. Due to its flexibility in flight deployment depending on the demand and outsourcing strategies, operating costs of these airlines are relatively lower and their air tickets can thus be priced lower. As such, low-cost carriers have competitive advantages in the market.

Low-cost airlines can further reduce their operating costs by purchasing a single type of aircraft for easy maintenance and crewing issues, offering mainly short to medium haul flight routes, replacing passenger boarding bridge by shuttles, streamlining aircraft cleaning and in-flight catering services, and lowering ticketing costs by offering a single class of service and promoting online ticketing and e-boarding etc.

How is the prospect of low-cost carriers in Asia including Hong Kong?

Since 2000, different low-cost carriers started to establish in the Asia-Pacific region. Regulated by the governments, these airlines are allotted flights according to bi-/multi-lateral agreements made by their own countries. In recent years, governments of Asian countries have progressively released air traffic rights and adopted the open sky policy; thereby creating more room for low-cost carriers' development.

We will take the following three areas into consideration when exploring the prospect of low-cost carriers:

• Society structure: With the increase of middle-class in many developing countries, airport usage also increases. Also, diminished cultural difference facilitates travels, especially for young tourists. Rising demand for low-cost airlines can be expected.
• Travelling culture: People nowadays enjoy more frequent travels and treat flight experience as merely a means of transportation. A survey found that Hongkongers prefer to save up from less expensive air ticket for spending more on hotel accommodation and activities during vacation. Low-cost carriers can definitely fill the gap in the market.
• Economic contributions: Low-cost carriers help generate human flow and job openings, as well as produce new momentum for tourism. They also create opportunities for tourism-related industries, thus contributing to economic development.

In summary, low-cost carriers have considerable potentials as long as the carriers attend to the operational models with effective costing control.