The Association of Southeast Asian Nations (ASEAN) region has one of the fastest growth rates in aviation, with intra-ASEAN travel being the highest contributing factor. But the journey leading up to today’s success was not an easy one. From an economic crisis to forced restructuring, the ASEAN aviation industry remained robust, transcending borders to achieve the common goal of a flourishing aviation industry.
Find out more: a snapshot of the aviation industry in each ASEAN member country can be found here!
Today, the region’s aviation industry is basking in success, made possible through the airline sector. By 2036, ASEAN air travel will constitute 32.8% of the world’s total traffic. While we anticipate this growth and work towards improving the quality of the aviation industry in ASEAN, let’s not forget how it all started:
1970s – 1990s: Off To A Start With Flag Carriers
Between the 1970s and 1990s, ASEAN flag carriers experienced increasing growth following the development of Southeast Asian economies. Flag carriers are national airlines partly or wholly owned by the state. Governments viewed flag carriers as a national priority – to address the needs of citizens as well as propel the nation’s international image. Thus, protection was given to such airlines, giving them the upper hand in dominating domestic markets.
During this time, airlines such as Thai Airways and Garuda Indonesia prospered. They, like most ASEAN flag carriers, were among the few airlines allowed to operate domestic routes in their respective countries. In fact, at one point, thanks to government protective measures, Thai Airways was the only carrier permitted to carry out domestic flights in Thailand.
The dominant position of flag carriers paved the way for high fares and unfair competition. This resulted in high profit margins and limited choices for passengers. Air travel remained somewhat a ‘novelty’, reserved for those who were of a higher income.
Late 1990s – early 2000s: The Fall… and Rise
In the late 1990s, a wave of economic crisis spread across the region. The 1997 Asian Financial Crisis started in Thailand, before moving on to affect other countries in Asia. Among the ASEAN member states, Myanmar and Cambodia were the only countries not significantly affected. Thailand, Malaysia, Singapore, Indonesia and Philippines suffered the most consequences.
This financial crisis caused the ASEAN aviation industry to face a severe drop in passenger traffic, while multiple airlines drowned in debt. Some airlines were grounded due to losses incurred, and most were forced to undergo restructuring or even privatisation.
To improve the situation, governments were driven to deregulate the aviation industry, to a certain extent. This created an opportunity for more market entrants and hence, increased competition.
One of the most significant outcomes of the liberalisation is the emergence of low-cost carriers (LCCs) in the ASEAN region. LCCs are distinguished by low fares, and ‘no-frills’ service. They charge additional fees for traditional airline services such as baggage check-in, assigned seating and in-flight meals. AirAsia, Tiger Airways Singapore and Lion Air are some notable ASEAN LCCs that emerged during this period.
2010s – present: The Era of Low Cost Carriers
This day, a significant part off the ASEAN aviation industry owes its success to the emergence of LCCs. Budget airlines have played a huge role in remodelling the Southeast Asian aviation industry. According to CAPA (Centre for Aviation), there are 23 LCCs in the ASEAN region (March 2017), with over 670 aircraft cumulatively. The LCC market in this region grew by 8%, holding a 57% share in total seat capacity in ASEAN. In contrast, full service carriers, including flag carriers, have not experienced significant growth.
As earlier mentioned, Thai Airways was the only airline flying domestic routes in Thailand before the 2000s. Now, there are 10 other airlines offering domestic flights; of these, six are LCCs. The rise of LCCs has resulted in a surge of air travel. Six out of ten (Cambodia, Laos, Myanmar, Thailand, Philippines, Vietnam) ASEAN markets have enjoyed at least three years of double-digit, or near double-digit, passenger growth.
Over the decades, the airline sector of the ASEAN aviation industry has drastically moved from a highly regulated and controlled flag-carrier-centric market to a more ‘open’, LCC-based market. This change has achieved outstanding growth rates in ASEAN aviation, overflowing to Maintenance, Repair, and Overhaul (MRO), training and ground handling. Furthermore, with the increasing role of the ASEAN Open Skies policy, air travel in ASEAN will be like never before. Especially with the availability of LCCs to bring affordable travel to all, ASEAN is one region to keep a lookout for!
The Dviation Group strives to drive the ASEAN region to the forefront of the global aviation industry. Discover more about their goals at www.dviation.com, and find out how you can be part of this vision!