Asia's discount airlines reach for the West

Long-haul budget travel, anyone?

Spurred by open-skies policies and booming tourism, low-cost airlines are mushrooming across Asia. Most have adopted the business model pioneered in the 1970s by Southwest Airlines – lean, mean, and affordable – to fly budget-conscious passengers around the region. Competition on popular routes such as Bangkok-Singapore – a 2-1/2-hour hop – has cut round-trip fares to just over $100, including taxes.

Now airline entrepreneurs are setting their sights on more distant destinations, betting that long-haul travel is equally ripe for discounting. If proven right, they could represent the first fluttering of a new era of low-cost air travel to and from Asia's dynamic economies.

Oasis, a start-up airline in Hong Kong, has begun daily flights to London for as low as $147 one way and plans this year to offer similar deals to Oakland, Calif. and Chicago. Jetstar Airways, a subsidiary of Australia's Qantas Airways, sells bargain tickets on routes between Australia and Southeast Asia. And Malaysia's AirAsia, the largest budget airline in Asia, recently founded a new operator, AirAsiaX, to ply long-haul routes to China and Britain starting in July.

For vacationers with open itineraries, such ventures offer a cheap way to reach Asia. "For leisure travelers, it's okay. They're flexible and don't mind a bit of inconvenience. There's definitely a market for it," says Don Ross, editor of a travel-industry newsletter in Bangkok.

Creating long-haul budget airlines that can take on the state-run carriers that dominate in Asia could prove more challenging, though. Such airlines are naturally reluctant to see competitors ply profitable intercontinental routes, having already lost market share on regional flights within Asia.

Few countries have open-skies policies on routes to and from the US that would allow low-cost airlines to use popular routes such as New York-Tokyo. Instead, start-ups are often diverted to lesser hubs: Malaysia's AirAsiaX, for example, will launch low-cost flights to London – a global hub – and also to the cities of Birmingham and Manchester.

Analysts say this is one reason why frequent fliers are likely to stick with the existing carriers. "I think you may see a split between business travelers in Asia who want to get from point A to point B as quickly as possible, versus leisure travelers who have time and are prepared to put up with a lot more," says John Koldowski, research director at the Pacific Asia Travel Association, an industry group in Bangkok.

Airline executives say that low-cost travel doesn't necessarily mean bare-bones. Oasis offers free meals and in-flight entertainment, while Jetstar, which flies between Sydney and Honolulu, has blankets, food, and movies for sale. Nor should passengers expect to be squeezed in tighter: Oasis says its economy-seat size and comfort is comparable to other full-service carriers.

So how can they keep fares so low? The secret, says Steve Miller, CEO of Oasis, lies in the efficient use of aircraft and crews, flexible pricing, and an attractive business class. Advertised one-way fares from Hong Kong to London start at $147, but most flyers pay more, and business-class seats start at $920. Fares between Hong Kong and Oakland, due to begin in June, will be slightly higher on this longer route, he says.

At the front of its Boeing 747-400 plane, where business-class passengers can stretch out on reclining beds, is where Oasis spies a competitive edge among self-employed travelers who pay their own way, unlike corporate fliers. Business people who would otherwise settle for coach can now afford an upgrade. "Every business man or woman should be able to fly business class and arrive in a state where he or she can get down to work immediately," says Miller.

That may sound ominous for large carriers who rely on business-class revenues to cover their overheads. But industry analysts say that growth in low-cost airlines in Asia has expanded the market by luring price-sensitive passengers who might otherwise not travel, particularly on short vacations or family visits, so start-up carriers may not directly cannibalize full-service airlines.

Air travel in the Asia-Pacific region grew 4.7 percent in the past year, an industry association said Wednesday. Its 17 airline members flew 134 million passengers in 2006, up from 128 million the previous year.

As budget carriers carve out routes in India and across much of East Asia, with the exception of China's tightly regulated skies, short breaks have become the norm for more travelers. Resort islands like Phuket in Thailand have embraced low-cost carriers, becoming an alternative to the capital, Bangkok.

However, the choice of airline can be misleading. Industry analysts say that passengers who swoop on the cheapest online fares often arrive at their destination and check in at five-star hotels, using the money saved from their bargain round-trip tickets. By adding long-haul flights to the mix, quick getaways to luxury resorts in Asia are within reach.

Stuart McDonald, an Australian who runs a website, www.travelfish.org, on independent travel in Asia, calls this the "flash packer" phenomenon: young salaried backpackers who like to splurge on vacations and wouldn't dream of joining a cruise ship. He says long-haul budget carriers like AirAsiaX can funnel more independent travelers and first-time visitors to Malaysia, an emerging hub for low-cost airlines, giving them a taste of what the region has to offer. [ Editor's note: The original version misnamed Stuart McDonald's website.]

"This is precisely the sort of development that will see more backpackers turn into 'flash packers.' The bucks they save on their fare will translate into increased spending on the ground," Mr. McDonald says.