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Chapter 7

Prospects for the spread of LCATs


This chapter focuses on some of the worlds emerging aviation arenas and gauges the
likelihood that they will or could host low cost airport or terminal developments in the
near future. In addition to analysing the current status of each region/nations LCC sector,
the chapter examines their economic, full-service aviation and airport infrastructure
characteristics in determining where future developments are likely to occur.

Overview

Examination of key emerging aviation markets shows vastly different levels of likely
future LCA/T activity

Indonesia has many critical attributes and, with increased private participation in the
airport sector, is poised to be a growing market for low cost airport/terminal
operators

New Zealand matches many important criteria, but has a moribund LCC sector

India is on brink of becoming a dynamic centre of LCA/T activity, but remains


constrained by bureaucratic inertia

North Asia LCC sector continues to be hamstrung by restrictive access policies, but
gradual liberalisation and Japans opening of secondary facilities could key a boom

Africa and Latin America are years away from major movement, although some
isolated national players (e.g., Morocco and Mexico) have potential

The Middle East is poised to open up on the back of a booming LCC sector and the
imminent launch of an LCT at Dubais Jebel Ali Airport

Russia is largely behind the curve, but smaller developments in


Moscow could represent a beginning

India is a strong candidate for low cost airport developments. The low cost sector is a huge
player in the nations huge and growing aviation industry and privatisation of airports is a
front-burner issue. However, bureaucratic delays and obstacles have slowed some of the

progress that might have been expected. Still, the dynamics of the evolving national
industry make medium-term future projects likely. This is not the case in the rest of the
subcontinent region. Factors ranging from economic development, political risk and
excessive regulation mean that Sri Lanka, Pakistan and Bangladesh are unlikely to host
LCA/Ts anytime soon.
Indonesia is among the more naturally suited environments for low cost airline operations,
thanks to its population of 300 million scattered around a vast archipelago. The situation
furthermore looks appropriate to low cost airport operations. With the current airport
infrastructure inadequate to meet growing demand, lack of government funding and a
vibrant LCC sector, Indonesia could see developments in the short term.
New Zealand also has several attributes suggesting future LCA/T development, including a
prosperous, travel-inclined populace spread over two islands, and a local developer with
experience in LCA operations. However, the local experience with LCCs has not been
positive, meaning impetus will be slow in the near term, even as some airports with an
LCA consistent profile stand by.
North Asia is perhaps the last big LCC regional market to remain dormant mostly because
of regulatory resistance, a situation that looks set for change in the near-term, possibly
opening the door for LCA/T movement. The capacity choked nature of Tokyos airports
has been a sizable obstacle to growth in Japan, but the government has taken steps to open
up access to its regional airports such as Kitakyushu for international operations. This
move, and corresponding steps in Korea, China and Taiwan, could be the genesis of
meaningful low cost growth in the region, a vital precondition for LCA/T installation.
Africa and Latin America also are explored for LCA/T potential. Africa is for the most part
incompatible with that type of operation because of a dearth of short-haul flying and
minimal LCC operations. Morocco, however, holds potential because of its popular
tourism offering, the advent of local LCCs and the growth of budget service by European
LCCs looking to capitalise on its strong tourism and VFR traffic. The announced move by
Air Arabia to set up a base in national capital Rabat can only add impetus.
The LCC sector is more developed and vibrant in Latin America, with one of the global
industrys stars found in Brazils Gol. However, the LCA/T concept has not caught on and

looks to be years away from doing so, in part because the leading LCC would prefer to
compete head-to-head with the full-service players at the regions leading airports. There
is scope for LCT movement, especially in Mexico, where more cost-conscious carriers are
beginning to take root, with one Mexican airports operator reporting that over 35% of its
traffic is carried by LCCs.
The Middle East is primed for LCA/T development after years of inaction. Perhaps
motivated by the successes of nearby Sharjah, which provides a functional facility for fastgrowing, profitable Air Arabia, Dubai has engaged the budget sector. After initially saying
it was uninterested in hosting LCCs, the influential emirate will now make an LCT one of
the first operational facilities at its new Jebel Ali airfield. Given Dubais trend-setting
status, it could well augur for more such facilities in the region.
The chapter also examines Russias aviation sector for LCA/T applicability. Although the
current system is not built with the type of functionality the budget segment requires, there
are some signs of down-the-road developments. The move of nascent LCC SkyExpress to
base at Moscows third airport Vnukovo and the willingness of the private operator of
Moscow Domodedovo to do what it takes to attract service from every corner are two key
examples.
LCATs are now well established in Europe and appearing with greater frequency in Asia
and are also becoming fashionable in the US. This chapter reviews the progress of this
concept and whether it could be transferred elsewhere, such as to Africa, Latin America,
the Middle East and Russia, where LCCs are also now established.
In looking to new markets, this chapter will consider the presence or otherwise of the
underlying criteria which have prompted LCAT development in Europe, Asia and the US.
An important driver of the development of new low cost airline markets is the need of the
major LCC incumbents to seek new pastures in which to expand, as existing markets
approach saturation. The major European operators and some investors from other
regions, including the US are actively pursuing such new opportunities.
LCAT activity promises to be prominent in the Asia Pacific region, which recent analysis
shows will be home to 40-45% of the USD150-200 billion that is programmed for global
airport investment by 2015.

7.1 South Asia

Pakistan, Bangladesh and Sri Lanka


There is little prospect of LCATs appearing in any significant number in Pakistan, Bangladesh
or Sri Lanka.
Pakistan International Airlines is in no position to introduce LCC service while it tries to
turn around poor operational performance that resulted in USD150 million of losses in
2006. There are several new private airlines including Aero Asia, Airblue and Shaheen
Airways, but none adhere aggressively to low cost principles. There is also some new
airport infrastructure at Islamabad, Multan and Gwadar, plus the new private Sialkot
Airport that should open in 2007 and which may attract foreign management. Again, the
airports reflect the air service and no low cost terminals are called for presently.
In Bangladesh, Thai Airways intention to take operational control of the airport at
Chittagong, the countrys second city, fell through because of political agitation against the
deal. Despite having a population of 150 million and the second largest population density
on Earth, aviation is underdeveloped and most inter-city travel is still undertaken by train
or private vehicle, both of which are time intensive. It is also a very poor nation despite its
economic outlook improving and significant increases in Foreign Direct Investment.
National airline Biman is in constant financial and operational difficulties.
There are, however, a number of private airlines such as GMG and United that have
domestic and international services and they may soon be joined by UK-based Royal
Bengal Airline and Air Sylhet, both claiming to be longhaul LCCs. For the moment at least
Bangladesh remains without an LCC and, therefore, without the need for a low cost airport
or terminal.
The best prospect for an LCA comes not at Dhaka, Chittagong or Sylhet but at
Bangladeshs (internationally) undiscovered holiday resort at Coxs Bazar, which boasts a
120 km beach. For the moment, the infrastructure is inadequate with only 4,500 budget
hotel rooms and one five star hotel, and the ruling political party is fundamentalist and

essentially anti-tourist. Nevertheless, even they have come to appreciate the possibilities
and plans are in hand to build an international cricket stadium, a golf course, and an
international standard airport.
The main problem facing foreign developers in Sri Lanka is that terrorism has returned, as
the peace process falters. Otherwise, Sri Lanka could support LCATs. Sri Lankan Airlines
has prospered under the guidance of Emirates (although that relationship on 31-Mar-08)
and several LCCs are planned, including a subsidiary of Indias Air Deccan and a
government owned carrier, Mihin Air. The regime is very much open skies with any
carrier allowed to operate international services.
Colombos Bandaranaike Airport has been improved but the most telling development is
the USD150 million second international airport at Weerawilla, serving the tourist resorts.
It should be completed by 2010 with a 4,000 m runway and a terminal for two million
p.p.a.
Sitting as it does on the edge of a major emerging market (India), but with only inward
modest tourism growth presently, it would be no surprise to see Weerawilla being
developed as an LCA before it opens, as long as the domestic civil situation permits it.

7.2 Indonesia
Indonesia is regarded as a key area of growth for no frills airlines owing to its geographical
nature 3000 islands spread across 3000 miles (see locator map). It is the world's largest
archipelagic state and has the Worlds largest Muslim population. It has had more than its
fair share of difficulties from the Asian Financial Crisis of 1998, which affected it badly,
via SARS, terrorism and natural disasters such as the Tsunami of Dec-04 and an
earthquake in central Java in May-06 that caused over USD3 billion in damage and losses
plus others too numerous to mention here.
Indonesia Locator Map

Source: CIA World Factbook

This set of physical circumstances is a key reason why domestic aviation has grown as
quickly there as anywhere else on Earth. Whereas 1999 saw the country with five carriers,
there are now 20, with significant aircraft orders a commonplace occurrence. LCCs include
Lion Air, Adam Air, Indonesia AirAsia, and Garuda Citylink. Yet it retains the potential for
further growth still. (But first it must overcome the handicap of a notoriously poor aviation
safety record, a record that led the European Union to ban all Indonesian airlines from its
airspace).

Indonesia key data


Area Total
Population
Median age
Population
growth
rate
Literacy
GDP per capita
Railways
Airports with paved
runways
Main
ports
and
harbours

1,919,440 sq km
234,693,997 (Jul-07 estimate)
26.9 years
1.213% (Jul-07 estimate)
90.4%
USD3,900 (2006 estimate)
6,458 km
159; 68 runways are 1524 m or
longer
Banjarmasin, Belawan, Ciwandan,
Krueg Geukueh,
Palembang,
Panjang,
Sungai
Pakning, Tanjung Perak, Tanjung
Priok

Indonesias airports are managed by two corporatised authorities, PT Angkasa Pura 1 and
2. Its biggest airport is Jakarta Soekarno-Hatta, 20 km west of the capital. Accommodating
31 million passengers annually (making it the worlds 30th busiest), it falls under the
control of Angkasa Pura 2. From Jan-Oct-06, its growth rate was +11.5%, mainly as a
result of domestic service increases, with state airline Garuda reporting negative growth on
international routes.
A rail link is to be constructed between the airport and Manggarai Railway Station in East
Jakarta and the first services should operate in 2008 or early 2009. There are two terminals,
domestic and international, the plans for a third having been put back after the Asian
Financial Crisis. Angkasa Pura 2 still wishes to build one with more modern design
features, possibly for the exclusive use of LCCs, with an LCT being mooted for operations
by 2008. Facilities and quality of service would be more modest in the LCT and designed
to handle one million passengers annually. The ultimate master plan is to have five
passenger terminals, one exclusive hajj terminal and four runways (there are presently
two).
Indonesia may be regarded as a key area of growth for no frills airlines owing to its
geographical nature, but the government presently has policies more designed with
protecting state-owned Garuda than fostering the growth of the budget sector. A ban on

foreign LCCs operating to five major cities is in place, although it welcomes the carriers at
secondary destinations. Even so the local population has taken to them, taking 34 million
domestic trips in 2006, compared with 29 million in 2005 and just six million in 1998.
In 2005, the LCC Lion Air (PT Lion Mentari Airlines), regarded as a pioneering LCC in
Indonesia, announced it had signed a contract to lease the little-used Halim Perdanakusuma
Airport in East Jakarta to accommodate its growing fleet. It took delivery of the first of 60
new B737-900ER in Apr-07. The decision to lease Halim airport, which was the countrys
main airport before the construction of Soekarno-Hatta, came after Lion Airs own efforts
to build a terminal at Soekarno-Hatta Airport fell through. However, the proposal never
came to fruition and Lion Airs main base remains at Soekarno-Hatta.
The contract involved three parties: Lion Air, the Air Force, and PT Angkasa Pura 2. It
intended to rebuild a terminal and to construct additional facilities, such as a shopping
mall. The airport is used mainly for visiting statesmen, top government officials and the
Indonesian Air Force, and it will continue to be used for State and military purposes. It has
a single 9800ft runway.
Elsewhere in the country, officials at Balis Ngurah Rai International Airport in Denpasar
insist they would not construct a terminal dedicated to low cost carriers, preferring instead
to prioritise the development of the domestic terminal to the same standards as the
international terminal. Bali attracts a wide variety of leisure visitors, from backpackers to
honeymooners to retirees vacationing in five-star hotels.
The Indonesian Government has been planning for greater private sector airport investment
in its underfunded airport sector. And privatisation appears to be necessary if LCATs are to
be built.
The government is on record as stating that it has only 17% of the funds it needs to deal
with necessary infrastructure projects. The airports at Medan, Solo, Bali (the most
important one for tourism), and Lombok, in addition to Jakarta, have been identified by the
government as most in need of new terminal facilities. Many foreign investors would be
keen to enter this market should the opportunity arise if only because of the volume of
domestic travel and comparatively untapped non-aeronautical revenue generation
opportunities.

But that privatisation may be slow in coming while PT Angkasa Pura 1 and 2 fail to make
the cut on to the governments privatisation list. They were left off the list of companies
targeted for privatisation again in 2007.

Key points

Airport capacity is barely adequate in the capital and throughout the country;

Despite the reluctance of the government to embrace the low cost movement, the
poor safety record and the inhibitors to both domestic and foreign investors, the
increase in budget airlines and domestic passengers encourages investment
speculation in airports; and

The Indonesian authorities have fallen well behind their rivals and have a lot of
work to do to catch up if they are to build up international LCC traffic.

7.3 New Zealand


New Zealand is a country of only four million people, spread out over two main islands
stretching 1250 miles in length. As in all small island communities, air services are
essential to keeping communities in contact and also fostering the critical inbound tourism
sector. Air services have long been deregulated domestically and on trans-Tasman routes to
and from Australia. The countrys main airport, Auckland International, was privatised in
1998, partially floated on the stock exchange and is currently the subject of speculation
concerning a further sale.
An investment company, Infratil, bought a two-thirds interest in Wellington Airport in
1999. Christchurch, in the southern island, and still owned and operated by local councils,
completes the trio of main airports. New Zealands home based LCC is Freedom Air, an
Air New Zealand subsidiary.
New Zealand city Locator Map

Source: CIA World Factbook

New Zealand Key Data


Area Total
Population
Median age
Population

268,680 sq km
4,115,771 (July 2007 est.)
34.2 years
growth 0.95% (2007 est.)

rate
Literacy
GDP per capita
Railways
Airports with paved
runways
Main
ports
harbours

99%
USD26,200 (2006 est.)
4,128 km
45; 14 runways are 1524 m or

longer
and Auckland,

Lyttelton,

Tauranga,

Wellington,
Whangarei

With responsibilities to promote the nations image internationally, none of the three main
gateways at Auckland, Wellington or Christchurch exhibits extensive LCA characteristics.
Nonetheless, all three major airports have adapted to the demands of the new low cost
environment.
It should be noted though that Wellingtons part owner, Infratil, operates the low cost
airports at Glasgow Prestwick, UK (q.v.) and Luebeck, Germany and has plans to develop
an alternative airport for Auckland at a nearby military facility at Whenuapai. It is entirely
possible that ever-increasing liberalisation in the region would prompt Infratil to develop
Whenuapai in a similar manner to Glasgow Prestwick, i.e. as an outright low cost
alternative to Auckland International.
One potential low cost facility is Hamilton Airport. Hamilton is the largest inland city in
New Zealand, with a population of over 100,000 people and is a main rail junction. It is
128 km south of Auckland, a two-hour drive. Limited domestic air services connect
Hamilton with Auckland and Christchurch with a more frequent service operating to
Wellington.
Its proximity to Auckland makes it a marginal airport location for Aucklands southern
suburbs, but the focus of promotion is on inbound tourism. Already the fourth busiest
airport in New Zealand, Air New Zealands former low cost subsidiary, Freedom Air,

operated international services to and from Australia (Brisbane, Sydney, Melbourne, Gold
Coast) and Fiji. Apart from Air New Zealand the main airline is Sun Air. Origin Pacific
Airways operated until its demise in Aug-06.
In terms of facilities, the airport offers simple outlets geared towards arriving and departing
tourists shop, cafeteria, foreign exchange and a small lounge operated by Air New
Zealand. Recent redevelopment was intended to raise passenger growth by 50% and to
double revenue over 10 years by encouraging point-to-point travel of four to five hours
maximum benefiting domestic, Australian and South Pacific routes, but not Asian
destinations, which are mainly beyond that range (although Bali is a target market). The
airport expects passenger numbers to grow to 180,000 by 2010. The runway can be
expanded to 3,500 m to meet demand from longhaul LCCs.
Hamilton is well placed to capitalise on the propensity of travellers from metropolitan
areas to seek out airports like this, within reasonable driving time, if the route network and
fares offer is attractive. It also offers attractiveness to international independent seeking a
regional gateway airport with easy access to the countryside, supported by an established
local and national rail network and car rental facility.
There are several other New Zealand airports with similarities to Hamilton and whose
developmental future may lie with the LCCs. Palmerston North and Dunedin airports have,
like Hamilton, also attracted Freedom Air to fly Trans-Tasman routes and secondary routes
to Fiji.
Palmerston North (population 80,000) is known as Student City because it is one of the
main locations of New Zealands large and well-known Massey University. Other strap
lines employed are NZ Central where North meets South, and Gateway to the lower
North Island. The airport promotes itself as the Premier Provincial International Airport
in New Zealand, claiming a catchment area of one million people within 200 km; one
quarter of the countrys population. Palmerston North is slightly further from Wellington
than Hamilton is from Auckland.
What these many and varied advertising slogans suggest is a conveniently situated airport
supporting a large population within a thinly populated country, a gateway for incoming
tourism, and able to offer alternative facilities to air travellers from other and larger

metropolitan regions (in this case, the Wellington conurbation). In other words: a mirror
image of Hamilton, and ripe for LCC exploitation.
One of seven international airports in New Zealand, Palmerston North was originally a
wartime military airfield. The operator, since 1990 is Palmerston North Airport Ltd., the
Crown having sold its shareholdings to Avion Holdings in 1999. There were 542,816
passengers during the year ended 31-Dec-06 (461,542 domestic and 81,274 international)
and passenger numbers are growing steadily, with 700 monthly scheduled flights operated
by six airlines.
The runway was extended in 1998 to a length that allows trans-Tasman flights, which
Freedom Air quickly commenced. When the subsidiary was folded back into the mainline
carrier, l trans-Tasman services looked doomed, although Australias OzJet announced it
would open services to Brisbane, Sydney and Melbourne.
The present terminal building was constructed in 1991 and extended in 2000. Palmerston
North fits the description of the archetypal low cost airport in some ways the basic
facilities include a cafeteria/drinks machine, limited duty free shopping, bookshop, tourism
information, nursery, and Internet kiosk, with 24/7 operation.
Unusually, there are meeting facilities and a small museum. There is no free car parking,
but parking can be as little as NZD7 per day. The airport occupies a central location for
freight and mail distribution and is therefore not restricted wholly to the passenger side of
the business. The Airport Master Plan provides for industrial site development.
On the South Island, Dunedin (population 125,000, New Zealands fifthlargest city) has
also benefited from direct trans-Tasman routes to Australia flown by Freedom Air. Dunedin
is in an isolated position close to the southern tip of the very thinly populated South Island
and therefore, unlike Palmerston North and Hamilton, is unable to promote itself as an
alternative facility for larger metropolitan regions. Its outbound traffic is local; pointtopoint, or connecting via Auckland, together with inbound tourists. The emphasis is very
much on developing the last category.

Inbound tourism is more significant here than at Hamilton and Palmerston North. The
countrys premier activity vacation resort, Queenstown, is four hours by car and Dunedin is
also a gateway for the popular Milford Sound.
Dunedins terminal facilities are similar to those found at Hamilton and Palmerston North
with limited shop, refreshment and duty free services, a delicatessen, an Air New Zealand
lounge and three conference rooms. There are five car rental companies. The single car
park charges NZD6 per day.
The major international airport on the South Island is at Christchurch (population 350,000),
which hosted 5.4 million passengers in 2006. Christchurch is in a different league to the
previously mentioned airports, with a dozen international destinations, including
Singapore, Tokyo, Osaka and Dubai in addition to domestic and trans Tasman services.
Services have operated to Los Angles and Seoul, Korea in the recent past. Christchurch is
the only major hub airport for the South Island, whereas the North Island has two.
Freedom Airs demise spelled the end of services to Gold Coast, Australia, but the airport
also features service by Pacific Blue, New Zealands international sibling of Australian
domestic LCC Virgin Blue, which flies to Brisbane, Melbourne and Sydney. It also enjoys
Jetstar connections to Sydney, Melbourne, Brisbane and Gold Coast.
As part of an airport city project, a new NZD200 million integrated domestic and
international terminal is under construction from mid-2007, to be completed in 2009 when
the old domestic one will be demolished. It will offer a single landside retail and food &
beverage precinct with views to the Southern Alps to cater for domestic and international
passengers, friends and family, and visitors and a large domestic passenger holding lounge,
including an enhanced retail and food & beverage offering. Car parking will be increased
by 40%. At present, plans do not call for specific LCC facilities, somewhat surprisingly
given the presence of three LCCs here, but Air New Zealand and its non-LCC franchises
occupy a powerful position in the pecking order.
In concluding, it seems that meaningful LCC services were dealt for now at least a
death blow with the end of Freedom Air. Within a conservative society with an older
population base, LCC operations have not been as successful in New Zealand as they have
in Australia. There is good service at present across the Tasman, with Jetstar and Pacific

Blue having established a presence, but it is unclear if this level of operation is sufficient to
justify separate LCA/T activities.
Now they are to be joined by the Christchurch-based Kiwijet, which hopes to start services
in Nov-08, flying limited and non-contested trans-Tasman routes such as AucklandNewcastle, Wellington-Canberra, Rotorua-Sydney and Christchurch-Hobart. Kiwijet does
not know if it wants to be an LCC, its original intention (all Kiwis will fly), or an all jet
regional airline, which is the current incarnation. That sums up New Zealands reaction to
LCCs: it does not really know if it embraces them or not, hence the reluctance to provide
specific airport facilities for them.
Few of these airports, as with their Australian counterparts, yet come anywhere near the
utilitarian model found, for example, in the UK. But then again, neither are the LCCs the
equivalent of, say, Ryanair or easyJet. Pacific Blue for example offers live in-flight
entertainment, as does the parent company, and might better be compared with JetBlue.
One factor that might promote change is the emergence of long-haul LCCs, which might
find New Zealands thinly spread centres of population attractive.

7.4 North Asia


North Asia is arriving late to the low cost airline revolution but, importantly, it is now
arriving there, pushed by the entry of Southeast Asian airlines like AirAsia, Tiger, Cebu
Pacific and Jetstar.
This belated LCC spring can be put down to three main reasons:
(1)the intrinsically high cost base in Japan and Korea (partly due to the dominance of the
respective flag carriers, but also to unhelpful and restrictive regulation);
(2)the high quality, very fast domestic rail services; and
(3)the reluctance of China to permit international LCC or other airline access.
LCC incursion is also hindered by an overwhelming focus on Tokyo, where airport charges
are among the highest in the world. The influence of fast, efficient rail service between the
main centres of population has also reduced the appeal of any potential LCC offering.
Japan and Korea are now moving quickly towards more liberal relations and there is
growing interest at commercial level. It is only a matter of time months now, rather than
years - before some of the vast potential of this golden triangle is realised.

Japan
Most of Japans air service converges on Tokyo. Narita International Airport alone handles
80% of all international traffic, 54% of total passengers, 49% of total aircraft movements
and 62% of the countrys cargo. For the time being, Japan Airlines (JAL)s attention is
focused on an internal reform programme affecting, which also encompasses its lower cost
subsidiaries JALways and JAL Express. However, a leaner and more profitable All Nippon
Airways (ANA) is in the process of designing an LCC subsidiary to defend against
incursions by foreign LCCs, expected as additional capacity comes available at leading
domestic facility Tokyo Haneda airport in 2009 and to complement the existing subsidiary
Air Next at Fukuoka.
There has been an airport building boom in Japan (there are almost 100 of them now),
somewhat alleviating the focus on Tokyo, but also increasing air traffic congestion. For

example the new Kobe Airport is one of three facilities within a 25-mile radius. With
capacity so choked, pressures on operating costs are exacerbated, making it almost
impossible for local LCCs Skymark, Starflyer and Air Do to implement the low cost
model.
While a debate continues on the need for a new airport when Narita and Haneda airports
reach capacity (by the end of this decade), the driver for change has come from Japans
fourth city, Nagoya, which sits in the middle of the country.
The New Chubu Airport, also known as Central Japan Airport or Centrair, opened in
Feb-05. Developed as a private finance initiative with contributions from companies like
Toyota, it offers around-the-clock, unconstrained access to an important regional centre,
helping to divert attention from established airports at Tokyo and Japans second city,
Osaka (the offshore Kansai International Airport). In theory this airport will assist regional
development of international routes, forcing JAL and ANA to lower their costs to target
these new markets with subsidiary airlines and inviting foreign carriers to compete on new
thin routes. The usual pattern that enables meaningful LCC emergence could be not too far
behind.
Competing airports such as Kansai announced the continuation of existing landing charge
discounts to airlines flying there, and new initiatives for airlines that might wish to up to
50%. Although the competition is ostensibly with Centrair, 100 miles away, other airports
such as Itami, Osakas original airport and situated 30 miles away in the northwest suburbs,
have been drawn in as well.
Further afield, a new regional airport opened in Mar-06, on the northern tip of the southern
island of Kyushu, at the city of Kitakyushu.
An offshore island airport, Japans second after Kansai. Kitakyushu is a port city of 1
million people, Japans 11th largest, lying midway between Tokyo and Shanghai. It is one
of Japans largest centres for international trade and industry and within the framework of
an imbalance that sees Japan receiving only five million foreign visitors a year while 17
million Japanese go abroad, it is trying to enhance its tourist potential by targeting budget
airlines. To further this aim it has attained authorisation from the Japanese Ministry of

Land, Infrastructure and Transport to operate for 21 consecutive hours from 0500 to 0200,
facilitating late night passenger and freight services.
The island was built to low cost principles by sharing dredging and landfill costs with an
unrelated port improvement project. The first phase permits 1.5 million passengers per
annum, and there are plans to increase the 2,500-metre runway incrementally to 5,000 m
and 3.3 million passengers through the use of larger aircraft (it can currently accommodate
B737 and A320s).
The same philosophy of start small, think big was applied to the terminal building,
designed so that it can adjust to any increase in demand for facilities and services and built
in two phases to include retail and event space. The Japanese market is not yet ready for a
Quantum Leap to the position where little or no facilities are provided at airports. As with
many recent terminals, environmentally friendly technologies are incorporated to reduce
electricity consumption and emissions.
For the moment this is as close as it gets to an LCA in Japan. At least the new airport
facilities will help promote a travel experience that is virtually unknown in Japan. For most
Japanese a foreign trip involves a lengthy train ride to a gateway city, usually Tokyo or
Osaka, and an overnight stay before checking in. Many people have never left their home
country and even in Tokyo the figure is just 20%. In rural areas it can be 5%.
On this basis the country seems ripe for an LCC/LCAT expansion if the population would
only embrace budget airlines. The airport sector has thus far been a major obstacle, but the
fundamentals are there for change, if tweaked there are 30 potential airports throughout
Japan that could handle medium sized jet operations if small adjustments to regulatory
controls were made, stimulating domestic services and international flights to neighbouring
China and Korea.
Some change could come from overseas. A Macquarie Airports (MAp)-led consortium took
a 9.6% strategic holding in airport operator, Japan Airport Terminal (JAT) in Jul-07 at a
cost of USD165.1 million. MAp now holds a 4.8% interest in JAT, which operates three
passenger terminals at Tokyo Haneda Airport and F&B businesses at Narita and Kansai
airports and handles 60% of Japans domestic traffic. MAp is not specifically attuned to
LCATs but does operate Bristol Airport in the UK, which hosts easyJet as one of its main

airlines. High quality infrastructure and facilities are already in place recently
constructed terminals and a fourth runway scheduled for completion in 2010.
In South Korea, the country received a new airport, Incheon, in 2001, courtesy of a private
finance initiative, and in preparation for the 2002 Soccer World Cup. Along with it came a
more liberal aviation policy to help build a new North Asian Hub here, to challenge China.
The regions air traffic is growing fast, and especially air freight, where Korean Airlines is
one of the worlds biggest carriers.
However, obstacles to serious LCC incursion exist here, as well. The countrys domestic air
services from both full-service and low cost carriers are under threat from the recent
advent of well developed high-speed rail services connecting the main population centres.
The small distances involved (e.g., Seoul in the north to the southern cities of Mokpo and
Pusan is only 200 miles) make train service a compelling option. In fact, such was the
success of new high speed rail services introduced in 2004 that The Ministry of
Construction and Transportation ordered a delay to the construction and/or upgrade of
seven regional airports and the national budget for airport construction was cut by almost
70 percent.
On the other hand Korea is very much in fashion right now. During 2006 Korean airports
handled a record 32 million passengers (+10.2%), partly due to the reputation of its pop
culture in neighbouring countries, sucking in hordes of young travellers those to whom
LCCs appeal most. And, the teenagers apart, Korea has the second largest international travel
market in Asia with 21% of the population travelling each year.
Both the two main airlines, Korean Air (KAL) and Asiana, are strong, but the prospects for
Koreas fledgling budget airlines (Jeju Air and Hansung Airlines together with the potential
start-ups South East Air, Incheon Air and Junbuk Air) look brighter. The Korean press refers
to the Hansung and Jeju airlines as regional low cost airlines, apparently inventing yet
another, but probably accurate, category.
Most critically, Tiger Airways announced that it has entered into a 49-51 partnership with
the municipality of Incheon to launch Incheon Tiger Airways in Aug-08. The carrier will
start with 5 A320s and aims to operate services around the region.

Korean Air responded by announcing the formation of Air Korea, a start-up LCC (it aims
for 70% of the costs of the mainline unit) that would launch in May-08, using two B737s
and two A300s to serve domestic and regional routes.
A potential obstacle is being placed in the way of both by the governments stated intention
of passing legislation requiring locally based carriers to operate domestically for three
years before initiating transborder services. This regulation which may not come into
effect would surely have a chilling effect on Tiger, especially given the impact highspeed trains have had on the domestic market.
Compared with China and Japan, Korea has the best chance in North Asia for a vibrant
LCC sector, at least on international routes. The duopoly market, shaped by KAL and
Asianas high fares, is there for the taking. Both of the current LCCs remain, for the
moment, peripheral players with Jeju Air best positioned by reason of its base location on
the resort island, which is unreachable by rail. The arrival of Tiger and Air Korea will
naturally drastically alter the landscape.
Incheon airport is being developed as a passenger and cargo hub for North Asia, is slated
for an IPO in 2008, and low cost terminal facilities are low on its list of priorities. The
Incheon City Municipal Government plans to establish a special purpose company during
2007 to launch a short-haul international LCC of its own by 2010. Cities in Japan and east
Russia, as well as Shanghai, Qingdao and Beijing are targeted. Domestic airlines and/or
other qualified investors have been invited to join the project. Taken together with KALs
plans, this might influence a change of direction.
As in Japan and Korea, the issue of high-speed rail continues to pose a threat to
development of domestic air services in Taiwan. Taiwans new (Jan-07) railway covers the
345 km between Taipei and Khaosiung in 90 minutes, easily comparable with an air
journey and vastly quicker than the five hours by conventional rail. There are close to 300
weekly air frequencies on the route, but their future is plainly in doubt.
There are many cities in Japan that could have the ability to escape the shadow of Tokyo
and pursue their own commercial development agenda if affordable air services could be
introduced. Kitakyushu has the potential to be a benchmark for the new eras low cost

airlines and airports. Korea is unlikely to be any more than a fringe player where LCATs
and concerned and Taiwan is off the radar altogether.

7.5 Africa
Africa accounts for around 5% of global air traffic but most forecasts see the region
growing as rapidly in percentage terms as Asia Pacific and the Middle East over the
next 20 years, albeit from its very small base. The continents GDP growth will be 6.2% in
2007 (more than a percentage point greater than the world average) according to the World
Bank, slowing to 5.8% in 2007. If it holds true that airline growth is twice that of GDP, the
sector sees a big future. Indeed, in the first six months of 2007 passenger traffic increased
by 13.2% overall. But there are many caveats in Africa.
A high degree of attention has fallen on Africa in recent years from the G8 countries, with
upwards of USD50 billion of aid agreed though little of that will go to aviation - the relief
of poverty, disease and debt being rightly much higher up the agenda. One feature of the
potential for economic advancement of the continent is the accepted wisdom that more
must be done to improve living standards generally, for example by increasing tourism.
However, the aviation business on the African continent, with a few exceptions, is not yet
adequately developed for the mass tourism traffic that is an important feature elsewhere.
European airlines continue to dominate Africa airspace at the expanse of local carriers. And
now US airlines are slowly commencing services that are often not reciprocated by Africa
nations. The Yamoussoukro Agreement (1988/1999) that was supposed to lead to
continent-wide open skies is making painfully slow progress. Nowhere is the conflict
between the ideology of open skies and the reality of protectionism more evident than in
Africa.
Another key feature of the African sector is safety, problems with which constantly make
the news. The European Union, in particular, is often keen to block African airlines from
flying within its boundaries 50 from one country alone.
There are a few pan-regional emerging hubs, for example in South Africa (Johannesburg,
for southern Africa), also at Accra (Ghana), Dakar (Senegal) and Cape Verde for West

Africa, and at Nairobi (Kenya) and Addis Ababa (Ethiopia) for East Africa. Any of these
regions could create LCCs and LCATs, but there is little evidence of either to date.
Apart from tourism, another way in which LCCs have stimulated traffic in the mature
European markets is by enabling friends and relatives to keep in touch much more easily notably in their facilitation of long distance relationships that might have been instigated
by the other wonder of the age, the Internet. This is not easily transferable to much of
Africa, where dominant tribal cultures ensure that life is lived more locally and where
disposable income may not be so readily available for regular journeys. The possible
exceptions are at the extreme north and south of the continent.
Taking all the above into account it is therefore perhaps not surprising that new avenues
such as low cost airports and terminals have not really been explored. There is little in the
way of an LCC business to start with and getting the basic airport infrastructure right is a
priority before ways can be found to start reducing service cost levels.
The northern countries of Morocco and Tunisia, those that are closest to Spain, are starting
to come into line with European economies and even covet eventual entry into the EU.
Morocco already has an open skies agreement with the EU. In the short term, there is a
continuing immigration flow from these countries (and also from those countries to the
south, in sub-Saharan West Africa) into southern Europe. North Africa also is home to four
of the five largest economies in the continent (Algeria, Morocco, Tunisia and Egypt),
collectively attracting half of the total African inward investment. Additionally, Morocco
and Tunisia attract large amounts of leisure visitors from Europe, mainly on package
vacations.
It is no surprise that Morocco is home to two of Africas five LCCs (the other three being
in the Republic of South Africa) namely Atlas Blue, a subsidiary of Royal Air Maroc, and
Jet4You, both in Morocco. Both have done moderately well considering the competition
from European LCCs and the fact that Jet4You has only two aircraft. Tunisia is another
possibility. The Turkish company TAV will operate Monastir and Enfidha airports and is
building the 22-million capacity Enfidha Airport to operate it on a 40-year lease. TAV has
experience of the demands of LCCs in its own country, in Egypt and the Middle East, and
is geared up towards future airport investment in India.

There are proposals for the privatisation and expansion of the airports in Morocco and
Tunisia. In Morocco a project aims to assist the attraction of 18 million visitors a year by
2010 double the present amount by building new terminals. Of all the North African
countries, Morocco seems best suited to the constructions of LCATs.
Egypt maintains a conservative aviation policy, at least among its neighbours, which is not
conducive to home-based LCC development, so that its prospects in this context will be
limited in the short term. However, given its attractive tourism market for European travel,
several major European LCCs and charter airlines operate to Cairo, Sharm El-Sheik,
Hurghada and Luxor (although selling restrictions often prevent one way sales ex-Egypt).
Carriers such as Air Berlin, Condor, Excel Airways, Redsea, Thomson (TUI) and
Transavia, as well as regional LCCs, such as Air Arabia and Jazeera Airways have
extensive arrays of service to Egypt. As is the case in many other airports, local pressures
for change depend on the operation of a locally based airline, so that, despite the variety of
services, there is often a take-it-or-leave-it attitude towards external carrier requests for
special facilities.

Egypt - Key Data


Area Total
Population
Median age
Population

1, 001,450 sq km
80,335,000 (estimate Jul-07)
24.2 years
growth 1.72%

rate
Literacy
GDP per capita
Railways
Airports with paved
runways
Main
ports
harbours

71.4%
USD4,200 (2006 estimate)
5,063 km
72, 67 runways are 1524 m or longer

and Alexandria, Damietta, El Dekheila,


Port Said, Suez,
Zeit

Two-thirds of Egypts economy is now run by the private sector and the trend is becoming
apparent in the airports sector, where Aeroports de Paris Management and Fraport
respectively manage five regional airports Sharm El Sheikh, Hurghada, Luxor, Asswan
and Abu Simbel (all mainstream tourist resorts) and Cairo Airport.
Looking at the broader picture, the government, through the Egyptian Holding Company
for Airports and Air Navigation, intends to invest EUR2.5 billion in its airports during this
decade. World Bank loans of USD335 million have been provided for expansion at Cairo
(where TAV was the contractor) and Sharm El Sheikh, where a new terminal was opened in
Jun-07. It has instigated plans for seven new airports to be built under BOT schemes
including those at Burj Al Arabi (Alexandria), Farafra, Bahariya and Ras Sidr.
Just as Cairo dominates Egypts airports, so does Egyptair, Africas second largest airline,
dominate the skies. It has a new regional subsidiary since Jun-07, Egyptair Express, but it
is not an LCC. It also has stakes in Air Sinai and Air Cairo. Another regional airline will be
launched in Sep-07, Nile Airlines.
Thus there is no LCC per se in Egypt although there are all manner of entrepreneurs
wanting to set one up. The important factor is the growing number of Middle East LCCs
that are flying into Egypt, adding to the European ones, and which might collectively begin

to demand the provision of dedicated services at the vacation resort airports and the major
centres of population such as Cairo and Alexandria.
In many ways, these North African countries are not greatly dissimilar now from southern
European countries such as Spain and Italy and tend to follow closely what they do. The
prospects for low cost airport development would change dramatically if a major LCC
were to put up a base in southern Europe to work these North African markets. Ryanair, for
example, has grown its Spanish business dramatically, overtaking the number of flights it
offers in France. Ryanair also has a base at Rome, and has 160 new aircraft on order but a
declining number of European markets to grow now.
Such a base need not be in Spain or Italy. Marseille has been identified in Chapter 4 as
having the greatest number of connections to North Africa of any airport after those in
Paris, has a designated LCT, and the city has a very high percentage of North African
immigrants in its population.
So, despite the lack of existing LCC flights, the opportunity for one or more low cost airports
or terminals here is high, supported by:

Strong economies (by African standards);

Receptiveness to adoption of business principles fashionable in the EU;

Large numbers of potential VFR travellers;

Net recipient of high inward investment funding from both public and private sources;

Modern and expanding fleets;

Private airlines permitted; and

Strategic plans in place to expand airports.


The other part of the continent that offers the best opportunity is the
Republic of South Africa (RSA), the economic powerhouse of the subSaharan part of the
continent, and the only sub-Saharan country to have a low cost airline. (Kenya did, but
Flamingo Airlines was folded back into parent Kenya Airways in 2004 after recording
poor results.)
Republic of South Africa - Key Data
Area Total

1,219,912 sq km

Population
Median age
Population

43,997,828
24.3 years
growth -0.46% (2007 est.)

rate
Literacy
GDP per capita
Railways
Airports with paved
runways
Main
ports
harbours

86.4%
USD13,300 (2006 est.)
20,872 km
146, 66 runways are 1524 m or

longer
and Cape Town, Durban, East London,
Port

Elizabeth,

Richards

Bay,

Saldanha Bay

South African Airways (SAA) is going through a difficult time as it struggles to reduce
costs, allowing LCCs to claim greater market share domestically and to neighbouring
African countries. Three LCCs are operating here, Kulula.com, 1time and Mango, a
subsidiary of SAA that commenced operations in Nov-06 with a more modern fleet than its
rivals.
The LCCs tend to operate mainly on the trunk routes, in serious competition with each
other and especially on the main routes between Johannesburg, Cape Town and Durban.
Finding flights between secondary cities can be difficult. On the fringe are hybrid full
service/low cost airlines, such as Comair (itself the owner of Kulula), South African
Express and Nationwide, which additionally has limited international operations and a
single intercontinental route. Common to all RSAs airlines is an ageing fleet of old B737s
and in some cases MD80s, usually leased. There is precious little investment in aircraft,
hinting at a cash-strapped industry.
Momentarily a price war is raging. South Africas leading independent LCC is kulula.com
(Kulula is Zulu language for Easy). It connects the main cities and presents itself
aggressively as a cross between Southwest Airlines and Ryanair Southwests fun
approach and Ryanairs commercial acumen and frugality. For example it only has one
check-in counter for all departures even if they are concurrent. The other independent
LCC, 1time (local slang for for real), has a similar, smaller route structure to that of
Kulula. It was the subject of examination by Virgin in 2005 with a view to a takeover and
re-launch as Virgin South Africa but is now to be listed on the Stock Exchange. Both

Kulula and 1time have overcome slow take up of web-based online reservations and use of
credit cards.
With such a limited LCC sector, it is unsurprising there is not a greater demand for LCATs.
There are factors both for and against low cost airports and terminals here. A very small
proportion of South Africas 44 million population flies domestically each year given the
physical size of the country - just three million. That figure will grow as per capita incomes
rise. The airports infrastructure is largely in the hands of the state agency ACSA, which has
done a good job in modernising the airports to support bids for sporting events such as the
Rugby and Soccer World Cups. ACSA has recently increased its capital expenditure
investment plan from USD730 million to USD2.7 billion, to accommodate forecast
increases in passenger traffic through to 2012, which it will pay for by increasing
passenger service charges by 11% on average per year over the next five years, the biggest
increases being foisted on domestic and regional passengers.
Republic of South Africa Locator Map

Source: CIA World Factbook

The focus so far has been on the two main city airports of Johannesburg and Cape Town,
and latterly on Durban, which will eventually be replaced by a new airport. The King
Shaka airport at La Mercy, North of Durban is part of a wider Dube TradePort and is
scheduled for completion in time for the 2010 FIFA World Cup.

Cape Town International Airport has been the recipient of heavy investment as the
countrys primary tourism gateway, and is eventually to get a second main runway as part
of a ZAR2 billion project to increase capacity to 12 million passengers by 2015.
Johannesburg OR Tambo International Airport (JIA) is the hub airport for all of southern
Africa, hosts over 13 million passengers annually and contributes 70% of ACSAs profits.
It has been the focus of most of the recent investment. Even so, its users do not hold it in
high esteem and ACSA is presently facing calls for it to be closed down to make way for a
new airport. Over the course of a decade JIA has been criticised for poor customer service,
crime, poor planning (e.g. shortage of car parking places) and insufficient passenger
capacity.
ACSA applies charges equally to users. There is thus little impetus from ACSA for the
development of alternative secondary airports and the current volume of LCC activity has
not prompted budget terminal developments.
A whole series of plans have been forthcoming from the private sector for private
development of airports, such as a military airfield at Dunnotar, north of Johannesburg.
The existing Lanseria Airport, also to the north and well located between Johannesburgs
wealthy northern business district and suburbs. Lastly, the capital citys airport, Pretoria,
was expanded with a refurbished terminal and runway extension and started to attract
interest from LCC operators, but that interest fell away. The airport is the countrys most
important one for general business aviation.
In Oct-06, the Gauteng Province Government announced plans to upgrade Lanseria
International Airport before the 2010 Soccer World Cup in a USD13.1 million project that
includes a new terminal. It has begun to attract limited LCC services again Kulula
operates a flight to Cape Town - but is still dependent on charters.
Lanseria, run by a consortium of private investors, is precisely the sort of airport that
would be developed and operated as a low cost airport by a private company in Europe,
possibly even by an airline. Its main weaknesses lack of public transport access and
(relatively) poor roads compared with the motorways around JIA should not stand in the
way, as car parking is cheaper than at ACSA airports at ZAR45 per 24 hours (USD6.25).
There is a small restaurant.

The ACSA-managed Pilanesburg Airport near the Sun City luxury vacation and gambling
resort in the Northwest Province (formerly Bophuthatswana) is another possible location of
an LCA. Surprisingly it attracts little commercial scheduled traffic on its 2,750 m runway,
mainly charter and general aviation, but is able to accept B737, DC-9 and MD80 aircraft
the mainstays of RSAs LCC fleets. Following a major upgrade in 2001, that also saw a
revamped terminal, it could be used by long-haul LCCs with only a limited additional
expansion.
A major new airport, Kruger Mpumulanga International (KMI), opened in Oct-02. This
venture was 90% financed by the Swiss/Swedish company ABB, to generate more tourism
to the Kruger National Park region and to help surrounding communities, which own a
10% share. Whilst targeting international charter flights from Europe, it would also be
appropriate to the location of low cost airline services from major cities, and especially
from Johannesburg, although almost exclusively for tourists.
Budget short-haul services have so far failed to materialise, even though fares charged by
the dominant airline, SA Airlink, are said to be amongst the highest per mile in the world.
Nationwide is also represented at KMI, as is Interlink, a small regional airline. Moreover,
despite a charging regime that, it is claimed, is from 10% to 500% less than comparable
charging at ACSA airports, the management declines to follow the European LCA example
because of:

The lack of breadth of services offered by the three LCCs i.e.


international charters must take precedence in the strategy; and

The lack of non-aeronautical revenue generating possibilities to underpin reduced


costs to airlines.

KMI was not altogether successful in its early days. The operator of retail services pulled
out in Dec-03 and was not adequately replaced. Now there is just a small restaurant, coffee
shop, bureau de change and curio shop. One area in which it has been successful is in the
creation of (direct and induced) employment opportunities in a relatively poor region of the
country. The local Mbuyane community receives a contribution from every departing
passenger to fund the development of small and medium-sized businesses.

Essentially KMI is a tourist airport, to serve the nearby Park and other tourist attractions.
With a 3.1 km runway it appears more appropriate to the long-haul charters from Europe
and the Middle East that it was originally targeted at but which have so far failed to arrive
in adequate numbers.
To conclude, the presence of the LCCs in RSA does hold out some promise for LCATs, but
if SAA, which is fighting for survival, is successful with Mango at the expense of the other
two LCCs then there will be little future for LCATs there. Lanseria is the most obvious
example of where it might happen.
In the longer term that might prompt similar low cost secondary airports in neighbouring
countries like Namibia, which follow RSAs example. For example, Windhoeks Eros
Airport is just 2.5 miles from the city centre compared to 28 miles for the International
Airport. It has a 2,200 m runway that appears to be wasted on general aviation and safari
traffic. Air Namibia has a limited programme there, the only scheduled carrier. Angola, a
relatively stable country now, could host an LCC for international flights that might help
diversify its economy with tourism, but state carrier TAAG Angola Airlines enjoys too
much government protection for it to be feasible yet.
In the central part of Africa it is difficult to see where an LCC will come from, let alone a
LCAT.
In the continents Horn region. Ethiopian Airlines is one of Africas success stories; a
regional airline whose influence overlaps into other parts of the continent and the Middle
East. It also flies to cities in Europe, Asia and to New York and Washington DC a flag
carrier for sub-Saharan Africa. Finally, it pioneered East to West trans-African services.
Without them, African travellers had to fly into mainland Europe to cross their own
continent.
However, Ethiopia remains a poor country, its 76 million people still largely dependent on
international aid. There is little prospect of LCCs and LCAs for them. Ethiopias strength
lies in its position close to Saudi Arabia and the Gulf States, with Kenya bordering the
south, which might attract the growing band of Middle East LCCs to support labour
movements to and from the Gulf area as the Indian sub-Continent has done before. Addis
Ababa offers an alternative to Bole International Airport (the USD130 million aviation

capital of Africa) at the old Lideta Airport, used mainly by general aviation and the
military.
Nigerias booming economy looks attractive and there is a population of in excess of 120
million but there are obstacles to LCC operations. The countrys geographical location
means that international single aisle LCC operations would be limited to West Africa as
there are no regional migration patterns. More than in almost any other African country
wealth is concentrated in the hands of the few and they demand full service. It is also an
inefficient country in which to conduct operations, with corruption a major cost of doing
business.

7.6 Latin America


Latin American aviation has been dominated by failing airlines during the last decade but
both the airline business and the economy generally now seem to be on the up. There are
new airlines and restructured older ones competing. There are two notably successful
airlines the full service Lan, (Latin Area Network, previously just LanChile now
including subsidiaries LAN Peru, LAN Ecuador, LAN Dominicana, LAN Argentina and
LAN Express), which has overtaken Varig, TAM and Aerolineas Argentinas as the leading
regional long-haul carrier, and Brazils GOL, a low cost carrier that has produced quarterly
profit margins at the top of the global industry.
Other notable airlines are Central Americas Copa and Taca and their derivatives, and
Aeromexico, which is scheduled for privatisation in 2007. The local sector is facing more
competition from the US, as American carriers are expanding overseas in an effort to
diversify away from the yieldchallenged domestic market. American, Continental and
especially Delta leading the way and European, Middle East and Asia carriers are also
introducing or expanding service.
The number of LCCs in Latin America has rocketed to over 15 and most of them are in
Brazil or Mexico, which is being hailed as the new Brazil, as it features a large population
with a well-developed airports network. The Mexican airport operator GAP reported that
35.5% of domestic traffic at its airports in 2Q07 was from LCCs.

Mexican LCCs
Airline
Avolar

Start-up
Date
Sep-05

Base

Fleet/Current

Tijuana

8/B737300/500
8/CRJ-200

Alma
de Jun-06
Guadalajara
Mexico
Click
Jul-05
Mexico City
Mexicana
Interjet
Jun-06
Toluca
Volaris
Mar-06
Toluca
Viva Aerobus Nov-06
Monterrey
Source: Centre for Asia Pacific Aviation

16/Fokker 100
7/A320
11/A319
3/B737-300

Viva Aerobus is partly owned by a bus company and partly by Irelands Ryan family. As
these new airlines have achieved solid market shares, the Mexican legacy carriers have
started to combat them, especially by cutting back ticket prices, even though they are
handicapped by high labour costs and inefficient fleet structures.
The situation in Brazil is somewhat different. Flag carrier Varig collapsed completely and
was resurrected by Gol, which bought out its successor, New Varig, in Mar-07, with the
two companies proceeding with separate business models. For the moment the leading
airline is TAM. Another important Brazilian airline is Ocean Air, the premier regional
carrier.
Brazils airlines are recovering from a period when most of them experienced financial
difficulties and there is still an occasional blip, such as the one in 1Q07, when both TAM
and Gol reported losses. Furthermore, the national infrastructure is in a mess with
congested airports, frequent strikes and air traffic management failures. There have been
two serious accidents in the last 12 months. The International Civil Aviation Organisation
has called for more capital investment in the entire aviation system.
Privatisation of the airports is an indicator of secondary airport growth potential here. Since
the late 1990s the major airports have been privatised in Mexico and Argentina by a
process of concession agreements to various foreign airport operators, and to a lesser
degree in other countries. In Mexico, there have been secondary sales and two IPOs.

Brazil, however, still exercises state control over its civil airports, though some
privatisation pilot schemes are in operation. As a direct result of the infrastructure logjam,
President Lula has approved a plan to sell shares in Infraero, the state airport and ATM
company, to help raise capital to overcome infrastructure deficiencies that are constraining
not only the sector but also the wider economy. Brazils GDP grew by just 3.7% in 2006,
due in part to the growing infrastructure bottleneck.
The capital requirement is enormous after years of under-investment since the Latin
American debt crisis of the 1980s. In Jan-07, the government announced a four-year,
USD250 billion investment plan in transportation, energy and ports, but few of the funds
have been invested to date, due to bureaucratic delays.
Foreign capital is still noticeable by its absence. For all the positives coming out of Latin
America aviation sector, investors are still wary of the region because of the scandals that
have rocked previous airport privatisations, notably in Argentina.
So will any of these developments pave the way for LCATs?
Two positive factors are that it is estimated that only 10% or so of the continents 500
million population has yet flown and that the second largest minority group in the USA are
Hispanics, many of them from Latin America and thus likely to fly within the region. There
is great potential for LCCs. Mexus Airlines of Fort Worth was set up to tap the US-Mexico
market but never got going. Now Viva Aerobus wishes to do the same out of a low cost
base at Austin Bergstrom airport also in Texas.
Some cities have secondary airports that could cater specifically to LCCs if the level of
demand required it, such as Santos Dumont, close to the centre of Rio de Janeiro, Brazil.
Sao Paulos Congonhas or (more likely) Guarulhos/Cumbica, Viracopos/Campinas or
Jundiai airports might be developed in the same fashion, also Aeroparque Jorge Newberry
in northern Buenos Aires, Argentina.
The situation in Brazil has become confused by the authorities decision to take punitive
action against Congonhas airport following the Jul-07 crash there, limiting Congonhas to
flights of maximum two hours duration and axing its hub status. They also declared
Brasilia airport to be the nations main hub for the North and Mid-West of Brazil, and Rios

Galeao Airport to have priority for flights to the Northeast and to Europe and the US. Until
the fall-out from the incident is settled, there can be no clear decisions made on what will
constitute future low cost airports.
Not all of the Latin American concessions have been successful and there has been
criticism of the performance of privatised monopolies. Franchises typically run from 15-30
years and often have an exclusivity clause that prevents another facility competing with
them. When agreements are negotiated, passenger traffic and growth can be factored in and
affect the basic economic conditions of the deal not conducive to the competition that
sustains both LCCs and LCAs. Moreover, most airports, currently underused anyway, can
handle expansion so it would not make commercial sense to promote another airport
nearby.
Where the government has benefited from an airport privatisation, through leases and
royalties, the money rarely goes towards new aviation developments like new airports
there are pressing social problems to deal with first. Many airports in this region also face a
lack of acceptable levels of alternative non-aeronautical revenue generation if aeronautical
fees are reduced.
The regions leading LCC, GOL, believes there is still not enough traffic overall to split
airport operations between full service and low cost. From Gols perspective, it is
important to operate in the same airports as other airlines because it is still competing with
them for the same type of passenger there is not as yet the type of passenger
differentiation identified elsewhere. In a deviation from the traditional LCC model, it is in
Gols plans to interline with international airlines to distribute their passengers in Brazil,
and thus it needs to be in the principal airports.
It will be interesting to see how the low cost terminal experiment at Austin Bergstrom
influences thinking (if at all) in Latin America. The whole continent also closely monitors
developments in Florida, as Miami is the principle Latin American gate of entry for the
whole world even if it is in the USA. It is well known in Latin America that Fort
Lauderdales intercontinental traffic is growing, as did its domestic traffic earlier, directly
as a result of its costs being much lower than those at Miami.

7.7 Middle East/Gulf States


Passenger traffic shows little sign of an immediate slow down in the Middle East, where it
increased by 13% in the first six months of 2007, led by Abu Dhabi (+27%), Kuwait
(+20%) and Dubai (+17%).
At one time, the prospects for low cost airlines in the Middle East and Gulf looked as
promising as they did in Asia Pacific, but actual progress was much slower, finally picking
up in 2006-7, which saw the arrival of Saudi carriers National Air Services (NAS Air) and
Sama, to add to the existing players Air Arabia (Sharjah) and Jazeera Airways (Kuwait).
Saudi Arabian Airlines has announced plans to establish a low cost subsidiary to respond to
increasing competition in the domestic market.
Air Arabia is now reporting consistently good profits and up to 10 new LCC entrants are
anticipated during the next five years including one in Iran (Ease on Air). LCCs have
arrived in the region.
The Middle East would not hitherto have been first choice for a start-up LCC point-topoint operation, having been characterised traditionally by big state-owned, full-service
airlines, reflecting the general economy of the oilrich regional countries and the high
disposable incomes of their users or, in the case of those states not fitting that pattern, a
concentration on sixth freedom long-haul discount traffic through hubs.
The local regulations historically aimed at protecting the local flag carrier have been
but one example of the problems facing development of the budget sector. Other factors
negatively affecting the prospects for LCCs have included:

Restrictive practices emerging from uncompetitive ground handling situations mean that
turnaround times are slower in this region;

Passengers prefer to have assigned seating, further slowing down the operation;

Internet marketing can be limited, not by technology, but because credit card usage is not
high in the region;

Costs in the region are not low;

The problems of capacity restrictions arising from tough bilateral air service agreements and
lack of open skies policies;

The lack of secondary airports, meaning that, at least in the beginning, business models
would have to be based on operations at primary airfields; and

Level of comfort requirements of regular travellers in the region.


Air Arabia is much more like a traditional European LCC, with a wide range of
international routes in the Middle East, Gulf and Indian sub-Continent, online booking, a
bus service to Abu Dhabi and Al Ain, newspaper ticket promotions and competitions. Air
Arabia seems to have come closest, so far, to copying successful European and Asia Pacific
LCC principles. Furthermore, basing at Sharjah gives it access to the other, nearby and
heavily populated Gulf States.
Sharjah Airport began a major expansion project costing DHS227 million in Jan-05. The
new facilities will enable the airport to cater to eight million passengers and feature a new
check-in area, departure and arrival lounges, holding lounges, a bigger duty-free area,
coffee shops and food court, seating area as well as prayer areas for males and females.
The number of airline offices increased from 16 to 40 and the check-in counters increased
to 40. There is additional parking for 800 vehicles. In the absence of low cost terminals in
the region, Sharjah will probably become the benchmark airport for low cost operations.
An airline called Smart Jet was set up to operate out of Dubai International Airport, a full
service airport with no provision for budget airlines because of lack of capacity and which
previously professed an unwillingness to host LCC services.
The opinion of the Dubai authorities has begun to change since then even though Smart Jet
did not get under way. The Emirate has been at the forefront of aviation development in the
region and will want to stay that way: a great deal of money is being sunk into tourist and
residential developments. Airlines are to be offered the option of their own terminals at the
new Jebel Ali airport (Dubai World Central), which is set to begin open in 2008 and which
will become part of an extremely ambitious target of 140 million passengers annually
through the two Dubai airports by 2020
(currently 25 million at the existing facility).

It is now the intention that an LCT will be built at the new airport, to handle at least five
million passengers a year in the first phase of the airports construction. In fact, the first
phase of Dubai World Central will be expressly for logistics services and low-cost carriers.
Rates at the new airport will be lower.
Kuwaiti-based Jazeera Airways launched in 2004. Following the Kuwaiti governments
decision to open its aviation borders to competition, the carrier now flies to 13 destinations,
has a fleet of five Airbus A320s and has ordered 30 more. The airline has now listed on the
Kuwait Stock Exchange and will make a secondary listing in Dubai, where it has opened a
new operating base/hub, later in 2007.
So Sharjah and Kuwait are established as LCAs without having any of the facilities that are
typical. Kuwaits Jazeera is in a position to tap into traffic to and from southern Iraq should
that country ever free itself of its predicament. Dubai will follow suit and it is highly likely
that the designated LCT there will follow the principles established at Singapore (q.v.),
which is Dubais chief pan-regional competitor.
Other potential hotspots for LCATs include marginal states like Fujairah and Ras-alKhaimah, which are both keen to establish themselves as airports with a role to play
regionally.
Middle East/Gulf State Locator Map

Source: CIA World Factbook

Another potential LCA spot is Oman, where the two main airports went through a painful
and failed privatisation process in 2004 when the banks got cold feet about investing in a

volatile part of the world. Much will depend on the direction Oman Air takes. It wants to
start long-haul flights but faces five years of losses.
The airports in the Middle East, and certainly those in the Gulf, need to differentiate
themselves. As things stand, the main airports are all chasing much the same sort of traffic,
i.e. high net worth individuals to shop in glitzy arcades and sixth freedom passengers from
and to every corner of the world via their particular hub. Whether they can all survive and
prosper remains to be seen. One way in which they can differentiate is by providing
facilities for, and encouraging, LCCs. Dubai has set the ball rolling by prioritising its LCT
at Dubai World central.
Small secondary airports in the European fashion do not exist in the Middle East, so if
LCATs are going to be part of the scene at all they will feature at existing airports.
United Arab Emirates Key Data
Area Total
Population
Median age
Population

83,600 sq km
4,444,011
30.1 years
growth 3.997% (2007 est.)

rate
Literacy
GDP per capita
Railways
Airports with paved
runways
Main
ports
harbours

77.9%
USD49,700 (2006 est.)
None
23, 16 runways are 1524 m or longer

and Al Fujayrah, Khawr Fakkan, Mina'


Jabal 'Ali, Mina' Rashid, Mina' Saqr,
Mina' Zayid, Sharjan

7.8 Russia
Despite its huge landmass (twice the size of the US), widely spaced cities, populous cityregions in the west, recently enriched middle classes and fast growing airlines, Russia is
not really suitable for low cost airports just yet, its airlines having only just adjusted to
external competition and the subsequent demand for lower prices.
There is something of a dichotomy here. There are perhaps a dozen foreign LCCs operating
into Russia, mainly to Moscow and St Petersburg, but until recently only one homegrown
airline S7 (previously Sibir or Siberia Airlines) seriously trialled a low cost service per
se, and that was a peculiar arrangement, on just one route and in only one part of the cabin.
S7 is based at Novosibirsk, Russias fourth largest city and is Russias secondlargest airline
after Aeroflot. It maintains secondary bases at Domodedovo, Moscows upcoming second
airport, and Irkutsk.
The Russian airline sector is dominated still by Aeroflot, whose newfound confidence is
registered in the fact that it made a bid for the ailing Italian flag carrier Alitalia together
with the Italian bank Unicredit. The third largest airline is Pulkovo Aviation, based at St
Petersburg, where it also runs the airport. Air Union, a merged airline out of five smaller
ones, will cooperate with Austrian Airlines as it re-engages its focus on East Europe, the
Baltic, West Asia and the CIS states.
Russia Locator Map

Source: CIA World Factbook

Most Russian airlines are investing in aircraft types that are highly suitable for LCC
applications such as B737-800 and A319/320, plus the B787, which both Aeroflot and S7

have ordered; an aircraft suited to the nations longdistance flights. Most Russian airlines
are disposing quickly of old fuel guzzling Tupolev, Antonov, Ilyushin and Yakovlev aircraft
types, as it is increasingly practical for them to buy or lease new Western built aircraft, as
tax implications are gradually reduced. In addition, the United Aircraft Building
Corporation is introducing its own 100-seat Sukhoi Regional Jet.
Equipment choices notwithstanding, the LCC movement has not caught on, however. In
2002, the airline Tsentravia made a failed attempt to convince train passengers to fly
similar distances with a no-frills air service between Moscow and Belgorod operated by a
YAK 42 and which was partly supported (30%) by the Belgorod regional administration. it
was unable to attract enough passengers, and when the Belgorod administration cut off
subsidies after three months, the carrier was forced to discontinue the service. In S7s case,
the Domodedovo Airport management had helped it to reduce unit costs, part of its strategy
as a privately operated airport, run by the East Line Group to attract full service airline
traffic from the state-run Sheremetyevo Airport. This helped S7 reduce turnaround times
and improve utilisation.
S7 benefited from the fact that it already had lower operating costs than most European
LCCs, having rid itself of the burden of overstaffing, unlike many of its contemporaries.
Moreover, the better-managed airports, like Domodedovo, were increasingly willing to
make performance guarantees on turnarounds. Most Russian aviation analysts believed that
if S7 could not succeed, then no other airline could.
S7s trial was limited, as a forerunner to establishing an LCC within S7 or setting up a new
one altogether, and the two-class concept was not appropriate for a short journey. The Tu154, in common with most aircraft available to Russian airlines at the time, is too
expensive to operate on a nofrills route. Aeroflots view was that passenger numbers on
domestic routes remained too low to make low-cost service feasible with the exception of
one route - Moscow to St. Petersburg - where 650,000 make the trip every year by air but
five million more go by rail. If low-cost services were well organised and the western
model could be introduced fully and maintained, many of those five million passengers
might switch to air, but no airlines were considering offering no-frills service on this trunk
route.

There are similar circumstances preventing low cost carriers from getting going in Russia
as there are in the Middle East and South Africa. For instance, Internet and credit card
usage is on the increase but hardly widespread. Discussions took place on the experience
of other countries where credit card payments by Internet are not widely used and the
possibility of the customer making bookings by Internet and then having a period of time
to go to an office, or a partner bank or post office to make the payment. No-one was sure
how the Russian aviation authorities would view any move away from the traditional air
ticket to ticket-less e-travel that would be a quantum step: the authorities remained
resistant to change.
Within the last year a start-up LCC, SkyExpress, seems to have circumvented the
restrictions. It is possible to make a booking and pay for a ticket by debit or credit card on
the corporate site or via a call centre. Even so, both the order and purchase procedures
remain long and complex and a reservation is only possible for one person or one adult
plus child at once. SkyExpress website home page carries an advisory to the effect that its
eticket technology complies with the Ministry of Transports Order #134 of Nov-06. It
appears that e-tickets were refused at one airport.
SkyExpress boasts fleet commonality, operating B737s out of Vnukovo, the closest airport
to Moscow city centre. It serves only snacks and beverages on board, which must be paid
for. In-flight service includes newspapers and magazines, audio and DVD, and prepaid
mobile phone cards, bank debit cards and travel insurance are for sale. Cabin crew will
make hotel and restaurant reservations and even order a taxi at the arrival airport.
SkyExpress certainly has taken on many of the facets of a European LCC and particularly
Ryanairs emphasis on in-flight sales.
With airfares falling across the airline sector, Russian airports are thus under renewed
pressure to cut their costs. At the same time, in Jul-05, Russian Government officials
announced they intended to reduce the number of international airports in the country from
70 to eight hub airports and 20 major domestic airports, as part of the reorganisation of the
airport system being undertaken by the Transport Ministry. The airports would follow the
ICAO international benchmark of spacing international airports 500 km from one another.
Moscows Domodedovo Airport already being managed privately, it is now locked in a
battle with Sheremetyevo, which is being improved rapidly, with a new terminal and

refurbishment of others part of the programme. Domodedovo is finally taking account of


the low cost boom of foreign LCCs into Moscow, and of the potential for home grown
versions, by planning a low cost terminal space within its own new developments. Just
what form it will take is unclear as both Sheremetyevo and Domodedovo are basically
vying for the same hub-based intercontinental traffic.
On the fringes are the secondary/tertiary Moscow airports - Vnukovo, Bykovo and
Myachkovo. Vnukovo in particular has been left behind by the rapid development of
Domodedovo and the attempts by Sheremetyevo to catch up. Moscow City Council sought
to assist these smaller airports by inviting investors for a system of air taxi operations at the
secondary airports, offering to make a 50% contribution towards the anticipated overall
cost of USD1.4 billion for the improvement of infrastructure.
The Moscow government remains the main shareholder at the largely forgotten Vnukovo
Airport (28 km southwest of Moscow, closer than Domodedovo), which has become the
base for SkyExpress and which now plans a new passenger terminal of its own, within
low cost parameters. Construction of the new terminal commenced on 16-Sep-06 and it
will ultimately have the capacity to handle 18 million passengers per annum. In 2006,
passenger traffic at Vnukovo rose 41.4% to 5.1 million. Vnukovo has four terminals
presently but only one is designated for commercial domestic and international passenger
traffic, the others being allocated to heads of state and official delegations, general aviation
and cargo.
At St Petersburg, the City authorities will issue a tender for the operation of Pulkovo
Airport, the main facility, which is presently managed by Pulkovo Aviation. The winning
bidder would reportedly be required to invest USD1.2 billion in airport infrastructure
developments. Officials hope to expand the airports annual passenger capacity from 4.4
million to 12 million within four to six years. With the airline taking a back seat, the
opportunity arises for an increased LCC presence there. There is a secondary airport at St
Petersburg (Rzhevka) hosting general aviation that might be used for budget commercial
flights and the intention is to privatise it.
External interest in airport development has materialised from several sources. Paramount
amongst them being Singapores Changi Airport International (CAI), which has a fourpronged strategy to expand in China, India, the Middle East and Russia. In Jul-06 CAI

announced a joint venture with Sheremetyevo International Airport Joint Stock Co (SIAJS)
to manage and operate terminals at Sheremetyevo, the latest of which will be the new
Terminal 3.
CAI has also established itself in the field of consultancy in Russia, for example in the
reconstruction of St Petersburgs Pulkovo Airport, and it may be invited to manage up to
10 Russian airports in a joint venture with Sheremetyevo Airport. These include a group of
southern airports controlled by a holding company, Basic Element. CAIs usp, as in India
and the Middle East, is the experience gained from the construction, operation and
management of the budget terminal at Singapore since Mar-06, which it could be invited to
replicate at any of a dozen or so Russian cities.
Those same 12 cities, each with a catchment area of three to four million but with scarcely
developed airports, are also attractive to Meinl Airports, the subsidiary of Austrias Meinl
Bank and which is headed up by executives previously at Flughafen Wien (Vienna
Airport). Although Vienna Airport would hardly qualify as an LCA, given Austrian
Airlines hub power there, Flughafen Wien did attempt to acquire Bratislava Airport in
nearby Slovakia for use as a complementary LCA to Vienna. It has a share in the regional
Friedrichshafen Airport on the borders of Germany, Austria and Liechtenstein, and has
been heavily involved in the assimilation of LCCs at Malta International Airport. In other
words there is plenty of portable experience.
In summary, the Russian LCC/LCAT business is really only on the verge of coming to life,
but if the airline side begins to succeed there will be a need for equivalent airport facilities.
The remainder of the country will probably be led by what happens in Moscow. If Russia
cannot provide them then other countries at its borders will try to do so, as in the case of
Lappeenranta (q.v.), the Finnish airport that seeks to become St Petersburgs low cost
gateway.
Russia Key Data
Area Total
Population
Median age
Population
rate

17,075,200 sq km
141,377,752 (July 2007 est.)
38.2 years
growth -0.484% (2007 est.)

Literacy
GDP per capita
Railways
Airports with paved
runways
Main
ports
harbours

99.4%
USD12,200 (2006 est.)
87,157 km
616, 379 runways are 1524 m or

longer
and Anapa,

Kaliningrad,

Murmansk,

Nakhodka,
Novorossiysk,

Rostov-na-Donu,

Saint Petersburg, Taganrog, Vanino,


Vostochnyy