20 years of budget airlines: Once the underdogs of commercial aviation, now a force to reckon with

SINGAPORE: Mr Norazman Sapiie's family was worried when he started working as cabin crew on budget carrier Jetstar Asia 20 years ago. 

After all, budget airlines had just burst onto the scene then, and floating around was a general misconception that they didn't have the same safety standards as a full-service carrier. 

Mr Norazman, now 56, in fact went through training that included firefighting, emergency procedures and first aid – the same skills a crew member with a full-service carrier would be expected to have.

Indeed, it was a common misperception that low cost equalled poor safety, said Scoot associate management pilot Keagan Pang. 

The 42-year-old began flying with Tiger Airways in 2013, before its rebranding as Tigerair and subsequent merger with Scoot. 

Today, fewer questions are being asked of safety standards as more people have become accustomed to budget travel, both Mr Norazman and Mr Pang said.

“Think of it as a plate of Michelin-starred chicken rice,” said Mr Pang. “One is served in a restaurant versus one in a food court.

“You get the same ... but the price point is different, simply because the setting is slightly different.” 

Since Singapore's first locally-operated budget flight took off from Changi Airport in 2004, the low-cost carrier industry has seen several ups and downs on its way to becoming a household name. 

In the early years were mergers, acquisitions and the opening and closing of a budget terminal. 

Then there was the pandemic in 2020 which shut down almost all commercial air travel.

While much has changed in the two decades, some things have stayed the same: Budget airlines continue to market lower prices in return for a no-frills experience – which usually means no complimentary in-flight meals, in-flight entertainment, pillows, blankets and such.

Such a trade-off may appear a Faustian bargain to full-service carriers. But it has paid off handsomely for budget airlines. 

Singapore's low-cost carrier market grew by 21 per cent between 2004 and 2024; in contrast, full-service carriers grew by 1.4 per cent over the same period, Alton Aviation Consultancy director Alan Lim noted.

“Competition among low-cost carriers has been strong with an average of two new entrants per year over the last 20 years … the low-cost carrier (market) share has grown significantly to just over 30 per cent of the Singapore market measured by seat capacity."

With domestic and international passenger traffic in Asia Pacific also projected to more than double the levels in 2019, will the low-cost airline industry here continue growing unchallenged – and take an even more generous share of the pie?

A BRIEF HISTORY

The early 2000s were a time of growing appetite and need for air connectivity in Asia, especially within Southeast Asia.

The regional geography was fragmented and lacking an integrated network of road, rail and sea links.

It was in this setting that several local low-cost carriers entered the fray, looking to also meet rising demand for cheap travel.

First to take off was Valuair in May 2004. It sought to revolutionise low-cost travel by offering a light meal on board to all passengers, and assigning seats as opposed to free-seating arrangements preferred by budget airlines in those days. 

A simple flight from Singapore to Bangkok was not expected to turn heads – but this one did. 

In the weeks leading up to this landmark budget trip, full-service carriers Singapore Airlines (SIA) and Cathay Pacific began to slash prices, with SIA selling tickets to Bangkok at only marginally higher prices than Valuair.

“I’m very surprised at the reaction of the big boys,” then-Valuair chairman Lim Chin Beng said at the launch of the first flight.

Yet it was only a matter of time before Valuair would be overwhelmed by rising fuel costs, continued price wars with full-service carriers and the entrance of two rivals that same year: Tiger Airways and Jetstar Asia.  

“When we planned this airline, there did not appear to be any other budget carriers,” Mr Lim said in 2005. “If there were only one or two, the full-service carriers would have been more tolerant.” 

With the writing on the wall, Valuair was acquired by Jetstar Asia in July 2005, just over one year from its maiden flight.

Jetstar Asia’s Mr Norazman, who joined the airline in October 2004 - even before its first flight - recalled having to wear two different uniforms due to being rostered for Valuair flights as well.

Together with older Asian budget airlines such as Malaysia’s AirAsia and Philippines’ Cebu Pacific, the business took off over the next few years.

By 2009, low-cost carriers were accounting for 23 per cent of Changi Airport’s total passenger traffic, according to data from the Civil Aviation Authority of Singapore (CAAS). 

It didn't take long for Changi to spring into action.

“Being Asia’s regional hub for air travel, Changi Airport saw an opportunity to expand its city links to serve this need by introducing low-cost carrier operations in Singapore,” said Mr Lim Ching Kiat, Changi Airport Group’s executive vice-president for air hub and cargo development.

In 2006, it built a no-frills, budget terminal with no aerobridges and transfer facilities, to support the growth of low-cost carriers. 

While the terminal grew to accommodate more passengers over the years, it was closed in 2012 to make way for the construction of a larger, full-service Terminal 4.

Calling it a "hard" decision, Mr Lim said the move was made based on feedback from passengers that they wanted the same level of service from Changi Airport even while travelling on budget carriers. 

Growth over the ensuing decade was briefly checked by COVID-19 ravaging air travel in the early 2020s, but the industry has bounced back in force. Budget carriers currently contribute to about one-third of Changi Airport's passenger traffic.

WHAT IT TAKES TO RUN A BUDGET CARRIER

Singapore's two budget carriers - Jetstar Asia and Scoot - told CNA they have had to adapt to the times while continuing to balance providing low costs with maintaining service standards. 

Over time, offerings such as meals, amenities, more legroom and “business” options – though all at a cost – have also been added to the mix to capture a larger market. 

To offer a no-frills product with options at the side has always been Jetstar Asia’s modus operandi, said its chief executive officer John Simeone. 

“(Allowing) the customer to choose what they want to pay for, I think, is still a strong proposition,” he said. 

Scoot’s chief executive officer Leslie Thng meanwhile pointed to the use of technology, such as how low-cost carriers offer mobile applications and self check-in kiosks to improve the passenger experience.

“While low-cost carriers still prioritise cost efficiency, operations and customer experience have improved significantly through the modernisation of aircraft, digitalisation and customisation of comfort upgrades,” he said. 

Mergers and acquisitions, meanwhile, have helped airlines remain sustainable. 

Mr Thng said the Scoot-Tigerair merger in 2017 strengthened its position in the low-cost carrier market, created better economies of scale and provided more connectivity for customers. 

Operating as a subsidiary or in partnership with a larger airline group has been another boon.

Scoot's parent company is the Singapore Airlines Group while Jetstar Asia comes under the Qantas Group umbrella.

Jetstar Asia's chief Simeone said this has similarly led to economies of scale and helped the carrier ride out the “headwinds” of past years.

“We've been able to use the Qantas partnership with connecting traffic into Jetstar to ensure that we don't just have a point-to-point network selling out of Singapore."

SINGAPORE: A CHALLENGING MARKET? 

One question that has arisen is whether the budget business model has a place in Singapore with its relatively higher costs of operation in the region.

“Singapore is becoming a very expensive place to operate out of, whether it is ground services charges or operating charges or airport charges,” said Jetstar Asia’s Simeone. 

“We’ve seen increases in our costs which we are obviously working (on) and it just means we are looking at our business as well as around what the opportunities are to make sure we continue to provide low fares.” 

Managing director of AirAsia Malaysia Fareh Mazputra pointed to Changi Airport's higher landing, parking and handling fees.

“Additionally, intense competition from numerous international carriers compels airlines to continuously improve their offerings to attract and retain passengers,” said Mr Fareh. “Slot availability is another challenge, as high traffic at Changi limits schedule flexibility.” 

Aviation expert Hsieh Cheng-Hsien from the Singapore University of Social Sciences (SUSS) said many large full-service carriers adopt a hub-and-spoke model, where a major airport like Changi is the hub and other destinations form spokes.

Under this model, passengers fly to a hub before flying on smaller flights to their final destination. This tends to increase the percentage of seats filled, helps to reduce fares and expands the number of possible destinations as well.

“However, low-cost carriers prefer the point-to-point system, which connects each origin and destination via direct flights,” said Associate Professor Hsieh. “This approach offers significant cost savings by eliminating the hub stop and its associated development costs.”

It also shortens the total travel time and enables better aircraft ulitisation, he added. 

“As a result, the business strategies of the low-cost carriers may not directly align with Changi Airport’s goal of becoming an aviation hub.” 

WHAT'S KEEPING BUDGET AIRLINES IN SINGAPORE?

Despite this ostensibly fundamental misalignment in business direction between budget carriers and Changi Airport, it hasn't stopped their growth here. 

One reason noted by several budget carrier chiefs was the world-class facilities and services on offer.

Scoot CEO Thng pointed to Changi's ground operations infrastructure, including self check-in facilities for baggage drop-offs, which help customers skip queues while alleviating congestion at physical counters.

Philippine low-cost carrier Cebu Pacific’s president and chief commercial officer Alexander Lao said Changi's reputation for efficiency ensured both a smooth travel experience for passengers while helping airlines maintain streamlined operations.

“Striking this balance allows us to continue offering affordable options while benefiting from Changi’s top-tier services,” he said. 

Jetstar Asia’s chief operating officer Geoffrey Lui said operating costs must be viewed relative to the premium product on offer. 

“In some of the less advanced hubs, for example, you can end up having to spend many hours at the airport checking in, transiting or even connecting on various flights,” he told CNA. 

“The intent here at Changi hub is to ensure that customer experience is very high on the list compared to other global hubs, and hence there is a price to it.”

Then there is Singapore's status as a major travel hub.

“Singapore’s strategic location between the Pacific and Indian Oceans makes it an ideal transit point, providing travellers from nearby Southeast Asian destinations with easy access to major markets such as Australia, India and Mainland China, as well as a wide range of direct route options within the region,” said Mr Thng. 

Agreeing, AirAsia’s Mr Fareh said Singapore allows the airline to extensively connect with key markets in the region, in turn providing access to a broader passenger base and increasing revenue potential.

Mr Lim from Alton Aviation noted that other than premium facilities and connections to a wide network, Singapore can also boast of a strong working relationship between the government and private agencies. 

“Efficiency is at the heart of low-cost carrier operations and the strong support ecosystem in Singapore continues to be attractive.” 

WHAT LIES AHEAD 

In a world of post-pandemic booming demand for travel, low-cost carriers will be increasingly crucial in managing capacity and capturing market share, said Mr Stefano Baronci, director-general of Airports Council International (ACI) Asia-Pacific and Middle East. 

“Most of the fast-growing markets are markets where the price elasticity is quite high,” he told reporters at a media roundtable in September. “The more you differentiate the price, the more you have a reaction by the passenger to decide ‘yes’ or ‘no’.” 

Changi Airport Group's Mr Lim agreed, saying budget carriers will continue to command a place in Singapore and the regional market.

In the last few years, the airport welcomed five new low-cost carriers. In 2024, three out of five new airlines starting operations at Changi are budget ones.

But entering and staying in the market are different matters, with many low-cost carriers also exiting in recent times – which speaks to the general fragility of the industry, said Alton Aviation consultant Mr Lim.

“As the market in developed countries becomes more saturated with larger players, they are finding it more difficult to grow market share organically.” 

Budget airlines face a slew of other challenges. For one, fluctuations in fuel prices are a major threat to cost control, said Assoc Prof Hsieh from SUSS. 

“Although many low-cost carriers have mitigated the impact by hedging oil prices, the sharp rise in global oil prices early this year has still put considerable pressure on many airlines,” he said. 

The sustainability push is another. 

“New environmental regulations and carbon emission standards require airlines to invest more resources in eco-friendly technologies, inevitably increasing operating costs,’ Assoc Prof Hsieh added. 

On top of everything, there are also changing consumer preferences, with expectations of flight experience and comfort levels increasing post-pandemic, he said. 

Airline leaders, however, struck an optimistic tone in interviews with CNA.

“Headwinds arising from increased competition, supply chain disruptions and geopolitical tensions have an impact,” said Scoot's Thng. “That said, many of these challenges are not new to us and we are in the right position to tackle them by remaining nimble in our operations." 

Jetstar Asia continues to believe that a growing number of travellers means growth opportunities for the taking. 

“We are here as low-cost carriers to fill a segment of demand in the travel population, and to offer them those options that are available to satisfy their travel needs," said Mr Lui. “The pie is big enough for everyone."