U-Fly Alliance, the first LCC alliance in the world, expects to have 10 members by year-end and has ambitions to expand beyond its North Asian roots into South-east and South Asia in the long term.
Deputy CEO Steven Greenway, interviewed on the sidelines of the Aviation Festival Asia in Singapore recently, said there are lots of small LCCs and full-service carriers (FSCs) that are "waiting and watching" how best they can expand in the future and LCC alliances are part of the game.
Having done well in their markets, these carriers, typically with a fleet of around 50-60 aircraft, are constrained to break out of their “geographical fix”. The trend of setting up subsidiaries such as what AirAsia has done in Thailand or Jetstar Asia in Singapore has also slowed, while joint ventures can pose the risks of losing their identity and independence.
“We are building everything to be usable around the world, we’re not just a North Asia LCC alliance,” said Greenway.
“There are many airlines out there, even FSCs, with 50 or so aircraft. Few get to above 100 aircraft. If they are around the same size, are like-minded and are confronted by the same challenges, they are a logical fit. Not a carrier who’s lightyears away coming in and telling you how to do it."
U-Fly, launched in January last year, has five members – HK Express (Hong Kong), Lucky Air (Kunming), Urumqi Air (Urumqi) and West Air (Chongqing). Combined, they have a fleet of 111 aircraft serving over 23 million passengers to 106 destinations and 206 city pairs in North Asia.
The alliance coordinates on behalf of members' “central projects” across five working streams, namely strategy network, system connectivity, marketing and branding, plus cost synergies and airport operations.
Greenway said a lot of the focus in the past year has been on cost savings, even though U-Fly has also raised incremental revenue for the members through interlining via GDS and soon, B2C promotions on its website.
“A lot of small LCCs never had the opportunity to get cost savings. With 20-30 aircraft, they may have good crewing costs and lease costs on aircraft, but struggle to get to the cost base of the AirAsia’s and Jetstar’s because they don’t have group buy. I probably spend a tenth of the effort to save a dollar (through bargaining power) than raising a dollar by increasing connecting traffic,” he said.
When asked if Value Alliance, another LCC grouping which launched six months after U-Fly, is a competitor, Greenway said: “Value (Alliance) is very much a South-east Asian play, how it pans out on one knows, and there may be a different dynamic there with Tigerair and Scoot being owned by Singapore Airlines.”
Tigerair will also be merged and carry Scoot's name by year-end. Aside from Scoot, Tigerair Singapore and Tigerair Australia, other Value Alliance members are NokAir, NokScoot, Vanilla Air, Cebu Pacific and Jeju Air.
Greenway said LCC alliances are “very new, each promising slightly different things, and it’s still a short time frame for anyone to get an evaluation of what they are about”.
“It’s very experimental at the moment but that’s better than sitting on the bench doing nothing. We have to prove that the concept is demonstrably productive and beneficial to members. Otherwise we deserve to die,” he said.