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Boeing Domestic LCC Market Analysis and Prospect Press Conference

ACROFAN=Hyung-Keun Kim | Published : Sunday, April 9, 2017, 3:51 am
On the afternoon of the April 7th, Boeing's LCC (Low Cost Carrier) market analysis and prospect press conference was held at Conrad Hotel in Yeongdeungpo-gu, Seoul.

The event was prepared to share analysis of domestic LCC market, which is showing steady growth, and prospects for long-term continuous growth, and Darren Hurst, Boeing's marketing manager of commercial aircraft in Northeast Asia region, made presentation.

At the press conference, how environment of the airline business is created, the trends of low-cost airlines, and the situation of Korean market are introduced.

 
▲ Boeing's LCC market analysis and prospect press conference is held.

 
▲ Darren Hurst, Boeing's marketing manager of commercial aircraft in Northeast Asia region, made presentation.

According to Darren Hurst's presentation, the growth rate of the aviation market is highly related to GDP growth. In recent years, the gap between them is getting slightly wider. Its reason is that as LCC continues to lower fares, these low fares stimulate the middle-class's desire to travel, and as trends of lowering oil price continues, airlines could create more revenue and provide benefit of lowering fares with some portions of the revenue.

In other words, LCC is playing a big role in the growth of the aviation market, and it is spread to almost all continents for developing business. In particular, the transport capacity of LCCs has risen by an average of 11% each year from 2005 to 2016, and has grown enough to account for 30% of the total number of seats.

By region, North America, Europe and Asia Pacific are the main markets for LCC. In each aviation market, LCCs account for 26%, 29% and 33%, respectively, which are lose to the global average. Especially, LCCs hold a key position in Southeast Asia that 50% of the total seats are occupied by LCCs operating in the region.

However, in Northeast Asia and China, 3% and 8%, respectively, are below the global average, and Hurst explained that "the low share means that the potential for future growth is high". And, he said, "The growth of LCC is not large in North America where the market is mature, but it is steadily growing in Europe and Asia Pacific, with growth of more than 20 percent in both Southeast Asia and Northeast Asia."

The backgrounds in which LCCs can generate profits might be the large number of travelers who want to travel at reasonable prices centered on growing markets, and the high efficiency business model which maintains high growth through efficient asset utilization and low price per seat. The point of the low price per seat becomes a driving force to stimulate users' demands as well as keeping the fare low.

In other words, LCCs can maintain their business models with growth exceeding the average on the strength of an advantage that they are able to meet demands that the existing major airlines could not cope with by maintaining low fare through low price per seat and stimulating customers' demand for travel. Each network structure and business model will be different, but the unit price of LCCs is 20-40% lower than that of large airline.

 
▲ The gap between the growth rate of aviation market and that of GDP is getting bigger.

 
▲ LCC is developing business on almost all continents.

 
▲ The capacity of LCC is rising by an average of 11% every year, and it has grown to 30% of total seating capacity of aviation.

 
▲ North America, Europe, and Asia Pacific region are the major markets for LCC.

 
▲ The business model of LCC is also rapidly advancing.

Next, the analysis of Korea's aviation market and LCC continued.

Although showing growth by an average of 3% from 2006 until 2010, Korea's aviation market has grown to 9% since 2013. It was the period when the growth of LCC was prominent in Korean market. The existing major airlines only grew by 2% while showing the growth by an average of 20% since 2010 in carrying capacity. In addition, LCC accounted for 33% of the flight seats in 2016.

Especially, the reason why LCC's growth recently stood out is that the majority of LCC airlines actively entered international flight market. Compared to June 2015 and 2017, international routes showed much growth on the strength of the routes to Japan, Southeast Asia, and the Pacific islands, while domestic transportations were only 3% higher overall.

China is the only region that decreased growth, and Hurst analyzed it that "the decrease in the number of international routes crossing China seems to be affected by political factors".

In addition, the proportion of LCCs in terms of the number of aircrafts owned by domestic airline companies is absolute with growth of 33% over the previous year.

 
▲ Korea's aviation market has showed growth of 9% since 2013.

 
▲ In terms of carrying capacity, LCCs in Korea has achieved an average of 20% growth since 2010.

 
▲ The growth of LCC is related to the increase of international routes.

 
▲ The proportion of LCCs in the increase of the number of aircrafts owned by airline companies is absolute.

For the last section, features of Boeing 737 series that is recommended for LCC are introduced.

First, about Boeing 737-800 aircraft in Boeing 737 NG(Next Generation) series, it is explained that, compared to its competitor's A320 model, it has a higher capacity, which in turn means higher passenger income and lower price per seat. In addition, it can manage the longer routes as it has a long range, and can operate efficiently due to its high reliability.

In terms of reliability and profitability, compared to the existing Boeing 737 aircraft, the Boeing 737 MAX series, which is the next-generation Boeing 737 aircraft, achieved 14% less emissions, 40% quieter, and about 620 miles more flight distance, while they show similar performance.

After the announcement, Hurst said, "The global aviation market continues to be robust on the strength of the rapid growth of LCC. This is also true of the Korean market. However, since LCC is still in the early stages of growth and there will be many opportunities for developing countries, LCC should strive to make business models more efficient and sustain growth."

 
▲ It is introduced that the Boeing 737 series is the best model for the Korean market where the proportion of international routes is increasing.

 
▲ The Boeing 737 MAX is an advanced model in emission, noise, and flight distance.


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