There seems to be a lot of small to medium size airlines throughout the Asia Pacific region. Some have made investments in others. Why do we not see more consolidation? Is cross border ownership prohibited? Is there political pressure to protect the “flag carriers”? While they may be profitable, could consolidation provide greater scale and efficiencies and therefore stronger financial returns?

Examples:
JAL
ANA
EVA
Korean
Asiana
Cathay Pacific
Singapore
Malaysia
Garuda
Vietnam
Thai
Philippine
Virgin Australia
Air New Zealand

In reality, the argument can be made there are not enough airlines in the region.
With 36% of the worlds air travel within the APAC region and forecasted to rise to 50%, not sure we need consolidation and reduction of carriers.
Maybe some of the legacy deadwood (GA/TG/MH) can step aside for more nimber competitors.

questions wrote:

There seems to be a lot of small to medium size airlines throughout the Asia Pacific region. Some have made investments in others. Why do we not see more consolidation? Is cross border ownership prohibited? Is there political pressure to protect the “flag carriers”? While they may be profitable, could consolidation provide greater scale and efficiencies and therefore stronger financial returns?

Examples:
JAL
ANA
EVA
Korean
Asiana
Cathay Pacific
Singapore
Malaysia
Garuda
Vietnam
Thai
Philippine
Virgin Australia
Air New Zealand

Some of those int he list are state-owned (or part state-owned). I don't think I've ever heard of a state-owned airliner merging with other state-owned airline.

Do you really think those examples are "small to medium" airlines? I guess it's a matter of opinion but I'd class most of them as large. Many countries have anti-monopoly laws which would prevent two large airlines merging without a significant competitor.

questions wrote:

There seems to be a lot of small to medium size airlines throughout the Asia Pacific region.

Which one? B/c the ones you listed are certainly not "Small to Medium Size". The smallest airlines you listed have like 100 airplanes (Once you count all the subsidiries, i.e. MH with MASWings and Firefly, BR with Uni Air, CI with Mandarin Airlines, etc.).

BTW, if you really want to see messy air market, look at Cambodia (Seriously, do we really need 7 airlines, none of them big, flying PNH-REP?) or Myanmar (6 airlines on RGN-MDL, again, none of them big).

Another possible consolidation for me would be South Korean LCC market (Yes, Seoul Metro Area itself has as many people as the entire State of Texas, but still, do you really need this many LCCs? Not counting Jin Air (KE) and Air Seoul/Air Busan (OZ) you still have Eastar, Jeju Air, and T'Way, and this is with S. Korean domestic market consisting pretty much of a single route i.e. GMP-CJU).

But larger cross-border merger like some "uber ASEAN Airline" formed from TG+MH+GA? It'll just be a mess with multiple hubs, different crews under different labor laws, and a patchwork of a network (Mainly b/c there are simply not a lot of flight, even right now, between main hubs, let say, CGK, and secondary cities in another country, i.e. let say HKT or PEN).

zakuivcustom wrote:

...

Another possible consolidation for me would be South Korean LCC market (Yes, Seoul Metro Area itself has as many people as the entire State of Texas, but still, do you really need this many LCCs? Not counting Jin Air (KE) and Air Seoul/Air Busan (OZ) you still have Eastar, Jeju Air, and T'Way, and this is with S. Korean domestic market consisting pretty much of a single route i.e. GMP-CJU).

...

That may be true, but Texas has a larger economy than the entire country of South Korea. That being said, I get that SK may have some consolidation coming up in the future.

I don't think JAL and ANA are going to merge, if anyone merges it might be some of the smaller Chinese carriers merging with the CN3.

Asian national pride is strong, so I doubt us Asians are going to take it too kindly if another country's airline takes over our own airline.

Take for example Singapore & Malaysia. The two airlines started life as one company, and the reason they split was due to national pride. So can you imagine the uproar in the corridors of power here in Malaysia if SQ were to take over MH? It will be humongous. And if SQ & MH were allowed to be operated like KL/AF, then where is the efficiency?

I also believe consolidation is not something we will strongly see in Asia in the next 10-15 years due to economic and populatioinal growth coupled with cultural and protectional policies.I bet we'll continue to see more franchising style growth though.

But I'm always amused at how the network of JL+NH, BR+CZ and KE+OZ overlaps on many routes with exactly the same schedule.

Saw the title and I thought of Asia Pacific Airlines, a fish hauling cargo carrier operating out of Guam with their single 727 and two 757. Couldn't figure out why this airline needed consolidation.

Taiwan had 3 full-service carriers (1 regional) until GE closed in 2016 (although GE was just a regional carrier, albeit with a lot of domestic flights). Japan, despite being so dense, can't really support more than 2 full service carriers. Same for South Korea, although smaller independents in each country do exist that do regional flying.

Vietnam has only two true airlines (given that Vietnam Airlines and Jetstar Pacific share a fleet); VN/BL, owned by the government, and VJ, which is private.

Singapore is unique in that it's basically a city state, but it competes against many other airlines on most of its routes...pretty much all of them except SQ22/1, and has liberalized its aviation market to allow fifth-freedom via SIN even at the cost to SQ/TR/MI.

As for Indonesia, while GA is the major flag carrier, it is hardly a domestic player, with JT/ID being the dominant force there.

Australia may look big, but most of the population is concentrated on its east coast and Perth, and so the market can only really support two true competitors. Had Ansett Australia not gone out of business, would Virgin Australia (then a nascent airline suddenly thrust into position as the #2 airline when Ansett closed) be anywhere as big as it is now?

aemoreira1981 wrote:

Taiwan had 3 full-service carriers (1 regional) until GE closed in 2016 (although GE was just a regional carrier, albeit with a lot of domestic flights). Japan, despite being so dense, can't really support more than 2 full service carriers. Same for South Korea, although smaller independents in each country do exist that do regional flying.

Vietnam has only two true airlines (given that Vietnam Airlines and Jetstar Pacific share a fleet); VN/BL, owned by the government, and VJ, which is private.

Singapore is unique in that it's basically a city state, but it competes against many other airlines on most of its routes...pretty much all of them except SQ22/1, and has liberalized its aviation market to allow fifth-freedom via SIN even at the cost to SQ/TR/MI.

As for Indonesia, while GA is the major flag carrier, it is hardly a domestic player, with JT/ID being the dominant force there.

Australia may look big, but most of the population is concentrated on its east coast and Perth, and so the market can only really support two true competitors. Had Ansett Australia not gone out of business, would Virgin Australia (then a nascent airline suddenly thrust into position as the #2 airline when Ansett closed) be anywhere as big as it is now?

Well, technically Taiwan still have 3 full-service carrier right now with FAT. Gotta love their old but good Mad Dogs .

For Japan, Skymark was a decent “3rd player” (they call themselves a “LCC” but they are more like a hybrid carrier). Even now they are independent of NH at least operation-wise (no codeshares between them), and is recovering nicely after their A380 (and A330) debacle.

VN and BL doesn’t share a fleet (BL is all A320, VN only has A321 for their narrowbodies), but yes, VN own BL and there are tons of codeshares between them.

I think this question has come up before focusing on the Pacific islands, which actually does have a smattering of small airlines with insufficient demand for much more. A mega airline here is an attractive idea but you'll run into the same difficulties that others have mentioned elsewhere. It would probably require greater cooperation across governments to harmonize things - for which there is no will to do so. Unfortunately there are already many complaints about perceived price gouging in this region, and whilst consolidation might make an airline more sustainable it does not encourage cheaper tickets. Why would a government go out of its way to make the situation worse?

If anything Singapore Airlines and Malaysia Airlines split after Malaysia expelled Singapore.

bolbibug wrote:

questions wrote:

There seems to be a lot of small to medium size airlines throughout the Asia Pacific region. Some have made investments in others. Why do we not see more consolidation? Is cross border ownership prohibited? Is there political pressure to protect the “flag carriers”? While they may be profitable, could consolidation provide greater scale and efficiencies and therefore stronger financial returns?

Examples:
JAL
ANA
EVA
Korean
Asiana
Cathay Pacific
Singapore
Malaysia
Garuda
Vietnam
Thai
Philippine
Virgin Australia
Air New Zealand

Some of those int he list are state-owned (or part state-owned). I don't think I've ever heard of a state-owned airliner merging with other state-owned airline.

some are state owned, lot of countries got limitation in term of foreigner ownership in airlines, lots od national pride when it comes to airlines. And look at places like Singapore, Vietnam.... they have several airlines but at the top it is just one entity

In general
- no single aviation market, and doubt there will ever be one
- shareholding restrictions and government ownership.

If anything 'consolidation' has occured through the various multi-country LCCs in the region.
Jetstar (Qantas) - Australia, New Zealand, Singapore, Vietnam (with Vietnam Air), Japan (with JAL)
Air Asia - Malaysia, Thailand, Indonesia, Phillipines, India, Japan
Lion - Indonesia, Malaysia, Thailand
Scoot - Singapore, Thailand, (exited Australia)

zakuivcustom wrote:

Which one? B/c the ones you listed are certainly not "Small to Medium Size". The smallest airlines you listed have like 100 airplanes (Once you count all the subsidiries, i.e. MH with MASWings and Firefly, BR with Uni Air, CI with Mandarin Airlines, etc.).

Spot on!

zakuivcustom wrote:

BTW, if you really want to see messy air market, look at ... Myanmar (6 airlines on RGN-MDL, again, none of them big).

Make that 8. All flying ATR-72s. The price is set by the government with discounted rates for Myanmar citizens.

Of the lot, 4 exist as a front (money-laundering businesses) for cronies/drug lords: Asian Wings, Mann Yatanarpon, Golden Myanmar, Air KBZ. Their primary motivation is not to make money so likely they will never merge.

Because the APEC region is made up of many countries, although similar in size to continental US, you will never find complete NW/DL, US/AA, CO/UA type mergers. However, you will find conglomerate type businesses with a parent airline company of one country owning a stake or 49% share on another country's airline. Example: VN owning a large share of Cambodia Angkor Air, even appointing a Vietnamese person as K6's CEO.

tmoney wrote:

Make that 8. All flying ATR-72s. The price is set by the government with discounted rates for Myanmar citizens.

Of the lot, 4 exist as a front (money-laundering businesses) for cronies/drug lords: Asian Wings, Mann Yatanarpon, Golden Myanmar, Air KBZ. Their primary motivation is not to make money so likely they will never merge.

Thanks for the correction. But yeah, for me it's just insane that there are still 8 airlines, even after the like of Air Bagan, Air Mandalay, and FMI Air going out of business (Although IIRC Air Bagan is also one of those "crony airline" anyway).

benjjk wrote:

I think this question has come up before focusing on the Pacific islands, which actually does have a smattering of small airlines with insufficient demand for much more. A mega airline here is an attractive idea but you'll run into the same difficulties that others have mentioned elsewhere. It would probably require greater cooperation across governments to harmonize things - for which there is no will to do so. Unfortunately there are already many complaints about perceived price gouging in this region, and whilst consolidation might make an airline more sustainable it does not encourage cheaper tickets. Why would a government go out of its way to make the situation worse?

I agree with this comparison - if they can't even make countries with 276k population (Vanuatu) or 108k (Tonga) to, let say, just go through a country with 905k population (Fiji) for flights, how do the OP think it's going to for for countries with 23.5M people (Taiwan, although I'll piss off some of those mainland snowflakes here), Malaysia (31.6M), or even city-states like Singapore (5.6M) or semi-city state like HK (7.3M)?

usflyer msp wrote:

Asia is not one aviation market. There would be all sorts of traffic rights problems with Asian cross border mergers.

Neither is Latin America, but it didn't stop Latam and Avianca

flylondon wrote:

usflyer msp wrote:

Asia is not one aviation market. There would be all sorts of traffic rights problems with Asian cross border mergers.

Neither is Latin America, but it didn't stop Latam and Avianca

Most Asian countries have very strict national ownership restrictions that prohibit significant foreign investment. That makes cross boarder deals more difficult to execute.

The best you'll see in the region is Air Asia style franchises.

bzcat, how do ownership restrictions work in Asia? Looking at several big airlines having multiple subsidiaries in Asia (Air Asia, Lion Air, Scoot, Jetstar), how is it possible that these airlines have set up subsidiaries in foreign countries? Because of these examples, I thought Asia was more liberal with regards to foreign ownership of airlines established in their own countries(?)

Are the majority owners of these subsidiaries a local company investing its own money in those subsidiary, thereby making these subsidiaries "local"?


A388

A388 wrote:

bzcat, how do ownership restrictions work in Asia? Looking at several big airlines having multiple subsidiaries in Asia (Air Asia, Lion Air, Scoot, Jetstar), how is it possible that these airlines have set up subsidiaries in foreign countries? Because of these examples, I thought Asia was more liberal with regards to foreign ownership of airlines established in their own countries(?)

Are the majority owners of these subsidiaries a local company investing its own money in those subsidiary, thereby making these subsidiaries "local"?


A388

Jetstar and Air Asia operate joint ventures in several countries. Scoot is still only based in Singapore and Lion Air is still only based in Indonesia. But Jetstar and Air Asia are the exceptions. They've formed partnerships in multiple countries as most countries in Asia have foreign ownership restrictions.

As another example, Tigerair used to have three airlines (Taiwan, Australia and Singapore). Tigerair was based in Singapore so they had full ownership. Australia allows foreign airlines to operate domestic subsidiaries without ownership restrictions so they were able to set up an Australian subsidiary without restrictions but Taiwan has ownership restrictions so Tigerair Taiwan was a joint venture China Airlines. After Tigerair Singapore merged with Scoot, Virgin Australia bought out Tiger Australia and Tigerair Taiwan was bought out by China Airlines.

Very strange premise. Only three airlines mentioned aren’t national flag carriers. Could Air Canada merge with American Airlines? And why would they?

Both air Asia and jet star are good examples of consolidation of different countries ulcc into a couple of major groups. The national airlines will always be protected.

usflyer msp wrote:

A388 wrote:

bzcat, how do ownership restrictions work in Asia? Looking at several big airlines having multiple subsidiaries in Asia (Air Asia, Lion Air, Scoot, Jetstar), how is it possible that these airlines have set up subsidiaries in foreign countries? Because of these examples, I thought Asia was more liberal with regards to foreign ownership of airlines established in their own countries(?)

Are the majority owners of these subsidiaries a local company investing its own money in those subsidiary, thereby making these subsidiaries "local"?


A388

They are not subsidiaries, they are franchises. They use the AirAsia/JetStar trade names and IT/Marketing infrastructure but maintain primarily local ownership.

It's both - AirAsia in particular usually have minority ownership (Usually the maximum allowed by the country's law, so usually 49%) in most of its subsidaries, with majority ownership provided by some local investors. Thai AirAsia, for example, is a joint venture between Shin Corp. and AirAsia. Jetstar Japan, as people have already mentioned, is a 50-50 venture between QF and JL.

Well, either that, or Jetstar/AirAsia just buy up another existing LCC in the country. Examples are Jetstar Pacific (It existed for many years as Pacific Airlines, owned by Vietnamese gov't for awhile, before it was partially sold (30%) to Qantas so that they can put the "Jetstar" name on it, then VN brought the rest of the gov't shares (70%)), and the former AirAsia Zest in Philippines (Formerly Asian Spirit then Zest Airways then AirAsia Zest, before finally being merged with the separate AirAsia Philippines). AirAsia also tried to purchase Batavia Air to expand Indonesia AirAsia, but that fell through (and Batavia went out of business). Those airlines are more similar to "franchaising", using the AirAsia/Jetstar name.

Ultimately, cross-investments and codesharings are the path forward for now - much easier than having to deal with all the ownership laws and also, eventually have to answer the question "who gets what".

You'd need to have something like one giant APAC Union with a common travel area and largely aligned company and worker regulations. Yes I'm pointing directly at the EU here as the example.

While the countries in the area do not have this alignment it will be very difficult to have much more in the way of consolidation.

A388 wrote:

bzcat, how do ownership restrictions work in Asia? Looking at several big airlines having multiple subsidiaries in Asia (Air Asia, Lion Air, Scoot, Jetstar), how is it possible that these airlines have set up subsidiaries in foreign countries? Because of these examples, I thought Asia was more liberal with regards to foreign ownership of airlines established in their own countries(?)

Are the majority owners of these subsidiaries a local company investing its own money in those subsidiary, thereby making these subsidiaries "local"?


A388

I know in the case of the various Jetstar subsidiaries, they are all predominantly local owned subsidiaries. Qantas (who 100% owns the Australian and NZ business) owning the largest possible foreign share with local partners owning the remaining percentages. AFAIK the other airlines have a similar set up. I guess its akin to franchising, like the way McDonalds or something would work but on an airline scale.

jcancel wrote:

If anything Singapore Airlines and Malaysia Airlines split after Malaysia expelled Singapore.

Actually that's not quite correct. Malaysia-Singapore Airlines operated for several years after the split. It wasn't until 1972 that the airline split was finalized, due to differing focus - Malaysia wanting to focus on domestic & regional, whereas Singapore wants to focus on intercontinental routes.

zakuivcustom wrote:

usflyer msp wrote:

A388 wrote:

bzcat, how do ownership restrictions work in Asia? Looking at several big airlines having multiple subsidiaries in Asia (Air Asia, Lion Air, Scoot, Jetstar), how is it possible that these airlines have set up subsidiaries in foreign countries? Because of these examples, I thought Asia was more liberal with regards to foreign ownership of airlines established in their own countries(?)

Are the majority owners of these subsidiaries a local company investing its own money in those subsidiary, thereby making these subsidiaries "local"?

A388

They are not subsidiaries, they are franchises. They use the AirAsia/JetStar trade names and IT/Marketing infrastructure but maintain primarily local ownership.

It's both - AirAsia in particular usually have minority ownership (Usually the maximum allowed by the country's law, so usually 49%) in most of its subsidaries, with majority ownership provided by some local investors. Thai AirAsia, for example, is a joint venture between Shin Corp. and AirAsia. Jetstar Japan, as people have already mentioned, is a 50-50 venture between QF and JL.

Well, either that, or Jetstar/AirAsia just buy up another existing LCC in the country. Examples are Jetstar Pacific (It existed for many years as Pacific Airlines, owned by Vietnamese gov't for awhile, before it was partially sold (30%) to Qantas so that they can put the "Jetstar" name on it, then VN brought the rest of the gov't shares (70%)), and the former AirAsia Zest in Philippines (Formerly Asian Spirit then Zest Airways then AirAsia Zest, before finally being merged with the separate AirAsia Philippines). AirAsia also tried to purchase Batavia Air to expand Indonesia AirAsia, but that fell through (and Batavia went out of business). Those airlines are more similar to "franchaising", using the AirAsia/Jetstar name.

Ultimately, cross-investments and codesharings are the path forward for now - much easier than having to deal with all the ownership laws and also, eventually have to answer the question "who gets what".

Not to nitpick on you, just some minor some correction.

In 2013, a share swap between AirAsia Philippines (PQ) and Zest Airways (Z2) saw that Zest Airways received a mix of cash and a 13% share in AirAsia Philippines, while AirAsia Philippines would eventually owns 85% of Zest Airways, with voting rights. The share swap also gives AirAsia Philippines access to Ninoy Aquino International Airport. Before that, PQ only operates from Clark International Airport. The deal closed on May 10, 2013, and in 2015, both airlines were formally merged to form Philippines AirAsia (retained IATA Code Z2). Between 2013 and 2015, Z2 was operated concurrently with PQ for quite a period of time due to local regulatory approval condition.

As for Batavia Air case, it was Y6 which approached Tony Fernandes for buyout in July 2012 after it started to show signs of financial and operation distress. After signing an tentative agreement for buyout, TF bailed out after seeing the red ink in Y6's account. Soon after, in Oct 2012, the deal fell through. To save faces, both airlines announced plan to proceed with an alliance encompassing ground handling, distribution and inventory systems to be shared by Y6 and QZ, which didn't materialized. Y6 eventually declared bankruptcy in Jan 2013 under mountain of debts.

Source:
http://www.letsgosago.net/2015/11/philippines-air-asia/
AirAsia Annual Report https://ir.airasia.com/ar.html
https://www.flightglobal.com/news/artic ... ir-374771/

Having flown DL, BR, and CX from JFK to MNL (twice on BR) in the last 5 years I found that BR and CX were much nicer to fly than DL. Why is that? Perhaps because, not being so big, CX and BR still feel that they have to make a good impression on their customers. And with that in mind I am dead set against consolidation. Let them compete, and if they can’t, let them fail. Whereas the American Airlines seem to be competing for who can cut costs the most and still manage to hang on to some customers, the Asian airlines actually seem to be competing as to who can offer the best service while still offering low fares.

No common aviation market.

Within common aviation markets, consolidation has occured. I.e. only 4 big Chinese airlines, only 2 domestic Australian, only 2 domestic Japan, Indigo is rapidly consolidating the Indian market. Indonesia is now Lion/ Garuda/ Sriwijaya, with Air Asia struggling.

AIr Asia/ Jetstar are franchises. And jury is still out - Air Asia Malaysia & Thailand are successful, Indonesia so so, Japan didn't work (they are now trying v2), and India looks that will be so so.

So where it can, consolidation has happened/ is happening. But SQ can't operate domestic Japan for example.

Half of the airlines on that list are mega carriers. How on earth did you come up with the idea they were mid sized?

bolbibug wrote:

Some of those int he list are state-owned (or part state-owned). I don't think I've ever heard of a state-owned airliner merging with other state-owned airline.

SAS?

Irrelevant to the discussion, but sort of the exception that proves the rule.

LupineChemist wrote:

bolbibug wrote:

Some of those int he list are state-owned (or part state-owned). I don't think I've ever heard of a state-owned airliner merging with other state-owned airline.

SAS?

Irrelevant to the discussion, but sort of the exception that proves the rule.

SAS isn’t the product of a merger.

cedarjet wrote:

LupineChemist wrote:

bolbibug wrote:

Some of those int he list are state-owned (or part state-owned). I don't think I've ever heard of a state-owned airliner merging with other state-owned airline.

SAS?

Irrelevant to the discussion, but sort of the exception that proves the rule.

SAS isn’t the product of a merger.

Exactly and I don't know what made him think that it was!

Although slightly irrelevant I can think of two state owned airlines merging to form one company.

British European Airways (BEA) and British Overseas Airways Corporation (BOAC) were both merged in 1974 to form what we now know as British Airways.

In a similar way Air France and Air Inter were two state owned airlines that eventually merged although keeping the obvious name as in Air France.

But that's totally going off topic