PATA: Low-cost will stay if costs stay low

The “low-cost revolution” is here
to stay, as long as costs outside the industry’s control can stay at
reasonable levels according to a session on “Lowering the Cost, Keeping the Value—Defining the
Low-Cost Revolution” at the 55th PATA Annual Conference .CEO of India-based low-cost carrier IndiGo, Mr Bruce Ashby, said
the industry’s common goal was to manage taxes and other costs within
its control or influence. “Most people are willing to spend about 5-6%
of their incomes on air travel,” he said. “If fuel prices—which are
determined by factors outside of our control—force air fares beyond
a certain level, then this new lower-cost segment will be priced out
of the market.”

Malaysia Airports (Sepang) has recently opened a dedicated low-cost
terminal in Kuala Lumpur in anticipation of continued fast growth in
the segment. Malaysia Airports General Manager Mr Azmi Murad said the
terminal was designed in consultation with carriers to “expedite fast
turnaround times, reducing fuel consumption on the ground” as well as
to enable other cost efficiencies.

The hospitality industry has also recognised “the definite and urgent
need to expedite the proliferation of low-cost travel”, according to
Dusit Hotels & Resorts Vice President-Development Mr Duncan Jamieson.
“There are currently not enough three-star accommodation options at
destinations served by low-cost carriers,” he said.

Mr Jamieson was referring to ‘quality’ three-star properties, not the
“dusty room in which you would pull back the bed covers to check
what’s under them before getting into bed”. He said budget hotel
brands are now very clean, value-oriented and very efficient,
employing only about one person for every five rooms.

Mr Jamieson said that while budget hotels were not a real threat to
four- and five-star properties, developers and investors would “miss
out in a big way” if they were to ignore the potential of the segment.


From the audience, Accor Greater China CEO Mr Brian Deeson said that
LCCs and budget accommodation did not necessarily share the same
market. He said that many of the guests who stay at Accor’s three-star
Ibis properties travel from within 200 kilometres, and not from places
served by LCCs.

However, Mr Deeson said that the factors essential for the success of
both low-cost sectors remained the same: efficiencies resulting from
standardisation of product, predictable work-flows and paring down
controllable costs. He said room rates at Ibis properties can be as
little as US$15 per night and they can still make money. Co-founder and CEO Mr Pascal Bordat said that low-cost
operators understand the power of the Internet to distribute tourism
services and products, claiming that in countries such as Malaysia the
value presented by low-cost carriers actually inspired many people to
use the Internet for the first time.

“For travellers, the Internet is the best way to find the right
product for them,” he said, citing the proliferation of “vertical
search engines” that help Web surfers plan more complicated trips.

“For travel businesses, the Internet is the most efficient
distribution system currently available,” he said. However, he refused
to read the epitaph of traditional agents, who he says will become
“more efficient, more specialised and more focused on adding value”.