Top investor sees gap for 'truly low-cost' airlines in Asia

SINGAPORE (REUTERS) - Low-cost airlines may be booming in Asia but one of the industry's most influential investors said on Tuesday the region had yet to see a truly low-cost carrier and dismissed efforts by traditional players to meet demand for cheap travel.

Low-cost giants like Malaysia's AirAsia and Indonesia's Lion Air have grown significantly in recent years and airlines in this category now control 60 per cent of domestic traffic in parts of the region, according to planemaker Airbus.

But Bill Franke, co-founder and managing partner of Phoenix-based Indigo Partners, said there was still a gap in Asia's fast-growing budget market for airlines with even fewer frills. "There is no true low-cost model in the region," Mr Franke told the CAPA Asia Summit, an airline conference in Singapore.

"There is no really, true low-cost model in India, China... You have major flag carriers who try to move downstream (and) by and large they have been unsuccessful. Sooner or later, the inefficiencies of larger airlines bleed down."

Mr Franke made his name as a champion of unbundled or "a la carte" fares in "ultra-low-cost airlines," where passengers are offered cheap base prices plus a battery of extra charges.

In 2003, the former chairman of America West founded Indigo Partners, which now controls Denver-based Frontier Airlines as well as Hungary's Wizz Air and part of Mexico's Volaris. It was once a significant investor in Singapore's Tiger Airways, now wholly owned by Singapore Airlines.

Mr Franke said major network carriers were unable to shed deep-seated cost structures needed to support their wider operations, and struggled to compete successfully as budget carriers. "They have big airline practices. They are not standalone," he said, citing as an example Virgin Australia, which offers lounges and preselected seats. "You always want to have the lowest cost structure for your category." He was speaking amid renewed investor interest in airlines due to record industry profits driven by lower fuel prices.

In a significant U-turn, Warren Buffett's Berkshire Hathaway said on Monday it had bought shares in American Airlines, Delta Air Lines, Southwest Airlines and United Continental. Besides cheaper fuel, US airlines have benefited from consolidation, higher baggage fees and fewer strikes.