Fragmentation Sensation: In East Asia, too many airlines and too much growth can only mean one thing: overcapacity
The U.S. market, long fragmented, is now consolidated. The European market, still fragmented, is becoming more consolidated. But East Asia? It has never been more fragmented.
Once the cozy preserve of a few large legacy carriers dominating their home markets, East Asia is now crawling with airlines that just a few years ago were a fraction of their current size—or not yet even flying. Consider VietJet, for example. Launched only in the final month of 2011, the independent Ho Chi Minh City-based LCC now operates more flights than Singapore Airlines. Carriers like VietJet are indeed becoming powerful actors in East Asia’s aviation scene, pressuring the finances of established carriers and collectively creating what some fear are dangerously elevated levels of competition, not unlike the fragmented state of affairs that made it so tough for U.S. airlines to make money for most of their preconsolidation existence.
However you measure—flight departures, number of seats or available seat kilometers— airline capacity from East Asian airports jumped more than 60% from 2010 through 2016, according to Diio Mi schedule data. Over that same six-year period, the number of flights departing from North American airports actually declined, while those from the European Union rose slightly. With densification, upgauging and much more active longhaul than shorthaul expansion, North America and the E.U. did see growth in terms of seat counts (roughly 15%) and still more by ASK capacity (roughly 25%). But that’s nothing compared to the explosion in new air service throughout East Asia this decade.
East Asia essentially covers four major market groupings: Greater China, Japan, Korea and the ASEAN region. And to some extent, China’s rapid rise in wealth, benefiting the region as a whole via trade, makes East Asia’s air service boom unsurprising and commercially justified. It’s true as well that China and many ASEAN markets had underdeveloped airline sectors for so long relative to their population sizes, and just in the past decade or so have they started to see understandably high levels of catch-up growth. New open skies agreements were another driver of the extraordinarily high growth rate, even during years when fuel prices were high. North America and Europe are mature markets. East Asia is still developing…
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