The recent Air Asia crash in the region raises further concerns over the safety of low-cost carriers. However, this is an expanding market. People of course have their safety concerns, yet safety issues rest mainly on management decisions. Low-cost carriers do not make money by a reduction of safety measures, but through savings and charges on an a-la-carte basis. Indeed, if safety measures are compromised for the sake of higher profits, the low-cost carriers will have bad safety records resulting in higher insurance costs and claims for damages. Ultimately such practices would drive them out of the market. Many low-cost carriers are actually subsidiaries of big players in the industry. The boom in low-cost carriers can be viewed from a macro perspective.
Naturally, the most important point concerns the economic benefits low-cost carriers bring to Hong Kong. Fundamental economic principles dictate that competition drives costs down. If Hong Kong has more low-cost carriers, competition will drive costs down and boost the SAR's economic growth. Hong Kong is well-known for its position as an aviation hub. However, the city is also known for its high operating costs. When more low-cost carriers are able to enter the Hong Kong market, the cost of aviation will definitely fall, which will in turn drive other costs down. For example, the logistics industry could benefit from such a reduction in costs, as could the cost of business travel. When more players enter the aviation industry, it brings greater choice to travelers. To business travelers, lower costs and more choice will make Hong Kong a more attractive hub for flight transfers.
Direct benefits to individual travelers are obvious, and there are nevertheless many indirect benefits.
More travelers changing flights in Hong Kong would mean more consumers at the airport, and to cater for their needs, businesses will expand and invest.
Indirect benefits can include greater consumption, higher employment opportunities and even more demand for professional services like insurance. The resulting benefits can be substantial. Simply put, more market players not only bring choice to consumers but also help improve the competitiveness of the Hong Kong's aviation industry and consolidate the SAR's position as a premier regional aviation hub.
Traditional airlines show concern that the entry of low-cost carriers would cannibalize the market. Experience however, shows the contrary. Data shows that increased competition helps the market to grow as a whole in the long term. Instead of taking business from existing market players, the pie actually expands. Of course, much is to do with the size of the market in the long term. For example, the launch of cross-straits flights between the Chinese mainland and Taiwan has not resulted in a downward trend in air traffic. When low-cost carriers entered Japan's domestic market, the overall aviation market actually grew for two consecutive years - in 2013 and 2014. Drawing conclusions from these examples, the obvious one is that more players do not imply lower profits or opportunities. This is true not only for individual airlines. The whole of Hong Kong would benefit and this is particularly true because the city is a service-based economy.
As mentioned earlier, low-cost carriers also bring enormous direct and indirect advantages to an economy. The direct economic benefits will have multiplier effects and generate economic benefits to tourism. Since Hong Kong is reliant upon imports of virtually everything from outside, aviation costs is an important component in the overall costs of doing business in Hong Kong. When cost is lower due to more low-cost carriers entering the market, this induces greater investment. Direct investment is a major catalyst for economic development. It is a powerful engine bringing major benefits to the wider economy. Local employment opportunities would also be enhanced with more investment into Hong Kong. A growth in tourism would also benefit from low-cost carriers. More tourists would come from across the region and help boost the regional economy, not to mention more tax going to the government to be used to meet the financial needs of society.
On a parallel side, there would be associated contributions through the introduction of low-cost carriers. More tourists coming to Hong Kong would increase tourist spending and restaurants and retailers would benefit. According to an International Civil Aviation Organization study, every US$100 of output produced and every 100 jobs generated by air transport triggers additional demand equivalent to some US$325 and 610 jobs in other industries. Hence, low-cost carriers would undoubtedly contribute to our economy.