Why Asia's Budget Airline Alliances Failed

The Big Three airline alliances – Star Alliance, SkyTeam, and oneworld – are well represented in the Asia-Pacific. The major airline alliances are often comprised of Full Service Carriers (FSCs), though in recent decades we have seen the influence of Low Cost Carriers (LCCs) – simply referred to as budget airlines - in the aviation industry. Some of them have become the dominant carriers in their respective countries. One may ask what if budget airlines decided to collaborate and form their own alliance? It might surprise some that it actually has been attempted before, and Asia was the venue of the world's first budget airline alliances.

In the year 2016, two LCC airline alliances were formed: Hong Kong-based U-FLY and Singapore-based Value Alliance. Both had great ambitions for growth and collaboration among the budget airlines in Asia. However, their visions did not work out and at present are no longer active.

U-FLY Alliance – The World's First Budget Airline Alliance 

China was the first country in Asia and the world to host the very first budget airline alliance - U-FLY. Comprised of four budget airlines from the HNA Group – HK Express, Lucky Air, Urumqi Air, and West Air – U-FLY was launched on January 18, 2016. With a large market presence in Mainland China, it aimed to provide low cost travel and seamless connections throughout the country tapping into the four founding airlines' networks.

During the launch event, Andrew Cowen, the then-CEO of U-FLY highlighted the value of the world's first LCC alliance for customers saying: "With the launch of the first LCC alliance in the world, we are entering into a new era of travel that speaks to what travellers really want: flexible and affordable routes that are also safe and secure.” Cowen added: “Thanks to the cooperation from the innovative low-fare airlines, we are able to connect travellers from Asia and Greater China to an ever-increasing network of cities."

U-FLY also enhanced reservations and airport procedures to facilitate streamlined passenger transfers across airlines. Plans were made for further expansion beyond China into the rest of Asia. Later in the summer of 2016, U-FLY would welcome its first non-Chinese member airline – South Korea-based Eastar Jet. According to U-FLY's LinkedIn page, the airline alliance served over 20 million passengers per year on 200 city-pairs. U-FLY was also open to welcome more members, including non-LCCs.

However, it would never fulfill its ambitious growth plans. Within years of launch, HNA Group experienced financial troubles leading up to its eventual bankruptcy declaration in 2021. Ahead of the bankruptcy declaration, HNA Group sold assets including HK Express – the Hong Kong-based founding member of U-FLY. HK Express would eventually be sold to Cathay Pacific and subsequently exited from the alliance in 2019. Following the big loss of HK Express and the COVID-19 pandemic, U-FLY is considered inactive. 

Value Alliance

Following the launch of U-FLY in China, the second Asian budget airline alliance was launched on May 2016 – Value Alliance. Unlike U-FLY, Value Alliance's founding members include Singapore-based Scoot and Tigerair, Philippine-based Cebu Pacific and its subsidiary Cebgo, South Korea-based Jeju Air, Thailand-based Nok Air and NokScoot, Australia-based Tigerair Australia, and Japan-based Vanilla Air. With airlines representing different countries throughout the Asia-Pacific, it would compete with the big budget carrier groups Jetstar Group, AirAsia, and Lion Air serving a combined 160 destinations from 17 hubs.

Value Alliance's strategy was to use the respective airlines' brand recognition in their home countries for the sales of tickets across its network. Then Scoot Chief Executive (and now Air India CEO) Campbell Wilson was quoted by Fairfax Media saying: "Coming together as an alliance we can leverage each other's brand recognition in our respective home markets and leverage each other's distribution in our home markets," further adding "We can present to them itineraries that include sectors with all of our partners."

“All of our airline partners are champions in their local markets and well regarded for their value and service regionally and nationally. The Value Alliance is a clear example of how LCCs can accomplish more by working together than we could do individually,” said then-Cebu Pacific President and Chief Executive Officer Lance Gokongwei.

To facilitate the sale of interline tickets across each member airline, Value Alliance would incorporate technology from Air Black Box (ABB). Customers would be able to see the same fares – including discount fares that were promoted by one of the member airlines across the others' respective websites. They would also be able to book the different add-ons for each flight such as baggage allowance, seat selection, and meals. Along with the connecting flights, it would all show up on a single itinerary.

Value Alliance became the fourth biggest airline alliance in the world. However, despite taking an innovative approach for interline bookings across its network Value Alliance experienced difficulties leading into and during the COVID-19 pandemic. It would see the loss of member carriers starting with the closure of Tigerair Australia in 2018, followed by the merger of Tigerair into Scoot. Vanilla Air would then be merged into All Nippon Airway's other budget subsidiary Peach Aviation in 2019. NokScoot would then be shut down during the COVID-19 pandemic in 2020.

Similar to U-FLY, Value Alliance has since been inactive and the founding member airlines no longer mention anything about the airline alliance. Jeju Air – a founding member – sold its 13% stake in Value Alliance in 2024. The South Korean budget carrier reported the operations of the alliance were suspended saying: “With the suspension of Value Alliance operations, the joint venture contract was terminated and the shares were disposed of accordingly.”

Why U-FLY and Value Alliance Failed

Asia's budget airlines – including former members of U-FLY and Value Alliance – have helped shape the aviation industry in the region. Despite their influence and innovation, they are not immune to failed business ventures like their fellow FSC counterparts. It also shows that what works for some airlines – or any business - may not always work to the benefit for others.

For those who travel to multiple destinations within Asia, the idea of interline ticketing across the budget airlines in the region is appealing. This is something that Value Alliance attempted to do, but in practice proved to be difficult for the budget airlines due to differing business interests. These differences could be seen in the offerings of ancillary services, prices, and policies. Unlike their counterparts in Star Alliance, SkyTeam, and oneworld, there appeared to be a lack of coordination on add-on purchases and fees/allowance for checked baggage which would make dealing with connections truly seamless.

Interline bookings proved to be a challenge for both budget airline alliances, as they often are optimized for short-haul, point-to-point travel. Interline – and codeshare partnerships – are great for long-haul travel which require connections such as between Japan and Australia. However, travelers also consider other factors beyond who offers the cheapest fare such as frequent flier benefits, flight schedules, comfort (especially on long flights), lounge access, meals and beverages, baggage allowance and transfer, and the overall transit experience such as using the same terminal building at an airport. In some cases, direct short-haul routes operated by FSCs or even other fellow budget carriers can often be better and cheaper.

Compared to the big airline alliances with members across the world, each member carrier of U-FLY and Value Alliance served overlapping routes and markets with hubs in close vicinity. An example of this could be seen between the Philippines and Singapore, which Scoot and Cebu Pacific serves. This overlap and lack of flight schedule coordination, usually results in the airlines ending up in direct competition with each other – defeating the purpose of any collaboration.  

In China, while U-FLY aimed to connect cities throughout the country there are great air and ground transport options. From Hong Kong, travelers can opt to fly with Cathay Pacific or the Mainland Chinese carriers throughout the country. Often the other travel options – such as high speed rail – is a more convenient, appealing, and a cheaper option with networks similar to what airlines offer.

The Possibility of a Future LCC Alliance

While budget airlines started to revolutionize travel within Asia in the late 1990s and early 2000s, the founding and launch of Star Alliance, SkyTeam, and oneworld would make their impact on the global air travel and the industry. They were first movers, but a major factor in their continued success was their founding members  represented different regions around the world. New members were the added on how they would compliment the other alliance members.

Any would-be founding carriers of a future budget airline alliance would be wise to learn from the mistakes of U-FLY and Value Alliance. Potential founding budget airlines should seek founding carriers whose networks do not overlap with hubs very close to each other. An example would be if you are partnering with Cebu Pacific for travel between Japan and Australia, it may not be wise not to add a Taiwan-based partner. To access Mainland China, a partnership with HK Express via Hong Kong could be efficient than trying to partner with more local budget carriers. The LCCs would also need to coordinate beyond ticket sales with uniform standards for baggage handling, transit processes, and terminals used at transit airports.

Another factor to the big airline alliances success are long-haul flights which feed into their regional operations. Low cost long-haul has proven to be a challenge for the likes of Norwegian, Norse Atlantic, and even AirAsia X despite being an AirAsia subsidiary. Those who do have long-standing operations typically are supported by bigger parent airlines such as AirAsia, Scoot by Singapore Airlines, and Jetstar by Qantas. Others such as Cebu Pacific have a strong local customer base (local Filipinos and Overseas Filipino Workers) for its long-haul operations to Dubai, Sydney, and Melbourne.

Considering the strengths and weaknesses of budget airlines in the aviation industry, airline alliances comprised of budget carriers simply may just not work. Instead, Asia's LCCs that are not part of bigger airline groups could look into forming bilateral partnerships with other airlines – including FSCs. After Southwest announced new interline partnerships with Taiwan-based EVA Air and China Airlines, we could see more Asia-based budget airlines to consider entering similar partnerships. It may actually be easier to coordinate booking, baggage, and cabin policies could be coordinated between fewer parties than multiple airlines with differing business interests.

Between 2016 through the early 2020s, I would argue not many passengers of those who flew U-FLY and Value Alliance member carriers were aware – let alone saw much benefits from it. Now, the two now-inactive airline alliances are a forgotten part of Asia's aviation history. Their failures provide lessons in what helps in the success of airline alliances or partnerships, and others to falter. 

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