What Singapore Airlines can teach a loss-making Cathay Pacific

What is Europe's most profitable airline?

Air France-KLM, whose premium passengers sleep in private suites with memory-foam mattresses, dine on Joël Robuchon dishes and have private jets at their disposal?

Or Ryanair, which offers flights starting at €10 ($15) and whose chief executive officer has mused about charging passengers for toilet visits?

No prizes for guessing it's Ryanair.

Trailing 12-month operating margins at the Irish budget carrier run at 23 percent, compared with 4.8 percent at Air France and 6.9 percent at Lufthansa

They have a bare-bones image, but discount airlines are where the best money is made. Of the world's 10 most profitable airlines by operating margins, only Alaska Air  and Delta Air Lines are full-service carriers.

There's a lesson in that for Asia's once-mighty full-service operators, Singapore Airlines and Cathay Pacific Airways.

Both have been relatively late to the discount-aviation party, and are now carrying out strategic reviews to address the threat from state-owned airlines in China and the Gulf.

Budget carriers were until relatively recently a smaller presence in Asia than in Europe and North America. Now they're indisputably a major part of the future. Survival may depend on embracing the concept.

Singapore Airline has been the most forthright in adopting this change. Its Tiger Airways budget offshoot was established back in 2004, with the long-haul discount carrier Scoot following in 2012. The eponymous main carrier's share of group capacity fell to 76 percent last year, from 95 percent five years earlier.

Despite missteps and a delayed integration between Tiger and Scoot, discount flying as a whole is starting to pay off: SIA's budget carriers have posted profits for six consecutive quarters. Absent earnings from them and SilkAir, the shorter-haul brand, the group as a whole would have reported a loss in its recent fourth-quarter results.

While Singapore Airlines has been running to meet the future, Cathay Pacific has been standing athwart history, yelling "Stop!".

It doesn't have a budget arm – and when Qantas Airways and China Eastern Airlines attempted to set one up in Hong Kong in 2012, the result was a two-year regulatory battle that eventually sent the foreigners packing.

While Hong Kongers constantly moan about the high cost of Cathay's tickets, the only local low-cost carrier seeking to undercut the incumbent is Hong Kong Express, ultimately controlled by mainland takeover monster HNA Group.

That conservatism worked well enough for Cathay in the past, but the tide can't be halted.

Already, travelers from Hong Kong to Southeast Asia can fly Tiger and Scoot, as well as AirAsia, Cebu Air and Qantas' Jetstar affiliates. Jetstar is competing with ANA's Peach and Vanilla Air on Japan routes, while Spring Airlines and Juneyao Airlines vie with HK Express to serve mainland China.

Cathay's newly crowned CEO Rupert Hogg would do well to learn from that comparison in addressing the carrier's predicament.

The long-haul routes where it's traditionally dominated are looking increasingly like a lost cause, given the growing muscle of Chinese and Gulf airlines.

Regional routes are the best hope for sustained profits, and low-cost carriers are inevitably going to be fierce rivals there, too. Cathay can't beat the competition – so it should take a leaf from Singapore Airlines' book, and join it instead.