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Asean Aviation
The rise of no frills

It has not been unexpected. Budget carriers in Asia are posing an increasing challenge to the fullservice national flag-carriers. Thanks to more and more countries opening their skies, the low-cost airlines in Asia,
unheard of just five years ago, are poised to take a 20 percent share of the Asian market just three years later in 2010. The Centre for Asia Pacific Aviation has predicted a ‘full frontal attack’ on fullservice carriers as early as this year the budget carriers enter a new phase in 2007, having increased their capacity by 55% in 2006. Their seat capacity is expected to keep growing by 40 to 50 percent over the next five years fuelled by rapid take-up of new aircraft.

The recent opening up of the Singapore- Kuala Lumpur route, propelled by the rising tourism growth in the region will have see other Asean countries following suit. Deregulation and the growth in free trade in turn will trigger capacity expansion among the players in the region.

Meanwhile, the International Air Transport Association (IATA) has urged Asia to take on a bigger role in the world aviation industry, saying one third of the world’s market will be in this region by 2010. With the good growth, IATA agrees it is a good opportunity to negotiate more liberal open skies agreements as there will no longer be a need to protect airlines. Signs of the dawn of low-cost airlines in Asean have been there as early as 2004

when Malaysia and Singapore started to build terminals for no-frills. The region’s first dedicated budget terminals were opened last year. The combined US$57 million investment for the facilities by the two neighbours is a boost for the region’s budget airlines which have blossomed despite initial scepticism at the no-frills concept.

“Low-cost terminals are a natural extension of the budget phenomenon we’ve seen in the past 18 to 24 months,“ said Shukor Yusof, an aviation analyst with Standard and Poors in Singapore.

Growth in the low-cost sector partly explains why industry watchers expect the Asia-Pacific region to lead global growth in air passenger traffic over the next 20 years.

While Malaysia and Singapore are fierce economic rivals and both aim to be the hub for low-cost airlines, the two terminals will only spur growth in the sector.

“I don’t think the proximity of the terminals has too much bearing, especially with low-cost flights between the two countries not currently allowed,“ said Richard Pinkham, a Singapore-based consultant with the Centre for Asia Pacific Aviation in Sydney.

Most recently, Malaysian cabinet gave approval for Malaysia-based AirAsia and Singapore’s Tiger Airways to operate the lucrative Singapore-Kuala Lumpur route, setting the stage for a price war. AirAsia has been lobbying hard to break the monopoly held by Singapore Airlines and Malaysia Airlines.

Before the birth of AirAsia in December 2001, budget carriers in Southeast Asia focused mainly on domestic routes but the roaring success enjoyed by the Malaysia-based carrier in servicing regional destinations was the catalyst for the setup of similar outfits, especially in Singapore.

Tony Fernandes, the founder and chief executive officer of AirAsia, saw his first success some four years ago when he was able to convince the then Malaysia’s prime minister Mahathir Mohamad of how a discount carrier could revolutionize Southeast Asian air travel and boost tourism at a time when airlines worldwide were struggling from the impact of the September 11 terrorist attacks.

He bought out the bankrupt Air Asia, with two Boeing jets and US$11 million in debt from the government for a token of 26 cents. Few expected Fernandes would be able to turn it around. Yet he did it and has been in overdrive since, adding mediumand long-haul services.

 

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