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October 27, 2007

MALAYSIA: Aviation
Malaysia Airlines "disappointed" over end of KL-Singapore monopoly

Malaysia Airlines said Friday it was disappointed over the decision to allow budget airlines to operate the lucrative Kuala Lumpur-Singapore route, breaking the national carriers' stranglehold.

"Whilst we are all for fair competition and we believe in the concept of open skies, we are disappointed that the Kuala Lumpur-Singapore route will be prematurely opened to limited flights," CEO Idris Jala said in a statement.

Malaysian Prime Minister Abdullah Ahmad Badawi said Thursday that pioneering low-cost carrier AirAsia had won its long battle to operate the route which for 35 years has been monopolised by Malaysia Airlines and Singapore Airlines.

Singapore's Tiger Airways is also expected to be allowed to operate the overpriced leg, setting the stage for a price war.

Idris said that the beleaguered carrier's turnaround plan, aimed at restoring it to profitability, was designed around a regional "open skies" agreement which comes into force at the start of 2009.

"We had hoped that we would be able to stick to the original timeline," he said.

"We needed time to put Malaysia Airlines strongly on the path of growth as we are working on a number of major initiatives to ensure sustained profitability. We will now need to fast track these plans."

The Centre for Asia Pacific Aviation said the decision was extremely significant for liberalisation of Southeast Asia's aviation industry.

"Although the capacity restrictions will initially limit LCC (low-cost carrier) entry, the impact will be like lighting a small fire in dry grass on a windy day," it said in a report.

"These routes, so attractive and so poorly served, have been crying out for deregulation and the effects of new entry will dramatically highlight the potential of liberalisation for other markets."

The Sydney-based centre said that its research found that the size of the Kuala Lumpur-Singapore market could treble by 2011, two years after full liberalisation, bringing "massive economic benefits on each side".

Despite Malaysia Airlines' foot-dragging, it said the nation would be the biggest beneficiary as it cemented its status as a low-cost hub, challenging Singapore's dominance in the short-haul market.

Departing from Singapore, a round-trip ticket on the Kuala Lumpur route, which takes less than an hour, currently costs around 450 Singapore dollars (307 US) including taxes.

AirAsia founder Tony Fernandes said Thursday that the carrier has yet to work out its pricing but that "the fare will be aggressive" and could be less than a third of current prices.

Courtesy AFP

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