Despite all the hyperbole surrounding the Low Cost Carrier red herrings that the Senior Minister has set swimming in Singapore waters, the facts remain as stated in Karamjit Kaur’s piece of 24 December 2003:
“Some analysts, however, feel a stiff competition is not imminent in the region. Despite the spurt of start-ups next year - when AirAsia Thailand and Jetstar of Australia and homegrown Valuair would take off - they argue that conditions in Asia, unlike those in Europe and the US, are not conducive for budget carriers to grow as if the sky's the limit.
The pace will be slow, mainly because of the absence of airports and infrastructure that fit their needs and the slow adoption of open skies agreement.
The economics of budget carriers demand that costs be kept at a minimum but in Asia, they are not going to be spoilt for choice of cheaper secondary airports.
Adds Mr Sanda: 'There are other barriers too, like the lack of proper customs and immigration facilities and telecommunication services.'
Bilateral services agreements also govern flights across borders and they often limit the number of flights allowed, the airlines and the type of aircraft used.
Says Mr Ng of Standard & Poor's: 'No fairy godmother is going to wave a magic wand and lift all the restrictions overnight. The freeing up of the skies in Asia will be a very measured process, subject to many rounds of bilateral negotiations. There will be hits and misses and at best, the results will be patchy.'
In the US, where the domestic market is huge, discount carriers can make money even without having to fly international routes, while in Europe, these carriers took off only after the formation of the European Union led to the lifting of border restrictions.
Still, airlines such as Qantas, Thai Airways, Cathay Pacific and United Airways have told The Straits Times that they will do or are thinking of doing what SIA did.
The jury is out on whether budget carriers are sure winners.
As former SIA chief executive Cheong Choong Kong warned earlier this year: 'Aviation history is littered with the carcasses' of those who bet that low-cost airlines could be killer propositions'."
It is perhaps possible that the Senior Minister has adroitly adjusted the timing forward, for the introduction of the LCC “menace” to the Singaporean consciousness, as a bargaining lever to assist in his determined plan to make the SARS salary cuts at SIA permanent and, in his own words, allow that airline to remain highly profitable even in the worst of times (as I’ve said before, transferring risk from the shareholders to the employees by slashing basic salaries but raising “performance related elements” – about the only innovation ever to come out of Singapore!).
Readers should note that the much vaunted “Tiger” is only at “wet ink” MOU (Memorandum of Understanding) stage and word has it that a business plan is now being hastily cobbled together by a Ryanair minion to fit the “facts” on the ground. Readers should also note that “Tiger” is, for all practical purposes, SIA/Government owned, which situation flies firmly in the face of the received doctrine of success that “Full-service carriers appear inept at running discount carriers, with those of British Airways and United Airways failing miserably”.
Similarly, the putative LCC (or semi LCC) Valuair, relies entirely on the Singapore Government for nomination in the myriad bi-lateral agreements that control all air transport operations in the region (remember, no open skies at the present, or for a very long time, notwithstanding the Senior Minister’s view), hence its competitive potential is effectively zero.
Indonesian carrier, Lion Air, if its fares SIN-CKG are anything to go by, cannot be described as a low cost carrier – merely one nibbling round the edges of SIA’s dominance of the Singapore-Indonesian market.
Which really leaves AirAsia – now looking like a success for the future and leading those of a Machiavellian disposition to consider that the real game plan may be along the lines of a quietly cut deal by LKY with AirAsia/Malaysian Government (pace that between Thaksin and the Malaysians to form AirAsia Thailand) to form AirAsia Singapore. Leverage to force the deal with AirAsia (a favoured entity of Mahatier) is the competition ostensibly threatened from “Tiger” and Valuair. Sweeteners are oceans of cash from Temasek Holdings and unlimited access to Changi as a hub (thus neatly negating Senai as a hubbing force and providing a future revenue stream from an investment that looks like it will really work). Further advantage is that risk need not be taken by going ahead with “Tiger” and Valuair will be toast (who’d finance it with this situation to deal with?).
But the real, present day advantage of all this maneuvering is that the associated smoke and mirrors (a Singapore Government specialty) hides the fact that LCC’s present zero threat to SIA’s profitability but do provide a stick to beat the hides of Alpa-S and the naughty pilots, in the up-coming CA negotiations.
Merry Christmas everybody and good luck for the New Year – we’ll all need it!
Last edited by highcirrus; 25th December 2003 at 11:21.