Singapore defends air-hub amid no-frills competition

Singapore defends air-hub amid no-frills competition

Martin Abbugao, Agence France-Presse, Singapore

Singapore is moving swiftly to carve out a slice of Asia's
budget carrier market and preserve its status as an aviation hub
amid intensifying competition ahead of an expected boom in no-
frills travel.

Three start-up regional airlines are expected to begin
operating from the city-state before the year is over, with two
of them backed by the government's powerful investment arm
Temasek Holdings.

Thanks to its prestigious flag carrier Singapore Airlines
(SIA) and the ultra-efficient Changi airport, the island-nation
has long been regarded as a premium air hub.

But with increasing competition from other airports such as
those in Hong Kong, Thailand and Malaysia as well as from other
airlines, Singapore is moving a step ahead to fend off the
challengers.

This could mean the government reducing its majority control
of SIA as it allows more carriers to be based at Changi and
builds a terminal for low-cost airlines to further cement its
air-hub position, analysts said.

In the most recent development, Temasek teamed up with
Australia's national carrier Qantas and two Singapore businessmen
to establish a budget airline to be based here. The new airline
aims to fly before the year's end.

Temasek also holds a majority stake in SIA, the pedigree
parent of budget carrier Tiger Airways, which is due to start
operations from Singapore in the fourth quarter of the year.

ValuAir, a low-fare carrier set up by a former SIA executive,
is due to take flight next month, while Malaysian budget airline
AirAsia is waiting for a license to fly from the city-state.

Peter Harbison, managing director of the Center for Asia
Pacific Aviation in Sydney, described the move by a major carrier
like Qantas to establish a foothold in Singapore as a
"significant development" that rival airlines will be watching.

"The government is trying to distance itself from Singapore
Airlines," Harbison told AFP, although he does not think this
would lead to a full divestment of the state's stake in the
strategic company.

The government, however, is signaling to SIA that "while you
are one of the airlines that operate in Changi, probably the most
important, we also have to look at a broader interest" of
maintaining Singapore's regional hub status, he said.

The government can tell SIA that "we can afford to be more at
arm's length now because there are other operators offering us a
lot of new efficiencies".

Harbison's analysis compares with that of Senior Minister Lee
Kuan Yew, who said that keeping Singapore ahead as an aviation
hub takes priority over keeping the government's stake in SIA.

Being an air hub is crucial to the survival of the city-
state's economy, which is dependent on connectivity, said Lee,
who issued marching orders for SIA to "transform its business
model" within the next six to 18 months.

The transformation should include outsourcing some basic
services and divesting its stake in key units.

Harbison said the competition would be fierce as other
regional airports would be taking a similar approach.

Song Seng Wun, a regional economist with GK Goh brokerage,
said allowing more low-cost carriers to base themselves in
Singapore was part of a long-term strategy to enhance the
country's hub status.

"We're talking here of Singapore trying to broaden its
services sector growth beyond manufacturing," he said, also
citing Singapore's plan to build a casino.

Temasek Holdings, however, said its investments were based
purely on commercial reasons.

"We are seeing growth and broad-based recovery in the various
economies in the region, with the emergence of a prosperous
middle class, interested in business and in travel," it said in a
statement e-mailed to AFP.

"The low cost structure of such carriers can create and meet
this growing demand. We would like to participate in and
hopefully also contribute to the growth and development of this
market segment.

"We will invest only when we are satisfied that the
opportunity meets our investment hurdles, and makes business
sense ... By investing in different attractive players, we are
broadening and deepening our exposure in an attractive market
segment."

It said the market would ultimately determine the success or
failure of these airlines.

Patrick Gan, chief executive of Tiger Airways, welcomed the
growing competition. "Only the fittest will survive," he said.