ASEAN steels for low-cost aviation impact

14 February 2003

The advent of low cost airlines in the region is being watched with great interest by national carriers in ASEAN, anxious that their long-protected patch may be cannibalised by their more aggressive and nimble competitors.

In Malaysia, the rapid take-off of AirAsia with its aggressive fares on domestic routes has not only caught Malaysia Airlines' attention but that of Royal Brunei Airlines.

AirAsia's routes to Miri, Sarawak and Labuan, Sabah, with their close proximity to Brunei, are reported to have caused some erosion of RBA's revenues as Bruneians get wise to the idea that for a little inconvenience, they can save substantially on airfares.

Miri is a mere hop from the Brunei border while Labuan is an hour's boat ride from the sultanate.

Nurul Suzainee Abdullah, manager product development of RBA, said the airline was watching the situation "carefully".

AirAsia has been advertising heavily in the local Brunei media, touting its low fares from Miri and Labuan to points in peninsular Malaysia.

The Kuala Lumpur-based airline has also flagged that it may set up a hub at Senai airport in Johor Baru, a move that would be aimed at attracting customers from across the causeway in Singapore.

In Thailand and Singapore, both national carriers have raised the possibility of setting up a no-frills airline to protect their patch.

Both governments have been taking the lead on this front with their heads of state discussing a possible partnership of a no-frills airline to be based in Chiang Mai.

Thai Prime Minister Thaksin Shinawatra's suggestion in the media that SIA be one of the key drivers of the new airline has created rumblings at Thai International. However, decisions such as who would own the airline and Thailand's potential investment have not yet been concluded.

The Bangkok Airways model has also proved successful with the airline saying it expects sales to rise about a quarter this year as it adds new planes and extends its network.

Sales may rise to about 5.5 billion baht (US$129 million) in 2003 from 4.4 billion baht last year, said chairman Dr Prasert Prasarttong-Osoth. It posted a net profit of 150 million baht in 2002.

Meanwhile, the Australian low-cost airline, Virgin Blue, has signaled that its international ambitions extend beyond New Zealand and the Pacific Islands, and will extend north from Australia to South-east Asia.

"We are looking at destinations of not more than five hours duration, but less than 10," said David Huttner, Virgin Blue's head of commercial.

Tony Fernandes, chief executive of AirAsia, said that 25 percent of bookings for the airline were made via the Internet. He said that in a region where road infrastructure was not as well developed as in the US and Europe, and where there were many island destinations, a low-cost carrier could flourish.

Kevin O'Connor, Deutsche Bank director of transport, aviation and logistics, said that the poor shape of the major airlines meant that they could not afford to "squeeze out the low-cost boys".

"Low-cost is the answer for a large part of the market," he said.

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