Singapore's Changi Airport To Build Terminal For LCCs

With low-cost carriers yet to tap major business routes in Asia, one of the region's busiest hubs, Singapore's Changi International Airport, is moving ahead with plans to build a US$26.4 million terminal for low-cost carriers by 2006, to cater to Southeast Asia's growing number of budget airlines.

Budget airlines are sprouting across Asia, following the success of such carriers as Malaysia's AirAsia. Despite high fuel surcharges looming, the new batch of low-cost carriers swooping into Asia are not as yet showing signs of slowing down. However, with cutthroat price wars beginning to break out, aviation analysts said there might well be some funerals in the coming year, if the present surge in oil prices continues.

Asia, until recently, was encumbered by regulatory limitations and lack of secondary airports and stifled by policies on bilaterals. However, a new era finally is dawning, as startups in Singapore, Malaysia, Australia, Indonesia, Thailand and India jostle to reach the finish line in an obstacle race not without its share of high hurdles.

With Singapore emerging as the hub for regionals, Jetstar Asia is the newest carrier to join the fray. The carrier, a joint operation with Qantas Airways, Singapore's Temasek Holdings and two prominent local businessmen, is the fourth budget carrier to fly out of the city.

Jetstar Asia will compete with Malaysia's AirAsia, the region's first no-frills leader; Valuair, set up by former Singapore Airlines deputy chairman Lim Chin Beng, that started operations in May and Tiger Airways, owned by Singapore Airlines and the founder of Irish discount airline Ryanair. Tiger in September started a price war when it launched its services with tickets to Bangkok for just one Singapore dollar (US 60 cents).

Jetstar Asia will be an regional extension of Jetstar, the low-cost carrier Qantas launched in May in the Australian domestic market. Jetstar Asia expects to get its air operator's certificate this month.

Jetstar competes with Virgin Blue to attract business accounts. As the largest low-cost airline in Asia/Pacific, Virgin Blue holds over 30 percent marketshare of the Australian domestic market, with a fleet of 46 737s servicing 43 routes. Customer loyalty strongly influences its financial performance.

Business traffic is a major focus for Virgin Blue even as it increases frequencies on business routes. For instance, it has 22 daily Sydney-Melbourne routes. It has managed to tap a high number of small to midsize companies, as corporations look at cutting costs.

The carrier, keeping the business traveler in mind, has all luxuries on hand, at a price. Extra legroom will cost A$30 (US$22.37), food with beer, A$10, and valet parking, A$10. It recently introduced Blue Room corporate lounges to cater to its business executives.

Virgin Blue also is moving toward partnerships with travel management companies that are able to negotiate deals with corporate clients. Virgin Blue spokesperson David Huttner said it was a question of time when the middle classes of China, India and other Asian nations would be able to fly for the types of low fares sold in the United States and Europe. Virgin Blue operates services between major centers and cities of fewer than 100,000 people.

India, with an upbeat economy and a fast-growing middle-class population, has potential that is being recognized by at least 12 startups that have applied for permission to the Directorate General of Civil Aviation. They include Kingfisher Airlines, owned by a large brewery group and which recently signed a memorandum of understanding for the acquisition of four A320s with options for eight more.

The low-cost carrier making waves, however, is the one-year old Air Deccan. Based in Bangalore, the carrier is a subsidiary of Deccan Aviation, India's largest private heli-charter company. The carrier expects to cross the two million passenger mark by March 31, 2005. Fashioned on the Southwest Airlines model, managing director G.R Gopinath said the airline does not intend to compete on routes run by existing operators.

Air Deccan offers fares about 30 percent below normal. By connecting short-haul business towns in south and west India, Gopinath has avoided high navigation and landing charges imposed on larger aircraft in India, flying ATRs not subjected to tax. The carrier by December plans to increase daily flights from 70 to 100.

"Our main objective is to connect all unconnected parts of the country, apart from the metros, and offer passengers the lowest possible fares," Gopinath said. Already Air Deccan is capturing the lucrative "upper class" market of business rail travelers.

A study by the Center of Asia Pacific Aviation points out that nearly 20 percent of all Boeing 737s are flown by low-cost airlines. In Asia, this process is growing much faster then everywhere else, as low-cost airline capacity more than doubled last year.

"The process of economic growth, the parallel expansion of international trade, the urbanization that follows economic development—these factors are reaching a threshold now that appears to be just the right medium to incubate low-cost airlines," according to CAPA managing director Peter Harbison. "Despite low percentage usage rates, Internet usage is taking off, galloping ahead, therefore facilitating sales. About 5 million new Chinese go online each month. As well as being a distribution facilitator, Internet usage is an important indicator of economic development."

Harbison added: "Already, business travel buyers are approaching us for advice on how to benefit from the changes. Increased price sensitivity permeates the industry, as corporate bean-counters start to reduce costs—easy places to reduce costs, in any company, include advertising and travel. Why pay more for your air fares if you can pay less, and travel more often by paying less?"