Flying straight into the competition

Karamjit Kaur
The Straits Times
Publication Date : 19-08-2011

Australian airline Qantas is looking at either Singapore or Kuala Lumpur as the base for a new premium carrier it plans to launch. Its decision either way will have an impact not only on rival Singapore Airlines (SIA) and local carriers, but on the hub status of Singapore's Changi Airport. Qantas' new start-up is among several initiatives to boost business and salvage its loss-making international operations. Chief executive Alan Joyce has not disclosed much about it. What is known is that the new entity will be a separate brand from Qantas' distinctive flying kangaroo, and will kick off with a fleet of 11 single-aisle Airbus 320 aircraft. Many aviation watchers think Qantas will pick Singapore. But KL's appeal cannot be dismissed either. In some ways, Singapore is the obvious choice because Qantas and its low-cost arm Jetstar, is already the largest single foreign player at Changi, accounting for about 10.5 per cent of the total number of weekly seats. The SIA group, including regional airline SilkAir, controls 40 per cent of the market. Singapore is also a key hub for Qantas on the Australia-Britain route. In contrast, Qantas does not fly direct to KL. Picking Singapore would allow the new Qantas carrier to leverage on Changi Airport's position as a hub for premium and business travellers, and let it tap Changi's network of over 100 airlines operating to more than 200 cities. Kuala Lumpur International Airport is served by about 60 carriers. But there are also sound arguments in favour of KL being the base of the new carrier. For one thing, it allows Qantas to deepen existing partnerships with AirAsia and full-service carrier Malaysia Airlines (MAS). In January last year, AirAsia and Jetstar inked a deal to pool resources and expertise in a drive to slash costs and lower ticket prices. More recently, Qantas sponsored MAS' entry into the Oneworld global aviation alliance, which includes Qantas, British Airways and Cathay Pacific. This allows Qantas, which has a limited presence in Asia, to leverage on MAS' network to expand its own reach. But business links between the Qantas family and the MAS family do not necessarily mean that the Australian carrier should plant its new flag in KL. Flying out of KL could be counter-productive as the new entity could take away market share from the local players. By the same token, a new Qantas arm in Singapore that targets the premium market is going to hurt SIA and its regional carrier SilkAir. Already, SIA's market share and yields have eroded in recent years, in the face of competition from regional budget carriers and improved service from full-service airlines like Emirates and Cathay Pacific. A new Qantas-backed carrier flying out of Singapore will intensify the heat on SIA. SIA is already preparing for a more competitive skyscape. It plans to launch its own long-haul low-cost carrier by the middle of next year. It recently struck a deal with Virgin Australia to code-share - sell seats on each other's services - and coordinate flight schedules for seamless transfers. Whether its preferred choice is Singapore or KL, Qantas will need the official nod from the relevant civil aviation regulator to launch its new carrier. If Qantas wants to fly its new carrier out of Singapore, the Civil Aviation Authority of Singapore (CAAS) must scrutinise what value the new carrier will bring to Singapore. How will the new carrier enhance Singapore's position as a premier air hub in the region and make Changi more attractive to both airlines and travellers? Will the new carrier launch new routes and markets? Or is the intention merely to snatch market share away from SIA and other incumbents that fly out of Singapore? CAAS will have to strike a balance between promoting Changi as an air hub, and safeguarding the interests of existing airlines, including SIA, that fly out of Singapore. Its assessment must be guided ultimately by what is best for the country. Unlike some other countries reluctant to open their skies to foreign carriers for fear of weakening their own local airlines, the Singapore Government has always adopted a liberal stance. Having more airlines and linkages out of Singapore makes Changi attractive to travellers, and promotes business links and overall economic growth. The interests of SIA and other local airlines sometimes have to take a back seat to this paramount objective. This was a position then Senior Minister Lee Kuan Yew reiterated when he got involved in a dispute between SIA and its pilots several years ago. He had declared in January 2004 that if budget airlines were to eat into SIA's profits, his reaction would be: "So be it". This was because the more important objective was "our remaining a busy air hub". This of course does not mean that the Government does not push for SIA's rights and that of other local carriers. When air deals are sealed between countries, these are often the end result of delicate manoeuvring, with one eye on the commercial interests of the country's carrier/s and the other on the wider benefits that increased traffic will bring to that country. The ideal scenario from Singapore's point of view would be for the Australian carrier to fly out of Singapore in return for SIA getting air rights between Australia and the United States which it has long lobbied for. But even if no such deal is struck, CAAS should consider an application from Qantas on its own merit. If satisfied that Qantas' new arm will benefit Changi Airport and Singapore's aviation industry, then it must say yes to the kangaroo, even if it hurts Singapore's national airline SIA. But even that need not be a zero sum game. In fact, one can argue that SIA's success to date is due in part to the airline having to constantly upgrade and improve its services and products to deal with the competition. To its credit, SIA has risen to the challenge. There is every chance it will do so again, even if Qantas is allowed to plant its new flag at Changi.