January 16, 2004
Malaysian low-cost carrier AirAsia will decide next week whether to start a joint venture in Singapore, its chief executive said on Friday, providing more evidence of growing competition in Asia's budget airline sector.
The allure of no-frills carriers to Asia's growing middle class is ramping up pressure on flag carriers such as Malaysia Airlines, Thai Airways and Singapore Airlines.
Singapore's Senior Minister Lee Kuan Yew said this month Singapore Airlines and Changi Airport must cut costs by up to 15 percent to rival a new generation of low-cost airlines and fast-growing air hubs such as Bangkok.
"We are real close to making a decision next week," AirAsia Chief Executive Tony Fernandes told reporters.
In Singapore, AirAsia faces competition from newly planned Tiger Airways, set up by Singapore Air and the founders of European no-frills carrier Ryanair, and ValuAir, which is expected to launch in the second quarter of this year.
"We have a lot of interested partners despite the presence of Tiger Airways and ValuAir," Fernandes said. The venture, he said, aimed to fly to Indonesia, Thailand, Malaysia and China.
Its biggest competition is likely to be Tiger, 49 percent owned by Singapore Air, which is expected to take off in the second half of this year, flying routes of up to four hours from Singapore -- in easy reach of Hong Kong, Madras in India, the resort island of Bali and all of Southeast Asia.
To head off the threat, AirAsia is busy forging alliances around the region. Thailand's new budget airline Thai Air Asia -- AirAsia's joint venture with Thailand's Shin Corp -- is set to fly from Bangkok to Singapore in February.
Fernandes has said he expected the Thai operations to be profitable by the fiscal year ending in June, when another regional deal could be in the bag, possibly Singapore, to tap its wealthy pool of regional tourist travelers.
Other obvious candidates are Indonesia and the Philippines.
But Singapore's investment agency Temasek Holdings would not be an investor in the Singapore venture, Fernandes added, dousing some speculation. Temasek may seek a stake in AirAsia's Malaysian operations, he added. "Temasek's interest in AirAsia is multi fold," he said.
Temasek also owns 56.8 percent of Singapore Airlines.
AirAsia, which took delivery of two Boeing 737-300 aircraft in October to expand its fleet to nine, aims for 20 planes by the end of 2004, a target that could force it to decide in February whether to launch an initial public offering.
"We are getting some pretty good valuations thrown at us," he said, adding that a decision on the IPO would be decided in February after a board meeting.
For the six months to December, AirAsia earned a net profit of MYR41 million ringgit (USD$10.79 million), double the 20 million ringgit it posted for the fiscal year ended June 2003.
(Reuters)
