September 20, 2004
Airline ticket prices in Southeast Asia have fallen below bus fares, with a one-way ticket between Singapore and the Thai resort of Phuket advertised for as little as 29 Singapore cents.
But just as most people will never get to fly at such impossibly low prices because of an array of hidden costs ranging from airport taxes to service fees, some airlines trumpeting the deals ultimately may not survive the price war.
"Not everyone is going to make it," said Chris Sanda, an associate director of equity research at DBS Vickers Securities in Singapore.
Last week, no-frills airline Thai AirAsia offered one-way flights between Singapore and Phuket at 29 Singapore cents (17 US cents) for the first 3,000 seats. The price did not include taxes and fees of about SGD$61 for insurance, a fuel surcharge and airport taxes.
The tickets were snapped up within 2 days.
Tiger Airways, a venture between Singapore Airlines and the founder of Irish discount airline Ryanair, started the price war last month with one-way SGD$1 fares to Thailand for a limited period, which when added to taxes and fees amounted to SGD$62.
Singapore Airlines is offering return fares between Singapore and Bangkok ranging from SGD$178 to SGD$268 each compared with its normal ticket price of SGD$358.
"Definitely people who want to be in this airline business need to have the stomach (for it)," said Patrick Gan, chief executive officer of Tiger Airways, which launched its inaugural service last week.
PLACE YOUR BETS
Tiger is the second budget carrier to fly from Singapore's Changi Airport after Valuair, which was set up by former staff of full-service carrier Singapore Airlines.
The budget airline of Australia's Qantas, which has yet to be named, also plans to begin flying from Changi.
No-frills Malaysian airline AirAsia has applied for a license in Singapore even though its Thai venture with Shin Corp., Thai Air Asia, flies between Thailand and Singapore.
Discount airlines are making it easier for Southeast Asia's 500 million people, commanding gross domestic product of USD$700 billion, to take to the skies.
Because they encourage intra-regional tourism, which governments are keen to promote, they are pressuring countries to revise international landing rights pacts and drawing support from government investment vehicles, such as Singapore's Temasek Holdings.
Temasek has equity investments in two budget carriers. Though it owns 57 percent of Singapore Airlines, it also holds 11 percent of Tiger Airways and 19 percent of Qantas's budget carrier.
"Basically, you know it's just serving the national interest. The government has said it wants to develop the low-cost carrier industry," said one industry analyst.
Temasek's strategy seems to be to cover all bets until a winner emerges.
"Each one has the same business model but somebody's going to be really good at it," Chris Sanda of DBS Vickers said, citing the dominance of discount carriers such as Southwest Airlines in the United States and Ryanair in Europe.
Budget airlines drive down their costs by selling through the Internet, not assigning seats, and providing no free food or drinks.
Sanda said budget airlines in the region could easily grab 30 percent of the Southeast Asian market in just a few years, as Virgin Blue did in Australia.
(Reuters)
