An anticipated price war has broken out in Singapore as new low-cost airlines start fighting for share in a market that many believe is too small to support so many of them.

The fare war began with the end-August marketing launch of Tiger Airways, controlled by Singapore Airlines, its parent Temasek Holdings and two foreign partners. The carrier started operating on 15 September to points in Thailand using two leased Airbus A320s and offered S$1 ($0.59) one-way fares for the first week to each of its initial destinations: Bangkok, Hat Yai and Phuket.

Soon after, Thai AirAsia, a 49%-owned associate carrier of Malaysia's AirAsia, offered fares of S$0.49 on the Bangkok-Singapore route, on which it has been flying since early this year. AirAsia has also been offering headline-grabbing promotional fares within Malaysia, including from Senai airport just across the border from Singapore.

By the end of the year in Singapore three new airlines will have launched operations: Valuair, Tiger Airways and a still-unnamed new carrier 49.9%-owned by Qantas Airways.

Valuair has been billing itself as a "budget carrier with a difference", offering a single class of service but with in-flight frills such as light meals. Major airlines already operating on the routes it will serve have cut some fares.

Tiger meanwhile, calls itself "Singapore's first true low-cost carrier", offering no-frills services. While Valuair has been flying since May and now serves Bangkok, Hong Kong and Jakarta with two leased Airbus A320s and plans for two more, Tiger is planning to be more aggressive in terms of expansion. It currently has two A320s and has two more on the way, and says it intends to serve up to 10 destinations in the first year and up to 15 in the second. Next year it should be adding four more leased A320s, with another four in 2006.

The new low-cost airline part-owned by Qantas is separately planning to launch later this year and may serve some of the same destinations. It has already signed leases for eight A320s, four of which should be in service at the time of its launch. It too says it will aggressively expand in its first years of operation.

Many analysts believe the market in South-East Asia is not large enough to support so many new low-cost international airlines, including more from Indonesia serving Singapore and other Asian countries. The start-up airlines themselves say it is too early to say, given that the low-fare/no-frills concept is a relatively new one to Asia where bilateral traffic rights may limit growth.

Like AirAsia, Tiger says its operations will be modelled on those of other successful low-cost airlines. It plans to sell 80% of its tickets via the internet and says seat sales will be common. "We expect to become profitable within the first year of operations and secure up to 200,000 customers by the end of this year," says chief executive Patrick Gan. He adds that Tiger expects 25-35% growth in each of the next five years.


Source: Airline Business