Signs of consolidation in Singapore’s crowded budget airline sector have emerged, with Jetstar Asia, launched late last year by Qantas Airways, angling to absorb independent start-up Valuair.

Although the talks initially broke down, with the two carriers saying they remained committed to continuing operations independently, most observers took their acknowledgment as a sign that future consolidation is inevitable. Further talks are believed to be likely.

Valuair is an independent company backed by many investors including cruise line company Star Cruises. Jetstar Asia’s biggest shareholder is 49.9% owner Qantas Airways. The Singapore government’s investment arm, Temasek Holdings, which owns 57% of Singapore Airlines (SIA), also has a stake in Jetstar Asia and in Tiger Airways, another new start-up which is 49% owned by SIA.

The three new airlines each operate four leased Airbus A320s in single-class configurations. Valuair launched services in May last year, Tiger in September and Jetstar Asia in December.

Many industry observers have said Singapore, with a population of around 4 million people and no domestic market, is too small to support so many new carriers. Some have publicly predicted the demise of at least one of the new players this year.

Tiger Airways has been the most aggressive of the three, having expanded its route network significantly in recent months and now serving nine destinations from Singapore, with more to be added. It recently agreed to purchase eight A320s directly from Airbus to grow its operations further. Jetstar Asia and Valuair have admitted to having faced some difficulty, however, and one of the key problems has been the securing of traffic rights. In Jetstar Asia’s case it has secured traffic rights from the Singapore government to serve several countries, but has failed in attempts to obtain access to others, such as China.

The new Singapore-based airlines have largely been competing for the same traffic rights due to restrictive air services agreements in Asia and as a result are forced to operate on several of the same routes. Unlike in Europe and the USA, Asia’s low-cost carriers tend to operate to and from primary airports where they encounter tough competition from full-service players.

Moreover, as Andrew Herdman, director general of the Association of Asia Pacific Airlines, points out, the region’s low-cost players do not have the large cost advantage that their western cousins enjoy against legacy carriers. “The established players are already keenly competitive,” he says.

Jetstar Asia and Valuair both compete on services to Bangkok in Thailand and to Hong Kong. Jetstar Asia also serves Manila in the Philippines, to which it competes with Tiger, as well as Taipei in Taiwan. While Tiger is a strict no-frills operator, both Jetstar Asia and Valuair serve hot meals on some of their routes. Jetstar Asia’s come at an additional price, while Valuair’s are included in the ticket price.

Two Singaporean businessmen are shareholders in Jetstar Asia and there is speculation they want to cut their losses and bail out of the loss-making airline. Qantas wants to keep Jetstar Asia going, seeing it as an important strategic move outside Australia, but it cannot buy out its partners because it already has the maximum ownership allowed.

Qantas is keen to expand the Jetstar brand elsewhere in Asia, following the model of taking significant minority ownership stakes pioneered in Singapore. Start-ups are likely to concentrate on countries such as Malaysia, Indonesia and the Philippines with potentially large local markets.

Jetstar Asia says it will add a fifth aircraft to its fleet later this year. Its first Indian service to Kolkata is set to begin operating in August.


Source: Airline Business