Facing the potential threat of competition from growing Malaysian low-fare carrier AirAsia, Singapore Airlines (SIA) has formally opened studies into the establishment of its own no-frills operation.

SIA executives have said over the past year that if low-cost airlines such as AirAsia start posing a challenge, its regional arm SilkAir could quickly be transformed into a low-cost operator.

But SIA now says it is no longer studying the transformation of SilkAir into a budget operator and is instead "evaluating the start-up of a new low-cost, no-frills carrier".

It adds: "A specially formed task force has been working on the concept of the low-cost, no-frills airline and studying the economics of such a standalone model with its own brand identity. The task force, which reports to the chief executive, comprises executives from different areas of the company. A decision on the project will be reached within this year."

Although the low-cost concept remains in its infancy in Asia, Malaysia's AirAsia is growing fast and is quickly gaining public support. While currently only a domestic operator, it has said it is considering launching international flights from Senai airport near Johor Bahru, just across the border from Singapore.

Analysts have long been sceptical about SIA's assertion that SilkAir could be easily transformed into a low-cost carrier, and say the establishment of an all-new operator makes more sense, as it will be starting with a "clean slate". But most observers believe that SIA will only launch a low-cost carrier if it absolutely has to, so as not to take away business from either its mainline operation or smaller SilkAir.

Although wholly owned by SIA, SilkAir is a full-service airline that operates to secondary destinations in Asia using Airbus A320 family aircraft. Its cost base is lower than SIA's but is nowhere near AirAsia's.

SIA's announcement came soon after AirAsia revealed that its owners planned to sell a sizeable minority stake to foreign investors to partially finance the acquisition of additional Boeing 737-300s.

Source: Airline Business