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The Civil Aviation Authority of Singapore (CAAS) has come under fire for refusing to grant landing rights at its only airport, Changi International, to an Indonesia-based carrier in which Malaysia's leading low-fare airline, AirAsia Berhad, holds a 49 per cent stake. Though Singapore may call the shots in granting landing rights at Changi -- upsetting AirAsia, which claims Singapore is using its planned Jakarta-Singapore route to give itself an edge in bargaining with Jakarta over air links -- the issue has stirred up waves of criticism.
Southeast Asian countries plan to adopt an open-skies policy between their respective capital cities by 2008 and fully liberalize the region's air-travel industry by 2011, but AirAsia's charismatic founder and chief executive officer Tony Fernandes has implied that unless the respective governments fight back, the only winners in the skies between Singapore, Indonesia and Malaysia, at least, will be Singapore. AirAsia has said it is abandoning the planned Jakarta-Singapore route after having to postpone its launch at the 11th hour because it failed to secure the necessary approvals from Singapore aviation authorities. This would be a setback for the republic's plan to present its only airport as an aviation hub for Southeast Asia.
Singapore has begun building a new airport terminal at Changi to attract the 10 low-fare airlines that are flying in Southeast Asia. Tourism contributes more than 5% of Singapore's $91 billion economy every year and Transport Minister Yeo Cheow Tong has even offered to cut landing fees and hand out other financial incentives to attract airlines to route their services via Changi.
AirAsia carries considerable clout. The carrier flies 7.5 million passengers a year. It operates over 100 domestic and international daily flights with a fleet of 18 Boeing 737-300s from its hubs in Kuala Lumpur International Airport and Senai International Airport (Johor Bahru) in Malaysia, while its sister company Thai AirAsia operates an additional six Boeing 737-300s from Bangkok International Airport, and Indonesia-based AWAIR operates two Boeing 737-300s from Sukarno-Hatta International Airport.
"We don't need to come to Singapore," Fernandes said at the Asia-Pacific and Middle-East Aviation and Tourism Outlook conference in Singapore recently. "If we're not welcome, we will find alternative routes. Our patience is surely not endless."
AWAIR had to transfer nearly 300 passengers to another airline on January 19 after Singapore authorities said it would take at least several days for landing-rights documents to be approved. Thai AirAsia Co, AirAsia's venture in Thailand, flies four times a day to Singapore and had no problems getting approvals to land in the city-state, with the same documentation.
The Singapore authorities asked AWAIR to provide one more document, although it had earlier been given approval to start flights. The airline complied and Singapore promised to respond within a week. However, the airline did not receive any formal reply after three weeks. More than 5,000 passengers were reportedly booked for the first few flights and were either accommodated on other flights or refunded.
CAAS said in a statement that while a review of the documents for AWAIR's application to operate to Singapore from Jakarta has been completed, it is unable to proceed further with the airline's application in light of "new developments concerning the operations of low-cost carriers between Singapore and Indonesia". AWAIR's response, also in a statement, was to say: "This is clearly a government-to-government matter, and the CAAS should not have used AWAIR as a bargaining chip to gain better positioning with the Indonesian government."
"We are very disappointed by the treatment. This is clearly a case of protectionism by the Singapore government," AirAsia executive director Kamarudin Meranun said. "It has now become evident that the delay tactic adopted by CAAS in processing our application to fly into Changi International Airport was a deliberate attempt to gain greater bargaining position vis-a-vis the Indonesian government in the recent bilateral talks on Air Service Agreement on January 25 and 26."
AWAIR has said it may seek monetary compensation from the Singapore government for blocking flights from Jakarta. At least 400 flights a week connect the city-state and Jakarta but, as Meranun points out, there are fewer flights operated by Indonesian airlines to Singapore than the number of flights by Singapore-based airlines to Indonesia.
Telling the world Fernandes pointed out earlier that the decision to stop the AWAIR flight had not only disrupted the travel plans of passengers who had made their travel bookings earlier but had also "upset" the Indonesian authorities. On January 25, speaking at the Fifth Malaysia Capital Market Conference 2005 in Kuala Lumpur, he said: "First they barred our bus from entering Singapore, now they have barred us from taking our planes there despite their earlier approvals."
He told the assembled bankers and top officials from regional financial institutions that Singapore is not as open to business as it claims. "From our experience, they are very closed and we want to tell the whole world about it," said Fernandes. This sentiment was echoed in Jakarta, where AWAIR president Sendjaja Widjaja, an Indonesian national, said in a statement, "This is clearly inconsistent with the CAAS statement that it welcomes all airlines, including AWAIR, to operate to Singapore."
Singapore currently has three low-cost carriers (LCCs) based in the city-state - privately owned Valuair, Tiger Airways, a unit of Singapore Airlines and Qantas-owned Jetstar Asia. Widjaja implied the incident illustrated how the Singapore government had tried to block the entry of LCCs from competing directly with these three. "We believe that it is not so much related to the issue of planned flights by low-cost carriers between two countries as it is simply the protectionist stance taken by CAAS to protect Singapore's own fledgling start-ups."
This is not the first time AirAsia has encountered difficulties with the Singaporean government. Two years ago, the carrier was denied permission to start a bus service from its Senai hub in Johor Baru to Singapore. AirAsia is now opposing the entry of more Singaporean players into Malaysia, warning that granting them rights to direct flight routes could marginalize Kuala Lumpur International Airport (KLIA) and hurt Malaysia's ambition to become a regional aviation hub.
"If AirAsia is not given rights to fly into Singapore from Jakarta, why should Malaysia allow the Singaporean carriers here?" asked Meranun. "By giving rights to SilkAir, we are seen to be promoting and enhancing Changi Airport's connectivity and helping it become a regional hub. Should we not be promoting our own KLIA as a regional hub? Why such a move and at whose expense?"
Last month the Malaysian government announced it would build a dedicated LCC terminal at KLIA for low-cost airlines, which should begin operations by the middle of next year. Transport Minister Chan Kong Choy said it would enhance the airport's position as a leading aviation hub in Southeast Asia. Fernandes had argued earlier that the Sultan Abdul Aziz Shah Airport in Subang should be reopened to support Malaysia's huge lead in the LCC market over Singapore, but Choy pointed out that Malaysia could not afford to have a two-airport policy because it did not have a large hinterland and population mass. Fernandes said of the decision, "AirAsia is a company that never wastes time to look at the past as we have been through so many adversities." He said the airline would focus on making the low-cost terminal in KLIA into an efficient design for AirAsia's low-cost model and make it the center of low-cost travel in Asia despite stiff competition from Singapore.
Barely a week after Kuala Lumpur announced the plan for the new terminal, Malaysia Airlines, the national carrier, agreed on a new code-sharing deal with Singapore Airlines and its subsidiary SilkAir, which will allow the latter two airlines frequent access to Malaysian domestic destinations Kuching in Sarawak state, and Kota Kinabalu in Sabah state, without having to fly to KLIA. From March 27, these flights, along with others to Penang, will bypass KLIA.
"I am baffled by the tripartite code sharing," Meranun was reported as saying. "When we requested locating the low-cost terminal at Subang Airport, Malaysia Airlines strongly opposed it, saying it would be against the plan to make KLIA a regional hub. How is KLIA going to benefit now?" the executive director asked. "Changi Airport will see an increase in passenger traffic."
In the same week, AirAsia scored a victory over Singapore. Jetstar Asia and Valuair are seeking Chinese approval to fly from the city-state to major mainland cities, but AirAsia stole the show by becoming the first no-frills foreign airline to fly to China after its plan to offer daily services between Bangkok and the southeastern Chinese city of Xiamen was approved by the Chinese government.
Indonesia offers most At least Singapore cannot thwart AirAsia's local ventures in Thailand or Indonesia. Thai AirAsia lost money in 2004, its first year, after it was badly hit by bird flu, high fuel prices and rising competition. At the year's end, the tsunami affected inbound traffic to Phuket and Bangkok. Its Indonesian operations, however, started in January this year and were unaffected by everything except the high fuel prices and competition.
An improved economy, new airlines, more aircraft and greater affordability has led to a rapid expansion of the market in Indonesia. The Indonesian National Air Carriers Association (INACA) estimates that domestic passenger traffic will rise some 31 per cent over last year's impressive 17.5 million. Some 22 airlines and 35 companies that charter aircraft are licensed to operate in the country, though the government has now stopped issuing new licenses. The INACA says load factors for domestic flights average between 80-85 per cent .
Asked in February how his Indonesian venture was doing in its second month, Fernandes said that because of the problem with Singapore, the two aircraft it currently operates were underutilized. However, he expected to carry 50,000 passengers by the end of the month and a million by the end of this year. If AWAIR achieves that number, it would represent 25% of the total domestic passengers carried by national flag-carrier Garuda Indonesia last year with its much larger fleet and much bigger range of domestic routes.
AWAIR flies to five domestic destinations: Padang and Medan in Sumatra, Balikpapan in Kalimantan, Denpasar (Bali) and Surabaya, the country's second major city. Though competing with no less than 10 other airlines on the latter route, AirAsia is seeing load factors of 80% against a break-even level of 56%. "The market in Indonesia is very elastic. You put in the planes and you'll fill it if the fares are right" Fernandes said.
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Asia Times Online
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