Singapore Feels the Heat

December 21, 2003

Singapore Feels the Heat 
The Straits Times, Singapore


MS JANICE Wong, 35, always has in hand a ticket that lets her fly any time to 
Bangkok.
 
Whether it's on Thai Airways or Singapore Airlines, the media executive uses 
the Thai capital as her base for travel to Europe and the United States.

When she takes SIA, she ends up flying to Bangkok and back home before she 
takes off for her final destination.

The route may be circuitous, but tickets issued in Thailand are so much cheaper 
the extra hours are worth it.

Travelling business class on Thai Airways from Bangkok to Paris and then Los 
Angeles costs her about 160,000 baht (S$7,000) on a return ticket. If she buys 
a ticket in Singapore, she would have to pay $8,600, or about one-quarter more.

Ms Wong has taken a couple of round-the-world trips with tickets bought in 
Bangkok.

She is part of a small but growing trend that should worry airport officials 
here.

Travel agent Urisaia Kowitdamrong of Able Tour Agency in Bangkok said that, in 
the past five years, more Singaporeans like her buy their air tickets in 
Thailand.

Most are professionals and businessmen who book long-haul flights to London, 
Paris or the US.

If such cross-border bargain hunting spreads, it could erode Changi Airport's 
position as an aviation hub and, at the same time, boost the status of other 
regional airports, said local aviation industry veteran Lim Chin Beng.

'That's a double whammy,' said Mr Lim, SIA's former deputy chairman. 

The lack of competitive fares here prompted him to set up low-cost carrier 
Valuair, which will take off by June. 

Lower fares abroad are just one of the multiple threats confronting the 
aviation industry here.

Lower-fare airlines, new long-range planes, loosening restrictions on flight 
frequencies and copycat moves by countries near and far all make it tougher for 
Singapore to maintain its status as an air hub.

It's a race Singapore can't afford to lose.

The aviation sector contributes 5.5 per cent or $7.9 billion to the country's 
gross domestic product and directly provides about one in 20 jobs, according to 
a 2001 study.

The figure goes up to one in 17 jobs if the indirect impact of the sector is 
calculated.

Many Asian countries are winging in on the action, drawn by the fact that Asia 
is the world's fastest-growing air travel region.

Here, the experience of Singapore's seaport provides a cautionary tale. A 
miscalculation on PSA Corp's part led the port operator to lose its major 
customer, Danish shipping line Maersk, and then Taiwan's Evergreen Marine, to 
the Johor port of Tanjung Pelepas. It proves just how swiftly the competition 
can move in.

On the air hub front, Hong Kong, Seoul, Shanghai and Kuala Lumpur have all 
opened new international airports since 1998, spending $24 billion in all.

The new Bangkok international airport is due to open in 2005 and like Hong 
Kong's airport, it will be able to handle up to 45 million passengers, more 
than Changi's 44 million.

The importance of an air hub, however, goes beyond the passengers and cargo it 
brings in and the jobs it creates, along with spin-off benefits to tourism, and 
the hotel and retail industries.

For Singapore, it is also part of the country's game plan to be the regional 
headquarters for international companies, says Mr Anthony Concil, Asia-Pacific 
spokesman for the International Air Transport Association (Iata).

'If you don't have a good air hub, good air connections, it makes it very 
difficult to attract businesses to set up there,' he says.

Part of Changi's hub status is a legacy of past habits when the British made 
Singapore a stopping point along the 'kangaroo' route from London to Sydney. 

However, the Thai capital is a more natural air hub geographically. It is 
better positioned along the kangaroo route and is also a natural centre for 
take-offs to countries in Indochina, which has huge tourism potential.

The surge has started: Bangkok airport handled 3.2 million more passengers last 
year than Changi's 29 million.

But the threat to Changi Airport comes from beyond the region too. 

A RIVAL FROMTHE GULF

DUBAI airport in the United Arab Emirates (UAE) is also a strong rival to 
Singapore. 

It markets itself aggressively as a hub port and is not coy about calling 
itself the 'Singapore of West Asia'. 

The similarities to Singapore are striking. With a tiny home market of 1.2 
million residents, the UAE are the port of call for travellers transiting to 
other parts of the oil-rich Gulf region, attracting 16 million passengers a 
year.

In Singapore, the resident population of four million forms a fraction of 
Changi's passenger traffic, which reached 29 million last year.

Although Dubai International Airport is still smaller - its terminals can 
handle half of Singapore's capacity of 44 million passengers - it has ambitious 
plans.

The oil-rich country has embarked on a US$4.1 billion (S$7 billion) plan to 
have a third terminal by 2006 and has forecast its passengers will hit 70 
million by 2015. If realised, this will take it to the top of the world 
ranking. Already, it is the second fastest-growing airport in the world behind 
Seoul's Incheon. 

AIRLINES CAN STIMULATE GROWTH

HOWEVER, the hub race need not be a zero-sum game.

In an interview, Transport Minister Yeo Cheow Tong said: 'It's not a matter of 
they win and we lose, or we win and they lose. This is because air traffic 
growth, as long as it continues to be strong, will make space for several air 
hubs.'

Iata's Mr Concil agrees: 'Hubs need to have the proper infrastructure to 
provide the airlines with good service. But primarily, it's the role of the 
airline to develop the air traffic.'

For Changi, that airline is SIA, which carries more than half the passengers 
into Singapore.

Using Kuala Lumpur International Airport to make his point, Mr Concil noted it 
has not developed as rapidly as Changi or Bangkok, despite its impressive 
infrastructure, because of problems faced by home carrier Malaysia Airlines in 
the past few years.

'Fundamentally, you need a very strong home carrier with a dense network for 
the hub to grow,' he said.

OPEN SKIES, BUDGET AIRLINES

THE nexus between a strong home carrier and a hub is not so simple anymore.

It is about to become more complicated because of two related factors - the 
trend towards open skies and the emergence of low-cost carriers.

On paper, both will grow the regional aviation pie and Changi stands to benefit.

But in reality, expect the competition to become intense and ruthless, with the 
future uncertain.

Given its size, Singapore has always had a liberal air rights policy - granting 
air traffic rights to as many countries as possible so their airlines can bring 
passengers here.

However, many other governments guard jealously the rights given to airlines to 
fly to their home destinations in order to protect their national carriers.

So, for example, even though SIA's daily flights to Los Angeles via Tokyo are 
full, it cannot add extra flights because the Japanese government will not give 
Singapore more air rights.

But change is in the air.

Witness Hong Kong's moves. A long-time opponent of unrestricted open-skies 
pacts, it has been progressively liberalising its regime since the opening of 
its Chek Lap Kok Airport in 1998.

Thailand is doing the same.

The managing director of the Sydney-based Centre for Asia Pacific Aviation, Mr 
Peter Harbison, said this tightly regulated web of bilateral air services will 
come apart in the next 10 years because of rising demand for low-cost travel.

The arrival of budget carriers in the region, with Cathay Pacific the latest to 
announce plans to set one up on the heels of SIA's Tiger Airways and 
independent Valuair, Malaysia's AirAsia and Indonesia's Lion Air, promises to 
intensify competition even as it brings a new spurt in travel, as happened 
earlier in Europe and the US.

Awakening to the benefits these carriers can bring to tourism and the economy, 
governments in Asia will inch towards a more liberal approach to air rights - a 
key ingredient for the carriers' success.

As they start to open up, competition for passenger traffic will get fiercer 
and Singapore's traditional edge as an early practitioner of a liberal aviation 
regime will become less of an advantage.

TECHNOLOGY ANOTHER FACTOR OF CHANGE

TECHNOLOGY will also force the pace of change.

In February, the Airbus A340-500 will allow SIA to skip Tokyo because the 
300-seater plane can fly non-stop for 16 to 18 hours.

But technology is a double-edged sword. The same aircraft is now used by the 
Dubai-based Emirates airline to mount direct flights to Sydney, bypassing 
Singapore.

Though the impact on hubs remains to be seen, Iata's Mr Concil is confident 
technology will not spell 'the death of hubs' but rather a change in travel 
patterns.

For Ms Wong, who travels at least twice a year, the lure of cheap fares abroad 
has not overshadowed the draw of Changi Airport, which she still rates tops 
with its bigger shops and televisions and Internet access.

'It's just a more fun and interactive airport,' she said. 
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