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Joseph Lo

Regional low-cost airlines are beginning to experience the turbulence  of Asia's rigid regulatory environment for cross-border air services, raising questions about the longer-term viability of some start-up carriers.

The inability of the Singapore government to gain more access to the critical Indonesia and mainland markets for the city state's new carriers has already led  one airline, Jetstar Asia, to announce a scaling back of its fleet expansion plans.

Another Singapore-based start-up, Valuair, said it was considering altering its strategy by drafting in larger planes, which are more suitable for tapping the region's lucrative market for air cargo.

Jetstar Asia head of marketing Dorit Grueber said: 'There is no denying that we are unhappy with not getting traffic rights that were promised to us' by the Singapore government.

'Yes, we've had problems because of traffic rights issues. We announced in December that we would begin flying certain routes, but those rights never materialised,' Ms Grueber said.

In December last year, Jetstar Asia, a 49 per cent-owned arm of Australian flag carrier Qantas Airways, said it planned to launch services to Shanghai, Hong Kong, Taipei, Pattaya, Jakarta, Surabaya and Manila this year.

But the Indonesian and Chinese authorities have been unwilling to offer traffic rights for start-up carriers to fly to major cities in their countries, leaving a gap in Jetstar's  network plans. As a result the airline has decided to keep only four of the eight Airbus A320 aircraft it planned to have in place this year.

'Our fleet plans were based on the commitments that we got from the Singapore government, so it's a huge frustration for us,' Ms Grueber said.

Industry observers say that while the movement towards 'leaner and meaner airline business models in Asia is irresistible', it was always questionable whether the European and US 'traditional' low-cost airline model could be adopted in the region without modification.

The traditional model, characterised by JetBlue in the US and easyJet in  Britain, requires rapid route expansion to quickly gain a critical mass of customers, stuffing narrow-body aircraft  full of passengers in an economy class-only seating arrangement.

Those carriers have also tended to operate routes that are no more than three to four hours long in flight time, to keep their aircraft flying as many frequencies as possible each day.

This model has been possible within the US domestic market and in Europe because of the Common Aviation Market within the borders of the European Union, where airlines do not have to jockey for limited route rights between major cities.

By contrast, the fractured and largely protectionist market environment in Asia has been a big hurdle for airlines - start-ups and incumbent carriers alike - to overcome.

Ms Grueber said it was small consolation that other Singapore-based start-ups,  such as Singapore Airlines' low-cost arm, Tiger Airways, and Valuair were facing similar problems.

'We've always said that the success of the low-cost airline model in Asia will depend on open skies,' she said.

Ken Ryan, Jetstar Asia's chief executive, said  it would continue to push the Singapore government to fight for a more liberal aviation environment for the region.

'It's up to the Singapore government to fight the battle for us,' Mr Ryan said.

While Ms Grueber denied rumours that Jetstar Asia was on the verge of being closed  because of its problems in gaining traffic rights, she acknowledged that the next  12 to  18 months would be critical.

'The impact on our business plan will depend on what kind of rights will eventually be made available over the next  12 to  18 months,' she said.

'It's not useful to have rumours of consolidation in the industry, there's no sense in speculating. We will keep pushing.'

Similar problems have been suffered by local start-ups, Hong Kong Express and CR Airways, which finally launched its first scheduled services to Nanning in January after almost two years of operation as a charter carrier to the Philippines and Cambodia, in gaining traffic rights to compete on routes to mainland cities.

An executive from one of the start-ups said privately that it was pushing the government to help it 'secure routes more quickly'.

He said the two carriers were still in the dark over competing applications for licences to a number of secondary mainland destinations lodged last year.

'It's hard to make long-term fleet plans if you don't know where and when you can fly,' the executive said.

Jetstar Asia's problems arose partly from a decision by Indonesian authorities to impose new regulations limiting landing rights for foreign airlines to the country's most popular destinations, in an escalation of an aviation dispute with Singapore and to protect its struggling flag carrier, Garuda.

The Thai arm of Kuala Lumpur-based AirAsia, the region's most established low-cost airline, has made some limited inroads to the mainland market, having launched flights to Xiamen from Bangkok last month.

Thailand and the mainland already have an open-skies agreement in place, one of the few such pacts between Asian countries.

Peter Harbison, managing director of the Centre for Asia Pacific Aviation,  said the Indonesian action was surprising.

'The regulatory problem is always going to be there. But Indonesia's back-to-the-Dark-Ages action last week was unexpected,' Mr Harbison said.

It is understood that the central government was happy for the Singapore start-ups to fly to secondary cities in  China, but that the carriers are eager to hold out for rights to major mainland points instead.

Ms Grueber said it was 'disappointing that Indonesia and China don't want us to fly into the main hubs'.

'Big attractive hubs must be opened to us. For airlines like ours, passenger numbers and yields must be attractive, so just giving us secondary routes to fly may not be good enough,' she said.



Budget carriers meet a spot of turbulence on way to landing