Budget airline OK for Malaysia-Singapore

KUALA LUMPUR, Malaysia – Malaysia's government has agreed to let low-cost carrier AirAsia fly twice daily from Kuala Lumpur and Singapore, ahead of liberalization of air travel between the two countries, officials said Thursday.

Transport Minister Chan Kong Choy said the Cabinet has given the nod for AirAsia, Southeast Asia's biggest no-frills airline, to fly the lucrative route, the fourth busiest in Asia.

As a reciprocal arrangement, one Singapore budget airline will also be allowed to operate flights but this is up to the city-state to decide on which carrier, he said.

"The government's decision is to further enhance Kuala Lumpur's position as the leading low-cost hub in Asia," Chan told reporters.

He stressed however, that Malaysia wasn't having an open sky policy with Singapore yet.

Aviation officials from both sides will meet soon to iron out details, including when flights will start and operating hours, he said. The government will also consider whether to allow low-cost flights from other Malaysia cities to Singapore, he added.

The Star newspaper quoted unidentified officials as saying Singapore Airlines' unit, Tiger Airways, would be offered to fly at non-peak hours from January.

A 34-year-old agreement allowed only national flag carriers, Malaysia Airlines and Singapore Airlines, to fly the protected route, operating more than 200 flights a week between the two cities.

Liberalization of air travel between the two countries is targeted for January 2009, but AirAsia has been pushing for permission to launch flights on the route.

AirAsia chief executive Tony Fernandes said the carrier hopes to begin flights by December.

"It will be a good contributor to the bottom line... it's a lucrative route," he said.

But Malaysia Airlines said it was disappointed with the premature opening of the route and would now have to fast track its business turnaround plan.

In a statement, it urged the government to also allow its low-cost unit, Firefly, to ply the route. Firefly was launched in April based in northern Penang state but recently won government approval to operate out of Subang airport, which is nearer to Kuala Lumpur city center than the country's main airport.

AirAsia's shares surged 5.5 percent Thursday to 2.10 ringgit (US$0.6; euro0.42), while Malaysia Airlines was up 0.4 percent at 5 ringgit (US$1.4; euro0.98).

"It's a good start for AirAsia and will help improve their yields," said OSK Securities analyst Chris Eng. "AirAsia will be the biggest winner because their cost is lower than Tiger Air and they have higher connectivity in the region."

The impact on Malaysia Airlines is likely minimal for now, but it may force the carrier and Singapore Air to lower their fares, he added.