HSR could decimate traffic on world’s third largest international route: Singapore-Kuala Lumpur

HSR will be a game changer between Singapore and Kuala Lumpur, just as it has been in the domestic South Korea and Taiwan markets. HSR will connect Singapore and Kuala Lumpur in only 90 minutes, significantly reducing current travel time of four to five hours by road and six to seven hours by the current slow-speed rail link.

LCC will be most impacted as they now control 60% of the Singapore-KL market

Already a large number of passengers travel by surface between Singapore and Kuala Lumpur as flying is only marginally faster when factoring in door-to-door downtown-to-downtown transit time. But budget carriers have been able to stimulate demand in the market by offering very low fares which can compete with bus fares. LCCs, which were not allowed to fly between Malaysia and Singapore until open skies was implemented in 2008, now account for about 60% of the Singapore-Kuala Lumpur market.

Malaysia-based AirAsia currently has a leading 30% share of capacity between the two cities, according to CAPA and Innovata data (includes both Kuala Lumpur airports). Singapore-based LCCs Jetstar Asia and Tiger Airways have 19% and 10% shares, respectively.

The 41% capacity share from full-service carriers include 14% from Malaysia Airlines (MAS), 6% from MAS regional subsidiary Firefly, 9% from Singapore Airlines (SIA) and 12% from SIA regional subsidiary SilkAir. All these carriers link Changi with KLIA except for Firefly, which offers an exclusive service to Subang, Kuala Lumpur's old international airport which now only handles short-haul turboprop services.

Singapore to Kuala Lumpur* capacity by carrier (one-way seats per week): 19-Sep-2011 to 11-Aug-2013

Source: CAPA - Centre for Aviation & Innovata
Note: *includes both Kuala Lumpur airports

SIA and MAS codeshare on the route and until 2008 had a duopoly in the Singapore-Kuala Lumpur market, offering a highly profitable shuttle service. SIA and MAS used to only operate widebody aircraft on the route but new competition from the LCCs prompted MAS to move to an all-737 operation while SIA transferred most frequencies to A320 family operator SilkAir.

SIA continues to operate 17 weekly flights from Singapore to Kuala Lumpur while SilkAir currently offers 47 weekly flights, giving the SIA Group a combined 21% share of seat capacity and a 19% share of frequencies. MAS also operates 47 weekly flights from Changi to KLIA while Firefly operates 45 weekly flights from Changi to Subang, giving the MAS group a combined 20% share of seat capacity and a 28% share of frequencies in the Singapore-Kuala Lumpur market. On a frequency basis, LCCs have a 53% share of the market led by AirAsia with a 27% share.

Singapore to Kuala Lumpur (all airports) frequency share by carrier:

Carrier	Weekly return frequencies	Frequency share	Rank among carrier's international routes	Aircraft type used
AirAsia	182	27%	1	A320
Jetstar Asia	118	18%	1	A320
Malaysia Airlines	94	14%	1	737-800
SilkAir	94	14%	1	A319/A320
Firefly	90	14%	1	ATR 72
Tiger Airways	56	8%	3	A320
Singapore Airlines	34	5%	N/A	A330-300

Source: CAPA - Centre for Aviation & Innovata
Note: includes both Kuala Lumpur airports. No ranking for Singapore Airlines as Kuala Lumpur is not one of the carrier's 10 largest routes

SIA and MAS will be less impacted than the LCCs as they rely more on transit traffic

Singapore-Kuala Lumpur is MAS' largest international route based on weekly frequencies and seats. It is also the largest route based on both measures for SilkAir. In addition, Singapore-Subang is the largest route for Firefly.

While they still cooperate on Singapore-Kuala Lumpur and other Singapore-Malaysia routes, the SIA and MAS groups are fierce competitors. The SIA Group carries a significant number of transit passengers on its Kuala Lumpur-Singapore flights, attracting passengers that in some cases could fly non-stop to their destination with MAS (although in many cases these passengers do not have non-stop options from Kuala Lumpur as SIA has a bigger network than MAS, particularly in Europe). MAS also carries a large number of transit passengers on the Singapore-Kuala Lumpur route and undercuts SIA on many city pairs, persuading passengers to fly one-stop rather than non-stop (MAS also has a smaller number of destinations that are not served by the SIA Group).

Roughly half of SIA/SilkAir and MAS passengers flying between Singapore and Kuala Lumpur are likely transit passengers (excludes Firefly passengers as Firefly is strictly a point-to-point carrier). The LCCs also increasingly carry transit passengers on their Kuala Lumpur-Singapore flights, which should mitigate the impact of the HSR line when it finally opens, but overall the portion of LCC passengers transiting is significantly lower.

Transit passengers account for about 30% of Singapore-KL passengers on AirAsia

An AirAsia source says about 30% of its passengers between Singapore and Kuala Lumpur connect at Kuala Lumpur. This is a high figure for a LCC but is still significantly less than what SIA and MAS would see. Without this important connection business (which excludes self-connections) it is unlikely AirAsia would be able to support a market-leading 13 daily flights between Singapore and Kuala Lumpur.

A majority of AirAsia's connecting passengers from Singapore connect at KLIA onto medium and long-haul flights operated by sister carrier AirAsia X. There is particularly a large volume of passengers flying AirAsia X between Australia and Singapore via Kuala Lumpur despite the circuitous routing.

The success of the AirAsia-AirAsia X connecting product in the Singapore market was a big factor in Jetstar launching long-haul flights to Singapore in late 2010 and in SIA's decision to establish long-haul LCC subsidiary Scoot. Scoot launched services in Jun-2012 with Australia accounting for its first two routes.

See related articles:

• Launch of new SIA LCC Scoot shakes up the LCC market
• AirAsia X and Scoot help make Sydney Australia's hub for long-haul low-cost carriers
• In selecting Gold Coast as second destination, Scoot again goes with low-risk option
• In selecting Sydney as its first route, Scoot favours a low risk market with little competition

Jetstar Asia has been the fastest growing airline in the Singapore-Kuala Lumpur market

Singapore-based Jetstar Asia sees approximately 15% of its total passengers transiting at Changi, compared to about 50% for SIA/SilkAir. The Singapore-Kuala Lumpur route likely sees a higher than average figure for Jetstar Asia but would still be well below the transit figure for SIA, MAS and most likely AirAsia. Connections from Jetstar's Kuala Lumpur flights are available at Singapore to Qantas-operated flights to Australia (Qantas does not serve Kuala Lumpur) as well as Jetstar-operated flights to Australia, New Zealand and several destinations in Asia, particularly Indonesia and China.

Jetstar Asia significantly added capacity between Singapore and Kuala Lumpur in 4Q2012, more than doubling weekly flights from 23 to 51. Jetstar Asia now operates 59 weekly flights in each direction on the route, making it the carrier's largest route.

Jetstar Asia has been the only carrier to significantly increase capacity on the Singapore-Kuala Lumpur route over the last 18 months. Over the last year total capacity on the route increased by 17% from about 46,000 in Feb-2012 to about 54,000 one-way seats currently, with Jetstar Asia accounting for all 8,000 additional seats as the carrier more than tripled capacity from about 2,500 seats to nearly 11,000.

Capacity from AirAsia and to a lesser extent Tiger increased significantly in earlier years as the two LCCs were quicker to seize the opportunities made possible by the liberalisation of the Singapore-Malaysia market in 2008. AirAsia currently has 13 daily flights on the route, making it the Malaysian carrier's largest international route and third largest route overall.

Tiger has a more modest four daily flights on the route, which still makes it the carrier's second largest route after Bangkok. Tiger was until recently entirely a point-to-point carrier, which partly explains its lower capacity than AirAsia and Jetstar on the Singapore-Kuala Lumpur route.

But Tiger introduced in Jan-2013 a connection product which should result in at least a small portion of its Kuala Lumpur passengers connecting at Changi. Tiger's Kuala Lumpur-Singapore flight is also part of a connecting product launched in late 2012 by Scoot. All Singapore-based LCCs are now more actively promoting connections in partnership with Changi as they see more transit traffic as unlocking a new phase of growth in the relatively mature short-haul LCC market from Singapore.

Singapore-Kuala Lumpur is now the largest international LCC route in the world

The new increased focus on connections should be sufficient for LCCs to stay in the Singapore-Kuala Lumpur market in the event the planned HSR line opens. But frequencies will have to be cut significantly, likely more significantly than full-service carrier frequencies, and Singapore-Kuala Lumpur will certainly lose its current status as the largest LCC route in the world.

In terms of total LCC capacity, the 178 weekly flights in each direction and 32,040 weekly one-way seats make Kuala Lumpur International-Singapore Changi the largest LCC route in the world. On a system-wide capacity basis (including domestic routes), Kuala Lumpur-Singapore is the world's seventh largest LCC route.

Three other Singapore routes also make the top 10 list of LCC international route, which illustrates Singapore's rapid rise as a LCC hub. LCCs now account for 30% of seat capacity at Changi, compared to virtually zero a decade ago, and over 50% on routes within Southeast Asia.

Top 10 international LCC routes based on weekly return capacity (seats): 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

Airport rail stops would lead to even bigger impact

The planned HSR rail line between Singapore and Kuala Lumpur would likely have a significant impact on the connecting traffic in the market unless the rail line includes airport stops. In that event, passengers originating in Singapore and flying AirAsia, AirAsia X or MAS - as well as passengers originating in Kuala Lumpur and flying with SIA, SilkAir, Tiger, Scoot or Jetstar Asia - could more easily hop on the train than take a connecting flight. With a direct rail option for the connecting traffic, the Singapore-Kuala Lumpur route could evaporate entirely.

A rail stop at KLIA would be more conceivable as KLIA, which is located about 70km southwest of Kuala Lumpur, is on the way into downtown Kuala Lumpur from Singapore. KLIA is also already connected by a fast train to Kuala Lumpur's central railway station. Changi on the other hand is located in the far eastern corner of Singapore and therefore an extension would be required to link it with the new Singapore-Malaysia HSR line. Changi would more likely be connected by subway to the Singapore-Malaysia HSR line given its out of the way location but that could give KLIA an advantage if KLIA gets an HSR stop.

Singapore would likely be reluctant to agree to include a KLIA stop on the HSR line even if the line comes close to the airport. Kuala Lumpur International, which is managed by Malaysia Airports, and Singapore Changi are fierce competitors and rivals. The two hubs compete for new carriers and new routes. In many markets, the two hubs compete for intercontinental passengers transiting in Southeast Asia.

Most significantly, the two airports also compete intensely for Singapore-originating and Malaysia-originating traffic. HSR airport stops, particularly for KLIA, would significantly increase this competition.

The HSR agreement represents a breakthrough given the rocky relationship between the two countries since Singapore broke away from Malaysia in 1965. SIA and MAS were also one carrier until the two split from the original Malaysia-Singapore Airlines in 1972. The fact SIA has grown to become a larger and more successful airline, with Changi growing to become a larger airport than KLIA, is a sore point for Malaysia.

Given the often rocky relationship between the neighbouring countries, the HSR project could end up being delayed or cancelled if there are changes in the political situation. Such a change could even occur later in 2013, after national elections in Malaysia, in the event that Prime Minister Najib Razak, who forged the historic HSR agreement with Singapore Prime Minister Lee Hsien Loong, is not re-elected.

Singapore-Kuala Lumpur HSR line would help ease airport congestion

The HSR line is logical as it would help alleviate air congestion and have a positive environmental impact. Changi has become increasingly congested in recent years, driven by the rapid rise in short-haul budget traffic. The huge increase in the number of flights between Kuala Lumpur and Singapore is partially responsible for the congestion at Changi's runways and in the airspace between the two cities.

See related article: Changi's decision to close budget terminal could backfire as need for third runway grows

Currently there is a flight taking off from Changi for Kuala Lumpur an average of every 20 minutes between the hours of 06:00 and 22.00. HSR would reduce the number of flights significantly, freeing up runway and terminal space as well as airspace for other flights.

Takeoff queue times have particularly increased at Changi, leading to long waits during peak hours. LCCs such as AirAsia have had to increase block and turnaround times to accommodate the longer taxi times, and some carriers seeking to expand at Singapore have been unable to secure additional peak hour slots. While Singapore is now working on a plan to alleviate congestion, with a focus initially on improved airspace management rather than a third runway, a reduction in flights to Kuala Lumpur would help alleviate the situation.

KLIA is now the second largest destination for Changi based on seat capacity and the largest destination based on frequencies. The Kuala Lumpur market (including both KLIA and Subang) now accounts for 11% of all frequencies at Changi and 8% of all seats.

Singapore Changi Airport top 10 destinations based on capacity (weekly seats): 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

The situation at KLIA is less dire as it is not quite as busy as Changi and Kuala Lumpur has the option of opening up more flights at Subang to alleviate congestion. But Malaysia is already talking about constructing a third runway at KLIA to get ahead of the growth curve. The opening of HSR could significantly slow down KLIA's expected growth during the next decade, making a third runway perhaps unnecessary for the time being.

Singapore is KLIA's largest destination by a wide margin. Flights to Changi currently account for 10% of total frequencies and 9% of total seats at KLIA, according to CAPA and Innovata data.

Kuala Lumpur International Airport top 10 destinations based on capacity (weekly seats): 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

For Singapore, Kuala Lumpur is the only very large route that can potentially be significantly reduced as a result of HSR to free up infrastructure. Most of Singapore's other major short-haul routes such as Jakarta involves large water crossings. Jakarta is currently the biggest route from Singapore, only marginally head of Kuala Lumpur in terms of seat capacity, and is the second largest international route in the world after Hong Kong-Taipei.

The only other conceivable routes from Singapore that can be impacted from HSR would be other destinations in western Malaysia such as Penang. Penang is a much smaller route although still significantly sized with about 10,700 weekly one-way seats and 66 weekly frequencies (all narrowbodies), making it Changi's 10th largest route based on frequencies.

Penang is further away, about 600km, making it a potential HSR journey of less than three hours, compared to about an eight hour drive or a flight of just over one hour. But the investment would be more significant, require for the most part a separate HSR line up the west coast of peninsular Malaysia and potentially difficult to recoup given the smaller volume of traffic compared to Singapore-Kuala Lumpur.

The other six routes between Singapore and western Malaysia are much smaller, consisting of at most two daily frequencies. Three are to offshore islands which are otherwise only linked by ferry, making them not practical for HSR. Two of these islands and all of the other three markets are also only served with turboprop aircraft. Destinations in east Malaysia, such as Kuching and Kota Kinabalu, are much bigger markets from Singapore but involve long overwater crossings.

HSR construction could potentially impact Malaysian domestic market

HSR between Singapore and Kuala Lumpur also opens up the possibility of HSR within western or peninsular Malaysia. Of the 10 largest domestic routes in Malaysia, four are not HSR options, including the two largest, as they connect peninsular with eastern Malaysia: Kuala Lumpur to Kota Kinabalu, Kuching, Miri and Sibu.

A fifth route, Miri-Kuching, is also not an option as it is within east Malaysia, where it is very unlikely HSR will be built as that part of the country is much more rural than more developed western Malaysia. (East Malaysia is separated from peninsular or western Malaysia by several hundred kilometres of water.)

Top 10 domestic routes in Malaysia ranked on capacity (seats): 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

Of the five largest routes within western Malaysia, only KLIA-Langkawi (the fourth largest domestic route in Malaysia overall) is not a candidate for HSR as Langkawi is an island about 50km offshore. KLIA-Penang is the third largest domestic route in Malaysia and the largest within western Malaysia. Subang-Penang, which is only operated by Firefly, is the 10th largest domestic route in Malaysia. Penang is also an island but is connected to the mainland by a 13km bridge.

There are currently over 57,000 weekly seats between both Kuala Lumpur airports and Penang. The short distance (about 300km) and flat terrain make the Kuala Lumpur-Penang route a natural choice for HSR. But there would be no opportunity to share resources with the planned Kuala Lumpur-Singapore HSR route.

Kuala Lumpur to two other destinations in western Malaysia, Kota Bahru and Johor Bahru are also among the top 10 domestic routes in Malaysia. Johor Bahru is situated directly across from Singapore and therefore could be easily connected on the Singapore-Kuala Lumpur HSR line. Kota Bahru is located in the northeast coast of peninsular Malaysia and would therefore require an entirely separate line which would be less likely than a Kuala Lumpur-Penang HSR line as the west coast of peninsular Malaysia is more developed.

AirAsia and the MAS groups have a duopoly on all domestic trunk routes in Malaysia, with Firefly also serving most destinations in peninsular Malaysia (including Kota Bahru, Johor Bahru and Penang) from Kuala Lumpur Subang. Malindo, a new low-cost joint venture carrier involving Indonesia's Lion Air, will also likely serve some of the main domestic routes within western Malaysia after launching services in mid-2013.

Currently AirAsia has a leading 52% share of capacity in the Malaysian domestic market while MAS has a 40% share and Firefly has a 7% share. Small independent regional carrier Berjaya Air, which mainly serves the offshore western Malaysia islands of Tioman and Redang, accounts for the remaining less than 2% of capacity.

Malaysia domestic market share (% of seats) by carrier: 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

HSR impact in Southeast Asia will likely be relatively small, assuming it even happens

HSR could potentially significantly reduce demand on Malaysia's domestic market, which is the 17th largest domestic market in the world based on current capacity data and the third largest in Southeast Asia after Indonesia and the Philippines. An HSR line from KLIA to other cities in western Malaysia could even potentially make commercial services at several smaller Malaysian airports unnecessary.

But the impact is likely not as extensive as South Korea and Taiwan as a large portion of Malaysia's domestic market involves routes to islands that cannot be linked with rail (particularly peninsular Malaysia to east Malaysia, which is part of the island of Borneo). In South Korea, the domestic market virtually evaporated with exception of flights for Jeju island. Most of the remaining domestic market in Taiwan also consists of very small routes to tiny offshore islands.

The opening and rapid expansion of HSR has had an impact in mainland China in recent years but as the Chinese market is much bigger domestic carriers have adjusted by redeploying capacity to other routes. As a result the impact on growth in the overall mainland Chinese domestic market has been negligible.

See related article: Chinese airlines have high-speed rail as a friend and foe despite early dire survival questions

In Malaysia, carriers could also ultimately redeploy capacity to unaffected routes, some of which could see a boost in traffic driven by HSR - particularly if an HSR stop is opened at KLIA. A similar overall positive outcome will likely occur in Singapore given the very small number of routes from Singapore that can potentially be served by HSR.

Singapore-Bangkok, which is the fourth largest route from Singapore, could be an option as an extension of the Singapore-Kuala Lumpur line. But Bangkok is much further away - about 1,400km from Singapore and 1,200km from Kuala Lumpur, making such a line very expensive. Involving a third government, Thailand, would also be challenging, although China has already been talking to Thailand about an HSR line from Kunming in southwest China to Bangkok.

China also has talked up the prospect of building an HSR line all the way from Kunming to Singapore via Bangkok, a distance of nearly 3,000km. With Malaysia and Singapore now unveiling plans to start developing and building a line from Singapore to Kuala Lumpur the ultimate Singapore-Kunming line has come one step closer.

But the geography of Southeast Asia means carriers in the region generally have little to worry about potential competition from HSR. Politics and the high cost of such projects also make any kind of large HSR network in Southeast Asia unlikely at least for the next decade.

Even the Singapore-Malaysia HSR project is far from a certainty. With the opening still at least seven years away, there is no reason to adjust the outlook of carriers. An HSR line between Singapore and Kuala Lumpur, if built, could ultimately have a positive impact, making Singapore and Malaysia's main international airports more accessible while freeing up infrastructure for other routes.