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Kuala Lumpur-Singapore air route: HSR no longer a threat

One of the first decisions of Malaysia’s new government was to scrap, or at least postpone, a high speed rail (HSR) project with Singapore. This will benefit the five airline groups serving the world’s third largest international air route.

The route is currently served by multiple brands under the Malaysia Airlines Group and Singapore Airlines Group, as well as AirAsia, Jetstar Asia and Lion Group’s Malindo Air.

The HSR link, which had been slated to open in the middle of next decade, would likely have led to at least a 50% drop in Kuala Lumpur-Singapore air traffic. This is the equivalent of approximately 4% of total traffic at both Kuala Lumpur International Airport (KLIA) and Singapore Changi – more than 2 million annual passengers. 

The reduction in aircraft movements would have been even higher because more than 90% of Kuala Lumpur-Singapore flights are operated by narrowbody aircraft. With an HSR line competing for passengers in their largest market no longer on the cards, Changi and KLIA can expect higher growth rates, which will help support their major infrastructure investments. For Singapore the decision to invest in a third runway and fifth terminal is now looking even smarter.

Summary:

  • Malaysia’s new government, which took office in May-2018, has decided to scrap (or at least postpone) a high speed rail project with Singapore.
  • Kuala Lumpur-Singapore is the world’s third largest international air route and has grown rapidly over the past decade.
  • LCCs account for 43% of Kuala Lumpur-Singapore seat capacity but carry more than half of the local traffic.
  • Almost all local traffic would no longer fly if an HSR was built, but the Kuala Lumpur-Singapore route would continue to attract relatively significant transit traffic. 

Malaysia and Singapore were planning to open an HSR link in 2026

Malaysia and Singapore forged a landmark agreement in Feb-2013 to build a high speed rail (HSR) connecting Kuala Lumpur with Singapore. In Dec-2016 the two countries finalised a deal to complete the HSR link by 2026, reducing travel time between the two cities to only 90 minutes. 

Malaysia’s new government decided in early Jun-2018 to pull its support for the project as part of an effort to reduce debt. Initially Prime Minister Mahathir bin Mohamad stated that the project would be scrapped, but more recently he has stated that it has been delayed, and could be reconsidered in the future.

The construction of an HSR linking Kuala Lumpur and Singapore has therefore at the very least been shelved, benefitting the five airline groups that serve the huge Kuala Lumpur-Singapore market. Kuala Lumpur-Singapore is the world’s second largest international city pair (after Hong Kong-Taipei), based on current seat capacity.

Kuala Lumpur and Singapore are only 350km apart by road, and are already connected by highway. But the lack of an HSR option and the opening of the route to budget airlines in 2008 has led to a huge increase in Kuala Lumpur-Singapore flights over the past decade. 

LCCs would have been most impacted by a Kuala Lumpur-Singapore HSR

Singapore Airlines (SIA) and Malaysia Airlines had a duopoly on the Singapore-Kuala Lumpur route, operating a highly profitable joint shuttle service, until the Malaysia-Singapore market was liberalised in 2008. 

Although flying is only marginally faster (on a door to door basis) than driving, budget airlines have succeeded in stimulating demand by offering fares that are often only slightly more expensive than bus fares. The trip from downtown Singapore to downtown Kuala Lumpur takes approximately five hours by bus, assuming no congestion at the border. It takes approximately seven hours using the current slow-speed rail link which runs from Woodlands in northern Singapore to downtown Kuala Lumpur. 

Full service airline fares also naturally plummeted as LCCs entered and expanded rapidly. Full service airlines ceded more than half of the local market to LCCs and now rely heavily on transit traffic to fill their Kuala Lumpur-Singapore flights. 

The opening of an HSR link between Singapore and Kuala Lumpur would have had a big impact on all the airlines serving the route, particularly the LCCs, as the LCCs rely more on local traffic. A majority of local traffic would have likely opted for the HSR option as it would have provided a much faster door-to-door option than flying (even with the planned HSR terminus in Singapore located at Jurong Lake in the west, rather than downtown).

The opening of HSR lines elsewhere in Asia have heavily undermined local air traffic. For example, between Seoul and Busan in South Korea and between Taipei and Kaohsiung in Taiwan. Several city pairs in mainland China have similarly been impacted.

KLIA and Changi would have been impacted by the HSR opening 

There would still be a relatively significant number of flights between Singapore and Kuala Lumpur if an HSR line was opened, as the route attracts a high volume of connecting traffic.

The planned HSR line did not include stops at either Changi or KLIA, a significant design flaw. Therefore, transit passengers would likely continue to fly rather than take the train for the Singapore-Kuala Lumpur leg. An HSR stop at both airports would have also intensified the competition between the two hubs as their catchment areas would have essentially expanded and overlapped. 

However, even without the airport stops, the opening of HSR would have had a huge impact on traffic at Singapore Changi and Kuala Lumpur International Airport (KLIA) – almost all local passengers who now fly when travelling between the two cities would have shifted to rail.

Kuala Lumpur is the largest destination from Changi, accounting for 7% of total seat capacity in Singapore. Changi reported 7% growth in Singapore-Kuala Lumpur passenger traffic for 2017, outpacing an overall 6% growth rate. 

Kuala Lumpur overtook Jakarta in 2017 to become the top city link from Changi based on passenger numbers. This includes passengers flying from Changi to Kuala Lumpur's alternative airport, Subang.

Singapore Changi-Jakarta Soekarno Hatta remains a slightly bigger route than Changi-KLIA. Changi-Jakarta Soekarno Hatta is the second biggest international route in the world (after Hong Kong-Taipei Taoyuan), while Changi-KLIA is the third largest but Singapore-Kuala Lumpur is the second biggest international city pair.

Top 5 international routes based on weekly seat capacity: 25-Jun-2018 to 1-Jul-2018

Rank Origin Destination Weekly seats
1 Hong Kong International Airport Taiwan Taoyuan International Airport 159,475
2 Singapore Changi Airport Jakarta Soekarno-Hatta International Airport 106,238
3 Singapore Changi Airport Kuala Lumpur International Airport 104,508
4 Hong Kong International Airport Bangkok Suvarnabhumi International Airport 91,301
5 Hong Kong International Airport Shanghai Pudong International Airport 89,757

Singapore is also the largest destination from KLIA, accounting for 7% of total seat capacity. Singapore currently accounts for 10% of KLIA’s international seat capacity, according to CAPA and OAG Data. 

Kuala Lumpur-Singapore market is served by 50 daily flights 

There is an average of 43 daily passenger flights between Changi and KLIA and seven daily flights between Changi and Subang.

All the Changi-KLIA flights are operated with jets (mostly narrowbody aircraft). The much smaller Changi-Subang route is operated entirely with ATR 72 turboprops. 

Malaysia Airlines' regional subsidiary Firefly is the only competitor on the Changi-Subang route. The much larger Changi-KLIA route is served by three airlines from Malaysia, four airlines from Singapore and three fifth freedom competitors.

AirAsia and the SIA Group are the market leaders 

AirAsia is the largest single airline on the Singapore Changi-KLIA route, operating 10 to 11 daily flights and accounting for approximately 25% of total seat capacity. Malaysia Airlines has eight to 10 daily flights and currently accounts for approximately 20% of total seat capacity. Malindo is the third Malaysian competitor, operating four daily flights and accounting for 9% of capacity.

Singapore Airlines is the largest competitor as a group, accounting for 31% of seat capacity when all three of its airline subsidiaries are included. Its full service regional subsidiary SilkAir operates seven to eight daily flights and accounts for approximately 15% of total seat capacity. Singapore Airlines has 17 weekly flights (three on weekdays and one on weekends) and accounts for another 9% of seat capacity as it operates widebody aircraft. Scoot has three daily flights and accounts for a 7% share of total seat capacity.

The Singapore-based LCC Jetstar Asia has four to five daily flights and accounts for 11% of seat capacity.

Air Mauritius, Ethiopian Airlines and Uzbekistan Airways account for the remaining 4% of seat capacity in the Singapore Changi-KLIA market, according to CAPA and OAG data. As part of a second leg of long haul routes that originate in their home markets, Ethiopian has five weekly return flights and Air Mauritius has three weekly return flights. Uzbekistan Airways has only one weekly Singapore-Kuala Lumpur return flight; it has two weekly frequencies to Singapore and Kuala Lumpur but operates a triangle routing with one flight in each direction.

LCC penetration rate on the Kuala Lumpur-Singapore route is more than 40%

Low cost airlines overall account for 43% of Singapore Changi-KLIA seat capacity, dominated by AirAsia with a nearly 60% LCC share. However, LCCs have a larger share of local traffic (over 50%) because their portion of transit traffic is much smaller than those of the full service competitors. 

AirAsia, Jetstar and Scoot all now have transit products, and the Kuala Lumpur-Singapore route generally attracts more transit traffic than their network averages. However, the three LCCs proportionally carry more local passengers than Malindo, Malaysia Airlines and SIA/SilkAir.

LCC capacity on the Singapore-Kuala Lumpur route has declined over the past five years, with reductions from all three competitors.

LCC capacity peaked at over 30,000 weekly one-way seats in 2013. There are currently approximately 22,000 weekly one-way LCC seats between the two cities. Capacity fluctuates somewhat depending on the time of year.

While LCC capacity is generally lower than it was a few years ago, the market was oversupplied in 2013 and 2014. The market is now more rational, and is growing again.

Singapore to Kuala Lumpur weekly one-way LCC seat capacity by airline: Sep-2011 to Sep-2018

Full service airlines continue to have a large presence 

FSC capacity on the Singapore-KLIA route has continued to increase over the past few years and is currently approximately 30,000 weekly one-way seats. When Firefly’s Singapore-Subang service is included, total FSC capacity in the Singapore-Kuala Lumpur market is over 33,000 weekly one-way seats. 

Singapore to Kuala Lumpur (both airports) weekly one-way FSC seat capacity by airline: Sep-2011 to Sep-2018

Of the FSCs, Firefly benefits the most from the HSR line being scrapped or postponed, since the airline relies entirely on the local market.

HSR would likely have made the Singapore-Subang route unviable. Without HSR competition, Firefly will likely increase flights to Singapore. 

Malindo, Malaysia Airlines and SIA would likely have been able to maintain flights on the Singapore-KLIA route. However, HSR could well have led to significant capacity reductions, since the route would have consisted almost entirely of transit traffic.

Singapore's Seletar Airport to benefit as HSR is scrapped or postponed

Firefly is being forced to move from Changi to Singapore’s Seletar Airport in 2019, when a new terminal opens at Seletar and Changi shuts out all turboprops.

While Firefly would prefer to stay at Changi, the move to Seletar could be a blessing in disguise as Firefly will be able to add frequencies if there is demand. Firefly has not been able to add flights at Changi in recent years, although it has been allowed to maintain its existing flights. 

Malindo is also planning to launch ATR 72 flights between Seletar and Subang in 2019. Malindo has been keen to launch services from Subang to Changi for a few years, but has not been able because Changi has not been allowing any additional turboprop flights. 

Without any HSR competition, the Seletar-Subang route has the potential of attracting a large volume of passengers. With HSR competition, Seletar would have struggled to fill its new terminal.

The core Changi-KLIA route also now has the potential for further growth – a stark contrast to the scenario of contracting under the HSR plan.

Malaysia’s decision not to proceed with the HSR project is a major development in an important market. Kuala Lumpur-Singapore will remain one of the world’s largest aviation routes well into the future. 

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