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IMPACTS OF LOW COST CARRIERS ON SINGAPORE TEO CHOON HON (B.Soc.Sci. (Hons), NUS) A THESIS SUBMITTED FOR THE DEGREE OF MASTER OF SOCIAL SCIENCES DEPARTMENT OF GEOGRAPHY NATIONAL UNIVERSITY OF SINGAPORE 2008 Impacts of Low Cost Carriers on Singapore ACKNOWLEDGEMENTS The decision to pursue this Masters degree was one that is fraught with many difficult choices to make. A lot of sacrifices were made but I am glad to have embarked on this journey and benefited from it. There were many challenges along the way but there were as many rewards too. I hoped that the experiences gained from writing this thesis will prepare me well for my “next lap in life” as I pursue a career in the education sector. I would like to express my gratitude to the following people, without whom, this thesis would not have been possible: Associate Professor K. Raguraman for your kind supervision, critical comments and proof reading. Thank you for your patience, encouragement and faith in me. It has been a great pleasure to be your student in the various modules that you have taught and as your supervisee for this thesis! My interest in transport geography grew because of your inspiration and I look forward to learning more from you in the future when I ponder over transport issues! All faculty members from the Department of Geography at NUS who have taught me before – Professors Brenda Yeo, Henry Yeung; Associate Professors Chang Tou Chuang, David Higgitt, Lu Xi Xi, Matthias Roth, Wong Poh Poh; and Dr Wang Yi-Chen. Thank you for your concerns, advice and constructive comments at one point or another during my academic sojourn in NUS! In particular, I would like to give special thanks to Associate Professor Wong Poh Poh whom I have learnt a lot from his undergraduate classes as well as his supervision for my Bachelor’s thesis. Ex-faculty members from the Department of Geography, NUS who have taught me before as well as faculty members whom I have worked with at one point or another throughout my graduate days – Associate Professor Peggy Teo; Drs Park Bae Gyoon (with Seoul National University), Paul Barter (with Lee Kuan Yew School of Public Policy) and Noorashikin Abdul Rahman. Thank you for your guidance and concern. Associate Professor Teofilo Daquila from the Southeast Asia Studies Programme and Dr Asato Saito from the Department of Japanese Studies, NUS. Both of you have been instrumental in shaping my undergraduate and graduate studies in NUS and I thank the both of you for your useful comments and suggestions when I was your student then. Associate Professor Becky Loo from the Department of Geography at the University of Hong Kong (HKU) for your constructive comments both during my undergraduate exchange at HKU as well as for this thesis. i Impacts of Low Cost Carriers on Singapore The administrative staff of the Department of Geography, NUS – Ms Wong Lai Wa, Ms Pauline Lee, Mrs Chong Mui Gek, Mr Yong Sock Ming, Mr Tow Fui and Mrs Irene Chee. Thanks for your excellent administrative support and help. My fellow current and former graduate students and friends – Songguang, Daryl, Seng Lee, Desmond, Andie, Monica, Harng Luh, Brian, November and Chih Yuan. Thanks for your support, encouragement and laughter! The Geography Honours Class of 2005/2006 for the fantastic memories! The NUS Geographical Society 37th and 38th Executive Committee for the fun, laughter and camaraderie when I was the Publicity Secretary and Publications Director respectively. All my ex-teachers, especially Ms Kalyani Kausikan for your faith and trust in me! My students from both GE2018 The Biophysical Environment of Singapore and GEK2001/SSA2202 Changing Landscapes of Singapore. I had the great pleasure of teaching all of you in my capacity as graduate tutor. All my anonymous survey respondents for taking the time to complete the survey. All my interview respondents for taking time off your busy schedule to fill me up with your expertise in the field of air transport. Special thanks to Mr. James Fong and Mr. Daniel Loo from the Civil Aviation Authority of Singapore for supplying me with useful data for my analysis. My two anonymous markers for your time in reading this thesis and giving your critical comments and insights. My parents for your unfailing love, care and concern showered upon me! ii Impacts of Low Cost Carriers on Singapore TABLE OF CONTENTS Page Acknowledgements i Table of contents iii Summary vi List of figures vii List of plates viii List of tables ix CHAPTER ONE: INTRODUCTION AND BACKGROUND 1 1.1 Preamble 1 1.2 Low cost carriers and their development 4 1.2.1 Low cost carrier development in North America 5 1.2.2 Low cost carrier development in Europe 5 1.2.3 Low cost carrier development in Far East and Southeast Asia 6 1.3 Air transport, low cost carriers and Geography: The relationship 8 1.4 Aims, objectives and significance of study 10 1.5 Outline of thesis 12 CHAPTER TWO: LITERATURE REVIEW AND STUDY FRAMEWORK 14 2.1 Introduction 14 2.2 Academic writing on low cost carriers 14 2.2.1 Research on low cost carriers – understanding their key economics and operations 14 2.2.2 Research on low cost carriers – understanding their relationship with the external environment they are operating in 15 2.2.3 Research on low cost carriers – the need to understand beyond the “western model” 16 2.3 Academic writing on air hubs, their Geography, and their relationship with low cost carriers 17 2.4 Understanding the regulation in the air transport sector and their impacts on the development of low cost carriers 20 2.5 Chapter summary 26 iii Impacts of Low Cost Carriers on Singapore CHAPTER THREE: THE DEVELOPMENT OF LOW COST CARRIERS IN ASIA 27 3.1 Introduction 27 3.2 Economic Landscape of Far East and Southeast Asia 28 3.3 Development of low cost carriers in Far East and Southeast Asia 29 3.4 Background information on the individual low cost carriers in Far East and Southeast Asia 35 3.4.1 Indonesia 35 3.4.2 Hong Kong S.A.R. 36 3.4.3 Macau S.A.R. 38 3.4.4 Malaysia 39 3.4.5 Philippines 40 3.4.6 Thailand 41 3.4.7 Singapore 43 3.4.8 Section summary 45 3.5 Background information on selected airports in the region and their relationship with the low cost carriers 46 3.5.1 Soekarno-Hatta International Airport, Jakarta, Indonesia 46 3.5.2 Hong Kong International Airport, Hong Kong S.A.R. 48 3.5.3 Macau International Airport, Macau S.A.R. 50 3.5.4 Kuala Lumpur International Airport, Malaysia 51 3.5.5 Diosdadol Macapagal International Airport, Philippines 53 3.5.6 Suvarnabhumi Airport, Bangkok, Thailand; and Don Mueang Airport, Bangkok, Thailand 54 3.5.7 Changi Airport, Singapore 56 3.5.8 Fifth freedom rights and the growth of low cost carriers 58 3.6 Chapter summary 59 CHAPTER FOUR: METHODOLOGY 61 4.1 Introduction 61 4.2 Designing a research plan and sourcing for data 62 4.3 Mapping airport networks 64 4.4 Flight frequency, schedule and volume 69 4.5 Physical examination of the airports 70 4.6 Large-scale quantitative and qualitative survey 70 4.7 In-depth interviews 72 4.8 A study framework for analysing the impacts and sustainability of the low cost carrier industry 74 4.9 Chapter summary 76 CHAPTER FIVE: FINDINGS AND ANALYSIS 77 5.1 Introduction 77 5.2 Network analysis of LCCs serving Singapore 77 5.3 Overview of the spatial networks of LCCs 78 5.3.1 Detailed analysis of the spatial networks of LCCs 83 iv Impacts of Low Cost Carriers on Singapore 5.4 Analysis of flight frequencies, volumes and schedules 89 5.5 Physical examination of the airports in the region and qualitative interviews 101 5.6 Chapter summary 110 CHAPTER SIX: EVALUATION OF BUSINESS MODEL FOR LOW COST CARRIERS ~ ANALYSIS OF THE SINGAPORE-BANGKOK SECTOR 112 6.1 Introduction 112 6.2 Background on the business models of the low cost carriers 112 6.2.1 Air Asia (Thai Air Asia) 113 6.2.2 Valuair 113 6.2.3 Tiger Airways 114 6.2.4 Jetstar Asia 114 6.3 Methodology 115 6.4 Results and analysis 116 6.4.1 Responses 116 6.4.2 Categorisations and business models 118 6.4.3 The importance of selected frills 119 6.4.4 Reality strikes: the need to operate cost-effectively 121 6.5 The most preferred business model for LCCs 123 6.6 Travel experience and business model 125 6.7 Chapter summary 129 CHAPTER SEVEN: SUMMARY AND CONCLUSION 131 7.1 Summary 131 7.2 Implications of study and future research 133 7.3 Concluding comments 136 LIST OF REFERENCES 138 APPENDIX 147 v Impacts of Low Cost Carriers on Singapore SUMMARY The Singapore government has responded quite positively to the development of low cost carriers (LCCs) in recent years by developing the airport infrastructure and adopting liberal traffic rights policies. It is anticipating a healthy growth of LCCs here; and there is an expectation that the potential benefits brought about by them will be significant. This study provides an analysis of the markets and networks of the LCCs in Singapore and the impacts they make on the local air transport landscape. This is done with comparative studies of other airports in the region, particularly those in Southeast Asia which also cater to the LCCs.