In a surprise development late last week, Malaysia and Singapore agreed to pry open the long-protected air route between the capitals of the two neighbours to limited service by budget airlines.
The limited liberalisation came slightly earlier than expected as the two governments recently signed a pact to exclude the sector from the Competition Act despite the obvious anti-competitive nature of the move. But the opening of the sector will have to take place anyway by next year as part of the Asean open skies pact, as mentioned by Sophie's World earlier.
But will it result in an overnight plunge in the airfare for the sector, which has been monopolised by Singapore Airlines and Malaysia Airlines for the last three decades?
The liberalisation, albeit limited, will definitely put downward pressure on airfare for the Kuala Lumpur-Singapore route.
It won't be difficult for AirAsia of Malaysia and Tiger Airways of Singapore -- the two budget airlines that will start flying the KL-Singapore route in January next year -- to undercut the two national airlines. The two national airlines had fixed the fare for shuttle flights at more than S$300 for a round-trip ticket.
But can the two no-frills players charge airfare that will be substantially cheaper than trains (er, don't bother unless you want to travel at a snail pace) and buses (ranging from S$50 to S$100 for a return ticket)?
Yes, but the cheap airfare may be set aside for a few seats in each flight. What's more important is the fall in the average airfare for the sector, not the headline-grabbing lowest fare for a few early birds.