Would Local Airlines Be In Danger From The High-Speed Rail Between Singapore And Malaysia?

Singapore’s Prime Minister Mr. Lee Hsien Loong is in Putrajaya this week to meet his Malaysian counterpart Najib Razak for the annual Malaysia-Singapore Leaders’ Retreat.

It seems that the plan for the long awaited high-speed rail between the two countries is progressing as planned. The whole project is slated to be ready by 2020, the same year at which the Malaysian Government has targeted to elevate Malaysia to “developed nation” status. The projected is expected to cost more than S$15 billion and would cut the travelling time between Singapore and Kuala Lumpur to 90 minutes.

90 minutes: A really attractive travelling time

If successful, what does this mean for Singapore’s airline carriers? Currently the main transportation options between the two cities are:

1) A bus ride that might take about 5 to 6 hours.

2) A car ride that normally requires 4 hours on average.

3) A flight that takes an hour to reach Sepang Airport which is another hour’s drive from Kuala Lumpur.

So once the high speed rail is ready, it will be the fastest mode of transport between the two cities.

Looking at the figures, it might be hard for the management of both Singapore Airlines (SGX: C6L) and Tigerair  (SGX: J7X) to get excited about this project.

Why should the airlines be worried?

Although Singapore-Kuala Lumpur’s just one of the many routes the two airlines operates, there is no doubt that it is one of the most important routes for the carriers. To put it into perspective, Tigerair typically operates four to six flights a day between the two cities. Meanwhile, SIA, together with its subsidiary SilkAir, can run more than fifteen flights a day between the two destinations.

The significance of this route can be further emphasized by the fact that Airasia Berhad, the largest low cost carrier in Southeast Asia, had to lobby for many years before it was allowed to operate the Singapore – Kuala Lumpur route.  Previously, the route had been dominated by SIA and Malaysian Airline System Berhad for many years.

On the other hand, here’s why the airlines can rest easy

There’s a strong case to be made for the airlines to be worried about potential impacts to their business stemming from the high-speed rail. But, the counter argument is that the high-speed rail might act as a catalyst for growth in traffic between the two cities, instead of taking away the market share of travelers from the airlines.

Since the commute between Singapore and Kuala Lumpur would become so much more convenient with the advent of the high-speed rail, both cities might just experience even faster growth, resulting in a win-win situation for everyone, including the airlines.

Foolish Summary

If I were running the show at either SIA or Tigerair, I would certainly hope for the second scenario to be played out. But at the same time, I would not be idling for the next six years to find out how the story actually ends. The time to face the challenge ahead is now and those refusing to change in this competitive market might be in for a nasty surprise.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim owns Airasia Berhad.