Malaysia says to open up Singapore-KL air route

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KUALA LUMPUR, Oct 25 (Reuters) Malaysia has decided to open up the Singapore-Kuala Lumpur air route to competition early, Prime Minister Abdullah Ahmad Badawi said today.

''We have made a decision,'' he said when asked about reports that cabinet had decided in-principle to allow low-cost carrier AirAsia Bhd to fly from Kuala Lumpur to Singapore.

Pressed if this meant the Singapore-Kuala Lumpur route was being opened up, he told reporters: ''Yes.'' The lucrative route is currently shared between national flag carriers Malaysian Airline System Bhd and Singapore Airlines . The duopoly was not due to end until January 2009 when a regional open-skies pact is to take effect.

But Malaysia wants to open up the route earlier to AirAsia, the linchpin of its strategy to develop a regional hub for budget carriers at Kuala Lumpur, which currently lags behind Singapore and Bangkok as a base for full-service airlines.

Singapore has also voiced a willingness to open up the route early, on a reciprocal basis with its own low-cost airline, Tiger Airways, a unit of Singapore Airlines, media reports have said.

Malaysia's cabinet decided in-principle yesterday to allow AirAsia to fly from Kuala Lumpur and three other Malaysian airports to Singapore, but only for two flights per day on each route, a source familiar with the decision told Reuters.

The flights could start as early as January, depending on how quickly the two nations agreed final details, the source said.

But Malaysia's Edge Financial Daily said today the new flights would run during off-peak hours, to soften the blow for state-controlled carrier Malaysia Airlines.

The prime minister would not give further details on the cabinet decision today. Malaysia Airlines, which is in the midst of a business turnaround, had no immediate comment.

The trade union covering Malaysia Airlines warned the government today that ''open skies'' could weaken labour standards and urged it to consider such a move carefully.

AirAsia shares were up 2.5 per cent after the prime minister's confirmation of the decision at 2.04 ringgit each.

Malaysia Airlines stock also held their ground, up 0.4 per cent at 5 ringgit, helped by the limited nature of the competition.

''We take comfort in the fact that MAS is operationally already ahead of schedule in its turnaround and thus should not be too badly affected,'' Aseambankers said in a note.

Shares in Malaysia Airports Holdings , which runs both low-cost and international airports in Kula Lumpur, were up 0.7 per cent, a touch firmer than the wider market. Singapore Airlines shares were up 1 per cent.

REUTERS SKB RN1042

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