Cablegate: Singapore-Kuala Lumpur Air Route Excluded From Competition

VZCZCXRO3114
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #1825 2741034
ZNR UUUUU ZZH
R 011034Z OCT 07
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 4137
INFO RUCPDOC/USDOC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RUEHKL/AMEMBASSY KUALA LUMPUR 4648
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SINGAPORE 001825

SIPDIS

STATE PASS USTR FOR AUSTR WEISEL AND DAUSTR DBELL
COMMERCE FOR JBAKER

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: EIAR ETRD ECON EINV SN MY

SUBJECT: Singapore-Kuala Lumpur Air Route Excluded From Competition
Act

REF: SINGAPORE 469

NOT FOR INTERNET DISTRIBUTION

1. (U) The Ministry of Trade and Industry (MTI) issued an order on
September 25, 2007 excluding the 1982 Air Shuttle Service Operation
Agreement (ASA) between Singapore Airlines and Malaysia Airlines
from the Competition Act. MTI cited in its decision a section of
the Competition Act that states certain anti-competitive agreements
may be excluded "in order to avoid a conflict between the provisions
of (the Act) and an international obligation of Singapore."

2. (U) Section 34 of the Competition Act aims to prohibit, inter
alia, price fixing and market limitations. However, MTI's exclusion
allows the two airlines to continue to coordinate scheduling on the
Singapore-Kuala Lumpur route without fear of contravening the Act.
(Note: The ASA created a duopoly on that route. End note.) In
explaining its decision, MTI also noted that the ASA only allows for
limited air traffic between Singapore and Kuala Lumpur. MTI claimed
that should Singapore Airlines and Malaysia Airlines not be able to
coordinate scheduling, the number of flights between the two cities
could be reduced, harming customers.

3. (SBU) Comment: Despite professing a commitment to liberalized
air markets, this decision marks the third instance the GOS has
exempted a potentially non-competitive agreement from the
Competition Act (reftel). That Singapore's national carrier stood
to lose its share of a lucrative duopoly is probably relevant to
MTI's decision. The decision will likely merely postpone the
inevitable, as an ASEAN agreement will allow unlimited travel
between the organization's capitals by 2009. However, the GOS owns
shares in at least three regional and low cost carriers, ensuring a
continued stake in the action even as Singapore Airlines
(presumably) loses business on the Singapore-Kuala Lumpur route.
End comment.

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