SIA is attempting a big strategy overhaul, pushing into the budget airlines segment and expanding its regional network.

State-backed Emirates Airline, Etihad Airways and Qatar Airways are stitching deals, while Gulf states race to become regional hubs linking the Asia-Pacific region and Europe.

Asia’s second-biggest airline, which has a market value of $11 billion, said on Thursday net income rose nearly 13 percent to S$379 million ($304 million) for the year to March 31, below an average forecast of S$409.6 million, according to Thomson Reuters StarMine SmartEstimates.

The fourth-quarter profit of S$68.3 million was also below market estimates. Full-year operating profit fell nearly 20 percent, with the airline blaming persistently high fuel prices and the global economic slowdown.

“Yields are likely to remain under pressure amid weak economic sentiment, and revenues will be further diluted if key revenue-generating currencies continue to depreciate against the Singapore dollar,” SIA said in a statement.

SIA said the parent airline company and SilkAir were cutting capacity between April and June due to weak markets.

SIA’s promotional fares on its mainstay long-haul routes have helped it boost traffic, but premium class travel, which makes up about 40 percent of revenue, has been hit by businesses cutting spending on travel.

“They have competitors who have strong financial backing and are also forming alliances, so it’s getting to be a much tougher space,” said Kristy Fong, investment manager at Aberdeen Asset Management, which holds about a 4 percent stake in SIA.

“So the question is whether they can really keep that premium, which is sliding. I don’t think it’s an easy one,” Fong said before SIA announced its results.

Under Chief Executive Goh Choon Phong, who took charge in January 2011, SIA is relying on a multi-brand strategy and stepping up its exposure to the budget airlines segment.

It desperately needs growth: profit fell nearly 70 percent in its previous financial year and margins slumped.

Emirates and Qatar are fiercely challenging the company, controlled by Singaporean state investor Temasek, for the title of top luxury carrier as they invest millions in upgrading lounges and enhancing services.

Singapore’s best known brand also faces stiffer competition from Southeast Asian rivals such as Malaysian Airline System Bhd (MASM.KL: Quote, Profile, Research, Stock Buzz) and Garuda Indonesia (Persero) Tbk PT (GIAA.JK: Quote, Profile, Research, Stock Buzz), which are introducing newer aircraft and adding more connections in an attempt to win back some of their nationals who have previously flown via SIA and Singapore.

FEWER PILOTS

SIA has been cutting costs and said in January it would release all 76 pilots who were employed on fixed-term contracts. These foreign pilots would be let go by the end of June. SIA employs around 2,300 pilots. It did not provide financial details of the cuts.

“SQ is giving its competition a very easy way to get experienced pilots,” said one SIA pilot whose contract was cancelled this year, speaking on condition of anonymity because his contract was confidential.

SIA’s shares, trading at their highest level in 1-1/2 years, have gained more than 6 percent so far this year as analysts upgrade earnings estimates due to lower fuel costs.

The company said forward passenger bookings for the next few months were almost flat compared to the same period last year and the cargo business faced overcapacity.

Over the past year, SIA agreed to sell a 49 percent stake in Virgin Atlantic Airways Ltd, started a new budget airline Scoot, expanded capacity at its regional carrier SilkAir, and is potentially increasing its stake in affiliate Tiger Airways Holdings Ltd (TAHL.SI: Quote, Profile, Research, Stock Buzz).

“Singapore Airlines’ portfolio approach has more to do with its strategic position and the rise of its competitors,” said Hong Kong-based research analyst Qiu Tian from Templeton Global Equity Group, before the results were announced.

Singapore Airlines relies heavily on connecting traffic, rather than purely point-to-point travel, in a market which features many competing hubs.

“This leaves Singapore Airlines more susceptible to the threat from new entrances – the Gulf carriers,” Qiu said.

SIA is doubling its stake in Virgin Australia Holdings Ltd (VAH.AX: Quote, Profile, Research, Stock Buzz) to 19.9 percent. This comes months after struggling Qantas Airways Ltd (QAN.AX: Quote, Profile, Research, Stock Buzz) and Emirates struck a five-year alliance, which includes switching the Qantas’ hub to Dubai from Singapore for European flights.

SIA’s rivals have also made deals in India. Last month, Etihad agreed to buy a 24 percent stake in Jet Airways Ltd (JET.NS: Quote, Profile, Research, Stock Buzz), India’s largest carrier, while AirAsia has joined forces with the Tata group to start a local airline. ($1 = 1.2428 Singapore dollars)

(Additional reporting by Kevin Lim; Editing by Daniel Magnowski and Miral Fahmy)

State-backed Emirates Airline, Etihad Airways and Qatar
Airways are stitching deals, while Gulf states race to become
regional hubs linking the Asia-Pacific region and Europe.

SIA’s promotional fares on its mainstay long-haul routes
have helped it boost traffic, but yields are under pressure.
Premium class travel, which makes up about 40 percent of
revenue, has been hit by cutbacks in corporate budgets.

“They have competitors who have strong financial backing and
are also forming alliances, so it’s getting to be a much tougher
space,” said Kristy Fong, investment manager at Aberdeen Asset
Management, which holds about a 4 percent stake in SIA.

“So the question is whether they can really keep that
premium, which is sliding. I don’t think it’s an easy one.”

Under Chief Executive Goh Choon Phong, who took charge in
January 2011, SIA is relying on a multi-brand strategy and
stepping up its exposure to the budget airlines segment.

With a market value of $11 billion, Asia’s second biggest
airline desperately needs growth. Profit slumped nearly 70
percent in the year to March 2012, while revenue edged up,
highlighting the severe pressure on margins.

Emirates and Qatar are fiercely challenging the company,
controlled by Singaporean state investor Temasek, for the title
of top luxury carrier as they invest millions in upgrading
lounges and enhancing services.

Singapore’s best known brand also faces stiffer competition
from Southeast Asian rivals such as Malaysian Airline System Bhd
and Garuda Indonesia (Persero) Tbk PT, which
are introducing newer aircraft and adding more connections in an
attempt to win back some of their nationals who have previously
flown via SIA and Singapore.

On Thursday, SIA – also known by its code SQ – is expected
to report a 22 percent rise in net profit to S$409.6 million
($330 million) for the year ending March, according to an
average of Thomson Reuters StarMine SmartEstimates.
SmartEstimates places emphasis on timely forecasts by top-rated
analysts.

The airline has been cutting costs and is terminating the
fixed-term contracts of all 76 of its foreign pilots.

“SQ is giving its competition a very easy way to get
experienced pilots,” said one SIA pilot whose contract was
cancelled this year, speaking on condition of anonymity because
his contract was confidential.

Analysts are looking beyond quarterly numbers for strategic
changes. JPMorgan said SIA had net cash of S$3.8 billion as of
December and could potentially announce a special dividend.

Some of that cash will help pay for new aircraft including
the Airbus A350s and additional Boeing 777-300ERs, plus Boeing
737s for its regional carrier Silkair.

Fong said though SIA has been able to manage costs better
than its competitors and had a strong balance sheet, it needed
to come up with a clearer strategy.

Over the past year, SIA agreed to sell a 49 percent stake in
Virgin Atlantic Airways Ltd, started a new budget airline Scoot,
expanded capacity at Silkair, and is potentially increasing its
stake in affiliate Tiger Airways Holdings Ltd.

NEW ALLIANCES?

Still, SIA needs to do much more, some analysts said.

“What could they do better? Maybe, if they could find a way
to get into China more aggressively?” said Andrew Orchard, Hong
Kong-based analyst at brokerage CIMB. “Would they want to do a
bilateral partnership with a Middle Eastern carrier, take out
some capacity that way?”

Orchard said SIA should consider quitting Star Alliance and
joining the rival SkyTeam network as it could potentially work
more closely with Chinese airlines and other partners.

SIA is doubling its stake in Virgin Australia Holdings Ltd
to 19.9 percent. This comes months after struggling
Qantas Airways Ltd and Emirates struck a five-year
alliance, which includes switching the Qantas’ hub to Dubai from
Singapore for European flights.

SIA’s moves to buy into Chinese and Indian carriers many
years ago have not borne fruit. Goh has said the airline needs
to increase exposure to these high-potential markets, but rivals
have a head start.

Last month, Etihad agreed to buy a 24 percent stake in Jet
Airways Ltd, India’s largest carrier, while AirAsia has
struck a deal with the Tata group to start a local airline.

AirAsia’s cut-rate pricing on Southeast Asian routes and the
emergence of new rivals such as the Lion Air group has hit SIA.

“Corporate travel in Asia has weakened but leisure travel is
booming. That is helping to drive numbers but these are
lower-spending travellers,” said Fred Seow, vice president of
marketing at Asiatravel.com, which operates several hotel and
flight booking websites.
($1 = 1.2428 Singapore dollars)

(Additional reporting by Kevin Lim; Editing by Daniel
Magnowski)

Genting Singapore’s Resorts World Sentosa, one of two
casinos in the island state that are the envy of the global
industry since opening three years ago, said that its 35 percent
fall in core earnings simply came down to so-called “premium”
gamblers getting lucky.

Those figures were in stark contrast to Wednesday’s
quarterly earnings announced by Las Vegas Sands Corp,
owned by billionaire Sheldon Adelson, which had been boosted by
strong results in Singapore and Macau.

Genting Singapore’s January-March adjusted earnings before
interest, tax, depreciation and amortisation (EBITDA) fell to
S$249.7 million ($202.5 million) from S$381.4 million a year
ago.

Five analysts polled by Reuters had on average expected a
profit of S$359 million by the casino operator, which is more
than half owned by Malaysia’s Genting Bhd.

Sands’ rolling chip volume, or betting volume by VIP
players, at its Marina Bay Sands in Singapore rose 42.2 percent
to $18.21 billion in the quarter, the highest quarterly volume
in the property’s history.

The two Singapore casinos are the world’s most profitable,
but concerns have risen about debts from Chinese high-rollers
and China’s economic uncertainty.

“Moving forward, looking at the economic situation around
the world and also the noises that are coming out of China, we
are cautious,” Tan Hee Teck, president and chief operating
officer at Genting Singapore, told an analysts’ call on
Thursday.

He expects Genting Singapore to write-off some of its debt
this year. “We are not pulling back, but we are being a little
bit more cautious,” Tan said, when asked if the casino would
scale down the amount of credit given to its VIP customers.

Sands said it wrote off $11 million in its Singapore
property in the first quarter.

Despite Genting Singapore reporting record volume in its VIP
business, Tan was cautious about the outlook for the rest of the
year.

The company’s shares ended up 4.9 percent on Thursday on
expectations of strong results after Sands’ performance.

NEXT: “BET ON JAPAN”

Genting Singapore said on Thursday premium gamblers got
lucky and won more of their bets in the first quarter.

“Compared to the first quarter of 2012, the first quarter’s
performance was largely affected by a much weaker win percentage
in the premium players’ business despite a significant increase
in the premium players’ rolling volume,” it said in a statement.

Genting Singapore, which is sitting on a cash pile of nearly
S$4 billion, is keen to open a casino in Japan and is also
interested in pursuing regional deals.

A pro-casino group of Japanese lawmakers has tapped an
influential member of the ruling Liberal Democratic Party (LDP)
as its leader and plans to submit legislation this year aimed at
opening the world’s third-largest economy to casino gambling.

“If you ask me, if I were a betting man, I would say the
chances of it going through this year would probably be like
70-80 percent,” Tan said.

The Singapore-based agricultural commodities company, which
came under attack from short-seller Muddy Waters last November
and was forced to raise cash as its stock and bond prices
tumbled, has been urged to rein in its global expansion plans
and generate more cash.

“The change that we want to make, as far as the next three
years are concerned, is in addition to our focus on profitable
growth. We want to rebalance that with an equal focus on
accelerating cash flow generation,” Chief Executive Officer
Sunny Verghese told a news conference on Thursday after
announcing the results of a business strategy review.

The measures include becoming free cash-flow positive by the
year to June 2014, one year earlier than previously forecast. It
will also seek to cut its stake in a Gabon fertiliser plant, its
biggest investment, which has been delayed by about a year.

“Going forward we will move away from specific earnings
targets,” said Verghese, flanked by Olam’s other board members
at the conference.

In a brief statement, Temasek said it was
comfortable with Olam’s credit positions and its longer-term
prospects.

Olam’s fortunes are increasingly tied to Temasek, which
became Olam’s top shareholder with a 24 percent stake, up from
16 percent, after subscribing to a $712.5 million cash call in
January.

Mandated by the Kewalram Chanrai Group to start Olam in
1989, Verghese spearheaded the company’s expansion beyond
trading, into the production and processing of agricultural
commodities from cotton to coffee to cashew nuts.

Its approach to add on more upstream and midstream
capabilities has loaded it with debt as it bought flour mills
and other assets, including a dairy business in Uruguay and
almond assets in Australia.

“Olam wants to first let the numbers show there is delivery
before they move back to the original path of growth by M&A,”
said Roger Tan, head of SIAS Research.

“Olam has learned from the Muddy Waters episode the
importance of regular communication with investors, especially
because of their complex business model.”

Olam will reduce capital spending by S$1 billion ($804
million) or more, to between S$1.2 billion and S$1.6 billion,
for the period from 2014 to 2016. That compares with an earlier
spending plan of S$2.2 billion to S$2.6 billion for the period.

Olam, an agricultural commodities company with global
ambitions, was propped up by Singapore state investor Temasek
Holdings after Muddy Waters criticised its business
practices and sparked a tumble in its bond and share prices.

The company has since shown signs of moderating its
free-spending ways, cancelling a $240 million investment in a
Brazilian sugar mill and selling a U.S. almond orchard that it
then leased back, raising $55 million in cash.

Its moves have helped to stabilise its stock and bond
prices, but investors are looking for lasting changes in how the
company does business.

“I believe Olam could scale back the magnitude of its
investment plans, perhaps helping to achieve free cash flow
sooner,” said Vincent Fernando, analyst with Religare.

“Such a decision would likely be well-received by debt
holders.”

The company is expected to slash its capital spending by 72
percent for the year ending in June 2014, to S$393.7 million
($317.18 million) from the current year’s estimated S$1.4
billion, according to Thomson Reuters SmartEstimates, which
emphasise recent forecasts by top-rated analysts.

Spending had risen sharply, surging 68 percent to S$1.5
billion in the last financial year, while it has invested in
assets from a Russian dairy farm to a new urea plant in Gabon
while racking up 25 acquisitions since 2010.

“In the past few years, it has made a lot of acquisitions
and I think, so far, we haven’t seen very positive results,”
said Daphne Roth, head of Asia equities strategy at ABN Amro
Private Banking.

CRISIS OF CONFIDENCE

After last year’s crisis of confidence in the markets,
restoring investor trust has become key for the company.

Its fortunes are increasingly linked with Singapore since
Temasek became its top shareholder with a 24 percent stake, up
from 16 percent after it subscribed to a $712.5 million cash
call in January to bolster Olam’s finances.

That became necessary when Muddy Waters’ charges of suspect
accounting practices and excessive debt, which Olam challenged
with a defamation lawsuit that it later dropped, triggered a
punishing reaction in financial markets.

Olam’s shares plunged as much as 22 percent in the weeks
after the allegations, while its five-year bonds due in 2017
dropped as low as about 80 cents compared with
their face value of $1.00.

The shares have bounced back – at their last close of S$1.67
they were down only 4 percent from where they traded before
Muddy Waters’ attack, but that compares poorly with a 13 percent
gain in Singapore’s benchmark Straits Times Index over
the same period.

The 2017 bonds have also bounced back and are bid at 93.625
cents, after trading in a narrow 91-96 cent range since the
start of the year, but have lagged gains elsewhere in the market
as U.S. and Japanese monetary easing pushed down yields.

For Olam, which tapped the bond markets heavily during a
boom in Asian high-yield bonds to meet its funding needs, this
has meant a rise in funding costs. In January, it sold five-year
bonds at a coupon of 6.75 percent, just four months after it had
sold bonds of a similar maturity at 5.75 percent.

But with help from Temasek, Olam weathered the worst of the
Muddy Waters attack. The company says there has been no impact
on its business relations with lenders, suppliers and customers,
and three months ago it sought to give further reassurances by
promising the strategic review due to be announced later on
Thursday.

For investors, its debt levels remain a key concern.

Olam is the third most leveraged company among 185 food
processors worldwide with a market value of at least $1 billion,
such as Bunge Ltd and Archer-Daniels Midland Co,
based on net debt to EBITDA (earnings before interest, taxes,
depreciation and amortisation), Reuters data shows.

It is also more leveraged than Singaporean competitors Noble
Group Ltd and Wilmar International Ltd.
Olam’s net debt to EBITDA of 6.78 compares with 4.87 for Noble,
6.15 for Wilmar, 1.08 for Bunge and 3.13 for Archer-Daniels.

“Any volatility in terms of credit spreads will hit those
that have not delivered the results from their acquisitions,
especially if these are funded very much by debt. I think the
clarity will help to restore investors’ sentiment,” said ABN
Amro’s Roth.

Three years after Singapore allowed casinos to open, Genting
Singapore PLC’s Resorts World Sentosa and Las Vegas
Sands Corp’s Marina Bay Sands have become the world’s
most profitable. Chinese nationals account for around half of
the VIP gaming volume at their tables.

An examination of court documents by Reuters and a series of
interviews with lawyers and industry executives reveal that
several of the gamblers have run up millions of dollars in debt
and then scampered back to China, where they are effectively
untouchable.

Resorts World sued Chinese gambler Kuok Sio Kun in Singapore
last year to recover S$2.2 million ($1.8 million). But more than
six months on, the casino has not even managed to serve court
papers to the Macau-based woman.

After several letters of demand went unanswered for months,
it tapped a Singapore law firm to sue the 46-year-old, court
documents show.

It then hired a Macau-based law firm, which advertised in a
Chinese-language newspaper, posted the court documents at Kuok’s
last known address and went there twice.

“I have made all reasonable efforts and used all due means
in my power to serve the court documents on the defendant, but
have not been able to do so,” the Macau lawyer said in the
documents.

In Macau, the world’s biggest gambling haven, debts are
mostly handled by junket operators, who bring high rollers to
casinos. Some of the 200 or so operators there have been
associated with triads, or criminal gangs, which are notoriously
efficient in collecting money.

Singapore only has three junket operators, which are heavily
regulated and must renew their licences each year as the
city-state seeks to maintain its image as a clean and safe
business and tourist destination.

So, when faced with bad debts, casinos negotiate with the
gamblers, and as a last resort, file suits in court. But as
gambling debt is considered a civil, not criminal, issue in
Singapore, gamblers who fail to pay will not be arrested.

The two casinos have sued at least three Chinese gamblers to
recover millions of dollars but court documents reviewed by
Reuters show they have not been able to get any money from them
so far.

MULTI-MILLION DOLLAR CREDIT LINES

Singapore’s two casinos had estimated combined gross gaming
revenue of about $5.9 billion last year, according to industry
analysts, just below the $6.2 billion pulled in by dozens of
casinos on the Las Vegas strip.

“It’s the volume and the level of play,” said Adam
Weissenberg, global leader of the travel, hospitality and
leisure segment at Deloitte & Touche. “The casinos are bringing
in people who have million-dollar credit lines. They are
bringing in people who are playing million-dollar hands.”

More than 30 casinos in Macau, a special administrative
region in China, raked in $38 billion in gaming revenue in 2012.

But despite profit margins of more than 40 percent, far
higher than in Macau and on the Las Vegas strip, Singapore’s
casinos risk more write-offs.

Genting Singapore’s trade and other receivables rose by
nearly one-third from a year earlier to S$959.5 million as of
end-2012. Impairment loss on trade receivables was 18 percent
higher at S$143 million for 2012.

“The more you start to see the increase in their
receivables, what you then start to see coming through in their
results later on, is possible deterioration in their earnings
quality and also including cash flow generation,” said Vicky
Melbourne, Fitch Ratings’ Asia Pacific head of industrials.

Las Vegas Sands said its overall provision for doubtful
accounts rose an annual 59 percent to $239.3 million last year,
with the bulk of the increase due to receivables at the
Singapore casino “related to credit extended, as well as
increases to provisions for specific customers.”

Other gaming company analysts said the numbers were not yet
a huge worry, but they were watching the increase with concern.

“The junket operators shoulder most of the credit risk and
debt collection in Macau, but Singapore has a structural
disadvantage of not having the junket network and presence,”
said Lucius Chong, an analyst at CIMB Research.

Court documents show Marina Bay Sands has filed 84 claims
for at least S$250,000 each at Singapore’s top court since 2010,
including 62 last year and 11 as of mid-March this year. Resorts
World filed 11 cases in 2012 and one in 2010. These cases relate
to all manner of claims, not just gambling debts.

Marina Bay Sands did not give details of the cases.
Genting Singapore declined comment.

PAINFUL PROCESS

Many of the suits filed in the Singapore court are against
gamblers based in the country, but there are likely to be larger
claims on Chinese high-rollers that are not pursued due to the
“painful” process and the potential bad publicity, lawyers said.

Singapore does not have reciprocal enforcement of judgments
with China, except for Hong Kong. This means that even if a
casino obtains a judgment in a Singapore court, it also has to
sue the gambler in China, they said.

“If there is a lot of gambling debt and the gambler is in
China now, usually the casinos can hardly get any cooperation
from the Chinese government to go after them because gambling is
illegal in China,” said Huang Jing, director at the Centre on
Asia and Globalization at the Lee Kuan Yew School of Public
Policy in Singapore, who advises China’s policymakers.

Sands has described Singapore as the “most challenging
credit market”, citing the highly concentrated nature of the
market, the small number of junket operators and very little
legal help in the region to collect debt.

Resorts World gave Kuok S$200,000 in March 2010 and another
S$800,000 in October. Within the next few days, it granted three
more credit lines worth S$2 million, documents show.

Kuok owed the casino S$2.2 million after offsetting deposit
and commission. Her application form showed that she received a
reference for the initial credit facility of S$200,000.

It was not immediately known what she played at the tables,
but baccarat is the game of choice for high rollers at the
exclusive Crockfords Club at Resorts World and in Paiza at
Marina Bay.

The key things that a casino looks at when extending credit
to VIP gamblers are the player’s credit history at other casinos
and references, said a former executive at one of the casinos.

“Once somebody gives you that one credit line, you go
anywhere, people will give it to you provided that you are on
good payment terms,” he said. But he noted that it was difficult
to accurately assess an overseas gambler’s net worth.

“Even if you have assets, if you are overseas they can’t sue
you, especially in China.”
($1 = 1.2397 Singapore dollars)

(Editing by John O’Callaghan and Raju Gopalakrishnan)

The rivalry intensified on Friday when Lion Air launched its first service in Malaysia, barging onto AirAsia’s home turf, but the pace of expansion has raised questions about whether airlines are overextending themselves.

Financiers and industry executives, however, say the party is just starting, with the region’s budget carriers just beginning on the rapid growth path enjoyed by Ryanair Holdings Plc and Easyjet Plc in Europe and Southwest Airlines Co, the pioneer of the model, in the United States.

“I think it’s been pretty rational in the sense that it is underpinned by economic prospects,” Eric Eugene, BNP Paribas’s global head of transportation banking, told Reuters in an interview in Singapore. “It’s underpinned by the number of people capable of paying fares and flying.”

The staggering bets being placed by both airlines rest on the dominant market shares they enjoy in their home countries and the hope that rising disposable incomes will drive Asia’s growing middle class to keep flying to new destinations.

Lion Air’s co-founder Rusdi Kirana placed a blockbuster order for 234 medium-haul jets with Airbus this week, just a year after ordering a record 230 Boeing planes.

Despite the projections of sharp growth, some bankers and lessors have expressed concerns that the series of record-breaking orders risks flooding Southeast Asia with too many narrowbody planes.

“The one thing that we have to consider is that the delivery span of those aircraft is over, probably, 10 years,” said BNP Paribas’s Eugene.

“So, if you put this number of aircraft in perspective of economic growth, and in perspective of aircraft retirement, actually our own results show that it’s not irrational.”

And, in a move that could reduce the risk of having too many unused planes if demand projections don’t pan out, Lion Air has also set up Transportation Partners, an aircraft leasing company in Singapore, and hired senior financiers.

Establishing a base in Singapore, a growing aviation financing hub, might help Lion Air to diversify its portfolio outside Indonesia, where the country risk is much higher, and enable it to tap into a wider circle of banks for funding.

REGIONAL RIVALRY

The emergence of Lion Air presents Malaysia’s AirAsia with the most serious challenge to its dominance of the region’s budget flight business.

However Tony Fernandes, AirAsia Group’s CEO, believes tight control on costs and ties with one planemaker will help his group retain its advantage.

“One aircraft the A320. Lowest cost airline in the world. That’s the key. Lowest cost always wins,” Fernandes tweeted on Friday.

AirAsia operates 120 aircraft and expects 360 more to be delivered up to 2026, excluding leased aircraft.

Lion Air controls a little less than half of the market in Indonesia’s booming economy, home to 240 million people spread over 17,000 islands. AirAsia has recently started operations in the archipelago, but is a very small player in the market.

Lion Air has ambitious plans to start airlines across Asia-Pacific and is breaking into AirAsia’s home market with its flights between Kuala Lumpur and the East Malaysian cities of Kuching and Kota Kinabalu through a partially owned venture, Malindo Air.

“What caught on in Europe with EasyJet and Ryanair 10 years ago is happening here now,” Ranga Karumbunathan, managing director of origination at leasing company Avolon, said on the sidelines of an Asia aviation financing conference organized by industry consultancy CAPA. “So, I think the pie is big enough.”

ASEAN HOPES

Investors have high hopes for plans by the 10-member Association of South East Asian Nations (ASEAN) for a single market for a combined economy of $2 trillion, with free movement of goods, services, investment and skilled labor among 600 million people.

Data from CAPA shows that 52 percent of seat capacity in Southeast Asia is operated by low cost carriers, or LCCs in the industry jargon.

“In less than a decade, LCCs went from virtually nothing to a majority share. So, clearly, a new market segment has been established,” said Campbell Wilson, chief executive of Scoot, the medium-to-long-haul budget carrier owned by Singapore Airlines Ltd.

Airlines and leasing companies are expected to take delivery of about 175 aircraft in Southeast Asia over the next two years, accounting for one-third of all deliveries in the Asia-Pacific region, according to aviation data provider Ascend Online Fleets. The bulk of the deliveries will be in Indonesia, Malaysia and Singapore.

“It has got all the ingredients – large population in sub-three-hour flights along with a growing middle class, very rapidly growing economies and developing infrastructure, the ability to find people who haven’t flown before and get them flying,” said Paul Sheridan, head of consultancy, Asia, at Ascend.

“And then airports that are very happy to see low cost airlines flying in and out.”

Singapore’s Changi Airport, one of the main Asian gateways for international travelers, closed its no-frills terminal this year as it could not cope with the rapid expansion of the LCC segment. The sparse budget terminal, housed in a separate facility, was a big put-off for travelers looking to catch connecting flights.

Singapore is building a fourth, larger terminal estimated to cost $1 billion and be completed by 2017.

Around one-third of travelers going through Singapore are budget travelers, up from a negligible share a decade ago.

“I think if we go back and look at Ryanair, even Southwest, there were times in their evolution when they made some brave decisions about ordering planes which people thought were nuts,” John Duffy, Chief Operating Officer of Transportation Partners, Lion Air Group’s leasing company, told the Singapore conference.

“And probably Emirates as well, actually. But they have continued to generate traffic, sustain load factors, sustain yield.”

(Editing by Alex Richardson)

Global economic uncertainty ranks as the chief business risk across all sectors and all countries, as it has for the past year and a half, and is mainly responsible for the cautious sentiment despite a flood of global liquidity benefiting most economies.

The Thomson Reuters/INSEAD Asia Business Sentiment Index rose to 65 in March from 63 in December, when it edged up by 1 point from the September survey. A reading above 50 indicates an overall positive outlook.

Business sentiment in Southeast Asia’s $1.5 trillion economy was mostly optimistic, thanks to government-driven investment in infrastructure and robust domestic spending. Malaysia and the Philippines were the most positive with readings of 100 each. This was the second consecutive quarter of maximum scores for both countries.

“I think the good news so far this year is just kind of consistency. We have continued to see modest upgrades to GDP forecasts for Malaysia, Philippines and to some extent, Indonesia,” said Gary Dugan, chief investment officer for Asia and the Middle East at private bank Coutts.

“People continue to enjoy the same old thing, which is growth that surprises forecasts, companies therefore delivering good earnings numbers which beat expectations,” said Dugan.

The availability of adequate funding is driving growth in Southeast Asia.

“Domestic consumption across most ASEAN countries has been very robust and I think that’s the key reason why the domestic businesses are confident,” said Hozefa Topiwalla, ASEAN equity strategist at Morgan Stanley.

Unlike in previous cycles when funding was a big constraint, there is no impact on funding for corporates, Topiwalla said.

EXPORT-RELIANT ECONOMIES CAUTIOUS

Companies in China, Japan and South Korea were the least positive, with index readings of 50. The result from China was a steep drop from the 64 recorded in the fourth quarter of 2012.

The troubles facing major consumers such as Europe and the United States have hit export-reliant economies, with South Korean exports falling sharply last month.

Across the Asia-Pacific region, rising costs were the second greatest business risk, ahead of regulatory uncertainty, political instability and foreign exchange volatility.

The index for financials rose to the highest in a year, with four firms reporting a positive outlook and none a negative view. Sentiment among property companies brightened, and firms in the resources sector were also optimistic.

The survey polled 100 executives in 11 Asia-Pacific economies from companies including Hyundai Heavy Industries (009540.KS: Quote, Profile, Research, Stock Buzz), Toshiba Corp (6502.T: Quote, Profile, Research, Stock Buzz) and PT Bumi Resources (BUMI.JK: Quote, Profile, Research, Stock Buzz). Of the 93 that replied, nearly 69 percent reported a neutral outlook, about 30 percent were positive and 1 percent reported a negative outlook.

The poll was conducted by Thomson Reuters in association with INSEAD, a global management and business school, between March 4 and March 15.

INDIA LOSES STEAM, JAPAN IMPROVES

Citing rising costs as the biggest hurdle, companies in India tempered their outlook to pull the index down to 80 from December’s level of 100.

The survey showed that business sentiment in Japan was slightly better, but the global economic environment, currency fluctuations and rising costs remained major obstacles to any strong rebound from the 2012 low struck in December.

Broken down by sector, food and beverage companies were the most bullish with an index reading of 88 for the quarter, its highest mark since this survey started in 2009.

(Additional reporting by Ranjit Gangadharan in MUMBAI and Janeman Latul in JAKARTA; Editing by Daniel Magnowski and Alex Richardson)

Global economic uncertainty ranks as the chief business risk across all sectors and all countries, as it has for the past year and a half, and is mainly responsible for the cautious sentiment despite a flood of global liquidity benefiting most economies.

The Thomson Reuters/INSEAD Asia Business Sentiment Index rose to 65 in March from 63 in December, when it edged up by 1 point from the September survey. A reading above 50 indicates an overall positive outlook.

Business sentiment in Southeast Asia’s $1.5 trillion economy was mostly optimistic, thanks to government-driven investment in infrastructure and robust domestic spending. Malaysia and the Philippines were the most positive with readings of 100 each. This was the second consecutive quarter of maximum scores for both countries.

“I think the good news so far this year is just kind of consistency. We have continued to see modest upgrades to GDP forecasts for Malaysia, Philippines and to some extent, Indonesia,” said Gary Dugan, chief investment officer for Asia and the Middle East at private bank Coutts.

“People continue to enjoy the same old thing, which is growth that surprises forecasts, companies therefore delivering good earnings numbers which beat expectations,” said Dugan.

PDF version of survey link.reuters.com/qep76t

Insider Video link.reuters.com/dek76t

GRAPHICS: Sentiment survey vs MSCI link.reuters.com/zyh76t

Biggest perceived risks link.reuters.com/xyh76t

The availability of adequate funding is driving growth in Southeast Asia.

“Domestic consumption across most ASEAN countries has been very robust and I think that’s the key reason why the domestic businesses are confident,” said Hozefa Topiwalla, ASEAN equity strategist at Morgan Stanley.

Unlike in previous cycles when funding was a big constraint, there is no impact on funding for corporates, Topiwalla said.

INDIA LOSES STEAM

Citing rising costs as the biggest hurdle, companies in India tempered their outlook to pull the index down to 80 from December’s level of 100.

EXPORT-RELIANT ECONOMIES CAUTIOUS

Companies in China, Japan and South Korea were the least positive, with index readings of 50. The result from China was a steep drop from the 64 recorded in the fourth quarter of 2012.

The troubles facing major consumers such as Europe and the United States have hit export-reliant economies, with South Korean exports falling sharply last month.

Across the Asia-Pacific region, rising costs were the second greatest business risk, ahead of regulatory uncertainty, political instability and foreign exchange volatility.

The index for financials rose to the highest in a year, with four firms reporting a positive outlook and none a negative view. Sentiment among property companies brightened, and firms in the resources sector were also optimistic.

The survey polled 100 executives in 11 Asia-Pacific economies from companies including Hyundai Heavy Industries (009540.KS: Quote, Profile, Research), Toshiba Corp (6502.T: Quote, Profile, Research) and PT Bumi Resources (BUMI.JK: Quote, Profile, Research). Of the 93 that replied, nearly 69 percent reported a neutral outlook, about 30 percent were positive and 1 percent reported a negative outlook.

The poll was conducted by Thomson Reuters in association with INSEAD, a global management and business school, between March 4 and March 15.

JAPAN IMPROVES

The survey showed that business sentiment in Japan was slightly better, but the global economic environment, currency fluctuations and rising costs remained major obstacles to any strong rebound from the 2012 low struck in December.

Broken down by sector, food and beverage companies were the most bullish with an index reading of 88 for the quarter, its highest mark since this survey started in 2009.

(Additional reporting by Ranjit Gangadharan in MUMBAI and Janeman Latul in JAKARTA; Editing by Daniel Magnowski and Alex Richardson)

Global economic uncertainty ranks as the chief business risk
across all sectors and all countries, as it has for the past
year and a half, and is mainly responsible for the cautious
sentiment despite a flood of global liquidity benefiting most
economies.

The Thomson Reuters/INSEAD Asia Business Sentiment Index
rose to 65 in March from 63 in December, when it edged
up by 1 point from the September survey. A reading above 50
indicates an overall positive outlook.

Business sentiment in Southeast Asia’s $1.5 trillion economy
was mostly optimistic, thanks to government-driven investment in
infrastructure and robust domestic spending. Malaysia and the
Philippines were the most positive with readings of 100 each.
This was the second consecutive quarter of maximum scores for
both countries.

“I think the good news so far this year is just kind of
consistency. We have continued to see modest upgrades to GDP
forecasts for Malaysia, Philippines and to some extent,
Indonesia,” said Gary Dugan, chief investment officer for Asia
and the Middle East at private bank Coutts.

“People continue to enjoy the same old thing, which is
growth that surprises forecasts, companies therefore delivering
good earnings numbers which beat expectations,” said Dugan.

The availability of adequate funding is driving growth in
Southeast Asia.

“Domestic consumption across most ASEAN countries has been
very robust and I think that’s the key reason why the domestic
businesses are confident,” said Hozefa Topiwalla, ASEAN equity
strategist at Morgan Stanley.

Unlike in previous cycles when funding was a big constraint,
there is no impact on funding for corporates, Topiwalla said.

EXPORT-RELIANT ECONOMIES CAUTIOUS

Companies in China, Japan and South Korea were the least
positive, with index readings of 50. The result from China was a
steep drop from the 64 recorded in the fourth quarter of 2012.

The troubles facing major consumers such as Europe and the
United States have hit export-reliant economies, with South
Korean exports falling sharply last month.

Across the Asia-Pacific region, rising costs were the second
greatest business risk, ahead of regulatory uncertainty,
political instability and foreign exchange volatility.

The index for financials rose to the highest in a year, with
four firms reporting a positive outlook and none a negative
view. Sentiment among property companies brightened, and firms
in the resources sector were also optimistic.

The survey polled 100 executives in 11 Asia-Pacific
economies from companies including Hyundai Heavy Industries
, Toshiba Corp and PT Bumi Resources
. Of the 93 that replied, nearly 69 percent reported a
neutral outlook, about 30 percent were positive and 1 percent
reported a negative outlook.

The poll was conducted by Thomson Reuters in association
with INSEAD, a global management and business school, between
March 4 and March 15.

INDIA LOSES STEAM, JAPAN IMPROVES

Citing rising costs as the biggest hurdle, companies in
India tempered their outlook to pull the index down to 80 from
December’s level of 100.

The survey showed that business sentiment in Japan was
slightly better, but the global economic environment, currency
fluctuations and rising costs remained major obstacles to any
strong rebound from the 2012 low struck in December.

Broken down by sector, food and beverage companies were the
most bullish with an index reading of 88 for the quarter, its
highest mark since this survey started in 2009.