Updated on Sunday, June 12, 2005, 00:00 IST

Kuala Lumpur, June 12: Stiff competition and rising fuel prices will force a shake-out among Asia's budget airlines, and some are likely to be permanently grounded, analysts say.

The success of Malaysia's Air Asia, Southeast Asia's biggest low-cost carrier, has sparked a slew of other budget operators to take to the skies, including spin-offs from major airlines which scrambled to cash in on the phenomenon.

But after a tremendous start which revolutionised travel in the region, a changing business environment may mean an end to the boom, as happened in Europe where no-frills carriers suffered a bloodbath that only the strongest survived.

"Competition is tough. I foresee a drop-out soon," Osk Research Aviation Analyst Chris Eng told.

Singapore's low-cost carriers are considered the most vulnerable because without a domestic market to fall back on in the tiny city-state, they are forced to fight with the major airlines in the international market.

Eng said there would be a struggle for survival between privately owned Valuair, Qantas-backed Jetstar and Tiger Airways which is 49-per cent owned by Singapore Airlines.

As most budget airlines have to stick to routes within a three-and-a-half hour flying time due to their smaller planes and limited cargo space, flying further afield is "less cost-effective and makes it more difficult to compete," he said.

Bryan Lim, aviation analyst with securities firm ECM Libra said it did not seem possible for all three to perform well in the competitive market, and that eventually consolidation was inevitable.

Bureau Report