Southeast Asia's low-cost airline sector is set to continue its phenomenal growth with this week's opening of the region's first dedicated budget terminals in Singapore and Malaysia, analysts said.

The combined US$57 million investment for the facilities by the two neighbours is a boost for the region's budget airlines which have blossomed despite initial scepticism at the no-frills concept, they said.

"Low-cost terminals are a natural extension of the budget phenomenon we've seen in the past 18 to 24 months," said Shukor Yusof, an aviation analyst with Standard and Poors in Singapore.

Malaysia on Thursday opened Southeast Asia's first dedicated no-frills terminal built at a cost of US$29.2 million. It can handle 10 million passengers a year.

Next door in Singapore, a US#27.8 million facility starting operations tomorrow can handle 2.7 million passengers annually and is designed to serve five million after future expansion.

"Low-cost carriers are here to stay and will be a significant part of the regional aviation industry," Yusof said.

"The development of two dedicated terminals also illustrates low-cost carriers' growing presence in the airline sector, having transformed it via low fares and emerging route networks."

Upbeat outlook

The two terminals each have only one committed user, AirAsia for the Malaysian facility and Tiger Airways in Singapore. This has not dented analysts' upbeat outlook for the regional budget airline sector.

"I don't think it is much of a concern," said John Koldowski, director of the strategic intelligence centre at the Bangkok-based Pacific Asia Travel Association.

"The low-cost carriers when they first came out, many said it was a fad... well, it has lasted and in fact it has consolidated.

"They certainly stimulated the sector and markets and consumers obviously like what they are receiving."

Growth in the low-cost sector partly explains why industry watchers expect the Asia-Pacific region to lead global growth in air passenger traffic over the next 20 years.

While Malaysia and Singapore are fierce economic rivals and both aim to be the hub for low-cost airlines, analysts said the two terminals will only spur growth in the sector.

"I don't think the proximity of the terminals has too much bearing, especially with low-cost flights between the two countries not currently allowed," said Richard Pinkham, a Singapore-based consultant with the Centre for Asia Pacific Aviation in Sydney.

"As both carriers are principally point-to-point travel at this point, it seems not overly likely that the two low-cost terminals will be in competition with one another for passengers, especially with a five-six hour drive separating them," Pinkham said.

Malaysian Prime Minister Abdullah Ahmad Badawi, who opened the terminal at Kuala Lumpur, welcomed rivalry.

"In any competition there would be some degree of rivalry, it's only to be expected," he told reporters when asked about Singapore's facility.

Before the birth of AirAsia in December 2001, budget carriers in Southeast Asia focused mainly on domestic routes but the roaring success enjoyed by the Malaysia-based carrier in servicing regional destinations was the catalyst for the setup of similar outfits, especially in Singapore.

'Dream come true'

Because they charge ultra-cheap fares, budget airlines do not provide meals or other services but travellers can pay if they want water or coffee.

Similarly, the new budget terminals do not offer all the elaborate facilities found in modern airports.

AirAsia chief executive Tony Fernandes was thrilled with the new home for his carrier which now offers more than 100 domestic and international flights to Malaysia, Thailand, Indonesia, Singapore, Cambodia, Vietnam and the Philippines.

"It's a dream come true for us. A few years ago we were just a two-plane operation and now we have our own home," said Fernandes, whose business model has been increasingly imitated by national carriers and a host of new low-cost entrants.

He dismissed Singapore's no-frills terminal because of its smaller capacity.

"We are not here to compare with Singapore. We are happy with this place."

His closest rival, Tiger Airways, sees the budget terminal as a step forward for the sector.

"Having a budget terminal allows low-cost airlines such as Tiger Airways to offer low, low fares on a sustainable and consistent basis," said Tony Davis, chief executive of the carrier which is 49 percent owned by Singapore Airlines.

"By having a dedicated terminal, budget airlines would possess a significant cost advantage which gives a competitive edge over other airlines," he said.

Tiger Airways' ground costs will be cut by more than 50 percent by using the new facility at Changi Airport, he said.