Consistency defines Skytrax’s best airlines

The 2017 Skytrax list of the top ten airlines is as in previous years hardly changed of note. Only two airlines dropped out of the list – Turkish Airlines and Qantas, making way for Garuda which was listed in 2015 and 2014, and Hainan Airlines which in 2014 was commended for clean cabins and amenities in business class.

Courtesy Qatar Airways

year’s champion Emirates Airlines went down to fourth place, followed by Cathay in fifth, making way for All Nippon Airways (ANA) in third.

This speaks of the consistency that makes these airlines the travellers’ perennial favourites. SIA has long been reputed for premium service and emulated by the Middle East carriers making them fierce competitors in the field.

However, it is more interesting to look at the movements into and out of the top ten list. Turkish Airlines which was included in the last three years dropped to 12th position this year, and Qantas moved further down from 9th last year to 15th this year. What is most noticeably absent is Asiana Airlines, which was voted the best in 2010 and continued to be one of the best since then until last year when it dropped to 11th and this year ranks 20th. If the Skytrax ranking is anything to go by, then Asiana should be concerned, perhaps not as much about the quality of its service as being surpassed by the competition.

On a more positive note, Hainan Airlines becomes the first China carrier to be ranked in the top ten, and Garuda re-entered the list boosted by its best cabin crew win.

Not surprisingly, the top ten list is dominated by Asian carriers with the exception of Lufthansa. Just a dash shy of that honour and ranked 11th is Thai Airways International.

No US airline has made it to the top ten, and don’t bother asking if they were really concerned,

And then there are three

From four to three (if you exclude SIA Cargo which will be absorbed as a division of the parent airline in 2018), Singapore Airlines (SIA) will now have three carriers in its stable as sister budget subsidiaries Scoot and Tigerair announced the completion of their merger come July 25, 2017. SilkAir, defined as a regional carrier, makes up the trio.

Both Scoot and Tigerair will henceforth operate under the Scoot brand. It seems logical, considering the poor reputation of Tigerair and the plans to expand Scoot into the long-haul. Unlike Tigerair, Scoot was launched as a medium-haul budget carrier.

The merger was long anticipated as the operations of the two carriers began to overlap with Scoot operating the short-haul as well. At the same time, loss-making Tigerair’s days were numbered as it struggled through a period of difficult times both financially and operationally, scarred with customer complaints of poor service.

While it certainly makes sense for the two carriers to eliminate intra-competition and pool their resources, it also opens the field for Scoot to expand its network. Already it is trailing behind Malaysian budget carrier AirAsia, whose chief Tony Fernandes is known to be testing new boundaries beyond the four-to-five hour limitation of the budget model. While AirAsia is not always guaranteed success, it has enjoyed headstart advantages.

Courtesy AirAsia

Scoot has announced a service to Honolulu by the end of the year, six months after AirAsia launches its service from Kuala Lumpur. Both carriers will operate via Osaka. It will be interesting to see how the competition plays out.

Scoot may be advantaged by its hub connections at Changi Airport while AirAsia will rely on its wide regional network to take advantage of Kuala Lumpur International Airport’s lower costs in a price-sensitive leisure market.

Scoot will benefit from the reputation of the SIA brand association, but somehow that has not rubbed off on the beleaguered Tigerair.

The competition is set to redefine the budget game as Scoot and AirAsia battle it out to be the region’s leading carrier not only for the short-haul but also beyond.

Air France to “boost” performance with new low-cost carrier

Legacy airlines in Europe have long been feeling the pinch from low-cost carriers such as Ryanair and Easyjet. Now it looks like Norwegian Air Shuttle and WOW Air are pushing them to look farther before they lose more ground.
Lufthansa already offers a low-cost trans-Atlantic option from Europe to Las Vegas, Orlando, Miami and Seattle in the United States.

The International Airlines Group which owns British Airways, Iberia, Aer Lingusm and Vueling has just added another low-cost carrier – Level – to its stable. Level, based in Barcelona, will fly to Los Angeles and Oakland in California USA, Punta Cana in the Dominican Republic, and Buenos Aires in Argentina. Fares start at the familiar €99 reminiscent of the Norwegian and WOW Air’s promotions.

Courtesy Air France

Following in their footsteps is Air France, which announces the formation of a new subsidiary low-cost airline – Boost as its working name – planned to commence operations in winter. The airline will fly from the main hubs of the Air France/KLM group to destinations in Italy, Spain and Turkey initially, and then farther to destinations in Asia. Norwegian is already flying to Bangkok and will in October connect London with Singapore.

But Boost will be taking on full-service airlines as well, such as the Middle East carriers of Emirates Airlines, Etihad Airways and Qatar Airways which are already ruffling the feathers of the regional big birds of Singapore Airlines and Cathay Pacific.

The developments point to a gradual convergence of the low-cost and full-service product perceived value wise. It’s the antithetical success of low-cost carriers pushing to bridge the gulf and the failure of legacy airlines not being able to maintain if not increase the differentiation. It looks like the European tug-of-war is pulling the legacy airlines towards the centre line.

Cathay Pacific axes 800 jobs: Is this the answer?

TIMES are hard for legacy airlines, it seems, when major airlines such as Singapore Airlines (SIA) and Cathay Pacific are beset with economic woes.

Courtesy Cathay Pacific

SIA announced a plan to transform the airline after reporting a last quarter loss of $S41 million (US$ 29 million) (see SIA’s transformation is long overdue, 27 May 2017). Cathay, losing HK$585 million (US$103 million) in 2016 – its first annual loss in eight years – is set to cut 800 jobs. Both airlines cited intense competition, mainly from the big three Middle East carriers of Emirates Airlines, Etihad Airways and Qatar Airways, and carriers from China. Cathay additionally suffer substantial fuel hedging losses.

Invariably cost cutting is almost every airline’s clarion call to try to get back into the black. It helps, of course, and such an exercise can eliminate wastage and improve productivity when in good times the airline has lost the discipline. However, more may be needed to be done if the issues are structural and operational. It calls for a deeper review of product, procedures and processes, and marketing strategies against a changing aviation landscape that renders old successes irrelevant and demands new innovative approaches.

Like SIA, Cathay is caught in a price-sensitive market where competitors have been able to provide comparable services at lower fare, and that’s not talking about low-cost carriers (LCCs) alone. Cathay risks losing its position as the gateway airline at the door of the huge China market as more carriers from the mainland commence direct services to destinations beyond China and offer connections out of Shanghai and Beijing. Also, partnerships between China carriers and other airlines are also threaten to cut Cathay out of the game.

Some analysts think Cathay is disadvantaged by the absence of budget arms, unlike SIA which is supported by Scoot and Tigerair. The solution really is not for Cathay to go budget, but to make that difference between flying low-cost and flying full-service in its favour.

SIA’s transformation is long overdue

Courtesy Bloomberg

Singapore Airlines (SIA) announced it will be taking “bold radical measures” in a major business transformation plan after the parent airline incurred a fourth-quarter operating loss of S$41 million (US$30 million). SilkAir and Budget Aviation Holdings (Scoot and Tiger Airways) reported lower profits for the same quarter: the former down 19 per cent to S$27 million and the latter more than 50 per cent to S$22 million.

Full-year operating profit for SIA was S$386 million, a decline of S$99 million or 20 per cent year-on-year. For SilkAir it was a fall of 11 per cent and for Scoot and Tiger a combined drop of 60 per cent.

SIA chief executive officer Goh Choon Phong said: “The transformation is not just about how we can cut cost but also how we can generate more revenue for the group, how we can improve our processes more efficiently, …so that we can be lot more competitive going forward.”

If anyone is surprised at all, it is not because it is happening but that it has taken so long coming. The writing has been on the wall since the global financial crisis when the airline suffered a loss of S$38.6 million in FY 2008/09, and from then onward the margin has averaged less than three per cent compared to seven per cent in the five years leading to it.

SIA cited intense competition that is affecting its fortune. Lower fuel costs that contracted by S$780 million (down 17.2 per cent) didn’t help. Capacity reduction trailed the reduction in passenger carriage, and passenger load factor as a result dipped lower to 79.0 per cent.

While details of the transformation are yet to be announced, it will do SIA well to recognise that the aviation landscape has changed dramatically over the years and will continue to shift. Competition in the business is a given, and we cannot help but recall how the fledgling airline from a tiny nation leapfrogged its more experienced rivals in its early days to become the world’s best airline and one of the most profitable in the industry. No doubt the competition has intensified, but the salient point here is that it can never be business as usual.

What then has changed?

Low-cost carriers are growing at a faster rate than full-service airlines and are now competing in the same market, and while SIA may have answered that threat with setting up its own budget subsidiaries, the parent airline is not guaranteed it is spared. Until the merger of Scoot and Tiger under one umbrella, there had been much intra-competition. And while the subsidiaries compete with other low-cost carriers, the concern should be that they are not growing at the expense of the parent airline. That calls for clearly defined product and route differentiation such that they are not substitutes at lower fares.

Low-cost carriers are also venturing into the long-haul, aided by the current low fuel price and technologically advanced and more fuel-efficient aircraft. The launch of Norwegian Air Shuttle’s service between Singapore and London in October at drastically lower fares poses a challenge to SIA on one of its most lucrative routes.

The market is becoming increasingly more price sensitive since the global financial crisis, and that favours the low-cost model of paying for only what a passenger needs. Dwindling may be the days when one is more willing to pay a higher fare for SIA’s reputable in-flight service as other carriers improve their products and services, often the reason cited for the competition laid on by the big three Middle East airlines of Emirates Airlines, Etihad Airways and Qatar Airways.

These rivals are also offering a slew of connections out of their home bases and reduced layover times which are the forte of the SIA network. The growing importance of airports such as Dubai and Hong Kong as regional gateways may disadvantage not only Changi Airport but also SIA in the competition against airlines such as Emirates and Cathay Pacific. In 2013, Qantas shifted its hub on the Kangaroo Route from Singapore to Dubai, and is now planning to build a hub out of Perth for the same route. SIA will have to heed the geographical shift that may affect the air traveller’s preference for an alternative route.

Along with this is also the increased number of non-stop services between destinations, particularly out of the huge, growing Chinese market. This may eliminate the need for travellers to fly SIA to connect out of Singapore, say from Shanghai to Sydney when there are direct alternatives offered by Qantas and China Eastern Airlines. It has thus become all the more imperative for SIA and Changi to work even closer together.

Well and good that SIA is constantly looking at improving cost efficiency and productivity. But more has to be done. As Mr Goh had said, it calls for a “comprehensive review on whatever we are doing and how we can better position ourselves for growth.”

The key word is “transformation”, in the same way that Qantas chief executive Alan Joyce went about restructuring the Australian flag carrier following the airline’s hefty losses four years ago. Drastic measures were introduced that include the split between international and domestic operations for greater autonomy and accountability, and concrete targets were set over a specific timeline. The continuing programme seems to have worked for Qantas as it bucks the trend reporting record profits while other airlines such as Cathay are hurting.

SIA will have to look beyond its own strengths at the strengths of others. It has thrived on the reputation of its premium product, but that has taken a toll as business travellers downgrade to cheaper options. Although that business segment is slowly recovering, other airlines have moved ahead to introduce innovative options, such as the premium economy which Cathay revitalised as a class of its own and which SIA was slow in embracing, reminiscent of how SIA too did not foresee the increased competition posed by low-cost carriers. It is a pity that SIA, once a leader in innovation, has lost much of that edge.

Timing is everything in this business to cash in on early bird advantages, but this is not made easy by abrupt geopolitical changes and new aviation rules and the long lead time in product innovation and implementation. All said, SIA may begin by looking at what worked for it in the past and ask why it is no longer relevant.

Canada acts to protect passengers’ rights

Courtesy Toronto Pearson Airport

NO better time than now it is for aviation authorities to step forward and assure air travellers of their rights. The recent spate of complaints about mistreatment by airlines in North America arising from overbooked situations has certainly heightened the awareness of the urgent need for protective measures.

The Canadian government is introducing legislation setting out national standards and measures that will apply to all airlines operating into and out of Canada. Federal Transport Minister Marc Garneau warned that if airlines “don’t change some of their practices, there will be repercussions.”

One of the rules applies to bumping passengers off in an overbooking situation. Mr Garneau said: “If somebody has bought a ticket for a particular flight that person cannot be removed from that flight. This is non-negotiable.”

It is however not clear how this rule will play out as it is believed that details on compensation are being worked out. Indeed, the main problem is likely to be one of enforcement and the cost of monitoring as the European Union has found out. At the same time, the rules are often open to different interpretations and dispute, and that in turn makes enforcement difficult and cumbersome. Consequently the whole process takes a long time to be resolved and becomes ineffectual. .

While this is not the first time that measures to protect passengers’ rights are introduced in Canada and the Untied States, one hopes that as the dust over the spate of complaints settles, the matter will be kept in constant review and not be relegated to the back burner.

AirAsia completes Asian conquest

Courtesy AirAsia

AirAsia founder Tony Fernandes said the latest agreement to set up a joint venture in China with Everbright Group “closes the loop” in the region. He added that AirAsia China “represents the final piece of the AirAsia puzzle.”

The Chinese joint venture came on the heels of the agreement with Gumin Company Limited, businessman Tran Trong Kien and Hai Au Aviation Joint Stock Company to set up AirAsia Vietnam, which is expected to commence operations in the first half of 2018.

These two ventures add to an impressive list that already includes Thai AirAsia, Indonesia AirAsia, Philippines AirAsia and AirAsia India, giving the Malaysian budget carrier a base in almost every major country in the region from India and across Southeast Asia to China. The exception is Japan when an earlier joint venture with All Nippon Airways – AirAsia Japan – was disbanded just over a year after it commenced operations in August 2012.

Notwithstanding that, AirAsia’s ambition to be the region’s main player remains unthwarted, capitalising on Asia’s growing middle class and its propensity for air travel, particularly in populous China, India and Indonesia. Headquartered in Kulala Lumpur, it is now larger than flag carrier Malaysia Airlines and is Asia’ largest budget carrier.

But Mr Fernandes enjoys wrestling with the big boys. AirAsia’s strategy is not confined to the domestic market, which will place it in good stead to compete beyond the borders in time. Not content to be just Asia’s largest budget carrier, AirAsia is once again trying to prove sceptics wrong about the viability of the long haul as it launches flights from Kuala Lumpur to Honolulu in June – this, despite its failure to sustain services to Paris and London five years ago. If success seemed elusive in the past – the same fate that had dealt similar blows to others such as Hong Kong’s Oasis Airlines who dare go where others fear to tread – Mr Fernandes deserves credit at least for trying.