Tigerair and Scoot ventures tell a veiled SIA story

BIG and viewed largely as positive news for Singapore Airlines (SIA)’s budget subsidiaries Tigerair and Scoot when they announced expansion plans.

Tigerair

Courtesy Bloomberg

Courtesy Bloomberg

Tigerair plans to set up Tigerair Taiwan with China Airlines as partner. Ironically, while so named, Tigerair will hold only a 10% stake in the new airline which aims to penetrate the untapped markets of Taiwan, Japan and Korea. Taiwan has largely been untouched by domestic budget operations and offers good potential for growth. While the link will certainly increase Tigerair brand presence in North Asia, the small stake held by Tigerair however may not do enough to boost substantially its bottom line. Whatever the reason for the size of the participation, the cautious approach by parent SIA has certainly rubbed the budget offshoot, as reflective of SIA’s initial investment in Virgin Australia and an apparent hands-off approach to M&A possibilities ever since its lacklustre if not poor investment in Air New Zealand and Virgin Atlantic albeit more than a decade ago. SIA holds a majority share of close to 33% in Tigerair.

Or does the caution stem from Tigerair’s own not too successful experiences at setting up joint ventures in the region, in spite it having now taken up much larger stakes in two airlines – a 40% stake in SEAir which has been renamed Tigerair Philippines and a 15.7% stake in Tigerair Mandala based in Indonesia, both airlines yet to be proven profitable acquisitions?

But if Tigerair is doing at least one thing right, it is following albeit lagging behind AirAsia and Jetstar of Qantas in dotting the regional aviation map with its name.

Will Tigerair Taiwan go the way of AirAsia Japan when partners All Nippon Airways and AirAsia had to part ways just after one year of operations? Most probably not, as, unlike the 51/49 ANA/AirAsia joint venture, Tigerair will have to rest content with leaving the running to China Airlines, which has no experience in the niche LCC field. Much as Tigerair chief executive Koay Peng Yen might have talked about “areas of synergy to be explored between the two airlines”, it is for Tigerair a toehold strategy.

Tigerair also announced plans an agreement with Spicejet of India to improve connectivity between the flights of the two airlines, giving Tigerair customers access to Spicejet destinations such as Goa, Kolkata, Pune and Tirupati.

Scoot

Courtesy Scoot

Courtesy Scoot

SIA’s medium-to-long haul – and now also short haul – wholly-owned budget subsidiary Scoot has a similar plan, which is to set up NokScoot in Bangkok but with a bigger stake of 49%. While Scoot chief executive Campbell Wilson offered the often used rationale that “Thailand is Asia’s premier tourist destination” and therefore a “logical hub for Scoot to expand to”, Nok Air chief executive Patee Sarasin was more excited about opportunities for the Nok brand expanding overseas. The potential is there, and Scoot can look forward to feeder traffic from the short haul into its longer haul operations. The Singapore carrier is presently limited by competition on the major routes.

Tigerair and Scoot partnership

It is an amusing story that Tigerair and Scoot which have become rivals on some routes are forming a partnership, apparently to further align their commercial activities such as joint operation, sales and marketing of parallel routes. The upside is that there may be cost savings for the carriers through eliminating duplication and better capacity management, but it may also mean higher fares for consumers. Both Tigerair and Scoot operate from Singapore to Hong Kong, Bangkok, Taipei and Perth. It may also suggest a rationalization on the part of parent SIA as it reassesses the need for two budget subsidiaries operating out of the same base, and this in turn leads to the speculation that one day the two carriers might merge as one. SIA also has in its stable a regional carrier, SilkAir, which is not a low-cost operator.

The SIA story

sia logoInterestingly, while the announcements by Tigerair and Scoot have generated an upbeat market feel about them specifically, they tell in the big picture a different, perhaps less sanguine, veiled SIA story of the parent airline faced with increasingly stiffer competition on two fronts – in the premium market from rivals such as Qantas, Cathay Pacific and Middle East airlines particularly Emirates and Qatar which pose its biggest threat on the kangaroo route, and at the low end from the growing number of budget carriers whose encroachment has threatened yields on regional routes. The expansion plans of Tigerair and Scoot cannot be viewed in isolation as they can become instrumental in supporting SIA in the wider market, providing the links and market accesses, and narrowing the competition. It is a Group strategy. There is however the risk of the budget segment growing at the expense of the premium segment. That will be a high price to pay, perhaps not for the Group but for SIA the airline.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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