SilkAir at 25, stepping out of SIA’s shadow

Photo courtesy Boeing

Photo courtesy Boeing

AT 25, SilkAir is still around and growing not much or rather slowly. It has reiterated its intention to step out of Singapore Airlines (SIA)’s shadow and distinguish itself as one in its own right, but it cannot deny its role as a feed for the parent airline.

This year SilkAir is announcing new destinations that include Kalibo in the Philippines and Mandalay in Myanmar, secondary destinations that may best be served by budget carriers. Therein lies the ambiguous positioning of SIA’s regional airline, which, unlike Cathay Pacific’s Dragonair that enjoys the support of the large China hinterland, finds itself squeezed between legacy and budget operators and faces competition from national as well as budget carriers in the region.

In fact, SilkAir reported more than 40 per cent drop in profit for the first half its current financial year with a worse Q2 performance of S$8 million (US$6.27 million) compared to S$19m for the same quarter last year, attesting to the intense competition in the region. The plunge of almost 58% was attributed to passenger carriage growth not keeping pace with capacity increase apparently aimed at developing new markets in the region. The inability to fill up capacity points to the limited growth facing SilkAir.

However, SilkAir is optimistic that its growth will be enhanced by the acquisition of new generation jets that will enable it to fly farther to points in Japan and northern China. But it will not be an easy trot for the airline in the Year of the Horse as it faces even stiffer competition in the bigger arena. Ironically, SilkAir may also face competition from sister airline Scoot as the latter expands its network. It is something that parent airline SIA will have to reassess, redefining the role of the various carriers including Tigerair in its stable.

An expected fall in the cost of jet fuel – or the price holding steady at least – because of political stability in the Middle East will favour SilkAir as it should all other carriers, only that low-cost operators without the hedging capacity of legacy airlines will find this news especially welcoming in view of their cost structures. There are more certain signs now of economic recovery in Europe and the United States, and this will be good news for SIA, which in turn will also benefit SilkAir as its feed carrier – the extension epithet that SilkAir at 25 wants to shirk off. Full implementation of Asean Open Skies by 2015 will fan the growth of low cost operators in the region and SilkAir too will be able to ride the wave of increased demand for travel. In the bigger arena, the continuing growth across Asia will also provide opportunities for SilkAir to grow beyond the region.

But like other airlines, SilkAir will face stiff competition and pressure on yield. While the International Air Transport Association (IATA) has predicted record profits for the airline industry this year, revising upward its earlier forecast of US$16.4 billion to US$19.7 billion, IATA chief Tony Tyler has also warned: “It is a tough environment in which to run an airline. Competition is intense and yields are deteriorating.” SilkAir’s foray into secondary destinations will be challenged by Lion Air and budget carriers such as AirAsia, Jetstar, even Tigerair and Scoot. Not surprisingly, SilkAir CEO Leslie Thng has reportedly said when referring to the airline’s apparently “aggressive growth plan”, that “time and resources would be required to nurture these routes – to build up the awareness of and demand for these routes.” Unfortunately, the luxury of time is a costly affair that not many airlines can afford; an advantage that perhaps SilkAir with the backing of a rich parent could take comfort in.

The SilkAir model seems strangely outdated yet unique in an environment that appears to favour the extremes of affordability. As major airlines work at reviving premium travel with constant upgrading and some of them providing a bridging product such as premium economy which is becoming increasingly popular, and as budget carriers offer even lower fares to compete with not only rivals in the same class but also legacy airlines at their low end, SilkAir’s middle-of-the-road package is seen less as an alternative in its own right but more as a by-product of parent SIA with fewer perks. It is not altogether a bad thing, as it does not suffer the unfavourable public assessment of Tigerair vis-à-vis other budget carriers. With SilkAir there is no other to compare with, the same kind of benefit Scoot is presently enjoying in its association with parent SIA.

One may even be tempted to ask whether launching audio and video streaming for passengers to download onto their smartphones and tablets as SilkAir has planned as part of the programme to forge an upgraded identity would make that much more a difference.

At 25, SilkAir may feel it is time to spread its own wings, hence the battle-cry to step out of SIA’s shadow. Not quite sure if it is the best way forward when half of its passengers are connectors on SIA. One thing is clear; Mr Thng said: “We never wanted to match SIA.”

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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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