What Qantas’ strategy shift means for Changi, SIA

http://www.todayonline.com/commentary/what-qantas-strategy-shift-means-changi-sia

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After the merger of Scoot and Tigerair, will it be Singapore Airlines and SilkAir next?

Courtesy Wikimedia Commons

Will Singapore Airlines (SIA) and its subsidiary SilkAir take the merger route of Scoot and Tigerair, now that their finance operations are merged, perhaps as a first step in that direction?

While SIA maintains that such initiatives are part of an ongoing programme to be more competitive, the speculation is only to be expected in the oontext of the company embarking on “a comprehensive review that leaves no stone unturned, cutting across all divisions of the company” as stated by its CEO Goh Choon Phong.

SlkAir started in 1975 as Tradewinds Charters which became Tradewinds Airlines in 1989 when scheduled services were introduced. Three years later, it was renamed SilkAir, shedding its leisure image and is often referenced as SIA’s regional arm.

However, in its long history, SilkAir hardly comes into its own, seen as operating in the shadow of parent SIA. Therefore, consolidating operations – finance, for a start – makes sense since some of the routes operated by SilkAir were previously operated by SIA and in light of SIA re-focussing its operations in the region. Besides, as the competition intensifies, a strong SIA brand across the region is imperative. There is no reason why a regional carrier so-called should be viewed as one providing services one notch below, an unfortunate perception that is difficult to shed.

At the height of the budget travel boom in the region, SIA launched Tigerair in 2003. Then there were already questions asked about the continuing operations of SilkAir which the company reiterated is a regional airline and not a budget carrier. Then Scoot came into being in 2012 as a medium haul budget carrier, differentiated from Tigerair’s short haul operations. It soon became clear the SIA Group was having one too many on its plate, resulting in intra-competition. Tigerair and Scoot finally merged under the Scoot brand this year.

Now that the number has been trimmed from four to three, will it be cut down further to two, typically the structure of most global airlines, between full-service and low-cost operations?

SilkAir may be likened to Cathay Dragonair, which Cathay Pacific has also insisted is not a budget but regional airline. But then, Cathay has never believed in adding a budget carrier under its wings. You might say that place is filled by Dragonair. By comparison, however, SilkAir’s status is somewhat ambiguous depending on how SIA delineates the geography as being regional or international.

Joon: Basic yet chic

Courtesy Air France

What’s basic yet chic? That, says Air France, is the design of the uniform for cabin crew of its new subsidiary airline, Joon. You can expect to serve flight attendants in trendy casuals that include blazers, polos, ankle pants and sneakers. Apparently it is Silicon Valley inspired.

A statement issued by Air France said: “Its visual identity is based on an electric blue colour code symbolizing the airline’s dynamic attitude, as well as the sky, space and travel.”

Believe it, the colour has much to do with the kind of image projected by the airlines. Targeting millennials, Joon moves away from the convention of a neutral and sedate hue for something more in line with the outgoing disposition of younger jet-setters.

Many years ago when Singapore Airlines (SIA) launched a regional carrier called Tradewinds, there was much ado about the crew uniform to project the more casual mood of leisure travel – something you might wear on a vacation. That changed when its successor SilkAir took over to target business travel and other more serious travellers as well.

Courtesy Scoot

But it is Joon that is going completely millennial, right down to white trainers.

Courtesy Air Canada

Meantime, Air Canada is going retro. Its maple leaf logo design returns to the airline’s look 24 years ago, incorporating the circle loop. Black replaces red in the letterings on the aircraft, and flight attendantswill match with black uniform highlighted with a red tie or scarf.

Looks like you either go hip or nostalgic if you want to make a statement.

Airlines target millennials with lifestyle branding

http://www.todayonline.com/commentary/airlines-target-millennials-lifestyle-branding

What would make the new Scoot different?

Singapore Airlines (SIA)’s budget subsidiaires Scoot and Tigerair are now fully merged under one name, i.e. Scoot. Tigerair operated its last flight on July 24.

Why Scoot and not Tigerair? Quite obviously, considering the dotted history of the latter’s operations that ran the gamut of bad publicity from complaints about poor service and flight disruptions to safety infringement that resulted in suspension of its Australian services in 2011.

Adopting the Scoot brand could help distance the new identity from a beleaguered past. Tigerair remained a broken dream for its parent who had named it with the nostalgia of an erstwhile era before SIA broke away from Malaysia-Singapore Airlines to come into its own. Then the airlines was flying the Tiger logo.

Courtesy Scoot

The Scoot/Tigerair merger is marked with a new tagline: Escape the Ordinary. Though not one quite stunning or provocative for a tagline, it is perhaps an ambitious but staid attempt to set itself apart from the pack. Scoot’s original tagline was the somewhat outlandish “Get Outta Here!”

Yet what would make the new Scoot different?

Scoot CEO Lee Lik Hsin said of its new tagline: “It is inspirational to our inner wanderlust, and inspires us to travel and explore the world.”

Given that any and all of the airlines, whether full-service or no-frills, are but a means of transportation, how then will Scoot inspire people to travel with them instead of others? That’s the challenge.

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.

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.