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.

Singapore Airlines’ profit plunges

Courtesy The Straits Times

Courtesy The Straits Times

THE downward trend was to be expected as you followed Singapore Airlines (SIA)’s performance month-to-month for the second quarter (July-September) of its current financial year. The sluggish global economy, according to the airline, was largely to blame.

SIA’s operating profit declined 19.4% from last year’s S$98m (US$71m) to S$79m. Fortunately, the stronger first quarter boosted the result for the first half-year, with operating profit increasing 34.0% from S$206m to S$276m on declining revenue of S$343m and the contraction in passenger carriage by 3.2%. Yield as a consequence came down by 2.9%, and the passenger load factor of 78.1% was a drop of 1.9 percentage points. The saving grace was lower fuel costs by 25.2%.

Regional subsidiary SilkAir too suffered a decline in operating profit for Q2, down 19.0% from S$21m to S$17m.

Budget subsidiaries Scoot and Tigerair however managed to reverse their losses, respectively from a loss of S$2m to S$5m and from a loss of S$10m to S$3m.

Looking ahead, SIA hopes that the improved operating capability and efficiency of its growing Airbus A350 fleet as well as the long anticipated integration of Scoot and Tigerair (see The end draws near fro Tigerair, Nov 6, 2016) would improve its fortune as it continues to be impacted by geopolitical uncertainty and weak global economic conditions and faces the prospect of losing the cushion by lower fuel costs as oil producers cut back on their output.

However, if there’s any consolation, close rival Cathay Pacific too is experiencing a downward trend in profitability (see Cathay Pacific losing grip of China card, September 19, 2016 ).

The end draws near for Tigerair

ScootTigerThe announced assimilation of Tigerair into Scoot by the end of next year does not come as a surprise. In fact, it has long been anticipated.

The two airlines will operate under the single identity of Singapore Airlines (SIA)’s youngest subsidiary airline Scoot which was originally intended as a medium-to-long haul budget carrier in contrast to Tigerair’s short-haul status. To be expected, Scoot is performing much better than Tigerair, which has been plagued by an ill-gotten past. Faced with stiff regional competition, the lines soon blur between the networks of the two brands as they lapse into each other’s domain. The intra-competition does not make economic sense, which led to a policy of co-operating rather than competing.

A new company Budget Aviation Holdings (BAH) was formed in May to manage the two carriers. So said SIA CEO Goh Choon Phong: “The integration has already led to commercial and operational synergies between Scoot and Tigerair that are providing growth opportunities for both airlines. Following a review, we have determined that the logical next step is to pursue a common operating licence and common brand identity to enable a more seamless travel experience for customers.”
BAH chief executive Lee Lik Hsin added: “A single brand is less confusing for consumers and more effective to build brand loyalty and affinity.”

Multiple branding within a family is not a new economic phenomenon. But it has not worked for the Scoot-Tigerair differentiation when the market becomes restricted by its defined limits that may hurt both carriers in their pursuit of growth, particularly for Scoot in its own right to tap into source markets to grow beyond those confines. Besides, the poor reputation of Tigerair does not help. More than that, what really is happening in the big picture is that the aviation landscape has shifted drastically. The so-called niche budget market has extended beyond its boundaries. Tigerair seems a lame and superfluous appendage when Scoot could do the job better, and the neater structure will better position the Group in an integrative strategy rather one that is segmented overall.

Singapore Airlines reports declining passenger numbers

Courtesy Singapore Airlines

Courtesy Singapore Airlines

Singapore Airlines (SIA) carried 1.51 million passengers in September – lower than both last year’s 1.57 million and last month’s 1.61 million passengers. Consequently passenger load factor was down 2.1 percentage points from last year’s 80.8 per cent to 78.7 per cent. Rival Cathay Pacific may take some comfort there that the downward trend was not a unique phenomenon when it reported its own lacklustre performance recently.

Except for East Asia which retained a flat performance, all sectors reported declining passenger laod factors, worst of all for Europe (down 4,8 percentage points) followed by South West Pacific (down 2.7 percentage points). The weaker demand for Europe may be attributed to the uncertainty of the region’s economic and geopolitical situation, but noteworthy is the performance of South West Pacific when Qantas was bucking the trend with record profits. As recognized by SIA in its statement, “the landscape remains challenging.” Competition is a given; the real poser is whether rival airlines are closing the gaps.

The good news, however, is that except for the beleaguered budget carrier Tigerair, the other two subsidiaries within the SIA Group – SilkAir and Scoot – carried more passengers although the passenger load factor also fell. Both airlines carried less than their capacity growth, but it looks like the region closer home is where the business is thriving best for now. Looking farther down the line, the high point would be the performance of SIA’s non-stop services to the US.

Scoot and Tigerair go where it makes sense

ScootTigerSingapore Airlines (SIA)’s decision to bring its budget subsidiaries Tigerair and Scoot under the control of a common holding company – Budget Aviation Holdings – is no surprise. Expected and long predicted. It just didn’t make sense for the two carriers to be competing for the same market in apparent collaboration although the initial division is for one to operate the short haul and the other the medium haul. The lines soon blurred.

The new entity will be headed by Tigerair CEO Lee Lik Hsin.

SIA chief executive Goh Choon Phong said: “The holding company structure will drive a deep integration of our low-cost subsidiaries, which are important parts of our portfolio strategy in which we have investments in both the full-service and budget aspects of the airline business.”

Indeed, as the aviation landscape keeps shifting, one may even wonder why this has not happened much earlier with Tigerair’s poor performance and Scoot competing in the same market. While major airlines are consolidating their strengths, SIA may be finding it one too many on its plate to try and catch-all but risks dilution of its core strategy. Well, as it has always been said, better late than never, and better now than later.

This may be the prelude to the merger of the two carriers with one identity although SIA has said there may be difficulties with traffic rights, airline/aircraft registration and licensing. But it can happen. “We would not rule it out,” said Mr Goh. “But for the moment, we do see a benefit in them having their own separate identities.”

Singapore Airlines rationalizes operations

Courtesy The Straits Times

Courtesy The Straits Times

THE recent announcement by Singapore Airlines (SIA) that budget subsidiary Scoot will take over its Jeddah services from May 2016 points to a Group rationalization strategy that is slowly taking shape.

SIA presently flies three times weekly to the Saudi Arabian city via Dubai. Scoot will replace these services with thrice-weekly non-stop services between Singapore and Jeddah, and with plans to increase the frequency. SIA did not disguise the rationale for the transfer as oen that will “better optimise the utilisation of the SIA’s Group resources.”

There are four carriers in the SIA stable – parent SIA, regional operator SilkAir and budget subsidiaries Scoot and Tigerair. As the market line blurs between full-service and low-cost operations, duplication of services and intra-competition are likely to take a toll on the Group’s performance.

Already there are signs of merging between Scoot and Tigerair as they compete in the same market. SilkAir may continue to replace SIA on some regional routes, and Scoot too as it expands, so that SIA can better focus on the long haul and high capacity routes. Complementary, rather than competitive, is the direction to go.

Scoot to go where others failed

Courtesy AFP

Courtesy AFP

IT will happen, as it must. So it seems, but a matter of time. Scoot, the medium to long-haul low-cost subsidiary of Singapore Airlines (SIA) has made known its intention to extend its network to possibly include a destination as far away as London from Singapore. After all, London is a prime destination for SIA, and one that has helped it flourish in its early days, so it should be an encouraging start for Scoot to test the budget long-haul.

Scoot chief executive Campbell Wilson said: “The West is definitely on our cards.” Lest, you forget by definition it is a medium to long haul low-cost operator and think its fortune is confined to regional flights. It is eyeing the Middle East up to London.

Never mind the failure of others that tried, most memorably Hong Kong’s Oasis Airlines that inaugurated its route from Hong Kong to London in October 2006. The budget airline added Vancouver in June 2007, and won several awards that year including “World’s Leading New Airlines: and “Asia’s Leading Budget Airline” at the Annual world Travel Awards. But barely into its third year, it folded its wings in April 2008.

Another low-cost carrier that faced a similar fate was Canada’s Harmony Airways that ventured beyond North America from Vancouver to Manchester (UK) and planned to expand into Asia, eyeing in particular the China market. That was not to be, when the airline collapsed in 2007, three years after it repositioned itself for the long-haul.

More recent and closer to home is AirAsia’s subsidiary AirAsia X in yet another attempt to keep budget pioneer Freddie Laker’s dream alive. In fact, its first aircraft was named “Semangat Sir Freddie” (“Spirit of Sir Freddie”). The budget carrier operated from Kuala Lumpur to two European destinations – London and Paris, connecting traffic from other destinations such as Melbourne – which it has since suspended, together with others, but it continues to operate some shorter hauls. Parent airline AirAsia is unlikely to admit to its offshoot’s failure as being final as its chief Tony Fernandes had said it planned to return some day.

So is Scoot going where angels fear to tread or where the brave dare not go to prove it is not an impossible dream after all?

On a more optimistic note, it is certainly a welcome breath of the erstwhile spirit and vigor that characterised the success of SIA when as a new airline it quickly became the world’s most envied operator that could do things that others were reluctant or afraid to consider. Indeed, it is difficult to think of Scoot without parent SIA – a quiet overshadowing that sibling SilkAir has for years tried and still does to dispel, and into which increasingly 55-per-cent owned Tigerair is moving. While pedigree connections cannot guarantee success, experiential wisdom is not something to be scoffed at. The issue is also one of relevance. SIA is very much a premium carrier that has been pushed into venturing into the lower end by increased competition from low-cost carriers and by peer rivals that have sprouted budget subsidiaries, a good example being Qantas and its budget subsidiary Jetstar.

There are questions: Is the SIA stable getting a little crowded with intra competition even as Scoot and Tigerair now claim they are performing better with cooperation? Scoot and Tigerair will soon be combining their reservations systems. Can SIA define the market such that they do not overlap and that it merely shifts the business from one pocket to the other? The move seems to be towards more commonality. SIA’s Krisflyer perks are now open to customers of subsidiary carriers.

And the big question: Is it Scoot in its own right flying to London or is the operation under the SIA banner, the way it is so difficult to tell AirAsia X from parent AirAsia? But then, AirAsia is itself a budget carrier. Nevertheless, the bet is likely to favour the probability of SIA (driving Scoot) succeeding if anyone should finally succeed in the budget long-haul.

This is not forgetting that SIA itself has not had lemons in its basket – its failed stake in Air New Zealand, its lacklustre investment in Virgin Atlantic, and the premature termination of its all-business class flights. While its slow entry (or re-entry if you consider the short-lived non-stop Los Angeles and New York runs) into the premium economy (PEY) market may have been the result of an over-cautious retreat, its performance thus far may have also emboldened it to take a more adventurous approach. Additionally, the PEY is doing well on the Vistara joint-venture in India, even as Cathay Pacific, a forerunner of the new PEY, has decided to take it off Indian routes.

Besides, the climate for expansion is encouraging. Mr Wilson said: “We are on an upward slope towards profitability. We see yield maturity building over time and we are observing that across our routes.” The SIA Group has just announced Q1 (Apr-Jun) profit of S$111 million (US$81 million), an increase of S$72 million. Parent SIA made a profit of S$108 million compared to S$45 a year ago. Tigerair broke even. And Scoot recorded an operating loss of S$20 million, an improvement of S$5 million over last year. Passenger load factor for Scoot increased 2.9 percentage points to 81.4% on the back of increased passenger carriage by 11.0%, far exceeding the 6.9% capacity injection. And, of course, the industry is blessed with the continuing low costs of jet fuel.

What about the competition? Without any indication of AirAsia X’s resumption of the long haul services, Scoot has a pretty much open field although Norwegian Air Shuttle operates from Oslo and Stockholm to Bangkok. In fact, with airlines such as Garuda Indonesia offering low fares to London in the attempt to retain direct traffic between Indonesia and the UK, Scoot may become the alternative SIA in the competition. Mr Wilson said: “We might be a bit more niche when it comes to long-haul operations.” Generally, the budget market is driven by the dollar, and the niche factor, whatever Mr Wilson meant by it, may make the difference. But note how many a budget operator that came and went had always maintained that they were not like the others, and that too may be predicated on the expectations of long-haul travellers.

Nevertheless, it is invigorating news although Mr Wilson said the plan “is not immediate but it is not something we are closed to.” It has been almost 50 years since Sir Freddie founded Laker Airways in 1966, and it is still a field where few dare venture. We wish Scoot good luck when it finally happens, and hope it succeeds.

This article was first published in Aspire Aviation.