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.

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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.”

Tigerair keeps sinking

Courtesy Tigerair

Courtesy Tigerair


THE tide has not changed for Tigerair as the budget carrier which is 40% owned by Singapore Airlines continues to be plagued by poor performance.

Tigerair posted an operating loss of S$16.4 million (US$13.1 million) for the quarter ended June 30, 2014, which is the first quarter of its new financial year. This was more than twice the loss of S$6.2 million for the same quarter last year.

The company cited two primary reasons for the contraction. First, the exclusion of Tigerair Australia from the results after it was acquired 60% by Virgin Australia in July last year. This raised the question as to whether Tigerair had made a bad investment decision at a time when it was desperately trying to cut losses.

Second, the huge loss incurred by Mandala Indonesia Airlines, which was everything but a savvy decision at a time when Tigerair was pressured by the regional competition in a race to set up joint ventures and expand its network particularly in light of the impending full implementation of the Asean (Association of Southeast Asian Nations) open skies policy in 2015. The cost for that hasty misadventure amounted to S$35.3 million for the quarter. This widened the loss to S$65.2 million. The Indonesian carrier has since July 1 ceased operations with a provision for shutdown costs of S$14.6 million. On a note of forced optimism, Tigerair could look to an improved bottom line, as stated by CEO Lee Lik Hsin in a press release: “With the cessation, the Group will no longer be exposed to loss-making Mandala.”

Either way, Tigerair appears to be trapped, perhaps a victim of circumstances, but in cold business, that may only serve to amplify the weaknesses not of the market but of the player in question, only simply because it is all about the competition.

So did Mr Lee also say: “Despite the competitive operating conditions faced by Tigerair Singapore, our first quarter results showed a slight improvement over the last quarter.” Some consolation there; you choose the quarter for comparison as you deem fit. While corresponding quarters best take care of seasonal aberrations, consecutive quarters can point to a changing trend. The truth often lies somewhere in between, how much of it depending on how skewed the interpretation is presented. No one can argue the toss with Mr Lee. Figures don’t lie; what is more important is the reading of the story they tell.

For the same quarter ending June 30, Tigerair Singapore posted an operating loss of S$19.8 million, compared to an operating profit of S$5.9 million last year. However, by the same argument, it was an improvement over the operating loss of S$29.4 million in the preceding quarter. The point of contention is whether this is a sufficient indication of a turning trend, losing less. The good news was that revenue grew by 3.2% – but that was as far as it went – on the back of an increase in capacity by 14.8% resulting in a higher load factor by 0.8 percentage points which unfortunately was offset by lower yields by as much as 11.5%. The bad news is that costs went up by 19.9%.

Tigerair continues to gripe about overcapacity that has affected its bottom line. In the statement it issued, Tigerair said: “Tigerair Singapore continues to operate in a challenging environment due to persistent oversupply of capacity in the region.” That, we have to admit, is the crux of the competition. While soothsayers continue to raise the optimism of rising Asia, the truth is that the competition has intensified as the region becomes more liberal. This is exacerbated by the thin line between budget and legacy. Asean too may have oversold the dream of its open skies, and the proliferation of upstarts, whether independent or wholly/jointly owned entities, has brought about intra-airline instead of inter-airline competition that in the case of Tigerair sees it competing with sibling Scoot.

Tackling overcapacity can mean aggression or a retreat. Tigerair is already executing plans to ground eight surplus aircraft. With the cessation of Mandala operations, the Group will have four more surplus aircraft returned to the hangar.

In May when Tigerair replaced Mr Koay Peng Yen with Mr Lee at the helm, it said: “Tigerair Singapore had started the process of consolidating its services in preparation for a decisive turnaround in its prospects.” In his parting shot, Mr Koay said: “We have re-calibrated our strategy and taken the necessary steps to reposition Tigerair.” (See Can leadership change save Tigerair? May 16, 2014) Maybe it is still early days. Apart from the change of leadership, we are still none the wiser about that re-calibration unless it was all about shedding Mandala to mark the intended turning point. What else, one is apt to ask.

This article was first published in Aspire Aviation.

Can leadership change save Tigerair?

Courtesy Tigerair

Courtesy Tigerair

THE sudden departure of Koay Peng Yen as Tigerair’s CEO smacks of a management issue at the top.

To some observers, it may have come as a surprise, considering that not too long ago, Mr Koay appeared to be all too ready to steer the beleaguered budget carrier in a new direction when he said: “We have re-calibrated our strategy and taken the necessary steps to re-position Tigerair.” What exactly those steps might be is not clear, apart from the sale of Tigerair’s stake in Tigerair Philippines to Cebu Pacific Airways and the intended sale of its stake in Tigerair Mandala (Indonesia), both moves made to cut losses in the joint ventures.

To others, Mr Koay’s departure was to be expected as Tigerair continues to roll in losses, fails at expanding its regional connections with third party carriers, and hardly succeeds any better in performance even with its rebranding, in competition with rivals such as AirAsia and Jetstar Asia. Its Q4 net loss widened from S$15.4 million (US$12.3 million) a year ago to S$95.5 million, a hefty more-than-six-fold increase, of which S$21.5 million was attributed to losses in associate and joint ventures. The future is bleak. Or, as stated by the carrier: “Tigerair continues to operate in a challenging business environment. It is expected that yield and load factors will remain under pressure.”

Mr Koay is being replaced by an internal candidate from within parent Singapore Airlines (SIA), which owns about 40 per cent of Tigerair. Interestingly, Mr Koay whose stint with Tigerair lasted barely two years was an external candidate from the shipping industry. It is a perennial favourite debate across large corporations as to whether fresh blood from without might do a better job at improving a company`s fortune, especially when the company concerned is ailing and failing. With hindsight knowledge, one might reflect on whether Mr Koay`s appointment then could not have come at a better or worse time when Tigerair`s reputation was at its nadir, and the airline was reeling from the suspension of its Australian operations because of safety breaches. Quite paradoxically, it also marked the beginning of increased involvement by parent SIA in the affairs of Tigerair. The appointment of Lee Lik Hsin as Mr Koay’s successor pointed to even greater influence by SIA. Perhaps then there may be better synergy between parent and offspring, and perhaps even more significantly, the sibling carriers within the SIA stable may better complement rather than compete with each other.

A statement issued by Tiger said: “By the time of Koay’s departure, Tigerair Singapore had started the process of consolidating its services in preparation for a decisive turnaround in its prospects.” One cannot be sure if that was meant to compliment Mr Koay, who, during his term, also saw the sale of a 60-per-cent stake in Tigerair Australia to Virgin Australia which might at that time look like a sweet deal – for Tiger, it would improve the bottom line, and for Virgin it was an investment in its bitter competition with Qantas and Jetstar, Or did that Tiger’s statement inadvertently spell out the fortuitous timing for Mr Lee, to lead from a hinted certainty the way that Mr Koay might been challenged to steer from uncertainty?

Tigerair has blamed over-capacity in the industry, increased competition and “turbulence in markets that hampered fledgling carriers from establishing a decisive hold” for its woes. Yet this is the very stuff that the business is all about. Incorporated in 2003 and commencing services a year later, the company was hardly a “fledgling” though the reference might be directed at the carrier’s recent joint ventures whose failure might have to do with more than just being so granting that start-up costs are a normal course of business. Clearly the powers that be have recognized the need for reorganization and new directions, and we keep asking, “What next, Tigerair?”

So too, the question: Can leadership change save Tigerair? It is tempting to say it may need more than just that, but the change of hand provides the opportunity to change course, whether driven by the new man or the power behind him. Yet in fairness to Mr Lee, whose last appointment was president of SIA Cargo, time will tell.

This article was first published in Aspire Aviation.

Tigerair keeps sliding

Photo courtesy Tigerair

Photo courtesy Tigerair

IS it any surprise that budget carrier Tigerair continues to slide as the airline posted a deeper net loss of S$95.5 million (US$76.2 million) in the quarter ending March, nearly 20 per cent more than the corresponding quarter’s performance last year.

Tigerair attributed the worsening performance to joint-venture costs, primarily the loss accrued from its investment in Tigerair Mandala based in Indonesia to the tune of more than S$20 million. We have heard for a long time how Tiger has been mulling over the decision to let Mandala go, and it is reported yet again that the Tiger Airways group is reviewing its investment in Tigerair Mandala. However, the cost of inaction or an inability to sell its stake continues to prove to be enormous.

The Holding company warned of a bleak future ahead: “Due to an industry over-supply of capacity, Tigerair continues to operate in a challenging business environment. It is expected that yield and load factors will remain under pressure.”

And not too long ago, Tigerair chief Koay Peng Yen said: “We have re-calibrated our strategy and taken the necessary steps to re-position Tigerair for a brighter future.”

What next, one asks and asks again and again. (See What next, Tigerair? Mar 29, 2014)

Is ASEAN Open Skies a myth?

LESS than a year to its full implementation, the ASEAN Open Skies remains an uncertainty. First mooted some 20 years ago, it has been a long time coming. While there was some open discussion in its early days, all seems somewhat quiet of late. Is it likely to be postponed? Or is it after all a myth?

The issue really hinges on how ready the ten-nation association are collectively. Even deeper than that, how prepared are they to overcome the hurdles, real or perceived, that stand in the way of full implementation. Unlike the European Union, ASEAN is by definition an “association” and not a common government with binding law enforcement obligations. The bloc is made up of a disparate string of nations that are vastly different in their stages of economic development. How they weigh the opportunities that such a common policy could bring against possible losses at home would determine their readiness for participation. Some nations may still prefer the seeming protection of local businesses accorded by bilateral exchanges. This was already tacit when at the outset, the various nations agreed on “the importance of the development of Competitive Air Services Policy which may be a gradual step towards an Open Sky Policy in ASEAN.”

Yet the good news is that against the uncertainty, the skies are already becoming more liberal as a number of airlines have stepped up expansion plans across the region. The battle for dominance has begun.

ASEAN nations

Courtesy The Bangkok Post

Courtesy The Bangkok Post

Indonesia is the largest nation in the association, occupying a land mass made up of more than 13,000 islands that is almost 75% the total area of the other nine nations put together. It is also the most populous with 250 million people, followed by the Philippines (98,000,000) and Vietnam (90,000,000). While ASEAN has a combined population of over 600 million – which speaks a lot about its huge market potential – expectedly the focus is likely to be Indonesia. But Indonesia, hampered by slow infrastructural enhancement and the past poor safety records of its carriers, fears the loss of domestic markets to better endowed foreign competitors. In May 2010, Indonesia declared it was not ready to fully open its skies and would limit access to only five airports, namely Jakarta, Surabaya, Bali, Medan and Makassar. Other ports would be subject to bilateral agreements and foreign carriers would not be permitted to ply domestic routes.

So it is with the less developed nations of Myanmar, Laos, Kampuchea and Vietnam even as they seek more foreign investments and ways to boost their exports. Accessibility to the landlocked outback of these nations could open up opportunities for growth, as noted at a meeting of ASEAN transport ministers in 1996 that the association aimed “to promote interconnectivity and interoperability of national networks and access thereto taking particular account of the need to link islands, land locked, and peripheral regions with the national and global economies.” The question really is how ready they are to embrace this objective to see to its implementation.

At the other end of the spectrum is Singapore, which is the smallest of the nations but the most advanced economically and most ready to go full hog with the implementation of the ASEAN Open Skies policy. After all, Singapore has been a pioneer in advocating liberal skies on the global stage. A concern among its ASEAN neighbours may be that of how they perceive Singapore carriers as benefitting from an enlarged Asean hinterland. It works both ways. Foreign carriers, particularly short-haul operators with limited capacity and resources, will benefit from Changi Airport’s hub connections to tap into other markets in the region. Besides its strategic geographical position, Changi offers excellent infrastructure and has appeal aplenty for transits,

Middle-of-the-road Malaysia and Thailand seem less passionate about the push. Brunei Darussalam, which has the smallest population, appears quite comfortable the way it is for now. However, the Philippines with a similar geography as Indonesia could benefit from more liberal connections.

Which airlines will rule the ASEAN skies?

The region’s growth is likely to be led by budget carriers. With the focus on Indonesia, its home-based carriers are not sitting by idly. Flag carrier Garuda Indonesia is acquiring smaller 100-seat planes more suited to the shorter runways of secondary airports, which will be largely served by its budget subsidiary Citilink. Asked how Garuda was gearing up for the ASEAN Open Skies, Garuda president and chief executive Emirsyah Satar said: “The ASEAN Open Skies Agreement will open up the Indonesian market to carriers from other ASEAN member countries, but our position is very strong in Indonesia and we are prepared for the competition. Our network’s aggressive international expansion and continual developments and service improvements will also prepare us for competing in a more liberal environment.” (Interview: Emirysah Satar, president & chief executive, Garuda Indonesia, 4 September 2013) He projected that Citilink would carry 19 million passengers by 2015 and there were plans to add international routes to several destinations in Southeast Asia. Garuda is also developing a new hub in Bintan, which is a hop away from Changi Airport.

Courtesy Lion Group/Picture by Rudy Hari Purnomo

Courtesy Lion Group/Picture by Rudy Hari Purnomo

Compatriot Lion Air, which is Indonesia’s second largest airline, is also expanding its fleet and gearing up its regional subsidiary Wings Air to service smaller airports. Lion Air has long expressed its intention to hub through Changi although it has also announced plans to develop Batam as an alternative transit hub to the congested Soekarno-Hatta Airport in Jakarta for both domestic and international flights. Lion Air president Rusdi Kirana said: “The distance is actually shorter if you transit in Batam rather than flying south to Jakarta to transit. The shorter flying time makes flying more convenient for passengers and it means aircraft burn less fuel, leading to significant cost savings.” From Batam, which, like Bintan, is a stone’s throw away from Changi, Lion Air hopes to fly to destinations such as Guangzhou, Hong Kong, Bangkok, Jeddah, New Delhi and Mumbai.

It is to be seen how the plans of Garuda and Lion Air to develop Bintan and Batam respectively will impact on Changi, which is likely to see higher growth as Singapore becomes an attractive destination in itself and as a desirable feed port for international and regional traffic. In introducing a direct non-stop service from Jakarta to London in May this year, Mr Satar has hoped that Indonesian travellers would fly Garuda instead of routing their travel out of another airport such as Changi.

Other smaller carriers are expected to go for a bigger slice of the growing pie and new carriers launched to serve secondary airports.

Courtesy Airbus

Courtesy Airbus

Not to be left out of the race, AirAsia and Tigerair made early moves to establish their presence in the huge Indonesian market. Until a full open skies policy is in place, joint ventures are the expedient way to gaining a foothold. Indonesia AirAsia, which is 49% owned by AirAsia, operates beyond Indonesia to Singapore, Kuala Lumpur, Phuket and Ho Chi Minh City. AirAsia chief Tony Fernandes’ ambition is to dot the region with the AirAsia brand. The Malaysian budget carrier has also set up joint ventures in Thailand and the Philippines. This means AirAsia, which is headquartered in Kuala Lumpur, and its joint-venture airlines are serving destinations in all the ten Asean countries, as summed up by Mr Fernandes: “Think we are done in Asean.” But liberalization offers more than just opportunities within Asean; AirAsia is well positioned to connect its passengers beyond to destinations in Australia, Japan, Korea, China, India and the Middle East.

Responding to AirAsia’s thrust into Indonesia, Lion Air teamed up with Malaysia’s National Aerospace and Defence Industries to launch Malindo Airways for services from Kuala Lumpur across Asean and to China, India and Japan, a move that Mr Fernandes had rebuffed as no match for AirAsia’s strong brand and positioning as Asia’s largest budget carrier. So far Lion Air appears to be one with the biggest plans, which include an airline leasing company to be situated in Singapore, a new full-service airline Batik Air which was launched in May last year and which plans to fly to Singapore as its first international destination sometime this year, and a premium charter under the Space Jet brand.

Not so lucky is Tigerair, whose partnership with Mandala Airlines Indonesia is teetering on the brink, as was its partnership with SEAir in Tigerair Philippines which has since been sold to Cebu Pacific Air. Its attempt to spread its wings across the region had met with a string of failures added to a blemished record of poor service. Its ambiguous relationship with sibling airlines within the Singapore Airlines (SIA) stable has not improved its fortune; today Tigerair and Scoot are competitors on some routes. Scoot, which is 100% owned by SIA, looks likely to overtake Tigerair in the game. It has partnered Nok Air to operate a domestic service in Thailand. Nok has hoped that this will be its vehicle for expansion overseas. Regional carrier SilkAir continues to fly in the shadow of parent SIA, which may have to continue to shore up the fortunes of its offshoots with feeder traffic from and into its long haul services.

Jetstar Asia, the only other airline based in Singapore that is not part of the SIA group, has proven to be a tough competitor. Parent Qantas has been actively promoting the Jetstar brand across Asia, having also set up joint ventures in Japan, Vietnam and Hong Kong.

Whether the Asean Open Skies is finally formalized or not, regional carriers have already started to prepare for the eventuality. The question as to whether it is a myth is no longer relevant. Clearly, the end-date is not as important as the progression towards it.

What next, Tigerair?

Courtesy Reuters

Courtesy Reuters

Singapore-based budget carrier Tigerair which is 33-per-cent owned by Singapore Airlines has cancelled its aircraft order of nine Airbus A320 aircraft for this year and the next. This should not come as a surprise judging by recent moves to extricate itself from the loss-making Tigerair Philippines and Tiger Mandala Airlines. The Philippines stake has been sold to Cebu Pacific Air.

Instead, Tigerair signed a new deal for 37 Airbus A320neo aircraft worth US$3.8 billion to be delivered over eight years from 2018, largely as a replacement program.

Bitten by losses, Tigerair has begun to tread cautiously in a highly competitive environment even as there are promises of a growing Asean and nearby market, expressing concerns of overcapacity. This means the carrier is not embarking on any ambitious expansion program over the next few years as the carrier treads cautiously in a field dominated by rivals AirAsia, Jetstar and Lion Air.

Tigerair chief Koay Peng Yen said: “We have re-calibrated our strategy and taken the necessary steps to re-position Tigerair for a brighter future. This (aircraft) deal effectively dissipates some concerns over a potential capacity overhang in the next couple of years. It also allows us to continue building on our leadership position in budget travel at a measured pace.”

Of course, taking a step back could be strategic. The question is: Has Tigerair the choice? Not knowing what that strategy, if at all you can call it one, entails, we can only ask: What next, Tigerair? (See Tigerair sees red, continues to retreat: Will SIA let it go? Mar 4, 2014)