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.


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.

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 to fully acquire Tigerair

Courtesy Reuters

Courtesy Reuters

As anticipated, Singapore Airlines (SIA) is taking steps to rationalize Group operations. (See Singapore Airlines rationalizes operations, Nov 4, 2016). The parent airline has offered to buy out the remaining shares of budget carrier Tiger Airways, of which it currently owns 55.8 per cent. Tigerair will then be delisted.

SIA CEO Goh Choon Phong said: “We are confident that full integration of Tiger Airways into the SIA Group will result in enhanced operational and commercial synergies, ensuring Tiger Airways’ long-term success.”

SIA reported an improved Group operating profit of S$240 million (US$171 million) by 40.4 per cent for Q2 ending September 30, 2015. This raises the Group operating profit excluding Tigerair by 46.2 per cent year-on-year to S$79 million for the first half of Year 2015/16. Lowe fuel costs were a major contributing factor. Also, the Group’s share of losses of associated companies including Tigerair declined by S$117 million. Operating profit for the parent airline was S$206 million, up 12.6 per cent from S$183 million, and for regional carrier SilkAir S$26 million which is a hefty increase from S$5 million from the previous year. Long-haul budget subsidiary cut its losses by half from S$44 million to S$22 million.

What then is the likely future of Tigerair? Already the airline is said to be complementing its operations with Scoot, working together instead of competing with each other in the same market. With SIA keen to expand Scoot, it may not be too far in the future before Scoot assimilates the operations of Tigerair. Or, unlikely as it seems that SIA will relish competition from a stronger Tigerair, still consider tying a “for sale” tag around the tiger’s neck?

Tigerair turns around

Courtesy AFP

Courtesy AFP

AT last Tigerair is reporting a positive quarter (3QFY15) with aprofit after tax of S$2.2 million (US$1.76 million), compared to a hefty loss of S$118.5 million in the previous year. This was achieved on the back of a reduction in costs by 1.5% and capacity by 5.7% that resulted in a higher load factor by 6.2 percentage points and an improved yield by 4.9%. More notably, actual fuel costs fell 21.2% from S$82 million to S$65 million, a blessing of the current slump in the global oil market.

But Tiger, as its CEO Lee Lik Hsin said in a statement issued by the airline, is `not out of the woods yet`. Moving forward, the budget carrier looks to its affiliation with parent Singapore Airlines (SIA) for strength. SIA has increased its stake in Tigerair to 55%, and has not ruled out increasing it further. This suggests a more direct involvement by SIA in Tigerair`s affairs.

Indeed, it is going to be a family affair, with Tigerair saying it will work more closely with step-sibling Scoot. Presumably that must also mean joining hands to take on the competition posed by the likes of AirAsia and Jetstar.

Is there a future for Tigerair?

Courtesy AFP

Courtesy AFP

IT has to happen, and it is happening. The anticipated increased control of the long ailing and unprofitable Tigerair by parent airlines in both Singapore and Australia was announced almost simultaneously, an unlikely coincidence.

Tigerair (Singapore)

Singapore Airlines (SIA) will increase its stake in Tigerair from 40 to a majority of 55 per cent. The low-cost carrier reported its biggest loss to date for the quarter July to September, posting a loss of S$182.4 million (US$145.9 million) compared to a profit of S$23.8 million last year. By January 2015, SIA’s stake is expected to increase to as much as 71 per cent following a rights issue to raise up to S$234 million.

Despite the growth of air travel in the region and budget carriers accounting for more than 50 per cent of the traffic at Singapore Changi Airport, Tigerair seems embattled by the competition. Tigerair CEO Lee Lik Hsin was “heartened” by SIA’s support, reiterating the familiar standard strategy for a turnaround: “We have resolved our excess capacity issues and we also stemmed further losses from overseas venture.” Overcapacity was already cited in the preceding quarter’s report. In May the carrier said in a statement: “Tigerair Singapore had started the process of consolidating its services in preparation for a decisive turnaround in its prospects.” The carrier had since ended its costly partnerships in the Philippines (Tigerair Philippines) and Indonesia (Tigerair Mandala).

Granted, it may be early days. Yet how different would SIA’s increased dominance make in the future of the ailing Tigerair? Hitherto, the SIA hand has long been suspected to be writing the Tigerair story. Underlying the appointment of Mr Koay Peng Yen – Mr Lee’s predecessor – as CEO of the carrier was the expectation that Tigerair would benefit from an injection of new ideas from outside the SIA family, but that apparently had not seemed to work. Even with a makeover involving a name change and logo, the carrier continued to bleed. Replacing Mr Koay with someone from within the SIA Group only affirmed the parent airline’s intention to reassert a greater influence to hopefully steer it back to profitability. (See Can leadership change save Tigerair? May 16, 2014)

SIA in its own right continues to be one of the world’s most successful airlines in aviation history, and among the best for premium service. But the same could not be said of its investments outside the airline in joint ventures and subsidiary operations. The name itself should work some magic on Tigerair, yet it does not as the budget carrier faces stiff competition from the likes of AirAsia and Jetstar, including even sibling Scoot. It has long suspected that the day would come when SIA divests its stake in Tigerair, as it did with the Australian offshoot with first a majority share sale of 60 per cent to Virgin Australia and then finally relinquishing it totally for A$1. Further efforts to save the Singapore-based Tigerair may yet lead to the same outcome of counting the days for the carrier. It does not make sense for SIA to operate or maintain two budget carriers within its fold if they are competing for the same market within the region, although Scoot is supposed to ply medium to long-haul routes. Besides, there is also regional carrier SilkAir, albeit a full-service airline. (See Is Singapore Airlines better off without its subsidiaries? Aug 6, 2014)

Tigerair Australia

Is Virgin Australia in the same dire straits as SIA to have gone this far that it only makes sense to continue going?

Observers may be surprised by Virgin buying the unprofitable Tigerair Australia for A$1 (US$0.88). But its complete takeover of the budget carrier was hardly a surprise. Virgin’s earlier 60-per-cent acquisition augured the complete divestment by SIA in a matter of time. Troubled carriers have been known to be sold for a dollar, such as Malaysia’s AirAsia which was transferred from a government conglomerate to new owner Tony Fernandes for one Malaysian ringgit (US$0.26). But note that such acquisition usually comes laden with heavy debts. Mr Fernandes’ success in turning around the heavily indebted AirAsia into Asia’s largest budget carrier might offer the much needed optimism for the ill-reputed Tigerair to look ahead to better days under Virgin’s undivided attention

Virgin chief executive John Borghetti said: “We will benefit from the economies and achieve profitability ahead of schedule by the end of 2016.”

Unlike its Singapore counterpart, Tigerair Australia is less buffeted by competition though not necessarily less intense competition. Virgin’s interest in Tigerair is fueled by the competition posed by Qantas’s subsidiary Jetstar; Tigerair would provide an expanded network and the necessary links domestically. To that end, Virgin may have already achieved the satisfaction of knowing its rival is now more wary of its presence. In view of the subdued domestic demand (which Qantas has also cited as affecting its domestic operations), Virgin would slow down the growth of Tigerair than originally planned. Mr Borghetti said Tigerair’s fleet is likely to be reduced. The general consensus in the industry is that with full control of the budget carrier, Virgin is probably in a better position to speed up its plan to improve Tigerair’s performance. Q1 losses from Tigerair Australia amounted to A$11.6 million.

So, is there a future for Tigerair? The ground may be more favorable in Australia as demand in the domestic market improves. In Singapore, SIA may already be thinking of how else it may metamorphose the loss-making carrier.

This article was first published in Aspire Aviation.