The Tiger maimed and lame

Photo courtesy Tigerair

Photo courtesy Tigerair


WHAT’s in a name? A tiger’s still a tiger by any name, except in this case it is one maimed and lame. Last year budget carrier Tigerair ditched its old Tiger Airways name and adopted a new logo, but that did not change its fortune. (See Can Tiger change its stripes? Jul 4, 2013)

Tigerair reported an operating loss of S$8.8 million (US$6.9) for its once profitable Singapore-based operations for the third quarter (Sep to Dec 2013). Together with associate operations in Australia, Indonesia and the Philippines, the group lost a total of S$118.5 million. Worthy of mention is its quick sale of its 40-per-cent stake in the Philippines joint venture with SEAir to Cebu Pacific, losing grip of the Asean competition pending the full implementation of Asean Open Skies by 2015. (See The Tiger retreats, Jan 4, 2014) The carrier is turning its attention to the wider Asian arena as it hinges its hope on a new budget carrier in Taiwan to be set up jointly with China Airlines and on a partnership with India’s SpiceJet.

The near prospect is not promising with the political instability in Bangkok, and the woe of the last quarter (Jan-Mar 2014) will deepen as a consequence. (See No easy trot for Singapore stable, Jan 24, 2014) While Tigerair may ascribe its loss to one of overcapacity, it also points to its marketing weakness. The carrier which is 33 per cent owned by Singapore Airlines will find the competition with AirAsia and Jetstar out of Singapore and within the region tough. Looking at the way things are moving within the SIA group, don’t be surprised that Scoot is ready to subsume its sibling airline’s operations.

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Tigerair and Scoot ventures tell a veiled SIA story

BIG and viewed largely as positive news for Singapore Airlines (SIA)’s budget subsidiaries Tigerair and Scoot when they announced expansion plans.

Tigerair

Courtesy Bloomberg

Courtesy Bloomberg

Tigerair plans to set up Tigerair Taiwan with China Airlines as partner. Ironically, while so named, Tigerair will hold only a 10% stake in the new airline which aims to penetrate the untapped markets of Taiwan, Japan and Korea. Taiwan has largely been untouched by domestic budget operations and offers good potential for growth. While the link will certainly increase Tigerair brand presence in North Asia, the small stake held by Tigerair however may not do enough to boost substantially its bottom line. Whatever the reason for the size of the participation, the cautious approach by parent SIA has certainly rubbed the budget offshoot, as reflective of SIA’s initial investment in Virgin Australia and an apparent hands-off approach to M&A possibilities ever since its lacklustre if not poor investment in Air New Zealand and Virgin Atlantic albeit more than a decade ago. SIA holds a majority share of close to 33% in Tigerair.

Or does the caution stem from Tigerair’s own not too successful experiences at setting up joint ventures in the region, in spite it having now taken up much larger stakes in two airlines – a 40% stake in SEAir which has been renamed Tigerair Philippines and a 15.7% stake in Tigerair Mandala based in Indonesia, both airlines yet to be proven profitable acquisitions?

But if Tigerair is doing at least one thing right, it is following albeit lagging behind AirAsia and Jetstar of Qantas in dotting the regional aviation map with its name.

Will Tigerair Taiwan go the way of AirAsia Japan when partners All Nippon Airways and AirAsia had to part ways just after one year of operations? Most probably not, as, unlike the 51/49 ANA/AirAsia joint venture, Tigerair will have to rest content with leaving the running to China Airlines, which has no experience in the niche LCC field. Much as Tigerair chief executive Koay Peng Yen might have talked about “areas of synergy to be explored between the two airlines”, it is for Tigerair a toehold strategy.

Tigerair also announced plans an agreement with Spicejet of India to improve connectivity between the flights of the two airlines, giving Tigerair customers access to Spicejet destinations such as Goa, Kolkata, Pune and Tirupati.

Scoot

Courtesy Scoot

Courtesy Scoot

SIA’s medium-to-long haul – and now also short haul – wholly-owned budget subsidiary Scoot has a similar plan, which is to set up NokScoot in Bangkok but with a bigger stake of 49%. While Scoot chief executive Campbell Wilson offered the often used rationale that “Thailand is Asia’s premier tourist destination” and therefore a “logical hub for Scoot to expand to”, Nok Air chief executive Patee Sarasin was more excited about opportunities for the Nok brand expanding overseas. The potential is there, and Scoot can look forward to feeder traffic from the short haul into its longer haul operations. The Singapore carrier is presently limited by competition on the major routes.

Tigerair and Scoot partnership

It is an amusing story that Tigerair and Scoot which have become rivals on some routes are forming a partnership, apparently to further align their commercial activities such as joint operation, sales and marketing of parallel routes. The upside is that there may be cost savings for the carriers through eliminating duplication and better capacity management, but it may also mean higher fares for consumers. Both Tigerair and Scoot operate from Singapore to Hong Kong, Bangkok, Taipei and Perth. It may also suggest a rationalization on the part of parent SIA as it reassesses the need for two budget subsidiaries operating out of the same base, and this in turn leads to the speculation that one day the two carriers might merge as one. SIA also has in its stable a regional carrier, SilkAir, which is not a low-cost operator.

The SIA story

sia logoInterestingly, while the announcements by Tigerair and Scoot have generated an upbeat market feel about them specifically, they tell in the big picture a different, perhaps less sanguine, veiled SIA story of the parent airline faced with increasingly stiffer competition on two fronts – in the premium market from rivals such as Qantas, Cathay Pacific and Middle East airlines particularly Emirates and Qatar which pose its biggest threat on the kangaroo route, and at the low end from the growing number of budget carriers whose encroachment has threatened yields on regional routes. The expansion plans of Tigerair and Scoot cannot be viewed in isolation as they can become instrumental in supporting SIA in the wider market, providing the links and market accesses, and narrowing the competition. It is a Group strategy. There is however the risk of the budget segment growing at the expense of the premium segment. That will be a high price to pay, perhaps not for the Group but for SIA the airline.

Female Asiana crew want to wear pants

Photo credit: GETTY

Photo credit: GETTY

THINK again if you believe female cabin crew should only wear dresses and skirts. Asiana Airlines has been asked by South Korea’s human rights commission to ease its dress code to allow female flight attendants to wear pants. The ruling is not binding, but the airline said it would consider pants as an option in future uniform designs.

Many airlines, notably those in the west, have already included pants as part of the uniform for their female crews. For the Asiana crew, it is a victory for the 3,400 female staff who are said to be subject to a very stringent dress code that includes no glasses (which the airline has now allowed), a limit on the number of hairpins and manicured nails at all times.

Three reasons have been cited for the relaxation. First, safety, the one reason that no one wants to refute. But really, where does one draw the line? As Asiana spokesperson Min Man-ki said, “(We) cannot expect flight attendants to wear track suits and sneakers just for safety.” Now one imagines if the sexy qipao worn by female crew of Chinese carriers such as China Airlines, and the unique sarong kebaya won by those of South-east Asian airlines such as Singapore Airlines are any less safe. It is almost inconceivable that they should trade those for pants.

I risk being branded sexist to say I will not forget the elegance of a Korean Air flight attendant in her hanbok paring a pear. Indeed, as Mr Min explained to CNN, “The uniform was designed based on hanbok, Korean traditional dress — women didn’t wear pants traditionally when they wore hanbok.”

At which point therefore does maintaining a certain image become sexist, and upholding a certain standard of grooming become unreasonable? Which, perhaps, goes to explain the noticeable difference between the immaculate presentation of Asian crew compared to the not so fastidious image of American crew. I am told that in the early days of one Asian airline, the crew would stand in line to be inspected lest their nails were unpresentable or their hair was falling out of place.

A second reason cited for Asiana’s consideration was comfort. Perhaps so, and an important criterion. Then again, Mr Min’s comment about track suits and sneakers may be as applicable here. But that would be stretching the argument a little too far. Sure, some budget carriers have gone the way of t-shirts but for the “hang lose” image they wish to project.

Third, the rights to choose. This is probably the thrust of the move upon which the first two reasons were included to lend support to. Denying women that rights would be deemed to be discriminatory, though male crews are unlikely to ask to be permitted to wear dresses and skirts. And dare anyone say that women do not look as good in pants!

Air Canada goes budget

AS the popular folk ballad ‘Blowing in the Wind’ goes, “When will they ever learn?” In announcing plans to consider launching a long-haul budget carrier, has Air Canada not learnt from the failure of Hong Kong-based Oasis Airlines, which commenced operations first between Hong Kong and London in 2006 and then between Hong Kong and Vancouver in 2007 only to fold up its wings in 2008?

So also is it said that fools rush in where angels fear to tread, but can Air Canada do it any differently in order to succeed where other hopefuls had so quickly failed?

Besides Oasis Airlines, Air Canada could have also considered very carefully the case of defunct fellow carrier Harmony Airways, which started as HMY Airways in 2002 and was renamed in 2004, operating to various destinations within Canada and beyond to the United States, Mexico and United Kingdom. The airline received favourable customer feedback and was eyeing the growing China market, but that was to be an unrealized dream when it ceased operations in 2007.

Harmony Airways preferred to be called a niche player than a low-cost carrier as it took pride in providing good service and serving hot meals on board. But it was hurt by soaring fuel prices in a highly competitive environment. It did not have the muscles to stand up against the larger carriers like Air Canada and WestJet. According to spokesman Peter Bruecking at the time, Harmony Airways had banked its future on gaining access to the China market, but delays in agreement between the two countries inevitably forced it to reshape its course, hence its demise.

Perhaps it was this very disappointment expressed by Harmony Airways then that has given new hope to Air Canada today as both China and Canada relax the rules for more Chinese travellers and carriers to enter Canada. Vancouver International Airport (YVR) has been working hard to promote itself as the gateway to North America and not just Canada. As admitted by President of the airport authorities Larry Berg, “Much of Vancouver Airport Authority’s focus in attracting new routes, passengers and airlines over the past number of years has been on Asia, given the growth potential of markets in the region.”

Three major airlines from China, namely Air China, China Eastern Airlines and China Southern Airlines, are already operating to Vancouver. A fourth airline, Sichuan Airlines, will inaugurate services on 22 Jun. YVR is also well served by other Asian carriers such as Cathay Pacific, China Airlines (Taiwan), EVA Air, Japan Airlines, Korean Air and Philippines Airlines.

How well the new Air Canada carrier will fare against the competition is a real poser, especially when the parent airline itself is highly prone to industrial disruptions and not as highly regarded for service as some of its competitors. However, as a low-cost operator, the new carrier will understandably compete on price, but considering the low fares charged by some of the established carriers, the differential may not be adequately compensatory for the deprivation of creature comforts on a long-haul flight.

Yet again, this raises the question as to whether the budget long-haul is a viable proposition, having seen the dissolution of Oasis Airlines and, lest you cite AirAsia X otherwise, you will note that the Malaysian carrier has ceased its long-haul operations from its home base in Kuala Lumpur to London, Paris and Christchurch, and is refocusing on shorter runs.

All said, Asia is still the Holy Grail that most airlines are after. Interestingly, when Air Canada chief executive officer Calin Rovinescu first mooted the idea of a budget carrier, he was thinking of Europe, But with the economic crisis hanging over Europe, the priority shifted to tapping the potential of Asian destinations instead.

Unfortunately, geographically, Air Canada is not as fortuitously positioned as, say, Qantas, to penetrate the region, which leaves it to either dress up or dress down its operations and to rely on sustaining the flow of long-distance traffic between Asia and North America. That is why China, with its growing nouveau riche, is an attraction. Yet, unlike Qantas, which believes the demographics favour a regional premium carrier (however, understandably so considering the proximity of Australia), Air Canada intends to go low-cost to attract the masses.

Almost paradoxically too, when the Harper government of Canada has been courting businesses in China to connect with Canada, and its successes would boost traffic between the two countries.

 It may be said that Air Canada has been somewhat slow in latching on to the frenzy of budget travel beyond its national borders. Mr Rovinescu has said the launch of a budget carrier is a top priority. In a speech to shareholders, he said: “We need to participate in this segment of the market in one manner or another.”

A more interesting development in the plans allegedly is for Air Canada to eventually operate only domestic flights and flights to the United States, Mexico and the Caribbean. All other flights beyond these countries will be handled by the new budget carrier in which Air Canada will participate as a partner. When that happens, Air Canada will have completed its transformation from full-service to budget status, since its domestic and regional flights are already largely no-frilled. O Canada, can you see that day coming?

Singapore Airlines buckles up for stormy skies

IF it is any indication of the severity of the airline industry heading into a tailspin, it is when Singapore Airlines (SIA) – the world’s most profitable airline – announces it is taking more drastic measures to stay afloat. In recent days, the national carrier sent out several signals that demonstrated its vulnerability.

SIA became the latest airline in a long list of carriers to publicly reveal a fuel hedging loss, amounting to US$226 million (SGD341 million) in the fiscal quarter ended December. The numbers are expected to become worse in the following quarter since SIA has hedged 44 per cent of its fuel requirements at US$131 a barrel, compared to today’s price that hovers around US$34 a barrel.

Ironically, the continuing free fall of the oil price is not good news for many airlines which had misread the trend, thanks to analysts who had predicted that the oil price would hit $250 a barrel by 2009. Today’s price is more than thrice below the record of US$150 a barrel reached in July last year.

The real devil is the struggling global economy which has reduced the demand for air travel worldwide. The impact of the rising oil price a year ago paled by comparison. Then, many airlines resorted to raising fuel surcharges but cushioned the increase with some timely house-cleaning to improve productivity, introducing new cost-saving equipment and procedures.

However, the situation has become indomitable. Unless the global economy starts kicking again, there is little that the airlines can do but to downsize their operations to fit the shrinking market. Because of the small domestic demand by comparison, SIA is particularly affected. Its fortunes are tied largely to the long haul, and it derives 40 per cent of its revenue from premium travel. The decision to be in the forefront of the all-business-class flight to New York and to Los Angeles – introduced only last year – could not have been more ill-timed, if not altogether a somewhat ingenuous gamble that other big airlines like British Airways and Virgin Atlantic too considered but had not the courage or confidence to take on.

It is therefore to be expected that the latest slew of measures announced by SIA include cutting back on the all-business-class flights to New York and to Los Angeles. Other measures include the withdrawal of services to some destinations, the reduction of frequencies for certain routes and the use of smaller aircraft. Better sitting the aircraft idle than incurring costs without revenue – the lesser of two evils.

It does not look like the storm is abating any time soon. The International Air Transport Association (IATA) has forecast an industry loss of US$2.5 billion for 2009, making it “the worst revenue environment in 50 years” according to its chief Giovanni Bisignani.  Asian-Pacific carriers will be among the worst hit.

SIA does not anticipate a return to normalcy until at least April 2010. Others think it may stretch to 2011. But as the storm worsens, the harsh reality that confronts SIA is how the competition will play out differently. Exiting unprofitable routes makes business sense, but it also strengthens the competitors and opens opportunities for them to build their bases.

The competition is likely to be flat and driven by the dollar. More airlines will drop their fares as they become less differentiated by the olive in the martini. SIA will be challenged to balance its enviable frills against what its customers are willing to pay for such perks in the current climate, though its reputation for reliability and the excellent service provided by its in-flight crew will continue to stand it in good stead.

It has often been quoted that if there’s one airline that will make through the perfect storm, it is SIA. No doubt about it. It has fared better than most airlines even as the crisis deepens. For example, its hedging loss of US$226 million is far below that of the reported losses incurred by Cathay Pacific Airways (US$980 million), China Eastern Airlines (US$903 million) and China Airlines (US$629 million).

More significantly, SIA has been quick to react to the crisis as demonstrated by the slew of measures it is introducing to cut losses. It is a reality check that many others put off until it is too late. Retreating into maintenance mode will help SIA steer safely through the storm, but it must also be circumspect about its actions that they do not set it back unduly when the dark clouds finally clear. At the same time, SIA must continue to seek opportunities in adversity that only an airline of its standing can take advantage of.
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