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.

No easy trot for SIA’s stable in Year of the Horse

GreenHorse2014-110ACCORDING to the International Air Transport Association (IATA), airlines can expect to gallop in the Year of the Horse. It has predicted record profits for the airline industry, revising upward its earlier forecast of US$16.4 billion to US$19.7 billion for 2014. (See Will IATA’s optimism for 2014 hold? Jan 7, 2014)

IATA’s optimism is premised largely upon cheaper jet fuel and rising demand for travel. For the first time in a long while, airlines operating in a less volatile fuel market because of improved political stability in the Middle East will have to find some other monster to blame if they fail to meet expectations. Budget carriers without the hedging capability of legacy airlines will find the news of cheaper jet fuel particularly welcoming in view of their cost structures.

There is more certainty now of the rising demand for travel across the globe although Asia has held its own while other regions dodder. However, while numbers increase, yield will be squeezed. IATA chief Tony Tyler said: “It is a tough environment in which to run an airline. Competition is intense and yields are deteriorating.”

Against this backdrop, what then is the outlook for Singapore-based airlines and Changi Airport?

sia logoIt will be a better year but not an easy trot. Singapore Airlines (SIA) for one is projecting higher advance bookings in the months ahead. The economic recovery in Europe and the United States will be a big boost since traditionally SIA has relied heavily on long haul routes to those regions and has only of late begun to increase focus on Asian operations.

SIA faces stiff competition from Middle East airlines and in particular the Qantas-Emirates alliance on the kangaroo route. Trans-Pacific, it is challenged by major Asian airlines for traffic not only to their home bases but also beyond to destinations in India and other regional points including Singapore. Cathay Pacific’s short transit time via Hong Kong is a strong contender. So while the global pot may be growing larger, SIA will be challenged to maintain its market share, which will in turn exert a lot of pressure on yield.

SIA’s planned launch of new cabin products in 2014 costing US$150 million to include ergonomically designed seats and a touch screen entertainment system will improve SIA’s competitive edge as it catches up with rivals such as Cathay Pacific and Qantas which have upgraded their products in the past two years. Recently announced tie-ups with Virgin Australia and Air New Zealand may help check market erosion in Pacific southwest. However, cost will continue to override loyalty in the early days of the global economic recovery.

tigerBudget carriers can look forward to higher volumes as short haul travel into and out of Singapore continue to grow, particularly as the region heads towards full implementation of Asean Open Skies by 2015. But the competition will intensify with new operators and the incumbents expanding their links aggressively. Scoot, Tigerair and Jetstar will compete with AirAsia and Indonesia’ Lion Air to dominate the Asean skies. AirAsia has already set up bases in Indonesia, Thailand and the Philippines. Scoot is partnering Thailand’s Nok Air in a new budget venture. Qantas has been actively pushing the Jetstar brand across Asia. However, Tigerair seems to be less fortunate in this aspect, entering into a joint venture with loss-making Mandala Airlines of Indonesia and SEAir of the Philippines, the latter of which it is selling to Cebu Pacific Air. Now Tigerair is even competing with sister airline Scoot on some routes. The sibling airlines have announced recently an agreement to cooperate and complement their operations. SIA may find it necessary to redefine the role of the carriers within its stable, particularly when Scoot begins to grow at the expense of the parent airline.scoot

The nature of the point-to-point budget business is such that it is dependent on the economic and political stability of the two points as well as their attraction as tourist destinations. Singapore is well placed in all three aspects, adding to its advantageous location as a convenient hub for connections. However, the current political uncertainty in Thailand and Cambodia are not giving the Year of the Horse a promising start, although normalcy is expected to be restored before long. There may be more concern about the standoff between China and Japan over territorial sovereignty, although diplomacy too is expected to prevail.

300px-SilkAir_Logo_svgThe Year of the Horse is unlikely to be any more exciting for SilkAir which after 25 years as a regional airline squeezed between legacy and budget operators will continue to grow but slowly. In fact, SilkAir reported more than 40 per cent drop in profit for the first half of the financial year. Going forward, its growth will be enhanced by the acquisition of new generation jets that will enable it to fly farther to points in Japan and northern China. However, unlike Cathay Pacific’s regional carrier Dragonair which enjoys the support of the large China hinterland, SilkAir’s operations face stiff competition from national airlines as well budget carriers in the region. (See SilkAir at 25, stepping out of SIA’s shadow, Jan 23, 2014) While it has reiterated its intention of stepping out of SIA’s shadow, it cannot downplay its role as a feed for the parent airline.

Courtesy Changi Airport Group

Courtesy Changi Airport Group

Changi Airport, more than the airlines, will find favour with the galloping horse. The economic recovery in the West, continuing growth in Asia, more liberalized Asean policies and Singapore’s attraction as a destination will bring more travellers to and through the airport. The challenge for Changi is keeping pace with the gallop.

The Tiger continues to bleed

Courtesy Bloomberg

Courtesy Bloomberg

IF you get the impression that Tigerair is finally turning around because it reported a net profit in Q2, you have missed the trees for the woods.

In the quarter ended September, Tigerair posted a net profit of S$23.8 million (US$19.2 million). This was attributed largely to its sale of 60-per-cent ownership to Virgin Australia. Tigerair actually suffered an operating loss of S$12.8 million, which was higher compared to last year’s loss of S$11.5 for the same quarter. The Virgin trade-off was a one-off gain as Tiger Australia continues to underperform.

While traffic volume for Tigerair’s Singapore operations increased by 22 per cent, resulting in an increase in revenue of 14 per cent to $151.3 million, net yield deteriorated. Tigerair Group CEO Koay Peng Yen attributed this to “higher airport and handling charges following our relocation from Changi Airport’s Budget Terminal to Terminal 2.” The poorer yield was also the result of Tigerair’s inability to fill up the increase in capacity by 27.5 per cent.

Overall, while the partial stake sale to Virgin Australia raked in some money, Tigerair suffered from poor investments in Indonesia (Mandala Airlines) and the Philippines (SEAir) which added losses to its bottom-line and look likely to continue to bleed red. Clearly Tigerair is not making much headway in competition outside its Singapore base. Yet it is in an untenable position caught between the a rock and a hard place that without a foothold in the region pending the full implementation of Asean Open Skies in 2015 and as the region beyond becomes more liberal may be more detrimental to its future than sticking it out with present pain – perhaps with a little help from parent Singapore Airlines.

Even in Singapore, Tigerair is facing tough competition from rivals such as Jetstar Asia and AirAsia. The airline is now looking to tapping the corporate market. Mr Koay said: “We are introducing ourselves to the corporate customer segment because we offer good value to companies; not just the small and medium enterprises, but companies of any size, because with Tigerair, you can halve your costs of flying to your destinations.”

That sentiment smacks of a presumptuous attitude. For an airline that complained about the higher costs of operating out of a main terminal at Changi Airport which had since demolished the erstwhile Budget Terminal to make way for a fourth terminal, that comes across as an unlikely ambition. We recall the days when Tradewinds (and later as the rebranded SilkAir) decided to shed its leisure image and entice the business market, but not all too successfully even as the Singapore-Jakarta that it eyed was one of the most popular and lucrative business routes in the region. The business class market is quite a different kettle of fish. No doubt Tigerair may be able to offer much lower fares – halved as it said, and very attractive on that count – but is that enough to entice business travellers who may not only have the propensity but also the willingness to spend more on the short sectors?

Tigerair may do better sticking to the budget model and focusing on improving its low-cost product to offer the best value for the fares it charges vis-à-vis the competition. That should not change even as it flashed a new logo recently, apparently to project a friendlier and less aggressive animal, and tweaked its name to be trendier and hip. But it has to do more than just that to prove to its customers that the new Tiger can actually change its stripes. The test of the pudding is in the eating.

The low-cost business in the early days was largely propelled by emerging markets – new destinations in the outback and new travellers yet to acquire the habit of flying. While Southeast Asia and beyond in the wider Asia-Pacific environment may still offer a lot of opportunities for airlines such as Tigerair to reach into the outback and create niche demand, the gestation period for growth and development has been shortened markedly. As the market matures, with more airlines entering the arena and the more established legacy airlines suddenly become threatened by cheaper alternatives, the game is all about competition. In that environment, Tigerair has to adopt a less self-deserving and blinkered strategy that entails a greater awareness of what its rivals are capable of.

Today’s market is extremely volatile, fickle and constantly shifting. Maybe a tamer tiger is not such a good idea after all.

AirAsia looking to grow in Singapore

Courtesy Airbus

Courtesy Airbus

IT would appear that Malaysian budget carrier AirAsia is more popular with Indonesians than Singaporeans. On flights out of Changi Airport to Indonesian destinations, Singaporeans make up only 15 per cent of the load, but the business is enjoying much higher demand from Indonesians. 

AirAsia’s chief executive in Singapore Logan Veliatham attributed the carrier’s lower appeal among the local population to one of perception, as an untried experience prejudiced by ignorance, but viewed it optimistically as a potential for growth.

“After people fly with us,” he said, “they want to come back.” 

So, the strategy for AirAsia is to work with travel agencies to push its brand. The hard truth is that competition in the budget market has intensified with not only new budget upstarts but also offshoots launched by legacy airlines entering the arena. (See Budget business matures, Jun 12, 2013). 

Presently AirAsia lags behind Singapore-based rivals Jetstar Asia and Tiger Airways in carriage. You might say those airlines have a measure of home advantage in terms of familiarity, particularly when they are backed by the big names of Singapore Airlines and Qantas. So Mr Veliatham might have a point there. 

But considering Singapore’s comparatively smaller population, AirAsia might be better off building on the faster growth in the burgeoning Indonesian market. Yet Singapore is an important hub in the region that few airlines looking for growth would skip. Indonesian rival Lion Air, heeding the competition posed by AirAsia’s foray into its home market, is already  eyeing Singapore as its hub outside Indonesia.

AirAsia itself is starting flights from Singapore to Medan and Surabaya in Indonesia, bringing the total number of destinations from the island republic to 17. The number may increase yet.

Singapore Airlines disappoints

Courtesy Singapore Airlines

Courtesy Singapore Airlines

Singapore Airlines (SIA) prefaced its report on its annual performance (2012/13) with attribution to high fuel prices and lower yields owing to a weak global economy for its lacklustre results. The announcement concluded with an equally dismal outlook, saying very much the same thing, warning that “the global economic outlook remains uncertain with the ongoing weakness in the Eurozone and sluggish recovery in the United States” and that “yields are likely to remain under pressure amid weak economic sentiment.”

So what’s new, indeed?

While the results per se disappoint, the presentation disappoints even more so, simply because it does not provide any excitement going forward, almost in resignation to whatever the circumstances that will decide its fate. Perhaps it is because we have come to expect so much more from an airline that has for a long time been considered one of the world’s most profitable, most innovative and most gungho airlines.

Group operating profit fell 19.8% to S$229 million (US$184 million) with only the parent company registering an increase of 3% from S$181 million to $187 million on the back of a growth of 7.3% in passenger carriage, and cushioned by the surplus on sale of aircraft spares and spare engines. SIA Engineering and SilkAir reported lower profits, the former from S$130 million to S$128 million (1.6%) and the latter from S$105 million to S$97 million (7.6%). Losses for SIA Cargo deepened by more than 40% from S$119 million to S$167 million.

The not so-good-signs for SIA the airline are falling yields, a weak fourth quarter of losses and relatively flat demand in forward booking for the next few months. In fact, SIA’s last quarter performance ran contrary to industry performance which, according to the International Air Transport Association (Iata), saw air passenger travel growing by 5.9%, boosted by emerging markets. Iata chief Tony Tyler added: “Strong demand for air travel is consistent with improving business conditions.” However, developed markets were experiencing relatively low growth. That could explain SIA’s limited growth – operating largely in mature markets that are highly competitive.

The pressure on yield will continue to be a challenge – and with time, a bigger challenge – as SIA faces increased competition from rival airlines for not only the long haul but also regional routes. Middle-East airlines such as Emirates, Etihad Airways and Qatar Airways in particular have become very aggressive in the premium air travel segment, investing heavily in the product and forging strategic partnerships with other operators. Their increased popularity is likely to also shift hub airport activity to the Middle East, threatening Singapore Changi Airport’s hub status in east-west connections between Asia-Pacific and the regions of Europe and Africa. No doubt SIA will benefit from Changi’s ability to remain a favourite hub among airlines and their customers.

At the lower end, SIA also faces exposure to cheaper options from regional and budget operators that in pre-economic crisis days would have been scoffed at. Consequently SIA is adopting a broad catch-all strategy – that saw the launch of budget subsidiary Scoot last year – which may not necessarily work in its favour as it dilutes its premium product and compromises yield. The other airlines in its fold are not exactly star performers: Little has been reported of Scoot’s performance to date; Tiger Airways in which SIA has a 33% stake is losing money; and SilkAir is operating below capacity growth.

SIA needs a more robust and focussed strategy than that – to lead, rather than follow, and to pro-act, rather than react. In a highly competitive environment, the player that sets the rules wins. High fuel prices and the continuing sluggish state of the global economy are by now givens since they are woes that cut across the industry, and they should be viewed as challenges and not as excuses for poorer performances. The success story of Japan Airlines’ turnaround in spite of these circumstances provides a lesson on not accepting things as they are; the Japanese carrier emerged from bankruptcy to become the world’s most profitable carrier in 2011. Certainly the credit must go to the man at the helm – honorary chairman Kazuo Inamori, who very humbly attributed his success to hardworking employees.

Some observers think that SIA is hugely disadvantaged by its lack of strong partners, but the airline has a speckled history of failed relationships, notably its acquisition of stakes in Virgin Atlantic and Air New Zealand in 1999/2000. Both stakes were later relinquished at a loss. SIA also failed to buy into China Eastern Airlines, which today has entered into a codeshare arrangement with Qantas. To be fair to SIA, a number of other airlines have also bought lemons. The International Airlines Group which owns British Airways and Iberia has reported a first-quarter loss of 630 million euros (US$808 million) – almost five times more than the 129 million euros loss in the same quarter last year – attributed to the poor performance of the Spanish partner.

The choice of the right partner is key to success. SIA has recently increased its stake in Virgin Australia from 10% to 19.9%, added to extensive marketing cooperation in schedule meshing and the use of each other’s premium lounges int heir networks. While there is potential in Virgin making big forays in the international arena, the alliance at best will present a stronger domestic presence for SIA in Australia for now and pales by comparison with the mega alliance (albeit a non-equity partnership) between Qantas and Emirates which is an attempt to shift the traditional competition to a new playing field such as replacing Changi with Dubai as Qantas’ hub for flights on the kangaroo route.

It is always with great interest and perhaps somewhat unfortunately with high expectations that the industry awaits moves by SIA to regain its lead in the business of flying. But the introductory and closing remarks of its latest result announcement provide little to excite the imagination. Somehow it seems SIA prefers to bide its time. SIA chief executive officer Goh Choon Phong said at the results briefing: “We think at some point there’ll be a recovery, and we’ll be well positioned to tap the recovery with the growth and the partnerships that we’ve established within Asia and other parts of the world.”

However, telling the same bleak story may be consoling, but it can also be dangerously self-fulfilling in resignation. The good neBut it seems SIA prefers to bide its time. SIA chief executive officer Goh Choon Phong said at the results briefing: “We think at some point there’ll be a recovery, and we’ll be well positioned to tap the recovery with the growth and the partnerships that we’ve established within Asia and other parts of the world.”ws is that many still believe in the airline’s ability to do better, in spite of gloomy weather. Backed by a strong balance sheet, not many of its rivals have the privilege of believing still that the game is theirs to lose.

SIA ups stake in Virgin Australia: No big deal

Courtesy Reuters

Courtesy Reuters

Singapore Airlines (SIA) is upping its stake in Virgin Australia from 10 to 19.9 per cent, at a cost of A$122.6 million (US$125.8 million). Underlying the growing cooperation with the Australian carrier, SIA chief executive officer Goh Choon Phong said: “Increasing our stake in Virgin Australia is another example of Singapore Airlines’ deep commitment to the important Australian market. It also demonstrates our support for the ongoing transformation of Virgin Australia, which has created a more competitive aviation market in Australia.

This is no big deal compared to the 49-per-cent stake in Virgin Atlantic that SIA acquired more than a decade ago. While it turned out to be a lacklustre buy, it made big news then. The stake was only recently sold to Delta Airlines at a loss. The graduated acquisition reflects a cautious approach that is markedly tame compared to the strides it made in better days. Until Virgin Australia made a larger global presence, the dollar benefits to SIA are likely to be localised.

Interestingly, SIA’s decision to increase its stake in Virgin Australia followed on the heel of the Australian authorities’ approval of the sale of a 60-per-cent stake in loss-making Tiger Australia to Virgin Australia. The Australian Competition and Consumer Commission (ACCC) said Tiger Australia was “highly unlikely to remain in the local market if the proposed acquisition didn’t proceed.”

While it is in ACCC’s interest to maintain a competitive environment within Australia, so too in SIA’s interest to combine forces with Virgin Australia lest the scene is dominated by Qantas. Aviation analysts are quick to point out that the Tiger Australia divestment would allow parent Tiger Airways to focus on markets elsewhere in Asia, where there is heightened competition from other budget carriers such as AirAsia, Jetstar and Lion Air. There is comfort in the reasoning, but to ascribe it as the reason is belittling Tiger’s capability to compete, making it sound more like the cry of the vanquished than that of a victor.

Qantas back on course

Courtesy Qantas

Courtesy Qantas

AUSTRALIAN flag carrier Qantas is back on course judging by the results of the first six months (July to December 2012) even as its international operations continue to be in the red but with a reduced loss. 

The airline group reported a net profit of A$111m (US$114m), which is almost triple last year’s A$42m. Equally impressive conversely was the drop in losses for the international operations arm to A$91m from A$262m last year. Qantas CEO Alan Joyce, pleased with the turnaround, said: “We are now beginning to realise the benefits of the tough decisions that we have made over the past 18 months

Among the measures introduced were the restructure of the airline operations into separate domestic and international units under different management teams, reduced capital expenditure, route restructuring that would see an increased presence in Asia and rationalizing ground operations to reduce redundant staff numbers.

By and large, these measures have produced positive results although profits from domestic operations declined by more than 33 per cent to A$218m from A$328m a year earlier. On that, Mr Joyce said: “Clearly the Australian domestic market is highly competitive. We have seen elevated levels of capacity growth from competitors attempting to claim market share from Qantas Domestic.” But Qantas still boasts an 80 per cent share of the local market. It is Virgin Australia, more than Tiger Airways that Qantas should be wary about. Virgin has only last year acquired 60 per cent of Tiger.

The good news is improved performance by the international operations arm although it is still in the red. It remains a big challenge for Qantas to not lose passengers to rival airlines that include not just long-time competitor Singapore Airlines (SIA) but new ones from the Middle-East such as Emirates Airlines, Etihad Airways and Qatar Airways. The game is shifting in Qantas’ favour as the authorities prepare to formalize their approval of the partnership between Qantas and Emirates, opening up additional channels to Europe, the Middle East and Africa for Qantas through Emirates. Consequently Qantas is shifting its hub for Europe-bound flights from Singapore to Dubai, a move that is likely to shake up competition on the kangaroo route.  The impact could already be apparent in the second half results expected in August.

But not every measure has been realized according to plan. The programme to focus more on Asia has seen new joint ventures for Jetstar in Japan and Hong Kong (pending approval) and increased flights between Australia and Asian destinations, but Qantas failed to kickstart a regional premium airline to be based in Asia on its own or to generate sufficient interest from potential partners in its proposal. That project could be deemed to be finally dead and buried, yet it may have been a blessing in disguise considering the uncertainty of the global economy not sparing Asia entirely and in light of its partnership with Emirates.

You need big moves to reverse deep losses, and it looks like the flying kangaroo is finally back on course. The question is: Can it uphold the trend? It certainly cannot assume its main rivals will stand on the sideline and do little else but watch passively.

A stronger Virgin/Tiger better for the competition

Courtesy Australian Aviation

Courtesy Australian Aviation

THE Australian Competition and Consumer Commission (ACCC) has expressed concerns that Virgin Australia’s acquisition of a 60% stake in Tiger Australia may lead to a duopoly as a result of the reduced competition from three to two players, with Qantas/Jeststar as the other and dominant player. (See SIA releases Tiger into Virgin’s lair, Oct 31, 2012)

But that is likely to be at best a considered part of the due diligence before ACCC endorses the deal. Better a duopoly that includes Tiger in the game, albeit a partner of Virgin, than the exit of the loss-making Tiger which after six years of operations manages to capture only 5% of the Australian domestic market. It will not be a surprise if under the circumstances Singapore Airlines (SIA) which owns a third of Tiger’s Singapore parent calls it quits.

ACCC’s concerns may be valid. Its chairman Rod Sims said there were risks from the increased ability of Qantas and Virgin “to coordinate their activities once Tiger Australia is no longer operating as an independent low cost carrier.” But it can also be argued that a stronger Virgin/Tiger partnership will enhance the competition against rivals Qantas/Jetstar. Virgin is committed to strengthen and expand Tiger, with plans to increase the budget carrier’s fleet from 11 to 35 aircraft by 2018.

Count on it that ACCC is already convinced of its necessary support of the merger, when Mr Sims said:  “If the ACCC were to conclude that Tiger Australia would exit the market in the absence of the proposed acquisition, this would be highly relevant to our assessment.” A decision is expected on March 14.

AirAsia lets go the Singapore dream

air asiaAirAsia chief Tony Fernandes has long been pursuing the Singapore dream – to set up base in Singapore and maybe give its nemesis Singapore Airlines, not just Singapore-based budget carriers Tiger Airways and Jetstar Asia, some hard knocks. But it looks like he is letting that dream go. 

The region’s largest budget carrier has dropped plans to set up an airline in Singapore. It gives two reasons for that decision: Singapore’s high cost structure and its lack of domestic market potential. Mr Fernandes was quoted by The Wall Street Journal as saying, “We are concentrating on markets which have big domestic markets and big populations and markets that are more liberal and market orientated.”

Already the biggest budget carrier by the number of flights calling at Changi Airport, AirAsia probably finds the proposition superfluous. Mr Fernandes had in the past petitioned unsuccessfully to be allowed to operate from a secondary airport, but all commercial passenger flights by and large operate out of Changi Airport. Is cost the real issue, or is it competition?

Mr Fernandes may have a valid point in citing Singapore’s limited domestic market. But that argument is neither new nor surprising. Singapore thrives on being the region’s aviation hub, with good connections whose operations are supported and facilitated by Changi’s impressive infrastructure. If, indeed, AirAsia is looking at the local market alone, then it makes sense to shift its capital to larger markets elsewhere.

But that could be a narrow view as Singapore’s potential is larger than what its domestic market can offer. Take, for example, Indonesia is a huge market which is expected to grow even bigger when Asean Open Skies kicks in by 2015. As Indonesia opens up, so will Singapore benefit as the gateway to Indonesia and the rest of the region.

A tale of three airlines in a rough year: SIA, Cathay and Qantas

IT has not been a good year for Singapore Airlines (SIA), Cathay Pacific Airways and Qantas – these three airlines that are the closest rivals in the Asia-Pacific region. What they do usually make headline aviation news, whether in shaping up the competition or feeding the gossip mill, and the airlines themselves most probably are keeping a close watch of one another’s moves.

Courtesy Singapore Airlines

It is a year that they share the common woe of falling profits, with Qantas being the worst hit, reporting deepening losses for its international operations. In May, SIA reported profits plunging 60 per cent with a Q4 loss for fiscal year 2011/12. Cathay very quickly followed with the warning that its first half for 2012 “will be disappointing due to the triple whammy of soaring fuel costs, continuing soft demand in our cargo business and worsening yields on the passenger side.” Qantas had already in February reported a 52-per cent plunge in first half profits for fiscal 2011/12, with CEO Allan Joyce renewing a call for change because of “highly competitive markets and tough global economy in which we operate.”

As anticipated, Cathay in August reported first half loss for 2012 of HK$935 million (US$121 million). At the same time Qantas posted net group loss of A$244 million (US$254 million) for the year ending June 30, while its international operations suffered a greater loss of A$450 million. Going forward, Mr Joyce reiterated that “our biggest challenge is Qantas International.” Earlier in May, the Australian flag carrier had announced a split of the airline operations into autonomous international and domestic units. SIA followed in October with reports of its group profit for first half of FY2012/13 dipping 30 per cent to S$168 million (US$137 million), and a worse Q2 performance, the profit falling by a higher margin of 54 per cent.

So what’s new? Both SIA and Cathay are not expecting the immediate future to be substantially kinder. The reality of the global economy aside, the greater danger lies in the resignation that it is a given. All three airlines have effectively softened the impact of anticipated poor performance; the news is passé when everyone’s boat is rocking in the same rough waters. What is needed to rough up any assumed resignation is for one of them to break the expectation barrier with better performance news.

Courtesy smh.com.au

Will it be Qantas first to the finishing line with that ray of hope, having dished out probably the year’s most impacting development when it announced in September a partnership with Emirates Airlines that would shift the hub for its Europe-bound flights from Singapore to Dubai, providing access to a wider network of destinations in Europe, Africa and the Middle-East?

That could have been the trigger for SIA’s acquisition of  a 10-per cent equity interest in Virgin Australia – Qantas’ arch-rival – which is already 20 per-cent owned by Etihad Airways – Emirates’ competitor – so soon after an earlier commercial arrangement that would have the two airlines cooperate in seamless transfers and shared use of airport lounges. (See Singapore Airlines’ interest in Virgin Australia: Expedience or Strategy, Nov 7, 2012). At the same time, SIA announced its sale of a 60-per cent stake in Tiger Australia to Virgin – a move more expected than one of surprise, as an opportunity for SIA to start shaking off a troubling investment and for Virgin to strengthen its Australian competitive edge. (See Singapore Airlines releases Tiger into Virgin’s lair, Oct 31, 2012). SIA certainly feels challenged, when oncee it used to be driving the competition, but now reacting to it. It should be interesting to see how the competition plays out.

The year has seen Qantas, more than SIA and Cathay, going through a rough patch of bad publicity, largely the result of the aftermath of industrial disputes in the previous year, incidents of poor services such as the inordinately long delay out of Dallas-Fort Worth because of a spat between the operating pilots, and, of course, the poor bottom-line numbers.

Courtesy theaustralian.com.au

But if there is one person in the field that appears to enjoy media attention and understand the importance of the recall factor in consistently keeping his outfit in the news – good or bad – it is Qantas chief Allan Joyce. As an aside, I can only think of one other person, namely Ryanair chief Michael O’Leary: Is it any surprise that they are both Irish?  For most part of the year, Mr Joyce has been reiterating the promise in a corporate restructure that would turn the loss-afflicted airline around. The ends may be less important than the means in getting there.

SIA by comparison appears to be more muted in the past year. Its biggest news for the year is probably the launch of a new budget subsidiary for the medium-to-long haul – Scoot, which inaugurated services to Sydney in July. But its late entry in the budget market does not generate the pioneer excitement of earlier start-ups, even by comparison to sibling Tiger Airways’ introduction in 2005. It is unfortunate that Tiger has been a basket of woes in the passing year, following its fallout with the Australian authorities over safety concerns, but even more unfortunate is the lack of positive spins to sweeten the bitter aftertaste.

Then again, one migth ask what has Qantas to lose for the unsavoury state that it has found itself, when it needs to continually seize every opportunity to repair its image.

Courtesy Cathay Pacific Airways

By comparison too, Cathay plays a safe hand by balancing poorer performance reports with consistent news about product upgrades. Cathay chief John Slosar capitalized on the Hong Kong-based airline’s award by Skytrax as the world’s best for business class when announcing the 2013 upgrade of its regional business class product. This is where the competition is regaining new life. SIA which is ranked third in the same  Skytrax 2012 survey as the overall world’s best airline – after Qatar Airways and Asiana Airlines – has also earlier announced an impending upgrade of its business class. And so has Qantas. In spite of the sluggish global economy, it looks like the race for the premium market is heating up. While Mr Slosar may be talking only about Cathay when he said the aim was to ensure “our customers keep coming back,” that pretty much summed up the crux of the competition.

For good PR measure, Cathay may have earned brownie points for banning the carriage of shark fins, thus deserving the year’s responsible community award if there were one. (See Cathay Pacific bans shark fin carriage, Sep 13, 2012).