Home' Asian Aviation : AAV June 2011 Contents Andrzej Jeziorski
Singapore Airlines (SIA) is traditionally one of the world's most
pro table carriers, but has been losing market share over the
past few years with the rapid expansion of ser vices by Asia's low-
cost carriers, led by Kuala Lumpur-based AirAsia.
In response, the airline announced on 25 May that it plans
to set up a new low-cost, long-haul subsidiary (see story, page 8),
which analysts say marks a major shi in its long-term strateg y
aimed at restoring growth and addressing the needs of the
expanding leisure market.
In the past nancial year, ended 31 March, SIA carried 16.6
million passengers, up just 11 percent from the number carried
a decade earlier. at's equivalent to a 1.1 percent growth rate
per annum -- hardly impressive.
By comparison, total tra c at Singapore's Changi Airport
from the calendar year 2000 to 2010 grew 32 percent, to 42
million passengers, equivalent to 3.2 percent growth per
In the three
business years from
has seen annual
drop as much as
15 percent, from
19.1 million to
16.6 million in the
business year just ended. In that same period, Changi Airport
saw a 15 percent increase in passenger throughput, while SIA's
share of tra c at its home hub dropped from 50 percent to
about 35 percent.
" e ag carrier's strateg y over this period has clearly been to
prioritise pro tability over expansion, o en a sound approach,"
says the Sydney-based aviation consultancy Centre for Asia
Paci c Aviation (CAPA). "But in the fast-growing Asian
market this can be a risky long-term option, leaving the way for
other competitors to expand and grow their network strength."
According to the consultancy, SIA's latest announcement
"appears to be a recognition that the ag carrier's long-standing
focus on premium tra c (which must, in turn, mutually
subsidise lower-priced leisure travellers) is not, in itself, a
formula for the future". e fastest growth, CAPA notes, is in
leisure markets, while business travel is expanding more slowly.
e airline says it plans to launch ser vices with the new
carrier within a year, operating widebody aircra on medium-
and long-haul ser vices. No information has yet been released
on aircra types, numbers and speci c destinations. e new
unit will be managed separately from SIA, but major decisions
will be co -ordinated.
CAPA predicts that the new carrier will adopt some of
the business model followed by Qantas's Jetstar subsidiary or
AirAsia's AirAsia X a liate, such as o ering business-class seats
and linking its network with its parent airline's.
"SIA is likely to use the new airline for a combination of
adding capacity on existing routes and launching new routes
which have a high mix of leisure travellers, with an emphasis
on new destinations in India and China," CAPA says. e new
unit will also be able to take over a portion of SIA's lower-yield
routes that draw fewer business-class travellers, including some
destinations in Australia and New Zealand -- markets where
SIA earns a good chunk of its revenue.
e airline, which has a solid global reputation for quality,
appears to be recognising that it is no longer enough to focus on
the high-yield, top end of the market. e economic downturn
of the past two years made business travellers less willing to pay
premium rates to y in comfort, while Middle Eastern carriers
have been taking an increasing share of the top-end travel
Of course, SIA already has one budget a liate -- Tiger
Air ways -- but it only holds a minority stake in that low-cost
carrier (LCC). As a result, Tiger does not mesh with SIA's
ser vices in the way that
Jetstar does with Qantas's,
while the legacy carrier has
no control over the LCC's
management and just three
representatives on the board.
It would not make sense
at the moment for the
Singaporean flag carrier
to launch its own short-
haul LCC, since that market is already covered e ectively by
Tiger, AirAsia and Jetstar. Meanwhile SIA also has its regional
subsidiary SilkAir, which has managed both to compete in the
short-haul market with increasing competition from LCCs,
and to be an e ective feeder into its parent's network.
According to CAPA, there is another element to SIA's
"While signalling an important shi , the launch of the new
carrier should also be seen as a retaliatory move in response to
growing competition from archrival Qantas," CAPA says. " e
Qantas Group is rapidly expanding its low-cost operation in
Singapore through Jetstar and is even reportedly considering
establishing a new full-ser vice carrier at Changi."
SIA will also probably use the new carrier to try to retain
its share of the Australian market, which now accounts for 17
percent of the company's revenue -- more than any other region
outside Asia. Competition is growing in the crucial Europe-
Australia market, where the Singapore carrier is in danger of
losing out to rivals such as Emirates and Qatar Airways, while
Qantas is also being forced to step up its ght for this crucial
e new strateg y will make SIA the second full-ser vice
carrier in the world a er Qantas to set up a long-haul LCC,
and has much riding on this gamble.
"Every other ag carrier in the region, and maybe beyond,
will be watching with more than passing interest," says CAPA.
" is will not be the last such example of a long-haul low-cost
operation in Asia's dynamic aviation market."
SIA pins hopes on new LCC
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"[SIA's plan] appears to be a recognition
that the flag carrier's long-standing focus
on premium traffic (which must, in turn,
mutually subsidise lower-priced leisure
travellers) is not, in itself, a formula for the
future." -- Centre for Asia Pacific Aviation
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