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Budget airlines set for further consolidation, say analysts

The shake-up in the budget aviation industry looks set to continue as low cost carriers grapple with demand and capacity issues. As Tigerair refocuses itself on Singapore, industry watchers said there are opportunities for collaboration with Scoot.

SINGAPORE: The budget carrier Tigerair Singapore has been refocusing its operations with recent exits from Indonesia and the Philippines.

Amid the challenging environment for low cost airlines, analysts believe that its decision to focus on Singapore is the right move.

Paul Yong, vice president of equity research at DBS Vickers, said: "Their strategy should be to turn around the Singapore operations, which in the past has been quite profitable for them but has been loss-making because of all the capacity they've added.

"I think over the longer term, they will turn around operations in Singapore. Over the last two months, the operating statistics is that the growth in demand has finally caught up with capacity growth."

Industry observers said closer cooperation with Scoot -- the long-haul budget carrier under Singapore Airlines -- could be on the cards for Tigerair.

Brendan Sobie, chief analyst at the Centre for Asia Pacific Aviation, said: "The ties between Scoot and Tiger are very critical for the SIA group, particularly for Scoot to be a larger and long-term viable long-haul low-cost carrier. You need the feed.

"It is also important for Singapore and Changi airport as a whole because they are now going through this period where traffic has stopped growing and opening up low-cost carriers' connections -- in particular Scoot and Tiger -- is the main growth vehicle for the future."

Scoot is expected to take delivery of 20 new Boeing 787 aircraft starting in November 2014.

Analysts believe that it is in a position to scale up in the future, potentially expanding services into North Asia and even Europe.

Overall, the outlook remains challenging for the budget airline industry as a whole. Almost 20 low cost carriers are currently operating in Southeast Asia and industry-watchers said they expect further consolidation as weaker players drop out.

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