Despite turbulence, low-cost carriers still important for SIA: CEO

Despite turbulence, low-cost carriers still important for SIA: CEO

Massive growth potential in the no-frills budget travel business means that the segment remains important for Singapore Airlines, says chief executive Goh Choon Phong.

SIA Boeing 777-300ERS

SINGAPORE: Massive growth potential in the no-frills budget travel business means that the segment remains important in Singapore Airlines’ strategy moving ahead, chief executive Goh Choon Phong told Channel NewsAsia, even as the premium carrier’s push into low-cost territory has not exactly been smooth sailing.

Rising incomes in Asia have enabled more people to fly for the first time, thereby fueling the rapid expansion of low-cost carriers (LCCs) in the region. Singapore’s flagship carrier first entered the segment in 2004, with a stake in Tigerair. But the budget short-haul airline has had a bumpy ride thus far, posting losses in five of the past six quarters, underscoring the challenges of operating in an increasingly over-saturated market.

Despite that, the immense potential for growth continues to render the space attractive to players.

“If you look at the growth of LCCs in this part of the world, we are looking at strong double-digit growth, [compared with] full-service carriers which are in the lower single-digit area. Beyond that, the ability to have such a vehicle in the group gives us flexibility and nimbleness in tapping new markets,” said Goh, who has been at the helm since 2011.

To illustrate this, the chief executive raised the example of China, where budget carriers have doubled the points which SIA serves in the rapidly growing market.

“For ourselves and SilkAir, we serve 12 points in China but if you add the points served by our two LCC subsidiaries, it is 24 points. Those [additional] points wouldn’t have been feasible to serve commercially using a full-service carrier,” he added.

Tiger Airways planes sit on the tarmac at Melbourne's Tullamarine Airport on July 8, 2011

As such, SIA is making a renewed push into the segment by launching a takeover offer for Tigerair last month, with the aim of delisting and privatizing the money-losing budget carrier. Goh believes that the delisting, should it be successful, will be essential in furthering the integration of Tigerair and its fully-owned long-haul budget carrier Scoot.

SIA has been enhancing cooperation between its budget units, allowing members of its mileage programme, KrisFlyer, to earn miles when they take Tigerair and Scoot. The two low-cost airlines are also attempting to increase efficiency by offering passengers seats on each other's planes.

Industry watchers seem to agree with SIA’s latest move. “The proposed acquisition of the remaining stake in Tigerair is a long overdue move which will improve the group’s overall position, in particular the outlook for long-haul LCC subsidiary Scoot. Better late than never. And it is not too late,” analysts from the Centre for Asia Pacific Aviation (CAPA) wrote in a note dated Nov 10.

Pushing other boundaries

Apart from the exponential rise of budget carriers, SIA is also feeling the squeeze from intensifying competition from Middle Eastern carriers.

In response, the Singapore carrier broadened its reach into new territories such as a pilot training tie-up with European plane maker Airbus, and overseas partnerships which Goh noted are seeing “early results which are encouraging.”

One of which is a wide-ranging partnership that will see the airline cooperate on key routes between Singapore and Europe with German carrier Lufthansa. The agreement was announced last month.

Despite a shaky macro-economic outlook, the European market remains pivotal for SIA, Goh said. In addition, the collaboration will be able to tap into the existing networks that both carriers have in their home markets and “bring together two huge markets that will [generate] a lot of potential.”

Vistara

Another venture that is closer to home is Vistara – the new India-based airline which is SIA's collaboration with India’s Tata Group. The full-service carrier first took to the skies in January, with flights between New Delhi, Mumbai and the western city of Ahmedabad.

India's aviation sector has grown at breakneck speed in recent years, thanks to the country's booming middle class and low air travel penetration rates. But intense price competition, exorbitant operating costs due to high airport and fuel taxes, as well as strict regulations make India a tougher environment than most other markets.

However, Goh remains optimistic.

“The Indian market is growing double digit in terms of air traffic movements. It is a huge market and is underserved. We think that Vistara will be able to tap into this potential once it has established itself and constraints on operations are removed such as the 5/20 rule,” he said.

The rule bars Indian airlines from flying overseas unless they have operated domestically for five years and own a fleet of 20 aircraft. As such, Vistara is currently restricted from operating internationally.

The chief executive is positive that that aviation rule will be relaxed soon. “The government is actively doing a review of the civil aviation policy and the one crucial part of that is the 5/20 rule. We are hopeful of an encouraging outcome.”

Catch the exclusive interview tonight at 8pm Singapore/Hong Kong time on Channel NewsAsia.

Source: CNA/sk

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