Singapore’s LCC: what does it mean for Jetstar, and does it have (need?) Virgin’s blessing?

Singapore Air 777
Photograph: AirSpace user ilpavone2004


Jetstar and Qantas are going to wake up tomorrow morning with a headache not preceded by a fun night.


Such is the impact of Singapore Airlines announcing this evening it will establish a wholly-owned, no-frills, low-cost, carrier. The as-yet unnamed carrier (hello Durian Aviation?) will operate unspecified widebody aircraft on undisclosed medium/long-haul routes within a year. It will be managed and operated separately from SIA.


SIA’s short announcement raises numerous questions while also making statements on the industry’s current position. Here are some.


LONG-HAUL LCCS HERE TO STAY
If you were not a believe after AirAsia X or Jetstar, now is the time to convert. (Unless you think the rapture is slightly delayed.)


STARDOM DOOMED?
SIA expects its new subsidiary to commence operations within a year, around the “mid-year” timeframe Jetstar was last expected to receive its first 787. Will Jetstar wait for its 787 deliveries before pushing into Europe, or might it consider an early and temporarily load-restricted A330-200 entry into Europe to try to stake its territory?


The 787 will give Jetstar huge fuel efficiencies that SIA’s LCC cannot achieve in the short-term. But if SIA avoids sending its LCC to Jetstar destinations, like the long-talked Rome and Athens, operating cost differences lose importance. If Jetstar and SIA’s subsidiary do compete head-on, could SIA achieve a lower operating cost than Jetstar? Union observers might jokingly deem such a scenario insulting to Jetstar management’s cost-cutting. Then again, it validates the Qantas Group’s position that…


UNIONS SILENCED?
…Jetstar’s Asian-based operations need to be competitive locally. Might union tensions simmer if there is another low-cost, long-haul player?


FLY TO AUSTRALIA?
“We are seeing a new market segment being created and this will provide another growth opportunity for the SIA Group,” said SIA CEO Goh Choon Phong. Barely 298 kilometres northwest of Changi, the world’s forerunner low-cost, long-haul carrier, AirAsia X, has a wide network of flights into Australia from Kuala Lumpur, where passengers can then connect to other far-flung cities. Jetstar does, or will, do the same out of Singapore. But will Singapore’s LCC fly to Australia?


Publicly and at present Singapore Airlines has no conflict of interest in this region. Heck, its LCC could feed passengers onto Tiger Airways, whom it has a 34% stake in. But what if Singapore starts codesharing with Virgin Australia, as it is tipped to do?


Virgin has said it will announce by year’s end its strategy to serve Asia. Virgin flying to Singapore for some is a question of when, not if. Although Virgin Australia has moved upmarket, chief executive John Borghetti last week explained capturing high-value corporate tickets could offset even cheaper leisure fares: “The improved yields we believe we will be able to derive up the front of the plane will enable us to continue to offer even more competitive fares to leisure travellers.”


Would Virgin then feel competitive pressure with SIA’s LCC, or would it be fine with it? Singapore will face the same question Qantas did with Jetstar: how much of its own market is it willing to cede to the LCC?


BRAND MANAGEMENT
Those interested in the marketing and brand side of airlines will want to watch how high-end SIA maintains its affiliation to its low-end LCC. Qantas is notorious for picking and choosing when to align or distance itself from Jetstar. When a passenger falls foul of Jetstar’s low-cost rules, Jetstar and Qantas are two different airlines. When there is a safety incident, Jetstar suddenly has the support of experienced Qantas.


I struggle to pinpoint one instance of the Jetstar brand helping the Qantas brand (finances aside). Is this the end of SIA’s infallible reputation? Then again, SIA’s initial 49% and now 34% stake in Tiger has done little damage.

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One Response to Singapore’s LCC: what does it mean for Jetstar, and does it have (need?) Virgin’s blessing?

  1. Mike May 26, 2011 at 3:35 pm #

    “Heck, its LCC could feed passengers onto Tiger Airways, whom it has a 34% stake in. But what if Singapore starts codesharing with Virgin Australia, as it is tipped to do?”

    Why not both?
    * LCC Tiger
    * Singapore Virgin Australia

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