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COMMENT: New model armies

Scoot's debut on 5 June was as significant for the long-haul, low-cost carrier as it was for its parent, Singapore Airlines.

Like its major rivals, Cathay Pacific and Qantas, SIA is at a crossroads. The factors that helped them become the Asia Pacific's leading full-service carriers - an international hub, a young fleet, excellent in-flight product and service levels, and a global network - are under immense pressure.

Partly, this is due to the success the Gulf airlines have made of taking the Asian network carrier business model and improving upon it. At the other end of the scale, low-cost carriers have turned the screws, magnifying the pain felt by the failure of highly lucrative premium business to recover to pre-2008 levels.

Finally, Asia's second-tier full-service airlines are closing the gap in both product and network reach.

And the response by the incumbents has been varied.

Qantas is under pressure at home from Virgin Australia, but Canberra's liberalisation of rights on long-haul routes has been more damaging. The international business has been bleeding money for several years, and attempts to set up an offshore premium carrier failed. In the face of numerous challenges - notably from its unions - the future of Qantas International is far from certain.

Cathay issued a profit warning recently, but appears to be in a better position than its Oneworld affiliate. After a strategic review, the Hong Kong airline has introduced premium economy. And it is concentrating on its full-service business by working more closely with part-owner Air China and using subsidiary Dragonair to increase its mainland China network.

SIA is taking a multi-level approach. Its Changi base remains a key aviation hub, but the importance of low-cost here is ever increasing. It now contributes around 25% of traffic - from virtually zero just six years ago - piling pressure on SIA's short-haul yields.

And the Singapore government's laissez-faire approach leaves SIA exposed to competition in nearly every sector. Airlines in India, China and Southeast Asia - long SIA's key markets for transit traffic - are adding more point-to-point services. And their offerings are getting close enough in quality - and cheap enough - to make a dent.

That has been the focus of the airline's low-profile chief executive Goh Choon Phong. He may have stayed below the radar, but the airline certainly hasn't. It spun off Scoot to transfer growing low-cost demand to the long-haul leisure market, from which SIA itself appears to have largely withdrawn. Competition from local rivals AirAsia X, Jetstar Asia and Cebu Pacific will ensure that Scoot does not have it easy.

But if it finds a way to work closely with affiliate Tiger Airways and its divisions in Australia, the Philippines and Indonesia, and the other airlines that bring in low-cost traffic into Singapore, it has a fair chance of success.

SIA, however, remains confident enough in its current three-class model to rule out premium economy.

But it is focused on finding new ways of getting traffic into its medium- and long-haul business. That is why regional subsidiary Silkair will grow by almost a third this year, while SIA's increase will be almost flat. It is also why it has embarked on comprehensive joint ventures with Virgin Australia and SAS. Goh has indicated that more tie-ups could follow.

Finally, SIA could leverage its strong cash position to buy into another airline. But its form in this department is chequered. Goh and his team know that SIA faces challenging times. But if they succeed, the company will have a future in which SIA, the premium airline, may be a less significant player. Yet diverse revenue sources will help steady the ship, whatever the economic weather. So SIA could once again be the model - this time for the 21st century airline.

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