FOXTROTS

Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning.

Foxtrots – leading the industry in a dance.

 

Singapore Airlines; company thoughts.

The following is extracted from a Q&A session with the senior spokesman for the SIA Group (SIAG). The full version was published in the Travel Business Analyst newsletter. SIAG answers should be considered paraphrased. After this report are my comments; may be referenced with a superscript reference number in the text.

 

Q: I thought you planned Scoot for longhaul routes, but it is operating only short- and medium-haul. Are you not shutting it down to avoid loss of face? The airline is a mistake.

A: Who says so?

 

 Me.

Well, we would respectfully disagree.

 

Why didn’t you expand Tiger instead of creating Scoot? Why create another airline, which does almost the same thing on almost the same routes?

It is not almost the same routes. The first route for Scoot was Singapore-Sydney – beyond the range of Tiger’s A320. Second was Gold Coast, then Tokyo Narita, Tianjin, and several other points in China. There are some Scoot routes that you can do with narrow body, but Scoot was set up to tap into that market segment that is looking for budget travel but over a slightly longer distance than the traditional NFA* operates.

 

But not longhaul?

Longhaul is in the plan, but with today’s fuel prices, the plan is to focus on medium-haul for now. [Oil was about US$90/barrel when Scoot was formed; about US$95 now.] There is some shorthaul but that tended to be partly for aircraft utilisation1. But I don’t speak on behalf of Scoot, just general strategy. Why Tiger can’t do it? Well, although we are the biggest single shareholder (just under 33%) we don’t control it; it is a separately-listed subsidiary, independently operated, and separately managed2. SIAG has nothing to do with Tiger on a day-to-day basis.

But we own 100% of Scoot. We saw an opportunity to get into this new market segment and we did it. It is important to point out that Scoot was not created to take away from SIAG. It is additional, incremental. So on every route where both Scoot and SQ (SIA) operate, there has been no reduction in SQ frequency.

Scoot was established to create new growth and tap into a demand that SQ was not tapping into. The budget airlines in our group, Scoot and Tiger, are true NFAs. Having opposite ends of the spectrum works for us; we are not in the middle competing with ourselves.

That is the rationale behind the portfolio approach.

MI (Silk) is, as you described, our LCA*. But we look at SQ and MI almost as one operation. Yes, they have different branding and are separately managed, but the linkage between the two is enormous.

SQ is a true premium airline; MI is lower cost. SQ is wide body; MI is narrow body. SQ cannot offer same standard of service in a narrow-body aircraft3. In part because of customer expectations. SQ code-shares on MI flights where allowed.

 

Will MI ever operate medium- or long-haul?

There are no plans for MI to operate wide body. It is taking delivery of B737s to replace A320s, and some will be B737MAX, which has a slightly longer range. So there is a possibility for slightly longer haul, but there no plans to take over routes for SQ as you described for LCAs2.

Having the two does give the group operational flexibility. Two examples:

-When the Singapore-Kuala Lumpur route was liberalised, there was a great increase in frequencies. But not all can sustain wide-bodies, so SQ handed some to MI because MI had aircraft that were better sized for that flight time. But SQ wide bodies also fly the route at certain times.

-Yangon is the other way round. SIAG was able to increase capacity by SQ taking over seven of MI’s frequencies – it had 16 – and using B777s. So overall capacity increased 55% overnight.

 

SQ traffic growth was variable in 20134. I thought you preferred a steady 7%?

SQ traffic growth has been matching capacity growth. MI not so much; it is growing fast – 20% in ASKs – because some markets are opening up – such as India and Indonesia. Double-digit growth will continue for the foreseeable future. Sometimes it runs ahead of demand, but that will catch up.

 

Is the situation with Virgin Australia – which has three airline shareholders – awkward?

We own 19.9%, the maximum allowed. When we first linked up with VA, we did not plan to take equity, but as the partnership grew so well, it made sense. We had an opportunity. We put money into VA. It issued new shares. And it invested in Tiger Australia and Skywest, so we were helping VA grow. We bought the second batch of shares, 9.9%, from the Virgin Group UK. So it became a strategic opportunity. But you don’t need equity in all your partnerships.

 

Does Etihad’s investment in VA affect your interests?

We can’t comment on others. We are doing things on our own.

 

Is it strange that you exited from one Virgin airline to enter into another?

We don’t see it as an issue because we never got the synergies with Virgin Atlantic (VS) that we were hoping for. We bought into VS and then September 11 happened. [2001; SIAG bought into VS in December 1999.] Eventually we said we wanted to sell and eventually Delta came along. Perhaps it will work better for them because it is a transAtlantic partnership. So that is completely separate from VA, which is about interline Australia.

 

Notes:

-*In this report, we have used our definitions of airline types to avoid confusion. These are:

-FSA = full-service-airline. Offering first/business/economy, travel agency bookings, meals/bookings/baggage/cancellations included, etc. As its name indicates – full service.

-LCA = low-cost-airline. (Not a low-fare-airline; see next.) An FSA but with lower operating costs (cheaper longer-hours flight-deck crew, younger/new longer-hours cabin crew, tighter cost control (twinned 3-star hotel rooms, for instance), fewer fare types, which may have first and business cabins, and which allows bookings through travel agencies etc. Usually similar to the parent airline, but a different name, and competition against parent airline allowed.)

-*NFA = no-frills-airline. We believe that among the many essential elements that make a successful NFA are: market freedom in terms of routes and aircraft choice; single aircraft type; where relevant, competition against parent airline allowed; fares that are extremely low when booked at least three months in advance, say US$25; one fare at one time (no wholesale rates, travel agency commissions, etc); no refunds; no service frills; single economy-class cabin; no seat selection; two toilets for 150-seat aircraft; 25-minute turnaround time; cabin crew do daytime cabin cleaning; name and flight change charged at least US$25 each; no trade shows; plenty of consumer advertising and promotion; and much more.

 

1See comment below.

 2Travel Business Analyst believes that once airlines reach a certain size (not yet further defined), they need to develop into three types – as described above. Only one group comes close – Qantas, with its Qantas FSA, Jetstar NFA on domestic Australia routes, and another type of operation, but also named Jetstar, operating as an LCA on international routes from Australia.

 3See next.

-4Seat sales +3% Jan, +5 +3 +1 +1 +3 +4 +12 +4 +3 +1 +2% Dec.

 

 

 

 

 

My thoughts on the Singapore Airlines group.

I have certain opinions on SIAG (Singapore Airlines group), which have not been essentially changed by a recent Q&A session. In brief they are:

That the Virgin Atlantic acquisition was a mistake from the start (because Richard Branson would not let anyone share his business decisions, despite SIAG’s 49% share and that SIAG’s money was, at the time, a lifeline for his airline).

Although this episode has now passed (SIAG’s share sold to Delta Airlines), I believe it shows that SIAG can make some giant strategic mistakes, despite its reputation for solid management, and much-admired standard of service at SQ.

That the launch of Scoot should not have happened after SIAG realised that it could not operate longhaul profitably. If it wanted to operate medium-haul NFA routes, then it should have used Tiger. If that would have required increasing SIAG’s shareholding and buying slightly-bigger aircraft, then do it.

1That Scoot needs to do something quickly to increase profitable utilisation of its too-big B777s.

That MI should not be just a shorthaul feeder airline for SQ, but an LCA, operating on routes where the SQ premium model is not right – for whatever reason. 3SIAG’s belief – that it cannot provide premium service on a narrow-body aircraft and/or shorthaul routes– in fact beggars belief. Why should a customer wish a lesser standard on MI and then ‘premium’ on SQ? And why, on SIN-KUL, does SIAG believe it is better to have another airline (SQ giving some flights to MI) rather than one airline with different aircraft?

That Tiger is a badly-run NFA that one day will need to be overhauled by SIAG management – and I don’t mean mechanically.

 

 

 

 

The Fox

Remember, I’ll be famous after I’m dead.