FOXTROTS*

 

Correcting mistakes; Singapore Airlines Group.

With the news that Silk Air is being merged into Singapore Airlines, the businessplan we outlined for SAG (Singapore Airlines Group) is almost complete.

 

We synopsised our points in a November 2013 report following a meeting with a senior SAG executive. Some of these points we had noted before, and of course later. The three elements were:

 

 

  1. Scoot should not have been established. SAG’s first NFA* Tiger should have been expanded instead. SAG did not own a majority in Tiger at that time, and so we suggested SAG should simply buy a bigger share.

 

Three years later this all started to happen. SAG increased its shareholding in Tiger. Then the two airlines Scoot and Tiger were put under a single management control, then Tiger was merged into Scoot.

 

Essentially then, this is what we suggested – just one (NFA) airline.

 

 

  1. Similarly there has been no need (for the past 15 years at least) to have two FSAs*. The inanity of this was illustrated in that there were some routes on which both SIA and Silk were flying. Duh!

 

There are nuances to our argument, of course, which make this not quite so blatantly stupid, but it was still was poor business management.

 

Now, following this announcement, what we proposed is happening – just one (FSA) airline.

 

 

  1. However, there was an element in our proposed businessplan for SAG that has not been implemented, and which in some ways makes the SIA/Silk merger the wrong move.

 

We proposed that Silk become SAG’s LCA*. As an LCA, Silk’s routes could be new ones for SAG – where it is usually better to start with a lower-cost operation until the financial viability for SIA to operate such a route is clearer. Or a Silk LCA could operate additional frequencies on routes operated by SIA – again, which might not be profitable for SIA to expand.

 

Perhaps SAG management believes Scoot will fill that market need – develop new routes. But as management knows, and says, Scoot serves a different market segment.

 

Under this new arrangement for SIA/Silk, the full-service market segment is not properly served (because any extra demand from the FSA market will be fulfilled by non-SAG FSAs). That, or higher-costs SIA will add flights to fulfil this extra demand, and lose money, at least initially.

 

Also, that would mean SAG’s market share would steadily fall – or at least not grow at the rate it could.

 

Will SAG management understand this?

 

The chances do not look good – back in 2013 they laughed (literally, but at the proposal, not the deliverer) at our three proposals – two of which they have now carried out.

 

 

*Notes: Our airline-type definitions:

 

-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 no-frills-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 example), fewer fare types, may have first and business cabins as well as economy, and which allows bookings through travel agencies etc. If relevant, 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: shorthaul point-to-point routes; market freedom in terms of fares, routes; single aircraft type; where relevant, competition against parent airline allowed; extremely-low fares when bought at least three months in advance, say US$25; one fare at one time (no wholesale rates, travel agency commissions, etc); no refunds; no (free) service frills; single economy-class cabin; no (free) 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.

 

 

 

The Fox. Remember, I’m an industry expert in the parallel world.

*Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning.  Foxtrots – leading the industry in a dance.

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