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Competition heats up for Southeast Asia-Europe corporate travel as market conditions improve

14th November, 2013

Corporate travel demand in the Southeast Asia-Europe market appears to be on the rebound but competition continues to intensify as more carriers jockey for a slice of the corporate spending pie. There are also signs of improvement in the much smaller Southeast Asia-North America corporate travel market, which has become more competitive as Singapore Airlines (SIA) pulls its exclusive non-stop services to Newark and Los Angeles.

Capacity levels for non-stop services between Southeast Asia and Europe are up only slightly on a year-over-year basis as Asian carriers have been focusing more on expanding regionally. But the number of players in the non-stop market is expanding while one-stop capacity via the Middle East continues to grow, putting pressure on the overall market.

The competitive pressures could keep premium and corporate fares from increasing as demand returns.

SIA sees improvement in corporate demand in Europe and US

Singapore Airlines (SIA) executive vice president commercial Mak Swee Wah told analysts during the carrier’s 2QFY2014 results briefing on 13-Nov-2013 that corporate demand in Europe has stabilised while in the US there are signs of improvement. “In terms of corporate markets in these two major areas hopefully we have seen the worst and things hopefully will bottom out or are coming back. And that is reflective in our bookings out of both Europe and the US,” Mr Mak said.

SIA’s average passenger yields (across both cabins) have dropped for seven consecutive quarters. As CAPA reported earlier this week, SIA yields are now only at slightly higher levels than 2010, when the carrier was impacted by the global financial crisis.

See related report: Singapore Airlines remains profitable in 2Q but yields drop again amid intensifying competition

SIA does not break down yields or load factors by region. But SIA CEO Goh Choon Phong said “we do see some downward pressure in parts of Europe and certainly in Australia in part because there has been so much capacity added into the Australia market”.

SIA also does not break down yields or load factors by cabin but it appears the downward pressure is more driven by increased promotional activity for economy fares. “We do see our premium load factor holding up well,” Mr Mak said. “Looking at forward loads the premium cabin bookings are still healthy and we expect this to remain.”

Australia sees bigger capacity increase from Southeast Asia than Europe

SIA capacity to Australia is up approximately 20% year-over-year while its capacity to Europe is up less than 10%, according to CAPA and Innovata data. The broader Southeast Asia-Australia market also has seen large influxes of capacity from other Asian carriers, particularly Malaysia Airlines and AirAsia X. Qantas also has increased the number of seats available to the local Southeast Asia-Australia market as it has moved the stopover of its Europe flights from Singapore to Dubai. As CAPA analysed in Sep-2013, the Australia corporate market overall has benefitted from the intensifying competition.

See related report: Corporate air travel market being transformed: CAPA Events to follow Sydney with Amsterdam summit

In addition to the only marginal increase in Europe capacity for SIA, Thai Airways capacity to Western Europe is relatively flat while Malaysia Airlines (MAS) capacity has increased over the past year by about 12%, based on CAPA and Innovata data for Nov-2013 and Nov-2012. Thai Airways is the largest carrier in the Southeast Asia-Western Europe market, followed closely by SIA.

Top 10 carriers between Southeast Asia and Western Europe ranked by non-stop seat capacity: 11-Nov-2013 to 17-Nov-2013

Rank Airline Total Seats
1 TG Thai Airways 63,838
2 SQ Singapore Airlines 59,398
3 MH Malaysia Airlines 27,516
4 KL KLM Royal Dutch Airlines 15,620
5 VN Vietnam Airlines 13,508
6 AF Air France 13,394
7 LH Lufthansa 11,648
8 BA British Airways 11,312
9 AY Finnair 9,716
10 BR EVA Air 8,336

There are also nine European carriers operating non-stop flights to Southeast Asia. But as in the case with Southeast Asian flag carriers, the capacity increases from the European full-service carriers over the past year has been relatively modest. Norwegian is a new entrant and the only low-cost carrier currently in the Southeast Asia-Europe market, operating 787s in two-class configuration from Bangkok to Stockholm and Oslo.

See related report: Norwegian Air's move into Southeast Asia intensifies European airline competition

Gulf airlines have huge impact

The non-stop capacity figures do not show the impact of the Gulf carriers. Emirates, Etihad and Qatar Airways combined have increased capacity in the Southeast Asian market by nearly 40% year-over-year. Their continued expansion in Southeast Asia has impacted Asian and European carriers across both cabins as a majority of the Gulf carrier passengers in Southeast Asia are originating or heading to Europe.

See related report: Emirates, Etihad & Qatar continue to pursue rapid expansion in Southeast Asia-Western Europe market

While the Gulf carriers do not offer non-stop flights in the Southeast Asia-Europe market they have a much larger network of European destinations than the Asian carriers. To the major European destinations where there is non-stop competition, the Gulf carriers compete aggressively on price across both cabins.

Major Gulf carrier seat capacity in Southeast Asia: 11-Nov-2013 to 17-Nov-2013

Rank Airline Total Seats
1 EK Emirates 114,898
2 QR Qatar Airways 67,530
3 EY Etihad Airways 49,816

London-Southeast Asia market sees increased competition

The overall capacity figures also do not show the disproportionate impact on certain important premium markets such as London. Southeast Asia-London non-stop capacity is up nearly 20% over the last 13 months from about 28,000 one-way seats in Oct-2013 (excluding Qantas) to about 33,000 one-way seats currently. (Qantas moved the stopover of its two daily London flights from Singapore to Dubai in Mar-2013 but an overwhelming majority of passengers on the Singapore-London leg were heading to or from Australia.)

The increase in capacity to London has been driven by MAS up-gauging both of its London flights to the A380, the introduction of a fourth daily frequency to London by Singapore Airlines and the launch of London services by Philippine Airlines (PAL). PAL on 4-Nov-2013 launched five weekly non-stop flights from Manila to London Heathrow, becoming the fifth Southeast Asian carrier with non-stop services to Europe after Thai Airways, SIA, MAS and Vietnam Airlines (all of which serve London).

Competition in the Southeast Asia-London market will intensify further in May-2014, when Garuda Indonesia launches services to London Gatwick. Garuda will be the sixth Southeast Asian carrier operating non-stop services to Europe. (Garuda now serves its only European destination, Amsterdam, via Abu Dhabi. Another Southeast Asian carrier, Royal Brunei Airlines, operates one-stop service to London via Dubai.)

Garuda and PAL bring new competition for European market

Garuda and PAL are both pursuing expansion in Europe using 777-300ERs. While these carriers have not traditionally been significant premium or corporate players, they have invested in improving their premium products and are keen to start attracting more corporate traffic. Garuda even has re-introduced a first class product with its new 777-300ER fleet. Garuda is also in the final stages of entering the SkyTeam Alliance, which should make the carrier more appealing to potential corporate customers.

See related report: Philippine Airlines joins Garuda in plotting ambitious European expansion despite stiff competition

Garuda and PAL both have ambitions to launch other non-stop routes to Europe following London, with Frankfurt and Paris among the destinations targeted by both carriers. This should lead to intensifying competition in these markets from Southeast Asia, putting more pressure on the incumbents. While market conditions in Europe seem to be improving for corporate travel, as it is coming during a period of new airlines entering the market and some existing players adding capacity, there will likely be no slowdown in the battle for corporate accounts.

Average business class fares have already come down over the past year on several major Southeast Asia-Europe routes, according to ITA Software data. Singapore-London non-stop business fares are down 6% year-over-year despite the market now having just two players, SIA and British Airways, following the Qantas exit. Singapore-Paris non-stop business class fares are down 15% compared to Nov-2012 and Singapore-Frankfurt non-stop business class fares are down 16%.

Premium passenger traffic between the Far East (includes Southeast Asia and North Asia) and Europe (includes Eastern and Western Europe) has been up on a year-over-year basis all but two months so far in 2013, according to IATA data. The Far East-Europe market accounts for about 8% of total premium traffic and about 15% of total premium revenues, according to IATA data.

Europe to Far East monthly premium traffic growth: Jan-2010 to Aug-2013

SIA withdrawal leads to more competition for Southeast Asia-US corporate market

Southeast Asia-North America is a harder market to track as it’s almost entirely served by carriers offering one-stop products. The only exception has been SIA’s non-stop all-premium A340-500 services to Los Angeles and Newark. But Singapore-Los Angeles, which has been the second longest non-stop route in the world, was terminated in Oct-2013 while the last flight from Singapore to Newark, the longest non-stop route, will operate on 24-Nov-2013.

SIA had operated Singapore-Los Angeles five times per week and Singapore-Newark daily until 2Q2013, when it started scaling back frequencies ahead of the planned termination of the routes. (Next week the Newark flight will only operate twice, on 22-Nov-2013 and 24-Nov-2013.)

See related reports:

As CAPA previously reported, the end of non-stop flights will result in a 26% business class seat reduction for SIA in the US market. The reduction would have been even larger without SIA switching its Los Angeles and New York JFK flights from 471-seat A380s with 60 business class seats to 409-seat A380s with 86 business class seats. Los Angeles is served daily via Tokyo and New York is served daily via Frankfurt. (Both configurations of SIA’s A380s have 12 first class seats, offering a suites product which was not available on the A340-500s.)

SIA one-way business class seat weekly capacity by US destination: before and after termination of non-stops

 

WITH THE

NON-STOPS

WITHOUT

NON-STOPS

 San Francisco  700 700
 Los Angeles 1004 686
 New York JFK 504 686
 Houston 250 250
 Newark 700 0
 US TOTAL 3158 2322

SIA is by far the largest Southeast Asian carrier in the US market. But its position in the US market among all Asian carriers, based on weekly seat capacity, slips from five to 10 as the non-stop flights are pulled.

Without the non-stop offering, SIA will compete head to head against about 20 carriers offering one-stop products in the Singapore-New York market and about 12 carriers offering one-stop products in the Singapore-Los Angeles market with relatively similar total travel times. While unprofitable, the non-stop flights had a high volume of corporate traffic and helped win corporate accounts in the US.

Mr Mak acknowledges the termination of the non-stop all business class services will have an impact because “those two routes have been well supported by the corporate market”. But he points out the reduction in premium capacity will be partially offset by switching to the less dense of SIA’s two A380 configurations and “we will continue to work hard to secure corporate accounts in the US. The teams there are working to making sure that the proposition is strong.”

He added: “We were the only non-stop. Without the non-stop we will compete with all the other one-stoppers – just like in all other markets where we compete and have to fight for the corporate business based on the whole package of corporate benefits.”

The end of the non-stops essentially levels the playing field in the Southeast Asia-US corporate market, leaving SIA fighting off a long list of competitors as it does in the Southeast Asia-Europe market. SIA remains the leading premium carrier in Southeast Asia and has a strong position in the corporate segment globally. SIA is investing heavily in trying to retain its share of the corporate and premium markets, introducing new premium cabin product which debuted on some Singapore-London flights in Sep-2013.

See related report: Singapore Airlines new cabin products represent baby steps but are important to premium strategy

But competition in the corporate sector is as intense as ever, including on long-haul routes to and from Southeast Asia. Market conditions may finally be improving after a challenging few years in which corporate travel spend has been on the decline. But higher capacity levels and new competitors means the fight for the corporate pie is not about to get any easier.

About the CAPA Corporate Travel Innovation Summit, 25 November, Amsterdam

Don't miss the CAPA Corporate Travel Innovation Summit in Amsterdam on 25 November 2013.

Agenda:

09.00: Conference Welcome and Introduction

09.05: Keynote Address: Global travel, changing at the speed of sound

09.40: The Corporate Travel Outlook for 2014

  • Will businesses pay more for their air travel in 2014 than in 2013?
  • What will be the future for the NDC?
  • Will it get harder and harder for companies to keep their travellers compliant with corporate travel policy?
  • Will consolidation of airline suppliers through mergers and joint-ventures force up negotiated fares in 2014?
  • Will LCCs continue to increase their share of the corporate market in 2014?

10.40: Coffee

11.15: Air Procurement: The big headaches and frustrations – are they curable?

  • Commercial deal models: revenue vs marketshare vs segments – what’s the right formula for mutual success?
  • Sourcing vs negotiating: are RFPs the path forward, or can ongoing dialogue and negotiation provide better results?
  • Alliance contracts: are they relevant and useful for both buyers and airlines?
  • What alternatives to traditional corporate deals are buyers exploring – LCCs, spot-purchase, cheapest available?

12.00: Innovation Roadshow: The Corporate Travel Manager’s toolbox for success

12.00: Hotel Bookings – Content, Payment, Data & Integration 

  • Are you managing 100% of your hotel spend most effectively?

12.30: Safety & Security - Now a must have on everyone’s program agenda

  • What's new in the last 12 months that is making this easier and lowering cost to administer, and improves the confidence of your 'C' level executives who own the problem.

12.45: Travel Management Platforms/Open Bookings & Online Booking Tools

  • What's new in the last 12 months and what is coming?  How is the innovation benefitting the Corporates/TMCs?

13.05: Reporting and Business Intelligence: Winning from ‘Big Data’

  • What does Big Data mean in the travel industry – what is new to Corporates/TMC, and how can companies better use what data they have?

14.30: Where the Rubber meets the Rail: The high speed rail challenge (and opportunity) for airlines and corporate travel

  • Rail vs Air for corporate travel. In which markets is HSR decimating air travel, and how and where are airlines fighting back?
  • How has the industry adapted to include HSR and Air / LCC in managed travel programs.  Are there still technology and efficiency gaps in distribution?
  • What opportunities does European HSR offer carriers based in Asia, the Middle East and North America?

15.30 Coffee

16.00: What’s keeping Travel Executives awake at night?

  • We have representatives of a GDS, a TMC and an HBA. Will all these types of company still be here in five years and in ten years? Will travel managers and airline corporate sales teams still exist in five years and ten years?
  • Is managed corporate travel as we understand it today - policy, booking through GDS-powered TMCs, negotiation of discounts with suppliers etc. – dying?
  • Do the panelists see eachother as competitors or partners – or both?
  • Is the idea of using one mega-TMC in all markets and for all travel requirements becoming old-fashioned?
  • What would help the panel sleep better at night?

17.00: Networking Reception

Click here for more information.

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