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Based in Singapore, Jetstar Asia is a low cost airline. Using the Qantas Group's Jetstar brand, Jetstar Asia has a network of services within Asia using A320 aircraft. Jetstar Asia/Valuair is 51% held by Westbrook Investments Pte Ltd (Westbrook) and 49% by Qantas.
Location of Jetstar Asia main hub (Singapore Changi Airport)
LCCs will continue to evolve into hybrids of the original core model. CAPA and OAG consider Jetstar Asia fits the LCC profile and it is included in our reporting on this basis. Please note: when reporting for an airline is changed from or to LCC the historical data is not affected and it can lead to a distortion in the current reported data. Contact us if you have any queries.
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AirAsia has signed up as the anchor tenant for Changi Airport’s T4, a new hybrid terminal which is slated to open in 2017. AirAsia expects to reduce its operating costs significantly in Singapore as it moves from T1 to T4, giving it a better foundation to allow it potentially to resume expansion in Singapore.
AirAsia grew rapidly in Singapore from 2008 through 2013 but cut capacity in 2014 as market conditions became extremely challenging. Lower operating costs, driven by automation of passenger services, and incentive packages should make it easier for AirAsia to add capacity on some of its 15 existing routes from Singapore and launch new routes.
AirAsia could also potentially use T4 as a transit hub by introducing its Fly-Thru product in the Singapore market. Although it is not a hub or base Changi is AirAsia’s third largest airport. Only Kuala Lumpur and Bangkok have more AirAsia seats than Singapore.
Myanmar National Airlines (MNA) plans to launch services on the highly competitive Yangon-Singapore route in Aug-2015 as it starts to implement an ambitious international expansion plan. The newly rebranded government-owned carrier took delivery of the first of 10 737-800s in Jun-2015 and plans to operate five international routes by early 2016 as it grows its new narrowbody fleet.
But the airline faces huge challenges as it operates outside the domestic market for the first time in two decades. The Yangon-Singapore market is already experiencing overcapacity and Myanmar-based carriers have struggled to compete against their Singaporean competitors, forcing cutbacks at Myanmar Airways International (MAI) and the withdrawal of Golden Myanmar Airways.
MNA will inevitably face the same challenges in Singapore as other Burmese carriers, particularly given its brand is an unknown in the international market. North Asia, which MNA plans to enter in the coming months, will also be a challenging market.
Singapore-based LCC Tigerair has cut capacity on 13 routes and suspended seven routes entirely as part of a network restructuring. The cuts have driven a reduction in Singapore's LCC penetration rate and led to a better supply-demand balance in a market which had been – and to some extent still is – suffering from overcapacity.
But the reductions at Tigerair also have created opportunities for competitors. While one of the other two main LCC players in the Singapore LCC sector, AirAsia, also has responded to the challenging market conditions by cutting capacity, Jetstar has quietly expanded.
Jetstar has added capacity over the last year on nine of the 13 routes it competes against Tigerair. Most of these routes have seen Tigerair reductions.
Tigerair's pan-Asian vision is in abeyance. The Singapore-based LCC has reported more losses for the quarter and year ending 31-Mar-2015. The group has now been in the red for four consecutive years, accumulating losses of over USD500 million.
But Tigerair’s outlook for the fiscal year starting 1-Apr-2015 (FY2016) is brighter as the group closed or sold its highly unprofitable overseas joint ventures in FY2015 and restructured its Singapore operation. The group also reduced the size of its fleet in FY2015 by subleasing aircraft and cancelling orders, a painful but necessary exercise. Tigerair is now planning to sell two more A320s in FY2016 as it reduces its operating fleet to only 23 aircraft.
Tigerair Group’s current seat capacity in Singapore is down by about 16% compared to May-2014, with nearly all the reductions occurring on competitive routes as Tigerair has been launching new routes which are not served by other LCCs. Total LCC capacity in Singapore also has been reduced, enabling Tigerair and other carriers to boost load factors and yields. But Tigerair continues to warn of overcapacity and intense competition in the Singapore market, which could impact its ability to complete a turnaround and become profitable in FY2016.
This is Part 1 of CAPA's analysis of the Singapore LCC sector.
There's no room to stand still in the airline business. Qantas CEO Alan Joyce's often controversial measures during a turbulent four years are being vindicated. His aggressive transformation of Qantas appears now to be showing remarkable dividends, with the prospect of going from a billion dollar loss in 2014 to a billion dollar profit just a year on. Next on the agenda will be growth.
Qantas International has returned to profitability for the first time since the global financial crisis (GFC); this is partially due to depreciation gains following large write-downs in FY2014, but there is a fundamental redirection too. Qantas Domestic has bounced back now that the domestic capacity war is over and with room for further improvement. Jetstar has returned to profit but is still under-performing compared to previous years, again with more upside.
Lower fuel costs will deliver Qantas a minimum AUD500 million benefit, setting the group up for a full-year profit around AUD1 billion. The fuel tailwind is an added bonus. Even without it, there are structural changes that will continue to flow through irrespective of that windfall. "Today we can see a bright future," Mr Joyce says.
Yet that proclamation means Qantas must address calls for it to return to growth now that its dark days of restructuring are, if not all behind it, at least nearing fruition. Initially growth is expected to be mostly in the international market as the relatively mature domestic market may be challenged by weak consumer sentiment. For the longer term international growth must be the goal; this will hinge on the synergies Qantas can gain with its key international partners, and if Qantas is successful in lobbying for a slowdown in foreign carrier growth.
Singapore’s aviation market grew by only 0.7% in 2014, the smallest increase since the global financial crisis in 2009. Passenger growth in 2015 will again be very modest as capacity is maintained roughly at current levels.
Singapore has been impacted by capacity adjustments by its struggling low-cost carrier sector. Singapore’s LCC penetration rate, which increased steadily from 2003 to 1H2014, declined in 2H2014.
Singapore also has been impacted by declining visitor numbers. All of four of Singapore’s largest source markets – Indonesia, Malaysia, China and Australia – recorded drops in visitor numbers in 2014. Passenger traffic to Thailand, one of Singapore’s largest outbound and transit markets, declined due to the civil unrest in Bangkok.