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Based at Singapore Changi Airport, Singapore Airlines is the national carrier of Singapore. Using a fleet of wide-body Boeing and Airbus aircraft, including the A380 of which Singapore Airlines was the launch customer, Singapore Airlines operates an extensive network across Asia, North America, Australasia, Europe, Africa and the Middle East. Singapore Airlines joined the Star Alliance on 01-Apr-2000.
Location of Singapore Airlines main hub (Singapore Changi Airport)
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Singapore Airlines (SIA) is looking at acquiring a stake in Korean LCC Jeju Air as a potential next step in further expanding and diversifying its portfolio of airlines. Jeju would be SIA’s first investment in North Asia, following recent investments in Australia, India and Thailand.
SIA-Jeju is an unusual combination as there would initially at least be limited network synergies, although it would be a relatively inexpensive investment for SIA. Jeju Air is keen to stick with its pure point-to-point short-haul LCC model, resisting the need to establish deep partnerships, pursue transit traffic or launch a long-haul low-cost operation.
Jeju could potentially be persuaded by SIA to make changes and pursue partnerships or joint ventures with SIA’s two LCC subsidiaries, Tigerair and Scoot. But most likely SIA’s potential stake in Jeju will be primarily an investment – at least in the initial phase – with some opportunities for the airlines to learn from each other without having to rebrand or forge formal partnerships.
After Qantas' international division posted a profit for the six months to 31-Dec-2014, the division's first positive result since the Global Financial Crisis, the division needs to move from profit to sustainability and delivering returns. But Qantas is now considering international expansion after many years of reductions. A flight to Tokyo has been added, seasonal services to Vancouver have returned, there are supplementary long-haul services and Perth-Singapore may even be re-opened. Reports suggest a return to Sydney-San Francisco is even possible.
“We continue to operate below our full potential,” Qantas reported in a recent government submission. But as Qantas considers international growth, it confronts a markedly different international environment. Qantas argues that Australia viewed it as “expendable” and gave away international traffic rights without receiving enough in return. Qantas seeks to slow liberalisation under the justification of enforcing Australia’s legal duty to support a local aviation industry. This is effectively a mask for protectionism, begging the question: what is the value of a local aviation industry?
Air New Zealand remains one of the world's few investment-rated airlines (Baa3), and the only rated airline outside North America and Europe. Its latest results reinforced that position. Air NZ is building on that strength with a 20% increase in pre-tax profits in the first half of its fiscal year, the six months to 30-Dec-2014. That result was driven by increased revenue performance, notably a 1.9% yield gain and 1.2% increase in traffic.
Air NZ realised only a modest NZD20 million (USD15 million) gain from fuel as lower prices were offset by hedging losses. Air NZ expects a stronger gain of approximately NZD82 million (USD61 million) in the second half, but this too will be well short of what Air NZ could have realised without hedging losses.
Some of the fuel price gain will be used to stimulate demand as Air NZ grows at a much faster 12% rate in the second half. This includes its new Auckland-Singapore route, domestic growth twice the rate of New Zealand's GDP. Later in 2015 comes the start of a Buenos Aires service – and possibly a fourth - as yet undisclosed - North American destination.
Thailand’s NokScoot is aiming to launch scheduled services in May-2015 with an initial fleet of three 415-seat 777-200s. The long-haul low-cost joint venture between Thai Airways affiliate Nok Air and Singapore Airlines (SIA) subsidiary Scoot is planning to serve China, Korea, Japan and potentially Singapore in its initial phase.
NokScoot is eager to enter the fast-expanding but increasingly competitive Thailand-North Asia market. But the start-up is unlikely to pursue significant growth until it is able transition to new-generation aircraft. The 777s are an interim solution that is unlikely to be profitable but enables NokScoot to quickly establish a presence on several key routes.
NokScoot was initially planning to launch scheduled services in late 2014 starting with flights to Tokyo Narita. But it has encountered repeated delays, mainly on the Japanese end. NokScoot is now simultaneously seeking approvals from several authorities, giving it the flexibility to launch with one of several potential routes.
Singapore Airlines (SIA) reported a slight drop in operating profits at the group and parent airline for the fiscal third quarter ending 31-Dec-2014. But SIA and regional full-service subsidiary SilkAir both remained in the black for the quarter and calendar 2014 despite challenging market conditions which drove losses at most of its peers in Southeast Asia.
SIA has outperformed its neighbours by maintaining a disciplined and rational approach to capacity. The parent airline has shrunk since 2008 and the upcoming introduction of premium economy product could result in a further reduction in seat capacity and passenger traffic.
But premium economy could also drive an improvement in yields and profitability at the parent airline after several years of declines. Group profitability should also improve as SIA’s two budget airline subsidiaries, which are driving most of the growth, turn the corner.
The Singapore-North Asia market has continued to grow over the last year despite a drop in visitor numbers from China and an overall slowdown in passenger traffic in Singapore. The market should experience accelerated growth in 2015 as visitor numbers from China recover.
North Asia is an important market for Singapore and its airline sector as the Singapore-Southeast Asia market is showing signs of maturity and overcapacity after several years of rapid LCC-driven growth. The Singapore-North Asia market is relatively unpenetrated and could be stimulated as medium-haul LCCs expand and discretionary income levels in China continue to grow.
This is Part 3 in a series of analysis reports on the Singapore market and the outlook for Changi Airport, which recorded passenger growth of only 0.7% in 2014.