Aviation in Singapore is a key component of the Singaporean economy in its quest to be the premier transport hub in the Asian region. As a result of a small domestic market, Singapore has emphasised opening up the international market for its own airlines, as well as to allow foreign airlines to establish operations there. Singapore has Air Services Agreements with over 90 countries and territories and has the most liberal aviation policy in Southeast Asia. The Civil Aviation Authority of Singapore, under the Ministry of Transport, seeks to make the country a vibrant air hub, with a high standard of civil aviation, and a wide spectrum of aviation-related businesses and activities like airlines, maintenance, and repair and overhaul (MRO) services, aircraft manufacturing and aviation logistics.
The national carrier of Singapore is Singapore Airlines, which operates a hub at Changi International Airport. Silkair is a wholly-owned subsidiary, and regional airline of Singapore Airlines and operates scheduled passenger services from Singapore to destinations in Southeast Asia, South Asia and China. Partly in response to competition from AirAsia based in neighbouring Malaysia, Singapore-based low-cost airlines only began to operate from the year 2004 with the entrance of Valuair. In rapid succession, two of the largest airlines operating out of Singapore Changi Airport began operating their competing carriers, namely Singapore Airlines' Tiger Airways and Qantas' Jetstar Asia Airways, which merged with Valuair in 2005.
Airports in Singapore
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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.
(updated following 13-Nov-2013 analyst briefing to include additional comments on SIA yields, Scoot and joint venture with Tata)
Singapore Airlines (SIA) has reported higher profits for the three months and fiscal first half ending 30-Sep-2013. But the carrier’s operating margin was once again low, particularly by SIA standards, as it continues to see a drop in yields.
Market conditions for SIA remain unfavourable. Competition in Southeast Asia has been intensifying while the cargo and long-haul passenger markets remain relatively weak. But the group has been trying to position itself for higher growth and profitability over the long term through a series of major strategic changes.
The last of several major strategic initiatives came towards the end of the most recent quarter as SIA unveiled plans to launch a joint venture full-service carrier in India with Tata. The new Indian carrier, which is expected to launch in 2014, follows the 2012 launch of Singapore-based long-haul low-cost carrier Scoot and an acceleration of expansion at regional full-service subsidiary SilkAir. Scoot is not yet profitable and SilkAir has seen its profitability decline in recent months but over the long-run the SIA Group will have a stronger portfolio with a potential for a return of higher profits.
SIA, Jetstar & Tigerair drive Myanmar-Singapore growth but visa restrictions remain major impediment
The Myanmar-Singapore market is facing potential over-capacity as more flights are added, led by low-cost carriers. Tigerair launched services to Yangon in Oct-2013 while Jetstar Asia and Golden Myanmar have both unveiled plans to add capacity on the Yangon-Singapore route.
Passenger numbers between Myanmar and Singapore have increased by about 50% over the last two years. But capacity levels are now up nearly 100%.
Without a waiver of current visa restrictions it is unlikely the market will be able to absorb the additional capacity. Singapore has not approved a proposal from Myanmar to lift visa restrictions although Myanmar is the only Southeast Asian country for which Singapore requires visas. A visa free environment is particularly important for the LCCs, which are eager to stimulate demand on the Yangon-Singapore route.
Tigerair & Scoot poised for expansion in under-penetrated Singapore-China market as Jetstar retracts
The Singapore-China market has huge potential for low-cost carriers, which currently only account for 19% of capacity between the two countries. But the market has proven to be challenging for Jetstar, which is cutting two more Singapore-China routes and reducing the LCC group’s capacity share to an insignificant 3% compared to 10% two years ago.
Expansion from Tigerair and Scoot has filled some of the void left by Jetstar. But total LCC capacity and the LCC penetration rate in the Singapore-China market is on the decline, dropping to only 16% in Jan-2014.
Singapore’s overall LCC penetration is now 31% and is continuing to rise. The relatively low penetration in the Singapore-China market is surprising, particularly as the market enjoys open skies. But the long-term potential is there for more LCC services.
Tigerair challenges continue as losses are recorded in Australia, Indonesia, Philippines & Singapore
Tigerair continues to face challenges, with all four of the group’s carriers reporting operating losses for the three months ending 30-Sep-2013. Tigerair’s outlook remains relatively bleak as it continues to expand despite intense competition in all four of its home markets.
Tigerair Singapore has struggled to maintain yields and load factors as it has expanded capacity this year at a clip exceeding 25%. While Tigerair has succeeded at becoming the largest LCC brand in Singapore, with a now sizeable gap over Jetstar and AirAsia, its operation in Singapore has slipped into the red for the first time since early 2012 due to over-capacity.
Tigerair Australia, Tigerair Mandala (Indonesia) and Tigerair Philippines remain unprofitable. The group is bullish on their prospects but over the short term the potential for profitability is slim.
American Airlines’ decision to launch service from its Dallas/Fort Worth hub to Hong Kong and Shanghai is a strategic move to bolster its historically weak positioning in the US-Asia market, and is occurring at a time when some carriers in those markets are enjoying particularly favourable results on their service to North America and are rapidly expanding.
American is also positioning itself to capitalise on the growing demand between Asia and Latin America by funnelling passengers through its largest hub for connections onwards to Central and South America.
The moves by American – which also include axing its service from New York JFK to Tokyo Haneda due to unfavourable operating times – also show a diminished emphasis on Japan as a traditional stop-over as direct services become an imperative to attract and retain high-yielding business passengers.