16-Jun-2013 9:00 PM

Ethiopian Airlines to give Singapore Changi and Singapore Airlines an important link to Africa

Analysis

Singapore Changi is close to plugging the biggest hole in its network, East Africa, with a proposed new service from Ethiopian Airlines. As traffic growth at Changi slows significantly, the airport needs to identify new markets. Africa, particularly East Africa, opens the door to an array of traffic flows which currently bypass Singapore.

Africa has emerged as an important and fast-growing region for Asia. A Singapore-Addis Ababa route gives Changi connections throughout Africa as well as an alternative for exploiting the fast-growing Asia-Brazil market.

Securing Ethiopian is critical for Changi as Singapore has fallen behind other Asian hubs in attracting African carriers. Changi currently is served by just one African carrier, Air Mauritius, with one weekly flight that is routed via Kuala Lumpur. Singapore Airlines only operates non-stop flights to one destination in Africa, Johannesburg, although it also serves Cape Town and Cairo on a one-stop basis.

Summary

Singapore Changi is looking to expand its network to East Africa with a proposed new service from Ethiopian Airlines.
Africa, particularly East Africa, presents an opportunity for Singapore Changi to tap into an array of traffic flows that currently bypass the airport.
Singapore Changi currently has limited connections to Africa, with only one African carrier, Air Mauritius, operating one weekly flight via Kuala Lumpur.
Other Asian hubs such as Bangkok, Beijing, Guangzhou, and Hong Kong have more African carriers and frequencies, making them more attractive for Africa-Asia traffic.
Singapore Changi's geographical location makes it well-positioned for Africa traffic flows, and it has the potential to match Bangkok's African network.
Singapore offers African carriers the possibility of fifth freedom uplift rights for flights beyond Changi, which has been a key driver in attracting African carriers to other Asian hubs.

Bangkok, Beijing, Guangzhou and Hong Kong emerge as main Asian hubs for Africa

In comparison, Bangkok and Hong Kong are both currently served by five African carriers. Thai Airways and Cathay Pacific also both serve Johannesburg.

Beijing is also served by five African carriers while Guangzhou is served by four. Another Singapore rival, Kuala Lumpur, has three African carriers.

Changi is not alone in having just one African carrier. Other major Asian airports in the same category include Manila, Osaka, Seoul and Tokyo. But Changi stands out in that it is better positioned geographically than these airports for Africa traffic flows.

East Asian airports ranked on number of African carriers and frequencies: 1-Jul-2013 to 7-Jul-2013

Airport	number of carriers	total number of weekly frequencies*	number of non-stop frequencies
Bangkok	5	45 (KQ-14, MS-14,ET-11, MD-4, UU-2)	23 (KQ-7, ET-7, MS-7, MD-2)
Hong Kong	5	30 (ET-14, SA-7, MK-3, KQ-3, HM-3)	17 (ET-7, SA-7, MK-3)
Beijing	5	17 (ET-7, SA-3, MS-3, AH-2, DT-2)	17 (ET-7, SA-3, MS-3, AH-2, DT-2)
Guangzhou	4	21 (ET-7, KQ-7, MS-5, MD-4)	12 (ET-7, MS-5)
Kuala Lumpur	3	15 (MS-7, ET-4, MK-4)	3 (MK-3)
Hangzhou	1	7 (ET-7)	N/A
Seoul Incheon	1	4 (ET-4)	N/A
Manila	1	3 (ET-3)	N/A
Tokyo Narita	1	2 (MS-2)	2 (MS-2)
Osaka Kansai	1	2 (MS-2)	2 (MS-2)
Shanghai Pudong	1	2 (MK-2)	2 (MK-2)
Singapore	1	1 (MK-1)	N/A

Changi has the potential to match Suvarnabhumi's African network

Beijing and Guangzhou are more destinations than hubs for traffic to/from Africa. Economic ties between China and African countries have grown rapidly in recent years. There is now a huge population of African traders in mainland China, particularly Guangzhou.

As the Chinese capital, Beijing has also benefitted from the surge in Chinese companies doing business in Africa.

But China is also well served by hubs across the Asian region. Hong Kong is not as large a local market for Africa but is well positioned given its proximity to mainland China.

Bangkok has become the largest transit hub for connecting Africa with Asia. As a point-to-point market, Thailand-Africa is small. But African carriers use Bangkok as a gateway to the rest of Asia.

Changi offers African carriers a similar proposition. While the local Singapore-Africa market is also small, African carriers could leverage the Changi hub by offering connections throughout the Asia-Pacific region.

Changi is one of the closest Asian cities to Africa - about 3,500nm to Madagascar and about 4,000nm to Addis Ababa or Nairobi - and can offer passengers heading to/from Africa a wider array of connections, including over 100 destinations in the Asia-Pacific region (includes Australia and New Zealand). Having just one non-stop destination in Africa is a glaring white spot in the Changi network.

Singapore Changi network summary: as of 16-Jun-2013

Fifth freedom uplift rights in Asia are important for African carriers

Singapore also offers African carriers the possibility of fifth freedom uplift or pick-up rights for flights beyond Changi. Pick-up rights have been a key driver in Thailand's proposition to African carriers. Ethiopian, EgyptAir and Kenya Airways all serve Bangkok with daily flights that continue beyond Suvarnabhumi to other destinations in Asia.

EgyptAir's Bangkok flight continues to Kuala Lumpur and Kenya Airways' flight continues to Guangzhou every day of the week. Ethiopian has been operating a Bangkok-Kuala Lumpur tag three times per week and a Bangkok-Hong Kong tag the other four days. Ethiopian launches non-stop flights to Hong Kong on 18-Jun-2013, allowing it to increase the Kuala Lumpur tag to four weekly flights and later launch a new thrice weekly Bangkok-Ho Chi Minh tag (in Sep-2013). Ethiopian also previously served Guangzhou via Bangkok before launching a non-stop service.

Air Madagascar also operates a Bangkok-Guangzhou tag as part of its twice weekly Bangkok service. The fifth African carrier serving Bangkok, Air Austral, serves the Thai capital twice weekly as part of a Reunion Island-Chennai-Bangkok route.

Ethiopian plans to start operating tag flights at Hong Kong on 18-Jul-2013. Of its seven new weekly frequencies from Addis Ababa to Hong Kong, four will continue to Seoul (starting 18-Jun-2013) and three to Manila (starting 2-Jul-2013).

But Ethiopian's decision to tag Seoul and Manila with Hong Kong is perplexing as the carrier does not currently have pick-up rights for these routes. Ethiopian Airlines CEO Tewolde GebreMariam tells CAPA that the carrier is hoping to eventually secure pick-up rights for Hong Kong to Manila and Seoul but is committed to initially launching the routes while only carrying passengers that originate in Africa and v-v. As with all of Ethiopian's Asian routes, the carrier seeks to gradually develop the Manila and Seoul markets with the goal of some day offering non-stop flights to both destinations.

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But Manila and Seoul will be challenging markets to sustain without pick-up rights and at least for now are too small to sustain non-stop services. Ethiopian is the first African carrier to serve Manila and is the second carrier in the Korea-Africa market after Korean Air, which operates three weekly flights from Seoul to Nairobi.

Ethiopian has no illusions that it will have to overcome competition in the Philippines-Africa market from Gulf carriers, which have a large presence in Manila and big networks in Africa. It will have to overcome competition from SkyTeam partners KAL and Kenya Airways in the Korea-Africa market. KAL has timed its Seoul-Nairobi flight, which it launched in Jun-2012, to connect with Kenya Airways-operated connecting flights throughout Africa.

Singapore is an obvious missing link in Ethiopian's Asian network

Singapore could have been a stopover option for Ethiopian's new Manila and Seoul flights. While Ethiopian over the last couple of years has cited Singapore as a potential new destination in Asia, Changi has so far missed out on Ethiopian's ambitious Asian expansion.

With the addition of Seoul, Manila and Ho Chi Minh, Ethiopian will have 11 online destinations in Asia but will still not serve Singapore. Ethiopian is the largest carrier in the Africa-East Asia market, with over 15,000 weekly non-stop seats (see background information).

Ethiopian's Asian network: as of Sep-2013

Singapore is also a logical addition to Ethiopian's Asian network given the carrier's partnership with Singapore Airlines (SIA). Ethiopian and SIA began codesharing in Nov-2011, just before Ethiopian joined SIA in the Star Alliance. The codeshare initially covered the Singapore-Dubai-Addis Ababa route, with SIA operating the Singapore-Dubai leg and Ethiopian operating Dubai-Addis Ababa. A second codeshare flight via New Delhi was later added with SIA operating Singapore-Delhi and Ethiopian operating Delhi-Addis Ababa.

Mr GebreMariam says Ethiopian and SIA are discussing expanding their partnership to include Ethiopian-operated flights between Addis Ababa and Singapore and SIA-operated flights beyond Singapore. SIA and its regional subsidiary SilkAir would be able to give Ethiopian access to markets throughout Asia that it does not serve with its own metal. Ethiopian does not codeshare with Southeast Asia's other Star Alliance member, Thai Airways, making a partnership with SIA even more appealing for both sides.

Ethiopian eyes offline access to Australia via SIA

But Mr GebreMariam says however that the main focus of establishing a Singapore gateway would be on offering connections to Australia rather than Asia. Ethiopian is keen to access Australia but not with its own aircraft as is the case with every other continent, including (soon) South America.

SIA is an ideal partner for Australia services as it is the second largest foreign carrier in Australia (after Qantas partner Emirates), offering over 70,000 weekly seats, according to CAPA and Innovata data. SIA serves five Australian cities - Adelaide, Brisbane, Melbourne, Sydney and Perth - while SilkAir serves Darwin. An Ethiopian-SIA combination in the Australia-Africa market would be an attractive proposition, potentially resulting in transit times that are shorter than Gulf carriers and other competitors.

Ethiopian could also potentially partner with Virgin Australia, giving it offline access to secondary Australian cities and more importantly access to a local distribution channel in Australia for the relatively small but growing Australia-Africa market. SIA has a close partnership and equity stake in Virgin Australia.

The biggest roadblock for partnering with SIA is matching up Ethiopian's planned flights to Singapore with SIA's flights to Australia. Ethiopian has already secured slots at Changi which includes a landing slot at 3pm. Flights from Singapore to Australia depart in the evening and early morning hours. Late afternoon or early evening flights are not possible, with the exception of Singapore-Perth, because of the time difference between Singapore and eastern Australia.

Mr GebreMariam is hoping an Ethiopia-Singapore-Australia schedule can be worked out with short transit times in both directions, allowing the planned flights and partnership with SIA to move forward. But he says the proposed Ethiopia-Singapore schedule cannot be easily adjusted because they maximise connections at the Addis Ababa hub.

New Ethiopian flight would improve Singapore-Africa connections and offer a new option for Singapore-Brazil

As with the case of all its Asian routes, Ethiopian will need to leverage its African network for the Singapore flight to be viable. Ethiopian serves about 40 international destinations in Africa as well as 16 domestic destinations, according to Innovata. The carrier's flights to Asia all depart Addis Ababa at about midnight to facilitate connections coming off a large bank of flights from African destinations that land at Addis Ababa in the late evening.

Ethiopian's new flight from Brazil to Addis Ababa, which will launch on 1-Jul-2013 and operate via the group's West Africa hub in Togo, also lands at the Addis Ababa hub in the late evening to allow for connections to Asia. Brazil-Asia, in particular Brazil-China, is a fast-growing market Ethiopian is keen to tap along with the lucrative Brazil-Africa market.

Ethiopian will also offer services in the Singapore-Brazil market if it keeps its proposed schedule the new Addis Ababa-Singapore flight. Ethiopian passengers would be able to depart Sao Paulo at about 1am and arrive in Singapore at 3pm the following day. While the service would have two stops - in Togo and Ethiopia - the total transit time would be competitive at 25 hours. SIA operates from Sao Paulo to Singapore via Barcelona but this one-stop option also takes 25 hours as flying via Africa is a more direct routing. Emirates and Qatar Airways also offer one-stop products via the Middle East, with flight combinations also talking about 24 to 26 hours.

Ultimately Ethiopian may have to sacrifice Australia connections on the outbound leg. Australia-East Africa is a small and not very competitive market, allowing Ethiopian to get away with relatively long layovers in Singapore. SIA's first evening bank of flights to Brisbane, Melbourne and Sydney leave Singapore at about 9pm, allowing for six hour layovers assuming Ethiopian keeps its 3pm landing slot. A six hours layover is not ideal but feasible for the East Africa-Australia market given the limited amount of competition in this market. A 3pm landing in Singapore is ideal for evening connecting flights within Asia.

On the return leg, Ethiopian would depart Singapore after midnight in order to arrive in Addis Ababa in the early morning and maximize connections across Africa. Connections with Australia in this direction will be much shorter as SIA has flights from Australia and many other destinations landing in Singapore in the late evening.

As the 787 Ethiopian intends to use for Singapore will need to stay in the ground in Changi for more than nine hours, the carrier will likely look to operate fifth freedom flights from Changi. Moving the Manila tag from Hong Kong to Singapore and launching Jakarta would be an attractive option as Seoul and other North Asian destinations would not be feasible because they are too far to be served within the available window. But Ethiopian may find it challenging to launch fifth freedom flights from Singapore given SIA's likely objection to such flights and the need for another pair of slots at Changi, where slots during peak hours are currently not available.

Ethiopian, SIA and Changi is a win-win-win

In the end Ethiopian and SIA should be able to make it work. The value for each of the carriers and for Changi is self-evident.

SIA would benefit as it has no plans to serve East Africa with its own aircraft. A more comprehensive partnership with Ethiopian is logical as it would give SIA a stronger network in Africa, where it only serves three destinations (Johannesburg non-stop, Cape Town via Johannesburg and Cairo via Dubai).

For Ethiopian, Singapore along with perhaps Japan, is the last major hole in its Asian network. A Singapore service and a codeshare with SIA will also give the carrier important access to Australia as well as New Zealand and secondary cities in Asia.

For Changi, the airport needs to find new sources of traffic to offset a drop in Europe traffic aggravated by Qantas discontinuing Singapore-Europe flights and moving the stopover on its London services from Singapore to Dubai.

Changi passenger traffic was up only 1% year-over-year in Apr-2013, the first full month since the changes at Qantas' Singapore operation were implemented. Traffic growth at Changi will likely be in the low to mid single digits in 2013, ending three consecutive years of double-digit expansion.

Ethiopian is Changi's best chance at landing a new African route. East Africa's other major carrier, Kenya Airways, is unlikely to serve Singapore as it is a relatively small local market and Changi has limited SkyTeam connections. South African Airways is in Star, which accounts for about 40% share of capacity at Changi, but would not be interested in competing head to head with its codeshare partner SIA on the Johannesburg-Singapore route.

EgyptAir service from Cairo would be a logical option as SIA no longer operates non-stop flights to Cairo and EgyptAir is also in Star. But EgyptAir is currently not interested in Singapore and is instead looking to launch service to Jakarta, which currently does not have any service from Africa.

Changi is a long way from surpassing Bangkok as the main hub in Southeast Asia for Africa traffic. Bangkok currently has about 15,000 weekly non-stop seats to Africa compared to only about 4,000 for Singapore (see background information). But the discrepancy does suggest considerable upside for the Singapore hub and securing Ethiopian would be an important milestone for Changi's development, filling an important gap in an otherwise well-rounded portfolio.

Background information

10 airports in East Asia have non-stop service to Africa - three in Southeast Asia and seven in Northeast Asia. There are currently seven carriers offering over 20,000 weekly non-stop seats between Africa and Southeast Asia and eight carriers offering over 36,000 weekly non-stop seats between Africa and Northeast Asia.

Ethiopian has the most seats in the combined Africa-East Asia market, offering nearly 16,000 weekly seats. Ethiopian will have about another 11,000 seats within Asia (includes the Delhi-Hangzhou route) after adding one-stop services to Seoul, Manila and Ho Chi Minh.

East Asia's airports ranked based on non-stop capacity (seats) to/from Africa: 1-Jul-2013 to 7-Jul-2013

Rank	Airport	Weekly non-stop seats
1.	Bangkok	14,718
2.	Hong Kong	13,076
3.	Beijing	10,468
4.	Guangzhou	7,884
5.	Singapore	4,130
6.	Kuala Lumpur	1,692
7.	Seoul Incheon	1,356
8.	Tokyo Narita	1,328
9.	Shanghai Pudong	1,184
10.	Osaka Kansai	1,120
	TOTAL	56,956

Africa-Southeast Asia non-stop capacity by carrier: 1-Jul-2013 to 7-Jul-2013

Africa-North East Asia non-stop capacity by carrier: 1-Jul-2013 to 7-Jul-2013