Singapore Airlines boosts partnerships to improve access to North America, starting with Asiana

This is the second in a series of analysis reports on SIA's partnership strategy, which has evolved significantly since Goh Choon Phong took over as group CEO at the beginning of 2011. The first part analysed the impact on SIA's European, African and Middle Eastern networks as SIA has added eight new partners over the past three years while significantly expanding others.

This part will focus on North America as well as look at potential opportunities in Latin America

See related report: Singapore Airlines seeks to expand its partnership portfolio further following a spate of new deals

SIA's North American online operation is down to four destinations and 33 weekly flights

SIA currently serves four gateways in the US - Los Angeles, San Francisco, Houston and New York - and relies on a mix of partners to serve other destinations. Codeshare services via North Asia and Europe are faster than domestic connections via its four remaining US gateways as they enable a one-stop product from Singapore to North America.

SIA no longer has non-stops to the US, having dropped its all-premium A340-500 services to Los Angeles and Newark in 2H2013. As CAPA described in Oct-2013, the discontinuation of the all-premium services led to a 16% drop in SIA's total seat capacity to the US, including a 26% drop in premium seats (business and first) and a 12% drop in economy seats.

See related reports:

• Singapore Airlines reduces focus on US market as non-stop flights are dropped
• Singapore Airlines upcoming termination of non-stops to US spells end to ultra long-range travel

While the A340-500s were in 100-seat all-business configuration, there was a reduction in economy seats as SIA decided to minimise the impact on business class capacity by transitioning its New York and Los Angeles services from 471-seat A380s to 409-seat A380s. SIA has two configurations for the A380, with the denser configuration featuring 60 business class seats compared to 86 business class seats on the newer less dense configuration.

New York is served with one A380 daily frequency westbound via Frankfurt while Los Angeles is served eastbound with one A380 daily frequency via Tokyo. San Francisco is served with two daily 777-300ER frequencies, one via Hong Kong and one via Seoul. Houston is served with five weekly frequencies via Moscow.

Geography makes it challenging for SIA to pursue organic growth in North America

Over the last decade SIA has gradually reduced the size of its US network, withdrawing from Chicago (via Amsterdam), Las Vegas (via Hong Kong), Vancouver (via Seoul) and Newark (initially via Amsterdam and subsequently non-stop). SIA also previously operated second one-stop flight to Los Angeles via Taipei.

SIA is now the ninth largest Asian carrier in the US market based on current seat capacity. SIA has slipped several places as North Asian carriers have expanded while SIA has steadily shrunk its US operation.

Asian carriers ranked by seat capacity to/from the US: 19-May-2014 to 25-May-2014

Rank	Airline		Total Seats
1	KE	Korean Air	59,830
2	JL	Japan Airlines	44,856
3	NH	All Nippon Airways	44,172
4	CX	Cathay Pacific	40,964
5	CA	Air China	27,768
6	OZ	Asiana Airlines	26,582
7	BR	EVA Air	24,528
8	CI	China Airlines	23,934
9	SQ	Singapore Airlines	22,016
10	PR	Philippine Airlines	14,812
11	MU	China Eastern Airlines	14,560
12	AI	Air India	14,364
13	CZ	China Southern Airlines	7,084
14	9W	Jet Airways	3,626
15	HU	Hainan Airlines	2,982
16	TG	Thai Airways	2,632
17	PK	Pakistan International Airlines	13984

Source: CAPA - Centre for Aviation & OAG

The location of Singapore puts SIA at a disadvantage in covering the US market as non-stops have proven to be not economically feasible. Airlines from North Asia and the Philippines are able to operate non-stop services to North America without using special ultra-long range aircraft such as the A340-500 or 777-200LR.

Thai Airways' experiment with A340-500 non-stops also failed and the Thai carrier now operates just four weekly flights to the US, a 777 service to Los Angeles via Seoul. Another Southeast Asian carrier, Malaysia Airlines (MAS), pulled out of the US market entirely at the end of Apr-2014 when it dropped its thrice weekly service to Los Angeles via Tokyo.

MAS earlier dropped Newark, which it served via Stockholm, and Buenos Aires, which was served via Cape Town in South Africa. When also taking into account SIA's thrice weekly 777-300ER service to Sao Paulo via Barcelona, the carrier has three routes and 15 weekly frequencies across the Atlantic and three routes and 21 weekly frequencies across the Pacific.

In today's highly competitive market place one-stop flights halfway around the world have become increasingly difficult to sustain. Relying on partners to operate the second leg is often a more sensible (and profitable) option.

Virgin Atlantic, Air Canada and ANA have long been used by SIA to serve North America

SIA traditionally has partnered with Virgin Atlantic via London Heathrow to access additional points in the eastern US such as Boston, Miami, Orlando and Washington DC. Virgin Atlantic does not serve Singapore but SIA owned a 49% stake in the carrier which it originally acquired with the specific purpose of accessing the US over London. That ownership endured until mid-2013, when a sale to Delta Air Lines was completed.

The Virgin Atlantic-SIA partnership has been maintained, helping feed SIA's four daily flights to London Heathrow. The partnership was expanded in 2013 to also include Aberdeen, Edinburgh and Manchester after Virgin Atlantic launched a short-haul operation using A320s wet-leased from Aer Lingus.

At Heathrow, SIA also has a longstanding codeshare with Air Canada covering services to Toronto. The Air Canada partnership also covers Toronto and Montreal via Frankfurt and Vancouver via San Francisco. But SIA does not codeshare with Lufthansa on flights from Frankfurt to North America.

ANA provides SIA with offline access to the US via Tokyo Narita as part of another longstanding relationship. SIA currently places its code on ANA-operated flights from Tokyo Narita to Chicago, New York and Washington. While the SIA-ANA codeshare includes reciprocal flights between Singapore and Tokyo as well as domestic destinations beyond Tokyo the carriers do not codeshare on Tokyo to Los Angeles (which both operate) or San Francisco.

SIA begins to use Asiana to improve presence in US market

In Apr-2014 SIA added Asiana as a new partner to the US, covering flights beyond Seoul to Los Angeles, Honolulu and Seattle. Seoul-San Francisco, which both Asiana and SIA operate, is not part of the expanded pact.

Previously SIA and Asiana only codeshared on Singapore-Seoul. As the two carriers now have blanket codeshare authorisation from US authorities, expansion is possible to cover other Asiana gateways such as Chicago and New York.

SIA EVP commercial Mak Swee Wah said at the group's 1Q2014 results briefing that starting to make use of the carrier's Seoul gateway for codeshare services to North America is part of its broader strategy of expanding partnerships and relying more on partners to cover the US market. "These are all means to retain as much of the US market as we can while we have cut back on the unprofitable ultra long-haul flights," Mr Mak explained.

Honolulu represents a new offline destination for SIA. Adding Seattle to the Asiana partnership is also key as SIA previously only had circuitous two-stop access from Singapore to Seattle by codesharing with Virgin America on Seattle-San Francisco.

The US Airways codeshare ends, leaving Virgin America as only US airline partner

Virgin America will soon be SIA's only US codeshare partner as its partnership with US Airways is ending in Jul-2014. US Airways, which is in the process of merging with American Airlines and recently left the Star Alliance for oneworld, has been discontinuing codeshares with most other Star members. Several codeshares were deactivated as US Airways entered oneworld at the end of Mar-2014 and a few more including SIA are being turned off over the next few months, leaving US Airways with only four Star partners - Air China, Aegean, South African Airways and TAP.

US Airways currently carries the SQ code on flights from SIA's US gateways to Charlotte and Phoenix. SIA will lose Charlotte and Phoenix as offline points as the relationship with US Airways ends.

SIA now has access to 11 destinations in the US with Virgin America beyond Los Angeles and San Francisco. But it will lose Philadelphia in Oct-2014, when Virgin America discontinues service to Philadelphia from both Los Angeles and San Francisco.

SIA codeshare routes to and within North America

Partner airline	Codeshare routes
Air Canada	Frankfurt ↔ Montreal Frankfurt ↔ Toronto London ↔ Toronto San Francisco ↔ Vancouver
All Nippon Airways	Tokyo (Narita) ↔ Chicago Tokyo (Narita) ↔ New York Tokyo (Narita) ↔ Sapporo Tokyo (Narita) ↔ Washington
Asiana Airlines	Seoul ↔ Honolulu Seoul ↔ Los Angeles Seoul ↔ Seattle
US Airways*	Charlotte ↔ Houston Charlotte ↔ Los Angeles Charlotte ↔ New York Charlotte ↔ San Francisco Houston ↔ Phoenix Los Angeles ↔ Phoenix San Francisco ↔ Phoenix
Virgin America	Los Angeles ↔ Boston Los Angeles ↔ Dallas Los Angeles ↔ Fort Lauderdale Los Angeles ↔ Washington Los Angeles ↔ Las Vegas Los Angeles ↔ Chicago Los Angeles ↔ Philadelphia Los Angeles ↔ Seattle Los Angeles ↔ San Francisco Los Angeles ↔ San Jose San Francisco ↔ Boston San Francisco ↔ Dallas San Francisco ↔ Fort Lauderdale San Francisco ↔ Washington San Francisco ↔ Las Vegas San Francisco ↔ Chicago San Francisco ↔ Portland San Francisco ↔ Philadelphia San Francisco ↔ Palm Springs San Francisco ↔ San Diego San Francisco ↔ Seattle

Note: *All US Airways codeshares are being deactivated in Jul-2014
Source: SIA

United, the only remaining US member in Star, has never had a strong relationship with SIA. As Virgin America is a relatively small carrier and was only added as a partner in late 2012, SIA has had to rely heavily on interlines to cover a large portion of the US market.

In addition to maintaining interlines with United and other US majors, SIA interlines with Alaska Airlines and New York-based LCC JetBlue Airways. JetBlue provides important access to destinations beyond its New York gateway.

SIA's relationship could potentially be upgraded to a codeshare as JetBlue now has codeshare functionality. Upgrading its relationship with Alaska Airlines to a codeshare would also be a possibility. But the main focus is on using Asian and European partners to provide improved one-stop access, leveraging SIA gateways in Europe and North Asia.

EVA and Turkish could give SIA more new options in the US

An expansion of the ANA codeshare would be logical as ANA also now serves San Jose and Seattle.

In Europe, SIA does not yet codeshare with SAS to the US although the two carriers are close partners, with a joint venture in the Singapore-Copenhagen market. SAS could provide SIA with additional offline access to Chicago, Newark and Washington DC (SAS also serves San Francisco but serving San Francisco via Copenhagen would not be logical).

SIA also does not yet codeshare with Lufthansa or SWISS on trans-Atlantic routes. Lufthansa currently serves 20 destinations in North America, according to OAG data, but each carrier remains wary of traffic erosion onto its partner where they operate the same route.

SIA could also potentially grow its offline presence in the US using EVA and Turkish. SIA began codesharing with EVA in late 2013 but for now the partnership only includes the Singapore-Taipei route, which SIA serves with two daily flights and EVA with one daily frequency. In the US, EVA serves Los Angeles, San Francisco, Seattle and New York.

EVA joined Shenzhen Airlines as SIA's only codeshare partners in greater China. Shenzhen became SIA's first partner in mainland China earlier in 2013 as SIA has never been able to forge a deal with larger Star member Air China. But the SIA-Shenzhen partnership has so far been limited to the Singapore-Shenzhen market, which is served daily by SilkAir and Shenzhen Airlines. Access to secondary cities in China remains a major white spot in SIA's offline network. A partnership with Air China would provide access to secondary destinations in China as well as potentially additional offline access to North America.

Turkish added Boston on 12-May-2014 as its sixth US gateway and is keen to grow its US network. North America has been cited as a region to be covered under the recently announced expanded SIA-Turkish partnership, which is expected to be implemented shortly pending regulatory approvals. But the two carriers have not yet applied for US approval to codeshare on US routes, suggesting a tie-up across the Atlantic is not imminent.

Turkish Airlines could help open up Latin America, which remains a white spot for SIA

Turkish could also open up destinations in Latin America. SIA currently serves Sao Paulo via Barcelona but does not have any codeshares covering other destinations in Latin America.

Turkish only serves Sao Paulo and Buenos Aires but expects to pursue significant expansion in Latin America over the next few years. The carrier has decided to postpone the launch of services to Bogota, Caracas, Havana and Mexico City, which was initially part of its 2014 expansion plan, but these and other Latin American destinations remain in the carrier's medium term network plan.

Istanbul, along with hubs in the Gulf, is ideally situated for Asia-Latin America traffic. SIA could potentially establish an offline network in Latin America via Western Europe. But routings via Europe are typically longer - for example its one-stop same plane Singapore-Barcelona-Sao Paulo service is slower than the one-stop change of plane products offered by some of the Gulf carriers on the same city pair.

SIA also does not serve Madrid, which is the main gateway to Latin America and is a hub for Star member and potential SIA partner Air Europa. As a result a tie-up with Turkish on Latin American routes makes more sense. SIA could potentially even shift the stop in its Sao Paulo service from Barcelona to Istanbul if its relationship with Turkish evolves further, or drop serving Sao Paulo entirely in favour of a Turkish codeshare.

SIA is better off focusing on Asia-Pacific as its partnership portfolio expands

SIA is better off focusing its own metal on destinations within non-stop range of Singapore. Most of SIA's focus in recent years has been on expanding within Asia-Pacific, including Australia. As SIA expands its partnership base, this focus will likely accelerate as the carrier's partners will use SIA to improve their access to Asia-Pacific just as SIA is using them to improve access in other regions.

Australia, SIA's largest single market, is a good example of a market that SIA can serve on behalf of its partners. Turkish has postponed the launch of services to Australia, which it had been looking to serve via Singapore or Jakarta. Turkish continues to consider one-stop and potentially non-stop options for its own services to Australia but in the meantime relying on SIA is more sensible as SIA serves six destinations in Australia and is the second largest foreign carrier in Australia after Emirates. SIA also serves two destinations in New Zealand, a market Turkish is unlikely to enter on its own.

SIA's Australian network is also potentially attractive to several other partners including Ethiopian, Aegean and SAS. SIA is keen for the additional feed on its Australian routes as they have been suffering from overcapacity.

SIA also has also significantly increased capacity within East Asia in recent years using a combination of SIA mainline and full-service regional subsidiary SilkAir. Meanwhile long-haul capacity to North America, Africa and the Middle East has been reduced while capacity to Europe has been relatively flat. The increased focus on Asia-Pacific goes hand in hand with the increased focus on partnerships as SIA needs to rely more on partners to cover other regions and could use increased feed to support its expansion regionally.

Partnerships are a key component of SIA's long term strategy

SIA's strategy under Mr Goh has also evolved to see the group take a greater role in the faster growing budget end of the market, with increased involvement in associate short-haul LCC Tigerair and the launch of long-haul LCC subsidiary Scoot. Mr Goh also has pursued growth in the full-service end of the regional market in Asia by accelerating expansion at SilkAir and establishing a new joint venture carrier in India. But outside Asia SIA has recognised it needs to rely increasingly on partners to grow its business.

The new SIA strategy is still in this respect a work in progress as more new codeshare partnerships are being negotiated. The carrier is also now working on expanding several of its existing partnerships. At the same time, SIA has been looking at potential new joint ventures and/or equity stakes. The joint ventures are likely to be in strategic markets closer to home such as Indonesia and China, following the model used in India (where SIA has a stake in a new full-service carrier) and Thailand (where SIA has an indirect stake in new long-haul LCC).

See relate reports:

• Garuda & Citilink 1Q losses widen. Potential Singapore Airlines investment poses intriguing option
• Singapore Airlines incurs 4QFY2014 operating loss, adds premium economy as latest strategic response

Partnerships meanwhile have become the preferred vehicle for expansion outside SIA's home region, particularly in the Americas. The era of operating flights halfway around the world is firmly in the past.

SIA is now taking a sensible approach and has warmed up to the concept of befriending former foes in order to improve network connectivity - although still remaining cautious where parallel services are operated.

But, in today's marketplace, even a giant leap into bed with a major competitor cannot be ruled out.