09-May-2015 10:35 AM

The Singapore LCC sector Part 2: Tigerair cuts capacity on 13 routes while Jetstar quietly expands

Analysis

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.

Summary

Tigerair has cut capacity on 13 routes and suspended seven routes entirely as part of a network restructuring.
Jetstar has quietly expanded and added capacity on nine of the 13 routes it competes against Tigerair.
Tigerair has increased capacity on only four routes, including Kalibo and Manila in the Philippines, Kochi in India, and Taipei in Taiwan.
Tigerair has reduced capacity on 13 routes, including Bali, Bangkok, Jakarta, Kuala Lumpur, and Phuket.
Tigerair's cuts have driven a reduction in Singapore's LCC penetration rate and led to a better supply-demand balance in the market.
Jetstar has gained market share in all three of the largest LCC markets from Singapore - Indonesia, Malaysia, and Thailand.

This is the second in a series of reports on the Singapore LCC sector. Part 1 analysed Tigerair's performance in the fiscal year ending 31-Mar-2015 (FY2015) and the improved outlook for the group in FY2016 following capacity cuts and network rationalisation.

This part will look in detail at where Tigerair has cut capacity as well as where it has added capacity. CAPA will also analyse some of the adjustments made in the Singapore market by other LCCs and how market shares have shifted among the LCC groups.

Tigerair network rationalisation has resulted in seven route terminations and capacity cuts on 13 other routes

As CAPA outlined in the first report, Tigerair Singapore began slowing expansion in early FY2015. Capacity and network cuts were implemented in the fiscal second and third quarters. While total ASKs were only down 1% for the full year, ASKs were down 11% in 4QFY2015. Current Tigerair Group seat capacity in Singapore is 16% below May-2014 levels.

Tigerair ended FY2015 with 36 routes connecting its Singapore hub with 13 Asian countries. Ipoh in Malaysia will become Tigerair's 37^th destination from Singapore on 29-May-2015, when four weekly flights are launched.

Tigerair Singapore began FY2015 with 39 routes. During the year four routes were launched and seven routes were axed as the LCC rationalised its network.

Of the 32 routes that Tigerair maintained as it rationalised its network in FY2015 only four currently have more seat capacity compared to May-2014 levels. There have been capacity reductions on 13 of the routes while capacity is flat on the remaining 15 routes, according to CAPA and OAG data.

Tigerair has increased capacity on only four routes

The four Tigerair routes which has seen capacity increases over the last year are Kalibo and Manila in the Philippines; Kochi in India; and Taipei in Taiwan.

Seven weekly flights to Taipei have been added for a total of 17. These flights are operated by Tigerair Taiwan and were added in Sep-2014. Tigerair Singapore capacity in the Taipei market has been flat at 1,800 weekly seats.

Three weekly flights to Manila have been added for a total of 15 frequencies. The Kalibo and Kochi increases are marginal as only one weekly flight has been added for a total of four weekly frequencies. The Kalibo increase is also temporary as Tigerair is cutting Kalibo back to three weekly frequencies in Jul-2015.

Tigerair one-way seat capacity and LCC capacity share on the four routes which have seen increases: May-2014 vs May-2015

Route	May-2014 seats	May-2015 seats	yoy change	May-2014 seat share	May-2015 seat share	LCC competitors and May-2015 seat share
Kalibo	540	720	+33%	100%	100%	N/A
Kochi	576	720	+25%	100%	100%	N/A
Manila	2,160	2,700	+25%	18%	20%	Cebu Pacific (55%), Jetstar (25%)
Taipei	1,800	3,060	+70%	23%	34%	Scoot (43%), Jetstar (24%)

Tigerair Singapore initially launched services to Kalibo and Manila alternative airport Clark in Mar-2014 (the end of FY2014), giving the carrier four destinations in the Philippines along with Manila and Cebu.

But they were not totally new routes for the Tigerair Group as Singapore-Kalibo and Clark-Singapore had been operated by Tigerair Philippines until the group's Philippine affiliate was sold to Cebu Pacific in late Mar-2014. (Tigerair Philippines subsequently stopped serving Singapore.)

Bali is one of 11 Tigerair routes which have seen a reduction in capacity

Tigerair executives also cite Bali as a market it has expanded in as part of network adjustments implemented in FY2015. But when also factoring in the capacity provided by former Indonesian affiliate Tigerair Mandala the group has actually reduced capacity in the Singapore-Bali market.

Tigerair Singapore now operates 14 weekly flights to Bali compared to six in May-2014. But Tigerair Manadala operated 14 weekly between Bali and Singapore prior to suspending operations at the beginning of Jul-2014. As a result total Tigerair capacity in the Singapore-Bali market is down 30% year over year and Tigerair's share of LCC capacity on the route has dropped from 33% to 25%.

The drop in market share on Singapore-Bali is significant as competitors have benefitted from surging demand in this market. Singapore Changi stated in early 2015 that total passenger traffic to Bali increased by 16% in CY2014, making Bali the fastest growing of Changi's top 10 routes.

In addition to Bali, the other 12 routes which have also seen Tigerair capacity reductions over the last year include Bangkok, Cebu, Chennai, Dhaka, Haikou, Jakarta, Krabi, Kuala Lumpur, Langkawi, Macau, Penang and Phuket. Tigerair competes with other LCCs in all these markets except Dhaka and Macau.

Tigerair one-way seat capacity and LCC capacity share on the 13 routes which have seen reductions: May-2014 vs May-2015

Route	May-2014 seats	May-2015 seats	yoy change	May-2014 seat share	May-2015 seat share	LCC competitors and May-2015 seat shares
Bali	3,600	2,520	-30%	33%	25%	AirAsia (50%), Jetstar (25%)
Bangkok	8,100	6,300	-22%	35%	28%	AirAsia (33%), Jetstar (28%), Scoot (12%)
Cebu	900	720	-25%	100%	100%	N/A
Chennai	2,340	1,800	-23%	65%	59%	IndiGo (41%)
Dhaka	1,440	1,260	-13%	100%	100%	N/A
Haikou	720	540	-25%	50%	43%	Jetstar (57%)
Jakarta	8,280	3,780	-54%	29%	16%	Lion (44%), AirAsia (22%), Jetstar (19%)
Krabi	1,620	1,260	-22%	56%	50%	AirAsia (50%)
Kuala Lumpur	4,680	4,500	-4%	21%	16%	AirAsia (47%), Jetstar (19%), Malindo (17%)
Langkawi	720	540	-25%	36%	30%	AirAsia (70%)
Macau	2,160	1,620	-25%	100%	100%	N/A
Penang	3,060	2,520	-18%	31%	26%	AirAsia (47%), Jetstar (26%)
Phuket	2,700	2,520	-7%	37%	35%	Jetstar (48%), AirAsia (18%)

Jakarta experiences the largest capacity cut

Jakarta has suffered by far the biggest reduction in capacity. Singapore-Jakarta is also the largest and most competitive route which Tigerair operates.

Tigerair Singapore currently operates 21 weekly flights to Jakarta compared to 25 in May-2014. But Tigerair Mandala also operated 21 weekly flights on the Singapore-Jakarta route. As a result total Tigerair Group capacity between Singapore and Jakarta is currently down 54% compared to May-2014 levels.

Tigerair now has only a 16% share of LCC capacity in Singapore-Jakarta market compared to 29% in May-2014. This makes Tigerair the smallest of the four LCCs serving Singapore-Jakarta, which is the second largest international LCC route in the world based on seat capacity.

Tigerair maintains capacity levels on most routes without LCC competition

Of the 15 routes with flat year over year capacity, Tigerair does not have any LCC competitors on nine. This indicates that Tigerair has been shifting capacity away from competitive routes as it has rationalised its network and cut capacity overall.

The overcapacity situation in Singapore's short-haul market which emerged over the last two years was primarily driven by aggressive competition between LCCs on trunk routes. Tigerair has responded by cutting capacity on these routes and focusing more on routes which have limited or no LCC competition.

Tigerair one-way seat capacity and LCC capacity share on the 15 routes which have seen flat capacity: May-2014 vs May-2015

Route	May-2014 seats	May-2015 seats	May-2014 seat share	May-2015 seat share	LCC competitors and May-2015 shares
Bengalaru	1,260	1,260	100%	100%	N/A
Chiang Mai	540	540	100%	100%	N/A
Clark	1,260	1,260	55%	55%	Cebu Pacific (45%)
Guangzhou	2,160	2,160	100%	100%	N/A
Hanoi	900	900	100%	100%	N/A
Hat Yai	1,260	1,260	100%	100%	N/A
Ho Chi Minh	3,960	3,960	43%	39%	Jetstar (49%), VietJet (13%)
Hong Kong	3,600	3,600	41%	41%	Jetstar (33%), Scoot (26%)
Hyderabad	900	900	100%	100%	N/A
Male	720	720	100%	100%	N/A
Ningbo	360	360	100%	100%	N/A
Shenzhen	900	900	100%	100%	N/A
Surabaya	1,260	1,260	30%	40%	Jetstar (60%)
Tiruchirappalli	2,160	2,160	62%	62%	Air India Express (38%)
Yangoon	1,260	1,260	30%	41%	Jetstar (59%)

Tigerair expanded its Chinese network in FY2015 with four new routes

Tigerair also does not have any LCC competitors on any of the four routes which it launched in FY2015. All four of these routes are to China and are also not currently served by any full-service carriers.

While cutting the size of its network overall the group has been keen to develop routes to secondary destinations in China that have relatively little risk as they are operated with a limited number of frequencies and are supported by travel agents. The new Chinese routes have also aided Tigerair efforts to increase aircraft utilisation rates as they are longer routes served during off peak periods of the week.

Jinan, which is about six hours from Singapore, is the longest route for Tigerair and one of the longest routes in the world for a short-haul/narrowbody LCC operator. The A320 used for the one weekly flight to Jinan sits in Jinan overnight for 13 hours as the crew rests, an unusual deployment pattern for an LCC but is viable as the flight is essentially underwritten by travel agents.

The addition of Guilin, Jinan, Nanning and Xian give Tigerair eight destinations in mainland China. Tigerair also serves Ningbo, a secondary city it launched in Dec-2013, and the larger Chinese cities of Haikou, Guangzhou and Shenzhen.

Tigerair seat capacity to China has increased 25% over the last year, according to CAPA and OAG data. Of the 13 countries served by Tigerair (excluding Singapore), only China and the Philippines have seen a year over year capacity increase.

Tigerair one-way seat capacity and LCC capacity share on the four routes launched in FY2015

Route	Launch date	May-2015 seats	May-2015 seat share
Guilin	Nov-2014	180	100%
Jinan	Sep-2014	180	100%
Nanning	Nov-2014	540	100%
Xian	May-2014	540	100%

Tigerair only competes against another LCC on one of its eight Chinese routes, Singapore-Haikou. Jetstar dropped services to Guangzhou at the beginning of 2014, leaving Tigerair as the only LCC in the Singapore-Guangzhou market. Jetstar also previously served Guilin, Nanning and Ningbo but well before Tigerair entered.

See related reports:

Ipoh, which is not included in the table above as it is not launching until the the end of May-2015, is another market not currently served by an LCC. The Singapore-Ipoh route is currently only served by Malaysia Airlines regional subsidiary Firefly.

Tigerair dropped seven routes in FY2015

Of the seven routes which Tigerair dropped in FY2015 three also had no LCC competition. This includes Lijang in China, Lombok in Indonesia and Thiruvananthapuram in India.

But Lijang and Lombok were only launched in late 2013. As a result they can be viewed as routes added as part of Tigerair's drive to find new markets not already served by any LCCs. Tigerair quickly discovered these routes were not sustainable and they were therefore dropped.

The other four routes Tigerair dropped in FY2015 are still served by other LCCs. Three of these routes - Bandung, Phnom Penh and Yogyakarta - are relatively small markets that likely could not sustain two LCCs over the long-term. Indonesia AirAsia serves the Singapore to Bandung and Yogyakarta routes while Jetstar Asia serves Singapore-Phnom Penh.

Singapore-Perth is a much bigger market that Tigerair dropped as it recognised it was more suitable for long-haul low-cost sister carrier Scoot - an emerging feature of the group strategy now being employed by Singapore Airlines. As Singapore-Perth is over four hours flying it is more economical for a widebody LCC operator, particularly as it is a thick enough route to support 400-seat aircraft. Scoot launched services to Perth in late 2013 with five weekly flights and is planning to upgrade the service to daily over the next few months.

Tigerair capacity and LCC apacity share on the six routes dropped in FY2015

Route	May-2014 seats	May-2014 seat share	LCC competitors and May-2014 shares
Bandung	1,260	20%	AirAsia (80%)
Lijang	270	100%	N/A
Perth	1,260	28%	Jetstar (37%), Scoot (35%)
Phnom Penh	900	45%	Jetstar (55%)
Thiruvananthapuram	540	100%	N/A
Yogyakarta	1,260	50%	AirAsia (50%)

Tigerair and AirAsia cuts drive reduction in Singapore's LCC penetration rate

The cuts at Tigerair have driven a reduction in LCC capacity in Singapore and in Singapore's LCC penetration rate. LCCs currently account for about 30% of total seat capacity in Singapore. As CAPA previously highlighted, Singapore's LCC penetration rate has been on the decline since the beginning of 2014, when LCCs accounted for almost 34% of total seat capacity in Singapore.

Current LCC capacity in Singapore is about 417,000 weekly seats, representing a 4% reduction compared to May-2014, according to CAPA and OAG data. Total LCC seat capacity in Singapore has come down by 9% since the peak at the end of 2013/beginning of 2014, when there was about 484,000 weekly seats. LCC capacity levels dropped to 433,000 in May-2014 although some of this initial decrease were seasonal adjustments as May is an off-peak or shoulder month in the Singapore market.

Total LCC one-way seat capacity from Singapore: Sep-2011 to Oct-2015

Tigerair, however, is not the only contributor to the decline in LCC capacity in Singapore since the beginning of 2014. The AirAsia Group has cut seat capacity by 14% over the last year in the Singapore market.

The AirAsia Group now accounts for about 23% of total LCC capacity in Singapore compared to 26% in May-2014. The Tigerair Group share has come down during this period from about 33% in May-2014 to 29% in May-2015, according to CAPA and OAG data.

Jetstar regains market share in Singapore as capacity creeps back up

The other major LCC player in the Singapore market, the Jetstar Group, has expanded seat capacity over the last year in Singapore by about 12%. This has enabled Jetstar to increase its share of LCC capacity in Singapore from 21% in May-2014 to nearly 25% in May-2015.

Singapore LCC market share by group: May-2015 vs May-2014

2015

2013

Jetstar is likely keen to regain market share lost in recent years as its rivals pursued much more rapid expansion in the Singapore market. AirAsia, Jetstar and Tigerair had equal shares of the Singapore market back in 2010. Tigerair started pulling away in 2011 and 2012 and significantly widened the gap in 2013 as capacity expansion accelerated - expansion which inevitably proved overly ambitious.

But the capacity growth at Jetstar over the last year is somewhat surprising as the group decided in Aug-2013 to suspend expansion in the Singapore market. Jetstar Asia has since maintained its Singapore-based fleet at 18 aircraft and throughout 2014 seemed content at keeping capacity at a relatively low level.

Jetstar Asia has likely been able to add capacity in recent months without growing its fleet by improving aircraft utilisation rates. In Mar-2015 Jetstar Asia reported a 7.3% increase in ASKs.

Jetstar adds capacity on nine routes where it competes against Tigerair

Jetstar Asia has added capacity on several routes reduced or cut by Tigerair, an indication it sees an opportunity to fill a void left by Tigerair. Jetstar also likely sees growing transit traffic on several routes as it has been focusing on adding and expanding interline/codeshare partnerships. Adding flights on routes which are popular with passengers connecting from its partners, particularly flights which connect well with its largest partners (Emirates and Qantas), is sensible even if conditions in the local point to point market remain challenging.

Jetstar Asia and Tigerair currently compete on 13 routes from Singapore. On nine of these routes Jetstar Asia has added capacity over the last year. This includes Bali (+17% compared to May-2014), Bangkok (+25%), Ho Chi Minh (+33%), Hong Kong (+14%), Jakarta (+14%), Kuala Lumpur (+14%), Penang (+40%), Surabaya (+29%) and Yangoon (+11%). Six of these routes saw reductions from Tigerair and only three have seen flat capacity from Tigerair.

Jetstar also has added capacity in Perth (+22%) and Phnom Penh (+17%), the two routes it serves which Tigerair dropped in FY2015.

Jetstar's capacity on the other four routes which Tigerair still serves is flat year over year - Haikou, Manila, Phuket and Taipei.

Jetstar Asia gains ground in its three largest markets

Jetstar has gained market share in all three of the largest LCC markets from Singapore - Indonesia, Malaysia and Thailand. Tigerair has cut capacity in all three of these markets while AirAsia also has cut capacity in the Singapore-Indonesia and Singapore-Malaysia markets.

The biggest shift between the three groups has occurred in the Singapore-Indonesia market as AirAsia and Tigerair have both cut back significantly. Jetstar now has a 22% share of capacity in the market compared to 15% a year ago. Lion has enoyed a similar gain in market share, growing from 16% to 24%. Total LCC seat capacity between the two countries is down a staggering 22%.

Singapore-Indonesia capacity shares by LCC group: May-2014 vs May-2015

Airline group	May-2014 seat share	May-2015 share	yoy capacity change
AirAsia	41%	37%	-29%
Lion	16%	24%	+14%
Jetstar	15%	22%	+17%
Tigerair	28%	17%	-52%
TOTAL			-22%

Total LCC seat capacity between Singapore and Thailand is down a more modest 2%. Jetstar has been able to grow its share of this market by 4ppts while Tigerair's share has shrunk by 6ppts.

Singapore-Thailand capacity shares by LCC group: May-2014 vs May-2015

Airline group	May-2014 seat share	May-2015 share	yoy capacity change
AirAsia	29%	29%	flat
Jetstar	24%	28%	+15%
Scoot	7%	8%	+12%
Tigerair	41%	35%	-16%
TOTAL			-2%

The Singapore-Malaysia market has experienced an increase in total LCC capacity as a result of the Nov-2014 launch of services on the core Singapore-Kuala Lumpur route from Lion Group affiliate Malindo Air. While other short-haul trunk routes from Singapore have seen an improvement in market conditions, Singapore-Kuala Lumpur continues to suffer from overcapacity.

Singapore-Malaysia capacity shares by LCC group: May-2014 vs May-2015

Airline group	May-2014 seat share	May-2015 share	yoy capacity change
AirAsia	61%	53%	-5%
Lion	0%	11%	+14%
Jetstar	18%	19%	+16%
Tigerair	22%	18%	-11%
TOTAL			+9%

While Tigerair has expanded in China and the Philippines over the last year, Thailand, Malaysia and Indonesia are still its three largest markets. The three countries currently account for about 45% of total seat capacity at Tigerair Singapore.

Tigerair Singapore capacity share (% of seats) by country: 4-May-2015 to 10-May-2015

Thailand, Indonesia and Malaysia are also the three largest markets for Jetstar Asia, accounting for about 52% its total seat capacity.

Jetstar Asia capacity share (% of seats) by country: 4-May-2015 to 10-May-2015

Malaysia, Indonesia and Thailand are the only countries the AirAsia Group currently serves from Singapore. Unlike the Jetstar Group, AirAsia does not have a Singapore-based affiliate and serves Singapore using its affiliates or subsidiaries in other Asian countries.

The Lion Group also does not have a Singapore-based affiliate and currently only serves Singapore from Indonesia and Malaysia. Lion's Thai affiliate has also been looking at launching services to Singapore, which would result in all four LCC groups competing in all three of Singapore's largest short-haul markets.

Outlook for Singapore LCC sector brightens - but overcapacity concerns remain

The Singapore LCC market has seen major shifts over the last couple of years.

First Tigerair pursued extremely ambitious expansion in 2013 and early 2014, leading to overcapacity and unsustainable losses for all players as yields and load factors dropped. Market conditions began to improve in 2H2014 as capacity was cut and the Singapore LCC sector should again be profitable in 2015, thanks in part to the reduction in fuel prices.

But challenges remain and overcapacity still impact LCC performance on several routes. There is also a risk the overcapacity situation could worsen if any of the four short-haul LCC groups decide once again to use Singapore as a stage for strategic expansion.