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The rationale for Singapore Airlines' Scoot and why it is not a long-haul version of Tiger

Those new to the launch of Singapore Airlines' low-cost long-haul carrier, whose name was announced as "Scoot" on 1-Nov-2011, seem to be confounded by two questions: what is its market rationale, and is it just a long-haul version of embattled Tiger Airways?

In brief, Scoot's launch is fuelled by the rapid rise of potential low-cost travel within, around and to/from Asia. The carrier is anything but a long-haul version of Tiger Airways. Here is a full explanation.

See related article: Scoot represents a radical change of pace for SIA but the new long-haul LCC is no pioneer

Potential: restore lost growth

The market rationale of Scoot, as we wrote when Singapore Airlines first announced it would establish a long-haul LCC, is that it:

will enable Singapore Airlines to better compete against faster-growing rivals and regain some of the market share it has lost to budget airlines. Scoot marks a major refocus of its long term strategy - restoring growth and catering more effectively for the burgeoning leisure market. Over the last several years SIA has seen its share of its home market steadily drop as low-cost carriers have rapidly expanded. This trend accelerated in recent months as SIA's traffic has shrunk and load factors dropped, while low-cost carriers continued to expand rapidly and improve their load factors.

In the fiscal year ending March 2011 (FY2010-11), SIA transported 16.6 million passengers. A decade earlier, in FY2000-01, SIA transported 15 million passengers. This represents only 11% growth over the last 10 years, or a paltry 1.1% per annum. Total traffic at Changi during almost the same period (from calendar 2000 to calendar 2010) increased from 28.6 million to 42 million passengers, representing 32% growth over the decade or 3.2% per annum.

Over the last three years, SIA has seen its passenger traffic drop by 15% from 19.1 million in FY2007-08 to 16.6 million in FY2010-11. While this was a challenging period for the entire airline industry, Changi was still able to grow its passenger throughput by 15% over the same three fiscal years, from 37.3 million in FY2007-2008 to 42.9 million in FY2010-2011. Over this relatively short period SIA has seen its share of traffic at Changi shrink from about 50% to about 35% (this takes into account the small portion of SIA's traffic that doesn't touch Changi). This has set alarm bells ringing.

Read more: SIA's long-haul low-cost subsidiary strategy to restore growth after a lost decade

Tiger long-haul it's not

In Mar-2008, shortly after competitor AirAsia launched its A330 long-haul affiliate AirAsia X, Tiger's then-CEO Tony Davis gave a speech in Sydney affirming Tiger's focus on short-haul routes, saying. "You certainly won’t be seeing a wide bodied, Tiger X type product on my watch!"

Scoot is not a Tiger X. While they both share SIA as a parent – Scoot is a wholly-owned subsidiary of SIA and SIA has a stake in Tiger – the similarities end there. They have a low-cost approach to business but Scoot is making inroads to develop a brand, which Tiger has looked askance at. In its early days Tiger thought AirAsia was unnecessarily spending on a brand; Tiger reckoned passengers wanting cheap fares would find them.

Not only did Scoot want to create a brand, press material says, it wanted "to create a brand that changes the way people view travel". Scoot is ditching low-cost simple liveries for its wavy yellow concoction. It says it will invite the public to create a tagline for the carrier.

Scoot is interacting with its forthcoming customer base in a way Tiger has not and has been criticised for. Scoot wants a positive and endearing market response, which it says it hopes to achieve with its culture termed "Scootitude". Pardon the pun, but the message is clear: no surly staff or dry approach here.

CEO Campbell Wilson says Scoot will hire staff with the “right attitude, spirit and personality”.

Scoot so far is closer to emulating AirAsia's culture than Tiger's blasé, concentrate on sheer revenue, approach. And Scoot needs to do so. Its competitors are brand-heavy AirAsia, AirAsia X  and Jetstar. The competitors are known for solid service – acknowledged not to be first class, but a step above Tiger.

Tyranny of distance is also a factor. Short-haul carriers can gain word of mouth since destinations are relatively close to each other. But once an airline starts linking points six, eight, or twelve hours away, knowledge of the brand diminishes with distance.

AirAsia last decade was a sponsor of AT&T Williams Formula One and the Manchester United soccer team. In an Apr-2007 poll, AirAsia was twice as well known as Oasis Hong Kong despite AirAsia not yet having a single flight outside of Asia while Oasis had been flying to London for six months (and later ceased operations). Waiting on the wings is America, whose Oakland Raiders (American) football team adorns one of AirAsia's A340 aircraft despite the carrier not yet serving the US.

Scoot will be wise to build a brand that says who it is – and who it is not.