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SilkAir Part 1: Luang Prabang, Vientiane launch positions SIA to benefit from growth in Laos tourism

Singapore Airlines' full service regional subsidiary SilkAir has confirmed plans to launch Luang Prabang and Vientiane in Laos in late Oct-2016. SIA will become only the eighth foreign airline group to serve Laos, which has a small but fast-growing international market.

SilkAir’s new Singapore-Vientiane-Luang Prabang-Singapore circular route is strategically important for the SIA Group as Laos is the only Southeast Asian and ASEAN country not yet served by the group. AirAsia is now the only airline group serving all the 10 countries that make up ASEAN.

Enhancing regional connectivity is an important component of the new SIA Group strategy as it aims to differentiate itself from competitors and grow, despite intensifying competition. The group’s Southeast Asian network will exceed 40 destinations by the end of 2016. In 2016 SIA is also expanding its network in China and India, two other strategically important markets, to 23 and 15 destinations respectively.

SilkAir to become the fifth foreign airline at Luang Prabang and ninth at Vientiane

On 26-Apr-2016 SilkAir announced plans to launch three weekly flights to Luang Prabang and Vientiane from 31-Oct-2016. All three frequencies will operate on a Singapore-Vientiane-Luang Prabang-Singapore circle routing using two-class A320s.

CAPA first reported in Feb-2016 that SilkAir was planning to launch flights to Luang Prabang and Vientiane, as part of an analysis on rapid international growth at Luang Prabang Airport. The number of foreign airlines serving Luang Prabang, a small resort town with huge potential, will more than double in 2016 as Malaysia’s AirAsia, Thai AirAsia, HK Express and SilkAir join the incumbents Bangkok Airways, Thai Airways and Vietnam Airlines.

See related report: Luang Prabang Airport: Laos resort to grow rapidly in 2016 as AirAsia, HK Express, SilkAir enter

Thai AirAsia launched services to Luang Prabang from Bangkok in late Mar-2016. SilkAir is poised to become the fifth foreign airline at Luang Prabang as AirAsia and HK Express have not yet set launch dates or begun ticket sales for their planned Kuala Lumpur-Luang Prabang and Hong Kong-Luang Prabang routes.

In Vientiane, SilkAir is poised to become the ninth foreign airline. Vientiane is currently served by Malaysia’s AirAsia, Bangkok Airways, China Eastern, Korea Air LCC subsidiary Jin Air, the Korean independent LCC T’way, Thai Airways and Vietnam Airlines. Thai AirAsia has set a 1-Jul-2016 launch for Bangkok-Vientiane service, which will make it the eighth foreign airline in the Vientiane market.

SIA will be the eighth foreign airline group serving Laos

Following the launch of Bangkok-Vientiane, AirAsia will become the second largest foreign airline group in the Laos market after Vietnam Airlines. AirAsia is now the fourth largest airline group in Laos behind Vietnam Airlines, Thai Airways and Bangkok Airways.

With approximately 900 weekly seats, SIA will be the smallest of the eight foreign airline groups in the Laos market.

Airline groups serving Lao international market, ranked by weekly seat capacity: Nov-2016

Rank Airline Total seats
1 Lao Airlines 21,000
2 Vietnam Airlines 8,100
3 AirAsia 6,120
4 Thai Airways 5,400
5 Bangkok Airways 4,500
6 China Eastern Airlines 2,800
7 Korean Air 2,600
8 T'way Air 1,500
9 Singapore Airlines 900

Lao Airlines is the largest airline in the Lao international market but is relatively small. Lao Airlines currently operates scheduled services to 13 international destinations – only three of which are served daily – and has been focusing expansion on China.

SilkAir could make it difficult for Lao Airlines to maintain its Singapore service

SilkAir will compete against Lao Airlines in the Singapore-Vientiane and Singapore-Luang Prabang market. Lao Airlines launched services to Singapore in late 2011 and currently operates three weekly flights on a Luang Prabang-Vientiane-Singapore-Vientiane-Luang Prabang routing using two-class A320s.

The local Laos-Singapore market is small, consisting of less than 50,000 annual passengers. Singapore is the twentieth largest source market for Laos’ tourism sector while Laos is not among the top 20 largest source markets for Singapore’s tourism sector (based on 2015 visitor data for Laos and Singapore). As CAPA wrote in its 1-Mar-2016 analysis of the Lao Airlines outlook:

The anticipated launch of flights to Laos by SilkAir on a circle routing combining Singapore with Vientiane and Luang Prabang could make it difficult for Lao Airlines. SilkAir will particularly have an advantage in offering services beyond Singapore through its parent Singapore Airlines. The local Laos-Singapore market is very small and may not be able to support two airlines over the long run.

See related report: Lao Airlines outlook brightens following North Asia expansion and domestic reductions

Lao Airlines has been working to add and strengthen existing interline partnerships, including with airlines serving Singapore. However, its very small size will make it challenging to compete with the SIA Group for long haul passengers.

SIA to focus on connections to Australia, Europe and North America

The SIA Group will particularly focus on providing connections from Laos to Australia, France, Germany, the UK and the US.

The US is the fifth largest source market for Laos while France is the sixth, the UK eighth, Australia ninth and Germany the tenth (based on Lao Tourism Development Department data for 2015).

Top 10 source markets for Laos, ranked by % of total visitor numbers: 2015

While Thailand and Vietnam are by far the largest source markets, only approximately 2% of Thai and Vietnamese residents enter Laos by air.

In 2015 residents of Australia, France, Germany, the UK and the US accounted for 51,000, or 42%, of total international visitor arrivals at Luang Prabang Airport. Thai residents accounted for only 14,000, or 11%, of total international visitor arrivals at Luang Prabang, and Vietnamese residents for only 2,000, or less than 2%.

Australia, France, Germany, the UK and the US also accounted for 63,000 of international visitor arrivals at Vientiane Airport in 2015. This represents a smaller 16% of the total as Vientiane is the main gateway and bigger destination overall, particularly from China and South Korea. However, the number of visitors from Europe, North America and Australia should provide a sufficient base to attract a network airline such as SIA/SilkAir.

SilkAir will impact Bangkok Airways and Thai Airways also

Australia, France, Germany, the UK and the US do not have any nonstop services from Laos and are now mainly served via Bangkok. Thai Airways and Bangkok Airways carry most of these passengers, with Thai Airways offering its own long haul connections and Bangkok Airways feeding Qantas, as well as several airlines from Europe and the Gulf.

SIA serves all five of these markets, with multiple online destinations in four. SIA also serves Italy, the Netherlands and Switzerland – three relatively small European markets that also accounted for more visitors to Laos than Singapore in 2015.

Only 8,258 Singaporean residents visited Laos in 2015. There were 8,429 visitors from the Netherlands, and Europe overall accounted for 217,307 visitors. While Asia has been a faster-growing source market, the number of visitors from Europe has increased by 67% since 2009. Bangkok Airways and Thai Airways have been the main beneficiaries of this growth and SIA is clearly keen to capture its own piece of the Laos-Europe business.

Laos expects 6 million visitors by 2020

Visitor numbers from Australia have also grown by 43% since 2009, although there was a dip in 2015. Visitor numbers from the US have grown by 60% since 2009.

Total visitor numbers to Laos reached 4.6 million in 2015 and are projected by the Lao Tourism Development Department to surpass 6 million by 2020, then 9 million by 2025. Visitor numbers increased by 11% in 2015 and have nearly doubled since 2010. Visitor numbers by air account for only approximately 11% of the total, but over the last five years have grown at a similar rate to the visitor numbers crossing over by land. 

Laos annual visitor arrival numbers: 2008 to 2015

Laos is primarily an inbound market. At Vientiane Airport Lao residents accounted for only approximately 17% of international passenger traffic in 2015, while foreigners accounted for 83%. At Luang Prabang Airport visitors account for nearly all international traffic.

SilkAir has an opportunity to benefit from anticipated tourism growth in Laos

SilkAir and the SIA Group will obviously rely primarily on inbound traffic to support the new service to Vientiane and Luang Prabang. Combining the two destinations in a single flight, which SilkAir does for several of its smaller destinations in Southeast Asia, improves the economics of a route that would likely not be viable with just one of the destinations.

SilkAir does not have pick-up rights for the Vientiane-Luang Prabang sector; passengers wishing to visit both destinations will need to buy a separate flight on one of Laos’ two domestic airlines. (For its circle flights – without picking up local domestic passengers – SilkAir is able to sell a stopover in Phnom Penh or Siem Reap, combining its two Cambodian destinations, but has not been able to negotiate such an arrangement with Lao authorities.)

Laos is a small market but with significant potential as it starts to emerge as a popular leisure destination

The government is now working to develop and promote tourism, recognising the financial impact if Laos – long known as a hidden gem of Asia – becomes less off the beaten path.

The SIA Group has an opportunity to get into Laos just as the growth starts to accelerate. 

SilkAir will be keen to add capacity, with more frequencies and potentially a split of the two destinations, if its initial foray into the Lao market proves successful.

In part 2 of this report CAPA will focus on how the launch of services to Laos is an important step in the SIA Group network strategy

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