Singapore Airlines (SIA) is approaching a critical juncture with its multi-brand strategy as the group reviews its overall network and pursues new synergies between its four airline brands. The transition of short haul LCC Tigerair from a partially owned affiliate to a majority owned subsidiary has particularly opened up opportunities for medium/long haul LCC subsidiary Scoot and the overall group.
SIA recently began selling Scoot operated flights and is now looking at also forging an interline arrangement with Tigerair. Placing full service and even premium passengers on budget brands was previously unthinkable for SIA but has become a necessary and sensible step as Scoot and Tigerair give the group access to over 20 additional destinations.
SIA’s frequent flyer members can also now accrue and redeem points on Tigerair and Scoot, another recent development that highlights the strategic shift in the group’s multi-brand strategy. SIA is committing to improving the position of its two budget brands, which for now remain unprofitable but are critical components to the group’s long term strategy.
This is the second in a series of analysis reports on the evolution of the SIA Group network strategy. The first report focused on strategic adjustments at Scoot as the long haul low cost subsidiary starts to take over routes previously served by SIA and full service regional subsidiary SilkAir.
This report looks at how the relationship between the group’s two LCC brands is evolving along with changes in the overall role for Tigerair, which has been exploring potential synergies with the group since transitioning from an affiliate to subsidiary in late 2014.
Tigerair and Scoot give SIA more than 20 additional destinations
Tigerair currently 38 destinations while Scoot serves 15 destinations (excludes Singapore). Tigerair recently unveiled plans to add two destinations for a total of 40 while Scoot has announced three more destinations for a total of 18.
Of the 40 destinations Tigerair will serve from Singapore by the end of 2015, 16 are not served by any other SIA Group carrier. Scoot currently has seven destinations which are not served by any other SIA Group carrier and will have eight from 1-May-2016, when it takes over from SIA service to Jeddah in Saudi Arabia.
Tigerair and Scoot destinations which are not served by any other SIA Group carrier
The new SIA Group network strategy envisions leveraging its presence in destinations that are only served by its budget subsidiaries. The 24 destinations which are exclusive to Tigerair or Scoot are unlikely to also support a full service brand. In fact several of these destinations have previously been served by SilkAir or SIA but struggled including Hangzhou, Kaohsiung, Macau and Nanjing.
SIA begins to sell on Scoot, allowing connectivity for its long haul operations
The SIA Group’s original strategy for Scoot did not envision interlining or network collaboration with SIA. Scoot was initially only able to launch destinations in China which were not already served by SIA or SilkAir, while outside China Scoot was free to overlap with its full service sisters but needed to differentiate its product carefully.
As CAPA highlighted in the first instalment in this series of reports, Scoot’s takeover of SilkAir and SIA routes, starting with Hangzhou (from 25-Oct-2015) and Jeddah (from 1-May-2015), represent a new phase of Scoot’s development within the SIA Group.
Another key shift in the SIA-Scoot strategy occurred in Jan-2013 as Scoot quietly began interlining with SIA and SilkAir. But for the first two and a half years this interline was limited to Scoot selling select SIA and SilkAir operated flights within Asia Pacific.
The feed from SIA and SilkAir was important for Scoot as Scoot could not rely purely on local traffic to fill up its fleet of 400 seat widebody aircraft and was initially unable to forge a meaningful partnership with Tigerair. But SIA remained uninterested in the concept of selling on Scoot.
In Jul-2015 SIA began selling Scoot operated flights as the interline arrangement was expanded to a two way arrangement. To make the travel experience as seamless as possible passengers coming from SIA automatically receive extra products on their Scoot flights including meals, drinks, checked luggage and seat assignments.
While SIA was initially reluctant to sell on Scoot the evolution of the strategy to include a two way interline is sensible as it gives SIA the opportunity to provide its passengers the opportunity to connect to Scoot’s seven exclusive destinations. This is particularly important as the SIA Group stops providing a full service option from markets such as Hangzhou and Jeddah.
SIA could soon start to sell Tigerair flights with a focus on China
SIA still does not sell or connect with Tigerair. But Tigerair CEO Lee Lik Hsin acknowledged during the carrier’s 2QFY2016 analyst briefing on 23-Oct-2015 that an interline or codeshare with SIA and SilkAir is being considered as Tigerair continues to explore new opportunities for synergies within the group.
An interline would instantly give SIA access to 16 markets that are only served by Tigerair, including eight in the key Chinese market. China is a strategically important market for SIA but most potential new destinations in China are better suited for the group’s LCC brands as they are secondary markets consisting mainly of price sensitive leisure passengers and limited premium demand.
Tigerair Singapore has grown its Chinese network over the last three years from only three to 10 destinations, including eight destinations which are not served by other SIA Group carriers. While over the last 18 months Tigerair has rationalised its network and reduced capacity in Southeast Asia the LCC has continued to expand in China. As CAPA previously described, Tigerair launched four new routes to China in FY2015 while suspending seven other routes and cutting capacity on 11 existing routes.
See related reports:
- The Singapore LCC sector Part 2: Tigerair cuts capacity on 13 routes while Jetstar quietly expands
- Tigerair & Scoot poised for expansion in under-penetrated Singapore-China market as Jetstar retracts
Quanzhou (pop. 1.2 million) is the latest in a string of new Chinese destinations for Tigerair and was launched on 28-Sep-2015 with three weekly flights. Tigerair is also resuming service on 11-Nov-2015 to Lijiang, which was initially launched in Oct-2013 but was suspended in late 2014. (Lijiang is included among Tigerair’s 10 Chinese destinations and in the earlier table listing the 16 Tigerair destinations which are not served by other SIA Group carriers.)
Tigerair eyes further expansion in China and India
Tigerair is continuing to look at new secondary markets in China and in India. In India, Tigerair will have six destinations after the 3-Dec-2015 launch of Lucknow, including two destinations which are unique to the SIA Group.
Tigerair aims to further expand its network in China and India even though it is not planning to grow overall capacity. Tigerair’s ASKs were down 4% for the six months ending 30-Sep-2015 (1HFY2016) and are not expected to grow in 2HFY2016 or FY2017 as its fleet will be maintained at the 23-aircraft level.
China and India currently account for about 24% of Tigerair’s seats and 38% of its ASKs. China and India are now Tigerair’s largest two markets based on ASKs.
Tigerair weekly ASK share (%) by country: 26-Oct-2015 to 1-Nov-2015
Overlapping destinations also provide synergy opportunities
SIA could also benefit from selling Tigerair flights in some of the overlapping destinations, particularly smaller destinations which have limited frequency.
Since becoming an SIA subsidiary in late 2014 Tigerair has started to forge joint contracts with service providers at the 24 airports which are also served by SIA. Contracts are being renegotiated and combined with SIA, enabling Tigerair to leverage SIA’s larger scale, as they come up for renewal. But without an interline or codeshare arrangement, revenue synergies or opportunities are limited.
SIA could particularly benefit from a Tigerair interline in the six markets SIA/SilkAir currently serves with seven or fewer weekly frequencies – Cebu, Chiang Mai, Dhaka, Kochi, Langkawi and Shenzhen. Being able to sell Tigerair operated flights could open up new connecting markets and enable SIA to improve connections in city pairs where it now only offers a reasonable connection in one direction due to a lack of frequency from SIA or SilkAir.
The 24 destinations that are served by Tigerair as well as SIA and or SilkAir include three destinations which are also served by Scoot – Bangkok, Hong Kong and Taipei. Tigerair and Scoot have been operating a joint venture with anti trust immunity on two of these routes – Singapore to Bangkok and Hong Kong – since Jan-2015. (Scoot moved its Bangkok flights to Don Mueang in 2014. Tigerair continues to serves Bangkok Suvarnabhumi and has no intention of moving to Don Mueang as it believes its passengers prefer Suvarnabhumi and sees its main competitor as Jetstar Asia, which serves Suvarnabhumi.)
The SIA Group recently announced that Scoot will join Tigerair on a fourth route, Singapore-Guangzhou, from 16-Jan-2016, when Scoot takes over one of Tigerair’s two daily flights to Guangzhou. Scoot is keen to add Guangzhou to the joint venture arrangement, pending regulatory approval.
Tigerair and Scoot destinations which are also served by other SIA Group carriers
|Ho Chi Minh|
SIA Group has more than 10 routes served by three brands
One of the big issues in multi-brand operations is always how much overlap is acceptable. It used to be assumed that parallel services by two members of the same group would lead to negative impacts like cannibalisation. That is no longer the holy grail.
Scoot’s entry to Guangzhou will result in no less than 12 routes being served by three SIA Group brands. Singapore-Male became the 11th route with three brands on 26-Oct-2015, when SilkAir began operating four weekly frequencies to Male.
The Singapore-Male market is now served with 10 weekly SIA frequencies, four weekly SilkAir frequencies and four weekly Tigerair frequencies. From 16-Jan-2016, Singapore-Guangzhou will be served with 14 weekly SIA frequencies, seven weekly Scoot frequencies and seven weekly Tigerair frequencies.
SIA Group destinations with three brands
|Bali||SIA, SilkAir, Tigerair|
|Bangalore||SIA, SilkAir, Tigerair|
|Bangkok||Scoot, SIA, Tigerair|
|Chennai||SIA, SilkAir, Tigerair|
|Guangzhou*||Scoot, SIA, Tigerair|
|Hanoi||SIA, SilkAir, Tigerair|
|Hong Kong||Scoot, SIA, Tigerair|
|Kuala Lumpur||SIA, SilkAir, Tigerair|
|Male||SIA, SilkAir, Tigerair|
|Surabaya||SIA, SilkAir, Tigerair|
|Taipei||Scoot, SIA, Tigerair|
|Yangon||SIA, SilkAir, Tigerair|
One or more of these destinations could potentially receive service from all four of the SIA Group’s airline brands in 2016. Such a scenario is feasible as each brand has its own position. But having four brands in a single market could be challenging to juggle and will inevitably bring to the forefront questions whether the group really needs so many brands. But market dynamics - and airline intelligence - are changing.
There have been repeated suggestions that SIA should adjust its multi-brand strategy to just one full service brand and one low cost brand. A Scoot-Tigerair merger would particularly be logical.
But at least for now the SIA Group has maintained it intends to keep all four brands and has no plans for acquiring the remaining 44% share in Tigerair.
The Scoot-Tigerair partnership has so far been limited - but transfer traffic needs are provoking changes
Over the last two years Scoot and Tigerair have started to work more closely. But their partnership is still rather limited and Scoot continues to be frustrated with the speed of implementing enhancements.
Scoot and Tigerair began interlining in late 2012. Transit traffic has increased significantly over the last year as the partnership has expanded but on an extremely low base.
Scoot and Tigerair are still not achieving nearly the portion of transit traffic as the third Singapore based LCC, Jetstar Asia. Scoot and Tigerair also still manage significantly less transit traffic than AirAsia and AirAsia X now carry via Kuala Lumpur.
See related reports:
- AirAsia and AirAsia X to exceed 3 million Fly-Thru transit passengers in 2014 as model evolves
- AirAsia X drives 43% transit traffic at Kuala Lumpur's KLIA. Can Singapore follow the same recipe?
The strategic impetus to drive transit between the two SIA Group LCC subsidiaries is now in place. But the speed at which the two carriers are implementing initiatives aimed at improving collaboration and growing transit traffic is still extremely slow.
For example Tigerair is taking more than one year to transition to the upgraded version of the Navitaire reservation system that is used by Scoot. The transition is expected to finally be completed in 2016, facilitating interline sales. But Tigerair could have opted for a faster transition and should have committed to the upgrade much earlier.
Limits to Scoot-Tigerair network coordination is a major SIA Group weakness
Tigerair is also still not entirely aligned with Scoot when it comes to network development. The two carriers were not on the same page during Scoot’s first three years and there was little Scoot (or SIA) could do about it, as SIA at the time did not have a majority stake or control of Tigerair. The situation has improved since SIA increased its stake in Tigerair to about 56% in Dec-2014 but there is still not complete alignment.
Tigerair has since begun participating in SIA Group network planning meetings but any decisions that involve Tigerair are not binding. Tigerair’s independent board members still must agree that any suggested route changes are also in the interest of its minority shareholders. This not an easy sell as the minority shareholders are not exactly the happiest bunch, having seen Tigerair’s stock price drop by 80% over the last five years as a hoped for takeover by SIA never materialised.
Only a Scoot-Tigerair merger can fully resolve this weakness, a fact Tigerair’s minority shareholders may be keen to leverage. A merger would clearly provide improved flexibility to better match capacity with demand.
For example certain Tigerair short haul routes would be better served with Scoot widebody aircraft during peak times, particularly at slot constrained destinations such as Phuket. In exchange during off peak periods Tigerair could take over Scoot flights to medium haul destinations such as Perth and Kaohsiung. (Scoot would even be happy to hand the Singapore-Kaohsiung-Osaka route permanently to Tigerair but at least for now Tigerair is not keen like Scoot on exploring fifth freedom routes.)
The Singapore-Hong Kong route would ideally see a swap, with Scoot taking over a peak hour Tigerair frequency and Tigerair taking over Scoot’s current middle of the night flight. But Tigerair’s board would be unlikely to agree to such a swap – or several other changes that Scoot and the SIA Group overall would advocate – as it would negatively impact Tigerair’s results.
For the most part a closer partnership should improve the bottom line of both Scoot and at Tigerair, which incurred a loss of SGD13 million (USD9 million) in 2QFY2016. But some suggested adjustments would be positive for Scoot and the overall SIA Group but negative for Tigerair. Under the current structure such adjustments are nearly impossible to implement – even if the additional profit for Scoot easily outweighs the resulting loss for Tigerair.
For example transferring a profitable peak hour flight from Hong Kong, where slots are scarce, would generate more profits overall as Scoot’s much larger aircraft is a better use of the slot. But Tigerair would struggle to find an alternative flight that would generate the same level of profit.
Malaysian short haul LCC AirAsia has refused to hand Hong Kong flights to long haul sister AirAsia X, which has a different ownership structure, for the same reason.
But Philippine LCC Cebu Pacific has easily up-gauged peak Manila-Hong Kong flights and other short haul routes from A320s to A330s as Cebu’s widebody operation is under the same airline, ownership structure and air operators’ certificate as its narrowbody operation.
For Scoot/Tigerair – and for AirAsia/AirAsia X – only a merger can fully clean up this kind of mess.
Scoot and Tigerair would benefit from integrated partnerships with airlines outside the group
A Scoot-Tigerair merger would also provide a cleaner platform for partnering with airlines outside the group.
Scoot currently interlines with Thailand-based LCC Nok Air and Virgin Australia while Tigerair interlines with Cebu Pacific and Tigerair Taiwan. Tigerair is also in the process of implementing a joint venture with Cebu Pacific covering routes between Singapore and the Philippines.
But Tigerair does not work with Nok and Scoot does not work with Cebu Pacific or Tigerair Taiwan. The Singapore-Taipei route is particularly complicated as it is also served by Tigerair Taiwan while the Singapore-Bangkok route will become complicated as Nok Air is planning to enter. Bangkok and Taipei are among the three (soon four) overlapping routes for Tigerair and Scoot.
Scoot and Tigerair are both open to working with other partners – other LCCs as well as potentially full service carriers. An open architecture for interlines is sensible as it would make it easy for airlines to access both the Scoot and Tigerair networks. All existing and future partnerships should automatically include both SIA Group LCC subsidiaries even if a merger does not eventuate.
Some of SIA’s alliance partners that serve Singapore could particularly benefit from interlining with Scoot and Tigerair. Just as with SIA, such an interline would open up new destinations that are only served by Scoot or Tigerair and additional frequencies on overlapping destinations which in many cases may be more convenient than waiting for a connecting flight on SIA or SilkAir.
Jetstar Asia now interlines or codeshares with over 20 full service carriers. Some of these are Star Alliance members including Lufthansa, Turkish and Swiss. The SIA Group strategically needs to offer its partners the option of connections with Tigerair and Scoot as it is already losing some connecting traffic to its main LCC competitor.
The Jetstar Group (includes Jetstar Airways and Jetstar Pacific) currently has about a 24% share of LCC seat capacity in Singapore compared to a combined 37% share for Tigerair and Scoot. The AirAsia Group has about a 23% share while the Lion Group has almost 9%.
Singapore LCC capacity share (% of seats) by carrier: 26-Oct-2015 to 1-Nov-2015
Scoot to offer its own loyalty programme
Scoot is also now working on developing its own loyalty programme which it plans to roll out within the next few months. Tigerair has at least for now decided against offering its own loyalty programme.
In Apr-2015 SIA’s KrisFlyer programme began offering redemption options on Scoot and Tigerair. KrisFlyer’s partnership with Scoot and Tigerair was extended in late Sep-2015 to include accrual when purchasing an additional bundle which also includes preferred seat assignments and waiver of change fees. (On Scoot the bundle also includes priority check-in and priority boarding while on Tigerair the bundle also includes 15kg of checked luggage.)
Scoot sees a need to supplement KrisFlyer with its own internal programme aimed at budget passengers that are unlikely to opt for the additional bundle. Tigerair prefers to see how well its passengers respond to the KrisFlyer partnership before deciding on whether it needs to develop its own loyalty programme. Mr Lee said in the first six months the take up of the redemption option for Tigerair vouchers was better than expected but it is too early to gauge the response to the accrual option.
Ultimately Scoot and Tigerair will need to have an aligned loyalty strategy. As Scoot pushes on with its own programme it would make sense for Tigerair to join the new Scoot offering or quickly come up with its own offering that has reciprocity with Scoot.
Scoot and Tigerair have brighter outlook if they can get their partnership right
The Scoot-Tigerair relationship is still very much a work in progress. Ideally Scoot would have implemented a much closer partnership with Tigerair a few years ago as it has always required feed to be sustainable. Feed from SIA, SilkAir and carriers from outside the group helps but by far the biggest synergies are between the two LCC brands.
SIA is progressively developing an innovative multi-brand strategy. While it is hardly the first or leading airline group from Asia Pacific to have both full service and low cost brands its portfolio of four brands is unique.
Not surprisingly there have been several adjustments as the group has tried to maximise the value from each brand and improve its overall position. More changes are likely as challenges remain. In the dynamic Asian marketplace standing still is not an option.