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United Airlines Asia strategy & Singapore-US market evolve with Singapore-San Francisco non-stops

United Airlines is bolstering its presence in the Singapore market with the Jun-2016 launch of non-stop flights to San Francisco with 787-9s. It will be the longest route in United’s network and the longest route in the world for the 787, resulting in limited payload restrictions on the westbound leg.

The new San Francisco flight will give Singapore a non-stop option to the US for the first time since Singapore Airlines (SIA) dropped non-stops to Los Angeles and Newark in 2013. SIA is planning to resume Los Angeles and New York non-stops in 2018, and has also has been evaluating San Francisco non-stops, but United will beat SIA by two years with its own Singapore-US service. SIA and United are both members of the Star Alliance but have never codeshared, and have no intentions of partnering on Singapore-US non-stops.

United has a joint venture with Star member All Nippon Airways (ANA) that already includes one-stop services between Singapore and the US. The new Singapore-San Francisco non-stop route will be added to the JV (all three countries involved have open skies agreements). United is dropping Singapore-Tokyo while retaining Singapore-Hong Kong, but will be able to rely on ANA’s expanded presence in the Singapore-Tokyo market to feed its Tokyo-US flights.

United will operate longest route for US airline and for any 787 operator

On 29-Jan-2016 United announced the launch of non-stop flights between San Francisco and Singapore from 1-Jun-2016, subject to government approvals. The new flight will be operated daily using 252-seat 787-9s, featuring 48 lie-flat business class seats and 204 economy seats, including 88 extra legroom seats.

Singapore-San Francisco will be the longest route for United or any US airline. The 13,593km route is scheduled at 15hr30min eastbound and 16hr20min westbound.

Singapore-San Francisco is slightly shorter than Sydney-Dallas, which is currently the longest non-stop route at 13,804km. Emirates will take over the distinction of operating the longest non-stop route on 1-Mar-2016 with the launch of Dubai-Auckland, which is 14,201km.

On 31-Mar-2016 Emirates also plans to launch Dubai-Panama City, which is slightly shorter at 13,821km but has a longer 17hr35min westbound leg, compared with a 17hr15min westbound leg for Dubai-Auckland. The westbound leg from Dallas to Sydney is 16hr55min. Sydney-Dallas is served with the A380, while Emirates is deploying 777-200LRs on Dubai-Auckland and Dubai-Panama City.

However, SIA will regain the distinction of having the world’s longest route in 2018 as Singapore-Newark is 15,344km. Singapore-Los Angeles is 14,113km, or slightly longer than Singapore-San Francisco. Singapore-Newark is approximately 18 hours in both directions.

The longest route by a US airline is currently Delta’s Atlanta-Johannesburg 777-200LR service, which is 13,582km. The longest 787 route for any operator is currently Los Angeles-Melbourne, which is 12,748km and 15h50min on the westbound leg.

United launched Los Angeles-Melbourne in Oct-2014 using the 787-9. Qantas operates the route with A380s and 747-400s. It is currently United’s second longest route after Newark-Hong Kong, which is 12,980km and served with 777-300ERs. Newark-Hong Kong is approximately 15hr30min in both directions.

787-9 gives United the range for Singapore non-stops, but with some payload limitations

United has been studying the potential of non-stop flights to Singapore for several years, but until it took the 787-9 in Sep-2014 it did not have a suitable option. The 777-200 and 777-300ER do not have the range to operate westbound non-stops from any point in the continental US. The A340-500 and 777-200LR have the range, but United has never had either aircraft type in its fleet.

Over the last few years United was confident that the 787-9 would provide a solution for Singapore-San Francisco, but waited to take delivery of the type and complete several months of operations to make sure. The westbound flight from Los Angeles to Melbourne, in particular, provided important data to determine whether the 787-9 could be operated approximately another 30min without any significant limitations.

United General Manager for Singapore, Laurence Chin, told CAPA that the airline expects “limited restrictions” on some days from San Francisco to Singapore. As a result, United is not including all 204 economy seats in its advanced booking inventory for the westbound leg. However, United expects for most flights it will be able to sell all seats, with the remaining inventory opening up for sale several days before departure, depending on the forecast winds.

The expected payload limitations seem manageable, and should not significantly impact the profitability of the new route.

Cargo will obviously be restricted on a regular basis, but ultra-long range flights typically are not able to accommodate cargo, particularly on westbound sectors.

United enhances its position in the Singapore market

United has served the Singapore market for 30 years, and for more than a decade has offered one-stop flights via both Hong Kong and Tokyo Narita. Mr Chin said United customers have been “clamouring” for a non-stop option from Singapore for several years – long before SIA dropped US non-stops in 2013. United has been unable to meet this request until now as it did not have an aircraft that could profitably operate non-stops to Singapore.

Currently United deploys 777-200s on both of its Singapore flights, with the Hong Kong flight continuing to Chicago and the Tokyo Narita flight continuing to Washington Dulles. United is currently the fourth largest airline in Singapore that is based outside Asia Pacific and the Middle East.

Top 5 foreign airlines from outside Asia Pacific/Middle East in Singapore based on seat capacity: 24-Jan-2016 to 31-Jan-2016

Rank Airline Total Seats
1 BA British Airways 12,374
2 KL KLM Royal Dutch Airlines 10,968
3 AF Air France 8,376
4 UA United Airlines 7,616
5 LH Lufthansa 7,126

Over the years United has used several aircraft types on its two Singapore routes, and changed the origin gateways of the two flights in the US. United even briefly used Guam-based 737-800s on Singapore-Hong Kong in late 2011 and early 2012.

See related report: US carriers shrinking in United States-Southeast Asia market

United is discontinuing Singapore-Narita in Jun-2016 as it launches Singapore-San Francisco, but will continue to serve Singapore-Hong Kong with a daily 777-200 flight.

In Hong Kong United has limited connections, as it only operates three trans-Pacific routes – to Chicago, Newark and San Francisco. It also serves Ho Chi Minh and Guam using 737-800s, but these do not connect with Singapore.

United continues to de-emphasize its Tokyo Narita hub

United has a much bigger hub at Tokyo Narita, with flights to nine US destinations – Chicago, Denver, Guam, Honolulu, Houston, Los Angeles, Newark, San Francisco and Washington Dulles. The suspension of Tokyo-Singapore and the 2014 suspension of Tokyo-Bangkok leave United with only one Asian route beyond Narita – Seoul Incheon. As Seoul is served with a 737-800 that originates in Guam, Hong Kong-Singapore will be United’s only remaining intra-Asia widebody route.

United downgauged Tokyo-Seoul to the 737-800 in 2014, at the same time as dropping Tokyo-Bangkok and Tokyo-Seattle. These changes were part of a realignment of United’s Pacific operations to focus more on direct flights.

See related report: United reduces Tokyo connections in a Pacific network revamp that emphasises more directs

Since 2014 United has launched several new direct routes across the Pacific including San Francisco to Chengdu, Tokyo Haneda and Taipei. In May-2016 United is also launching service from San Francisco to Xian, which will become its second secondary destination in China.

The Jun-2016 launch of San Francisco-Singapore reinforces United’s new Asian strategy as the Narita hub is further de-emphasised. With Singapore, United will have 11 Asia routes from San Francisco, compared with only six at the beginning of 2014.

United Airlines Asia routes from San Francisco, ranked on weekly seat capacity: 6-Jun-2016 to 12-Jun-2016

Rank Destination Seats
1 ICN Seoul Incheon International Airport 5,236
2 HKG Hong Kong International Airport 5,236
3 PVG Shanghai Pudong Airport 5,236
4 NRT Tokyo Narita Airport 5,236
5 PEK Beijing Capital International Airport 5,236
6 HND Tokyo Haneda Airport 3,808
7 SIN Singapore Changi Airport 3,528
8 TPE Taipei Taoyuan International Airport 3,528
9 KIX Osaka Kansai International Airport 3,066
10 CTU Chengdu Airport 1,752
11 XIY Xian Xianyang Airport 1,314

ANA partnership was a key factor in United dropping Singapore-Tokyo, launching Singapore-San Francisco

United’s partnership with ANA enables United to divert its Pacific capacity to new direct flights into markets such as Singapore, since it is still able to maintain a presence at Narita using ANA.

In the Singapore example, the ANA partnership drove the decision to cut Tokyo rather than Hong Kong, although Hong Kong is a much smaller hub for United.

United does not have an alternative for serving Singapore-Hong Kong with a partner should it drop the route. United is keen to continue offering its Singapore passengers the option of stopping in Hong Kong in one or both directions. As Singapore and Hong Kong are both financial hubs for Asia, some business traffic from the US combines the two destinations in a single trip.

For Singapore-Tokyo, United is able to rely on ANA and therefore can continue to offer its Singapore passengers the option of stopping in Tokyo. In Jun-2015 ANA reintroduced a second daily flight from Singapore to Tokyo Narita which it had previously suspended as it expanded on the Singapore-Tokyo Haneda route. ANA currently serves Singapore with four daily flights, including two from Haneda and two from Narita.

The reintroduction of the second Narita flight was key, since it departs Singapore in the morning. The ANA morning departure is 45min ahead of United’s Singapore-Tokyo fight and connects with all of United’s Tokyo-US flights. ANA’s midnight departure arrives in Tokyo in the early morning, providing a fast connection to some of ANA’s US fights but none of the United-operated flights.

United-ANA JV to include new Singapore-San Francisco flights

United has had a joint venture with ANA on the trans-Pacific since 2011. The two airlines coordinate operations and share revenues and profits on all Japan-US flights. ANA currently serves nine US destinations from Tokyo Narita – Chicago, Honolulu, Houston, Los Angeles, New York JFK, San Francisco, San Jose, Seattle and Washington Dulles (six are also served by United). ANA also serves Honolulu and Los Angeles from Haneda. All of ANA’s US destinations are available from Singapore – with connections via Narita, and in some cases also via Haneda.

The United-ANA joint venture includes several markets beyond Japan including Singapore. The JV was approved by the Singapore Competition Commission in 2011.

Mr Chin said the joint venture will also include the new Singapore-San Francisco non-stop flights. This will give Singapore-San Francisco passengers the option of travelling via Tokyo in one direction, and non-stop in the other direction.

United and ANA have complete metal neutrality and offer the same fares in every market covered by the JV, regardless of the operating airline.

For now the fares for Singapore-San Francisco are the same for the non-stop and one-stop options. But over time the fares could be reviewed and adjusted to include a premium for the non-stop.

Singapore-Tokyo capacity has increased, pressuring United

United’s decision to discontinue Singapore-Tokyo is understandable as the market is already well served, including with four daily flights by its joint venture partner. United currently accounts for only one of 13 daily flights in the Singapore-Tokyo market.

Singapore Airlines (SIA) is the market leader with five daily flights (three to Haneda and two to Narita; one of the Narita flights continues to Los Angeles). Japan Airlines serves the Singapore-Tokyo market with three daily flights (two to Haneda and one to Narita) and Delta Air Lines has one daily flight (Narita).

The Singapore-Tokyo market has undergone a large increase in capacity since 2010, when the first wave of flights from Singapore to Haneda was approved. The new flights to Haneda have impacted demand in the Singapore-Tokyo Narita market, pressuring yields.

Singapore to Tokyo capacity by airline (one-way seats per week): Oct-2011 to May-2016

United has had to compete aggressively for local Singapore-Tokyo passengers in order to maintain load factors. These passengers are low-yielding and typically carried below cost, particularly given the relatively high expense US airlines incur when operating regional flights within Asia beyond their Asian hubs. Exiting the local market and relying on ANA for Narita-Singapore connections is a sensible solution.

United to improve its position in the Singapore-US market

United’s capacity in the Singapore market will reduce slightly, from approximately 7,500 weekly seats currently to just under 7,300 weekly seats in Jun-2016 as the new non-stop service is launched. This will mark the lowest capacity for United in Singapore since late 2011 and early 2012, when it served Singapore-Hong Kong with 737-800s.

United Airlines one-way weekly seat capacity from Singapore: Oct-2011 to May-2016

However, United will allocate significantly more capacity to the Singapore-US market from Jun-2016 than it does currently. All seats on the 787-9 from Singapore to San Francisco are intended for Singapore-US passengers, while a large portion of seats on the slightly larger 777-200 from Singapore to Tokyo are now sold to local passengers.

United sometimes has enough demand from Singapore to the US to fill the Tokyo flight with US-bound passengers. However it can be difficult securing enough seats from Tokyo to the US, particularly during certain times of the year, due to demand in the local Japan-US market. The non-stop flight solves this problem.

Mr Chin said the business case for the new Singapore-San Francisco flight relies entirely on Singapore-US passengers.

Singapore-San Francisco is a large local market and United will offer connections in San Francisco to 40 US domestic destinations. Currently United only offers a one-stop product from Singapore to 15 of these destinations.

The opening of one-stop connections to 25 additional US markets was a key factor in United’s decision to launch Singapore-San Francisco non-stops. Most of these 25 markets do not currently have any one-stop options from Singapore, giving United a competitive advantage over other airlines.

United to increase Singapore-San Francisco market share, will pressure SIA

United will also obviously have a competitive advantage in the local Singapore-San Francisco market as it will be the only airline offering a non-stop option. Singapore-San Francisco is a very competitive market, with more than 10 Asian airlines and United offering similar transit times. Delta stopped serving the market in Mar-2014, dropping its Tokyo Narita-San Francisco service.

United is currently the second largest airline in the Singapore-San Francisco market after SIA. Based on OAG Traffic Analyser origin and destination data, United flew approximately 14% of Singapore-San Francisco passengers over the 13 month period ending Nov-2015. SIA accounted for a leading 60% share. Cathay is the third largest player with an 8% share, followed by EVA Air with 6% and ANA with 2%, which gives the ANA-United JV a combined 16% share.

SIA currently has two daily flights to San Francisco, one operating via Hong Kong and the other via Seoul. However, a minority of SIA’s San Francisco passengers are heading to Singapore. SIA relies heavily on the much larger San Francisco-Hong Kong and San Francisco-Seoul local markets as well as on connections beyond Singapore, particularly to India, as San Francisco-India is a huge market.

Having the only non-stop option should enable United to overtake SIA as the leading airline in the Singapore-San Francisco local market. Inevitably this will put competitive pressure on SIA. San Francisco is a key market for SIA, and from Singapore overall.

San Francisco is the second largest US market from Singapore, slightly smaller than New York and larger than Los Angeles. Based on OAG Traffic Analyser origin and destination data, San Francisco accounted for 16% of all Singapore-US passengers in the 13 months ending Nov-2015, while New York (includes JFK and Newark airports) accounted for 18%, and Los Angeles 12%.

SIA may join United with Singapore-San Francisco non-stops

SIA has itself been considering Singapore to San Francisco non-stops, which would give it a better product in the local San Francisco-Singapore market, as well as San Francisco-India. SIA did not operate non-stops to San Francisco during its previous non-stop US operation, which included flights to Los Angeles and Newark from 2004 to 2013. However, SIA has said that its new non-stop US operation, to launch in 2018 with a fleet of seven A350-900ULRs, will include a third non-stop destination.

See related reports:

Seven aircraft is clearly sufficient for at least three routes, as SIA’s A340-500 fleet consisted of only five aircraft. SIA initially configured its A340-500s with business and premium economy seats, before transitioning to an all-business 100-seat configuration in 2008. SIA plans to have a mixed configuration for the A350-900ULRs, but has not decided on whether to include both economy and premium economy, or just premium economy along with business class. Regardless, SIA will almost certainly have a larger business class cabin than United and a premium economy option, resulting in somewhat of a differentiator should it compete against United with Singapore-San Francisco non-stops.

San Francisco is an obvious candidate for SIA’s third non-stop US route as San Francisco is currently its largest US market. SIA has two daily 777-300ER flights to San Francisco compared with one daily A380 flight to New York (via Frankfurt) and Los Angeles (via Tokyo Narita), and five weekly 777-300ER flights to Houston (via Moscow). On a local origin and destination basis, SIA also currently flies more passengers from Singapore to San Francisco, compared with its three other US destinations.

United launching a Singapore-San Francisco non-stop two years earlier will obviously factor into SIA’s evaluation, and could persuade SIA to choose a different US destination. However, strategically SIA may not be able to resist matching United’s non-stop product – even if the market is unlikely to support two non-stop operators over the long run.

SIA and United have no partnership plans

A SIA-United partnership would make sense as the two airlines combined could offer four or more non-stop routes to the US. For example, SIA could operate Chicago instead of San Francisco as its third US non-stop destination under a partnership scenario.

Chicago is unlikely to be a viable market without a United partnership while United does not have the right aircraft type to operate Singapore-Chicago. (The 787-9 barely has the range to reach the US west coast from Singapore – even Los Angeles would be a stretch – while the A350-900ULR will be able to reach to the eastern and central US easily from Singapore.)

However, a SIA-United partnership is highly unlikely. United has never had a codeshare with SIA and has no intention of forging a codeshare agreement to cover Singapore-US flights or beyond connections.

Both airlines are members of Star, but the United-SIA relationship has been relatively sour since SIA joined Star in 2000, despite objections from founding member United.

SIA has had to rely on other US airlines for domestic connections beyond its US gateways. Currently SIA has codeshares with JetBlue and Virgin America. JetBlue places the SQ code on 16 routes from New York JFK, while Virgin America places the SQ code on 24 routes from Los Angeles and San Francisco.

SIA also had a codeshare with US Airways while US Airways was in Star. (The US Airways codeshare was terminated after US Airways was acquired by American Airlines, and then left Star for oneworld.)

United has no plans to pursue connections in Singapore; India has big potential

United has never been interested in pursuing a codeshare with SIA and has always treated Singapore as an end point. The new non-stop flight in theory opens up new opportunities to start leveraging Singapore Changi’s position as a hub for Southeast Asia and South Asia.

South Asia connections would be easier to pursue; Southeast Asia connections would generally only work in one direction since United’s new Singapore-San Francisco flight departs at 8:45am. Only a small number of regional destinations such as Kuala Lumpur can still connect with an 8:45am departure from Changi. South Asia connections are ideal as most South Asia-Singapore flights operate overnight, landing in Singapore in the early morning.

The San Francisco-Singapore flight lands in the early morning, enabling connections to both Southeast Asia and South Asia.

United’s Singapore-San Francisco schedule

There are particularly big opportunities in the San Francisco-India market as United could offer a quick one-stop product to several destinations in India from San Francisco, which has a large Indian community. Even if United remains reluctant to codeshare with SIA, United could codeshare with Air India beyond Singapore. SIA and subsidiary SilkAir have a much larger Singapore-India operation but Air India, with which United does not yet codeshare, provides a potentially attractive alternative.

Air India currently operates daily 787-8 flights from Singapore to Chennai, Delhi and Mumbai. Air India’s Singapore to Chennai and Delhi flights are in the morning, providing short transit times from San Francisco. Air India’s Mumbai and Delhi to Singapore flights operate overnight, landing in Singapore in the early morning and providing a short transit time to United’s morning departure from Singapore to San Francisco. Air India could potentially change the schedule of one of its three Singapore flights so that all three destinations connect with San Francisco in both directions.

For now, a partnership with Air India or any connections beyond Singapore are not being considered. United is confident that the new flight will fill up with Singapore-US passengers. Connections beyond Singapore are available to be pursued later depending on how the new flight performs. Inevitably, United will take the San Francisco-India market into consideration.

United is currently the only US airline serving India, operating daily flights eastbound from Newark to Delhi and Mumbai, originally launched by Continental Airlines prior to the United-Continental merger. Connections to San Francisco are available, with total transit times of approximately 24hrs. A new connection via Singapore would be of a similar length but provide another option and more capacity in a large market, enabling United to increase its US-India market share.

Delta may need to respond with its own Singapore-US non-stops

Legacy United also served Delhi back in the 1990s as part of an around the world flight, known as UA1, which included stops in London, Delhi, Hong Kong, Los Angeles and New York. United is bringing back the UA1 flight number for San Francisco-Singapore, highlighting the strategic importance of this new non-stop route.

The new UA1 will be the longest ever non-stop flight by a US airline and the first time a US airline has served Singapore with a non-stop flight.

In recent years Delta has considered launching Singapore-Seattle non-stops with 777-200LRs to replace its current Singapore-Tokyo Narita flights, as it also deemphasises its Tokyo Narita hub. Delta could be persuaded finally to make a move to match United and SIA with Singapore-US non-stops.

New non-stop options mark an important evolution in Singapore-US market, illustrating where the Gulf carriers have limited competitive power

The Singapore-US market has become increasingly competitive over the last few years, driven by simultaneous expansion to Singapore and the US by several North Asian and Gulf airlines. The Gulf airlines have particularly become aggressive in the Singapore to eastern and central US, a market also served by European airlines, while Singapore-west coast US markets are generally only served by Asian and US airlines.

For example Emirates has roughly tripled the number of Singapore-US passengers over the last two years, increasing its market share from slightly over 1% in the 13 months ending Nov-2013 to approximately 4% in the 13 months ending Nov-2015. SIA’s Singapore-US market share has decreased from 42% to 34% during this period, an unsurprising consequence of the discontinuation of non-stop flights.

The share for Delta and United has also slipped slightly over the last two years, from approximately 22% to 21% for United, and from approximately 12% to 11% for Delta, based on OAG Traffic Analyser data.

Offering a non-stop option provides a unique selling point, enabling US airlines and SIA to gain back market share lost in recent years to its North Asian and Middle Eastern competitors. For US airlines a non-stop to Singapore also provides an opportunity to reduce reliance on Tokyo Narita further as their Asia strategies continue to evolve, and they focus more on direct flights.

Aircraft technology and high fuel prices previously made Singapore-US non-stops a difficult proposition. Times have clearly changed. United’s launch of Singapore-San Francisco non-stops with the 787-9 service marks the beginning of a new era for the Singapore-US market.

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