NEW AIRLINE: SIA to Launch Long-Haul Low-Cost Carrier

Richard Maslen June 02, 2011

Singapore Airlines (SIA) has revealed it is planning to establish a low-cost, long-haul airline in an attempt to win back some of the market share it has lost to international rivals at Singapore Changi Airport. The airline remains tight-lipped over its operational plans declining to confirm which type of aircraft the start-up will operate, its brand identity or the routes it will serve, simply stating that it will operate on medium- and long-haul routes.

Despite being the largest operator at Singapore Changi International Airport, SIA has seen its share of the market diluted over recent years with foreign rivals seeing the most notable rises in market share, as the table below illustrates.

NETWORK ANALYSIS: SINGAPORE CHANGI INTERNATIONAL AIRPORT (non-stop weekly flights/seats)
Rank	Airline	Flights	Seats	2011	2010	2005	2000
1	Singapore Airlines	679	208,868	34.2 %	36.0 %	46.0 %	45.4 %
2	Tiger Airways	251	45,180	7.4 %	6.2 %	2.8 %	-
3	SilkAir	271	36,580	6.0 %	6.3 %	3.8 %	2.8 %
4	Jetstar Asia	144	26,781	4.4 %	4.6 %	1.6 %	-
5	Qantas	69	26,219	4.3 %	4.5 %	5.2 %	6.7 %
6	AirAsia	110	19,800	3.2 %	3.1 %	-	-
7	Cathay Pacific Airways	56	15,991	2.6 %	3.0 %	3.8 %	3.6 %
8	Indonesia AirAsia	84	14,896	2.4 %	2.5 %	-	-
9	Emirates Airline	35	13,366	2.2 %	2.3 %	2.9 %	2.6 %
10	Garuda Indonesia	56	10,584	1.7 %	1.9 %	3.3 %	2.5 %
(others)		937	191,784	31.4 %	29.6 %	31.6 %	36.4 %
TOTAL		2,692	610,049		-	-	-

The network analysis of market share from the airport shows some very interesting information. SIA has seen its performance fall from 45.4 per cent in summer 2000 to 34.2 per cent this summer, and while new entrants such as Tiger Airways and AirAsia have carved out significant shares in the short-haul markets, AirAsiaX and JetStar have shown the potential to develop within the region and wider market. SIA is not alone however, and other major Asian carriers such as Cathay Pacific Airways and Qantas have also seen their market share reduced, even Emirates Airline has seen no real growth despite frequency and passenger increases.

SIA says the new start-up is being established following an “extensive review and analysis” of the market and will enable it to “serve a largely untapped new market and cater to the growing demand among consumers for low-fare travel." It plans to get the new start-up operational within a year and confirmed that it will fly completely independently from the mainline business and will be managed by its own executive team.

"We are seeing a new market segment being created and this will provide another growth opportunity for the SIA Group," said Goh Choon Phong, Chief Executive Officer, SIA. "As we have observed on short-haul routes within Asia, low-fare airlines help stimulate demand for travel and we expect this will prove true for longer flights."

Although a low-cost entrant will stimulate demand, SIA will have to be careful that it does not damage its existing product. The most likely launch market for the new venture is Australia and its lower cost structure will enable it to provide flights at a much reduced cost to its sister carrier. SIA already offers flights to Adelaide, Brisbane, Melbourne, Perth and Sydney but the new venture is much more likely to serve destinations such as Gold Coast, which AirAsia X is successfully serving from its Kuala Lumpur base. That is not to say that the start-up will not compete directly with SIA, following a model that Emirates Airline and budget venture flydubai have proved successful in the Middle East.

Away from Australia, the fast expanding cities in India and China are likely to provide the main target market for the new carrier which could take over some of SIA’s existing lower yield routes. It could also open new destinations, which previously did not fit the SIA business model, which has mainly focused on high-quality services for the premium traveller.