Singapore Airlines

[D123]

Be it for business or leisure, everyone who travels by air would surely have no qualms skipping the flight if they could. Airline flights are just not a desirable good or service. Given its undesirability, people usually want it to cost as little as possible. This results in them choosing to travel by the shortest route or the cheapest route. Most of the time, each route will have a few alternatives flights that can fly you in roughly the same amount of time.

In the end, airlines compete mostly by price. And no matter what airline you are, your price is dictated by the most foolish airline operator, the one with the cheapest leverage, or the one who has the least desire for yield. Anybody with a moderate amount of capital and access to cheap leverage can start an airline with a handful of planes. Competitors are waiting in the wings all the time to enter the moment they can price a trip cheaper than you.

Interest rate and oil price fluctuations can wreck your attempts to control yield. It may be easy to hedge away large spikes but that is usually by accepting a gradual increase. Add to that a duopoly within your key suppliers of air planes and a strong union among a key input - pilots.

So it seems to me that the economics are such that it is difficult to both raise prices, and lower costs. No wonder the airline industry is tough. I'm not sure if any star manager would be able to run an airline successfully over the long run. Some airlines have had moderate success in differentiating their product from competitors by creating a unique brand, but that is usually after they meet the lowest price points (or thereabouts) for their flights (Southwest, Ryanair). Scoot seems to be trying to follow this strategy.

P.S. Not to mention the significant role governments can play to affect the competitive economics.