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SIA TO ESTABLISH NEW SUBSIDIARY AIRLINE
Singapore Airlines has today announced its intention to establish a new nofrills,
low-fare airline operating widebody aircraft on medium and long-haul
routes.
More details -
http://info.sgx.com/webcoranncatth.nsf/V...B002F518E/$file/NE-1211.pdf?openelement
SIA has a market capitalization of $17.0 billion with net cash of $5.4 billion.
(Not Vested)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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Budget airline for medium to long haul flights...is there any companies dealing with this at the moment ? Unless I am mistaken, most of the budget airliners (including its 33% owned Tiger Airways) are short haul carriers ?
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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(25-05-2011, 05:53 PM)Musicwhiz Wrote: I wonder if this will benefit SIA Engineering in any way? Haha. Fleet Management services and MRO for the new airline, perhaps? 
(Not vested in SIA, Vested in SIAEC)
Maybe SATS will benefit too.
The toughest thing to do is have to wait for the opportunity patiently.
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May 28, 2011
COMMENTARY
SIA's low-cost start-up a step in right direction
Competing with budget carriers in long-haul market makes sense
By Karamjit Kaur, Aviation Correspondent
SINGAPORE Airlines' announcement on Wednesday that it plans to set up a new low-cost carrier to operate mid- to long-haul services has surprised many in the industry.
Singapore Airlines (SIA) is not known to be a risk-taker and its new initiative - slated to take off in a year - is a gamble for two reasons.
One: While the no-frills airline model has a successful track record in the short-haul market, the jury is still out on low-cost long-haul flying, the sector SIA is eyeing.
There are only two key players in this market. Australia's low-cost airline Jetstar started flying long-haul in October 2006 and now operates from Australia to Indonesia, Thailand, Japan and the United States; and from Singapore to Australia and New Zealand.
Then there is Malaysia's AirAsia X, which started flying in 2007 and now goes to 14 cities, including London, Paris, Seoul and Tokyo as well as destinations in China, India and Australia.
While both have managed to stay afloat, it is uncertain if low-cost carriers can be as profitable on long-haul flights the way they are on short-haul flights. Will passengers take to no-frills flights on long trips or will they prefer flying more comfortably on full-service flights?
The second big risk for SIA is that the new start-up could cannibalise the parent's existing business, especially in the economy sector.
The airline says it is not concerned about this, confident that the explosive demand for budget travel will create enough opportunities for the new entity.
Risky or not, SIA's decision to launch the new airline, which will be managed separately and independently from the parent company, makes sense.
The airline had to take drastic action or risk being left behind in the dogfight for air supremacy.
In the last decade, SIA's passenger traffic grew just 11 per cent from 15 million passengers to 16.6 million passengers in the financial year that ended in March.
By comparison, total traffic at Changi Airport rose 32 per cent from 28.6 million in 2000 to 42 million last year.
Low-cost carriers that started operating at Changi just seven years ago today account for about a quarter of the airport's total passenger throughput.
SIA's yields have also been hit as competition intensifies. While it posted a full-year profit of $1.09 billion in the financial year that ended in March, earnings for the final January-March quarter slipped 38 per cent to $171 million, compared to the same period a year ago.
If the numbers are not worrying enough, SIA is also facing the prospect of some serious competition from Australia's Qantas, which reportedly plans to start a new Singapore-based carrier that will run full-service flights. These will compete directly with SIA in the international market.
Given the challenges it was facing, SIA had to do something. One option it had was to start its own low-cost carrier to compete on regional routes.
But there are already three strong players in this sector: AirAsia, Jetstar and Tiger Airways (which SIA owns about a third of). If SIA wanted to expand its foothold in this segment of the market, it can potentially increase its stake in Tiger.
It is also already active in the regional market via its full-service regional arm SilkAir, which carries SIA's international customers through Singapore to other destinations within the region.
More pertinently, the urgent threat facing SIA is not in the low-yield short-haul market but in the more lucrative long-haul market.
It is squeezed from the top and bottom end in this segment. It faces competition from premium carriers like Cathay, Emirates, Qantas and British Airways, and from second-tier full-service airlines like Malaysia Airlines and Thai Airways which have kept fares low while boosting service levels.
SIA could slash fares to attract more customers for its long-haul flights - but this would dent its profitability and be counter-productive.
The more rational option is the one SIA has chosen: to preserve the main airline's premium service, but start a new carrier to compete head-on with budget carriers and other full-service airlines in the mid- to long-haul market.
Cost is not an issue. A new start-up with under 10 aircraft will probably cost under $300 million - not a problem given SIA's cash pile of more than $7 billion.
Having a new carrier allows SIA to transfer some of its low-yielding routes, for example to New Zealand and some cities in Australia, to the new airline which can operate them more cost-effectively.
Some destinations can be served by both parent and new carrier, with SIA focusing on premium travellers and the new carrier catering to the lower-end business and mass leisure market where travellers are more price-sensitive.
Much of this would of course depend on whether the new airline will be able to secure the air rights it needs to operate to its desired destinations, as well as landing slots at the airports.
When the new carrier is launched, SIA will effectively have a finger in every segment and class of the market; Tiger and SilkAir offering low-cost and full-service options on regional routes; and SIA and the new entity offering premium and low-cost options for mid- to long-haul flights.
As the business develops, travellers can also expect SIA to focus more on its first and business class products which today account for almost half of the airline's revenue.
The airline has already said it will reduce the number of economy seats on its new eight Airbus A-380 superjumbos to make room for more business class seats.
SIA's big announcement has created much buzz in the market.
Travellers and rival carriers will be waiting eagerly for the airline to provide details in the coming weeks and months on fleet size, route network and fares.
Will the gamble pay off for SIA?
It has the requisite experience and financial muscle. It is well-positioned in a key air hub in Asia where strong growth is expected. If it plays its cards right, SIA can emerge to be at the forefront of the next phase of global aviation.
karam@sph.com.sg
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may i ask who owns changi airport? is it sia?
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