Scoot

With Bangkok, Scoot breaks medium/long-haul focus; Thai/Nok could be next to establish long-haul LCC

Scoot, the low-cost long-haul subsidiary of Singapore Airlines (SIA), has not yet commenced commercial services but by announcing plans to launch Singapore-Bangkok it has already broken its self-proclaimed focus to only serve medium-haul and long-haul routes and not to overlap with short-haul sister carrier Tiger Airways. But rules are typically only guidelines when it comes to the evolving models of low-cost, long-haul carriers.

In Scoot's case, deviating from its norm to open a daily Singapore-Bangkok service from 05-Jul-2012 allows it to boost aircraft utilisation and enter the gigantic Singapore-Bangkok market, the 26th largest route in the world based on available seats. It also allows Scoot to enter the lucrative Bangkok-Australia market with a connection product. Competitor AirAsia X already sees large transfer traffic from Australia to Bangkok via its Kuala Lumpur hub. Scoot's move into Bangkok could prompt a move from Thai Airways, which is already studying its own options for entering the low-cost long-haul market. Using partially owned subsidiary Nok Air to launch Boeing 777 flights to Australia is the most likely solution for Thai.

AirAsia X and Scoot help make Sydney Australia's hub for low-cost long-haul carriers

The inaugural AirAsia X flight arriving into Sydney on 02-Apr-2012 is ushering in the era of low-cost, long-haul carriers at Australia's largest airport, which is poised to take the title of offering the most service from low-cost long-haul carriers between Australia and Asia. While Jetstar already links Sydney to long-haul destinations and previous carriers like Viva Macau tried, this new wave is of carriers going beyond point-to-point traffic to offer connections out of large Asian hubs.

AirAsia X will be followed by Scoot, and the presence of a Singapore low-cost long-haul carrier in Sydney makes it likely that Jetstar too will enter the Sydney-Singapore market, although parent company Qantas will have to accept that corporate routes previously in its exclusive domain must now be shared if it wants to remain relevant in a market with increasingly diversifying traffic.

The sudden influx of long-haul LCCs can be attributed to competitive responses but also the new government in New South Wales that is eager to better promote Sydney Airport.

In selecting Gold Coast over China as its second destination, Scoot again goes with low risk option

New Singapore Airlines (SIA) low-cost long-haul carrier Scoot announced today Gold Coast as its second destination after Sydney and confirmed its intention to launch services in Jun-2012. Scoot has decided to launch with two routes to Australia because the process of securing authorisations for China, which Scoot has said will also be served within its first year, is longer and more unpredictable. Gold Coast was selected over two other Australian airports on Scoot’s short list, Adelaide and Brisbane, because of Gold Coast’s excellent track record of success with LCCs, including Asia’s two existing low-cost long-haul carriers – AirAsia X and Jetstar. Gold Coast is also the largest airport in Australia currently lacking a link with Singapore.   

Gold Coast is the fifth largest international airport in Australia behind Sydney, Melbourne, Brisbane and Perth (see Background information). Among Australia’s top airports it has by far the highest LCC penetration rate. Currently LCCs account for 98% of total capacity (seats) at Gold Coast, including 90% of international capacity and nearly 100% of domestic capacity.

AirAsia X route changes spotlight ownership complexity post MAS deal, but also growth opportunities

Doomsayers will be quick to look at a series of route cancellations from Malaysia-based AirAsia X and proclaim the demise of the modern low-cost long-haul model AirAsia X pioneers. The context for the changes – ending service to London Gatwick, Mumbai, New Delhi and Paris Orly – expands beyond fuel costs, rising taxes in Europe and new visa restrictions in Malaysia. AirAsia X was already struggling in Europe and particularly in India. The recent cross-ownership deal between Malaysia Airlines (MAS) and the AirAsia Group was also clearly a big factor.

That is not to suggest AirAsia X's changes are simply a matter of submission to MAS. The biggest advantage, besides brand awareness, of the high profile London and Paris routes was their ability to put passengers on multiple AirAsia short-haul flights as they travelled around southeast Asia. MAS' deployment of the A380 later this year will lower unit costs to London, narrowing the gap with AirAsia X, currently using more fuel-thirsty A340s. With the AirAsia-MAS partnership, and plans for the two to facilitate passenger transfers, the AirAsia group can still gain feed on its short-haul network while AirAsia X will benefit from redeploying capacity in Asia Pacific and, notably, China.

In selecting Sydney as its first route, Scoot favours a low risk market with little competition

Scoot's selection today of Sydney as its first destination from its Singapore hub is a solid move from Singapore Airlines' new low-cost long-haul carrier. Scoot previously said it was looking to initially concentrate on Australia and China. There is no existing low-cost long-haul service from Singapore to Sydney or fifth-freedom rights from Emirates, unlike at Australia's second largest city, Melbourne.

The Singapore Airlines (SIA) group decided earlier this year to launch a low-cost long-haul carrier to re-capture some of the growth the group has lost over the past decade, especially to LCCs. Sydney is still a high O&D market SIA and Scoot can try to keep, unlike at Melbourne or the Gold Coast where AirAsia X and Jetstar have firmly planted themselves. Scoot's entry could be expected to galvanise the Malaysian government to finally let AirAsia X serve Sydney – likely before Scoot – and could cause the Qantas Group to consider unleashing its LCC subsidiary Jetstar in one of its last premium markets.

Qantas and Jetstar change 787 strategy to support Asian growth and unit cost improvement

The continuous high-growth in Asia as well as opportunities to achieve better unit costs are the drivers behind a broad change of strategy for how the Qantas Group will deploy the B787-8 and B787-9 across its Qantas and Jetstar brands. Rather than have B787-9s replace Jetstar’s B787-8s, which would have been sent to Qantas for domestic use, Jetstar will keep the B787-8 and operate it alongside the B787-9. Qantas will further reap the B787’s efficiency by deploying the aircraft almost entirely on international routes, leaving domestic routes to A330s and B737s.

Jetstar will be able to better match capacity with demand by operating the smaller 300-seat B787-8, whereas its low-cost long-haul pan-Asian competitors AirAsia X and Scoot will primarily operate 370-seat aircraft, equivalent to the B787-9. Keeping the B787-8 will allow Jetstar to fit out the aircraft to its specification rather than a common spec Qantas could operate with a simple change in seat covers. This has implications for seating density, type of seat and whether or not to install a bulky and expensive in-flight entertainment (IFE) system, which affects unit costs.