The integration of Tigerair and Scoot will strengthen parent company Singapore Airlines’ (SIA) position in the low-cost segment and provide new opportunities in a challenging global environment, SIA CEO Goh Choon Phong said on Friday (Nov 4).
In the second half of next year, Tigerair will come under the Scoot brand name and both airlines will operate under a single licence, according to a statement from Budget Aviation Holdings on Friday, which owns and manages the low-cost airlines under the SIA Group.
Commenting on the decision, Mr Goh said the group realised that the creation of Budget Aviation Holdings in May was insufficient to capture the full benefits of an integration, and hence “the best way is to go with one brand”.
“There are a lot of synergies that we cannot fully exploit because they are still two different entities … (under) two different AOCs (air operator’s certificates) and therefore, different regulatory requirements,” he said. “One single brand will bring about the ultimate benefit of a full integration in all aspects of the budget side of the business.”
Mr Lee Lik Hsin, CEO of Budget Aviation Holdings, added that both Scoot and Tigerair have contributed to the group’s profitability, with both airlines’ earnings improving over the past six months. The integration will help to improve revenue further, he said.
“There’s a limit as to what (economies of scale) can bring. On the revenue synergy side, however, I think it’s fair to say we are a lot more optimistic about what we can get from a single brand.”
Some analysts are more cautious, however, given the ongoing stiff competition in the low-cost carrier market. UOB Kay Hian analyst K. Ajith, for one, told Channel NewsAsia: “There will be some degree of cost savings and perhaps some incremental revenue but it will not be material.”
Meanwhile, in response to queries from Channel NewsAsia on future manpower plans, Budget Aviation Holdings’ Mr Lee said the group will need more staff despite the integration.
“We have talked about growth over the next one year and beyond that. We recently had some communication about pilots and cabin crew growth that we need. In general, it will be that kind of situation and we need more people.”
The announcement of a timeline for the integration of Scoot and Tigerair comes one day after a disappointing earnings report card from SIA.
For the three months to September, the national carrier posted a near 70 per cent plunge in net profit to S$64.9 million, compared to S$213.6 million a year ago. Group revenue fell to S$3.65 billion from S$3.84 billion.
With the exception of Scoot and Tigerair, all other companies in the group – including parent airline SIA, as well as SilkAir, SIA Cargo and SIA Engineering – saw their earnings take a hit in the second quarter.
LONGER-TERM STRATEGIES TAKING SHAPE: SIA CEO
In a briefing with media and analysts on Friday, Mr Goh outlined the group’s continued push in four key areas – strengthening its premium positioning, having a varied portfolio of airlines, maintaining a multi-hub approach and seeking new business opportunities.
While he does not expect the gloom in the global economy to “last forever”, structural challenges such as an increasingly competitive landscape will likely remain, he said.
“We have taken proactive actions to put in place longer-term strategies to address these issues,” Mr Goh said. “You will see these strategies now taking shape and (they) augur well for the group in terms of positioning the group (with) a strong foundation for the future.”
As part of its positioning as a premium airline, SIA will continue to roll out its new SilverKris Lounges, with the latest opening slated to be in Bangkok during the first quarter of 2017.
Other initiatives include extending its premium economy class to 17 more aircraft by the end of next year, as well as the recent introduction of Teochew dishes to its in-flight menu.
The national carrier also plans to add 12 new destinations this financial year, Mr Goh revealed, noting that this is “not a small feat” given the challenging business environment.
“We wouldn’t have been able to do so had we not pushed to go on a portfolio model and take decisive steps to acquire new aircraft,” he said. “With the new aircraft types, we are able to grow in a manner that is commercially feasible. But it’s not just SIA, we have a portfolio of carriers (that) allows us the nimbleness and flexibility to grow.”