Singapore Airlines has, for the first time, publicly stated that it is adopting a portfolio strategy to allow it to compete in multiple market segments.
The carrier's chief executive Goh Choon Phong told analysts at a recent briefing that the new strategy, where Tiger Airways and Scoot will cover budget travellers while SIA and SilkAir cater to premium passengers, will allow the SIA group to grow more sustainably as a whole, especially in the current challenging market conditions.
"The beauty of the portfolio is that each unit can fully exploit growth potential in each segment and in the process, allow the SIA group to participate in all segments," said Goh.
"I think there is a growing realisation that they need to integrate the low-cost carriers better into the SIA group," said UOB Kayhian analyst K Ajith.
Broadly, it appears that the strategy has similarities to the Qantas Group's two-airline strategy where the Qantas brand offers a full service premium product, while Jetstar caters to the leisure market.
The shift in SIA's strategy has already resulted in closer co-operation among the brands that operate in similar markets.
In the budget segment, Scoot and Tiger recently implemented the first stage of an interline agreement that allows Scoot passengers to transfer on to Tiger services.
Similarly, premium brands SIA and SilkAir have been working together more closely. They have integrated yield management, fleet and route planning, sales and marketing, and airport operations. This has boosted cross-selling by 25%.
But Goh made it clear that there are no plans to mix the premium and budget brands.
"There is a clear distinction between the two types of service," said Goh, who cited the strong business and first class products on SIA's A380s as an example of how the airline will continue to focus on attracting the premium traveller.
"We're not going to allow confusion," he added.
Ajith, however, believed that this may be a challenge for SIA.
"How you differentiate the product to consumers and at the same time satisfy customers, that will be the challenge for them," he added.
Goh also said that the portfolio approach will allow the SIA group as a whole to take advantage of the different growth profiles of each market segment.
"They grow at different rates, at different times, at different years, the low-cost carriers will grow faster - like now, they are growing faster and we should be able to participate in that growth," says Goh.
That is already becoming apparent, with the announcement in recent weeks that Scoot will take over SIA's order for 20 Boeing 787-9s. Sources have also signalled that it could also add the smaller -9 variant and larger -10 variant to its fleet in the future.
Goh said that the 787s are better suited to Scoot's operation, where its lower operating costs will give it an advantage in a competitive market already dominated by AirAsia X and Jetstar.
Tiger still has 29 Airbus A320s on order, of which at least eight will be allocated to Tiger Airways Australia and others are also likely to go to its Indonesian and Philippines affiliates to allow them to expand.
Much of that expansion will likely hinge on the opening up of traffic rights in the region, with the Association of Southeast Asian Nations open skies expected to finally take place in 2015, following years of delays that have restricted opportunities for low-cost carriers in the region to grow outside of their home markets.
In the premium market, it seems that SilkAir will be the major growth vehicle, with 54 737-8 aircraft on order to replace its current fleet of 16 A320s and six A319s.
SIA is still planning to take 15 Airbus A330s and eight Boeing 777-300ERs in the short term. In the longer term, it has orders for 40 Airbus A350-900s and five additional A380s.
Overall, Goh believed that the change from focusing on the SIA brand to operating four complementary brands will yield strong benefits for the company.
"SIA is now able to compete in any segment and grow," he added.
Source: Air Transport Intelligence news
