Thursday, May 26, 2011

Singapore Airlines to set up new low-cost carrier

SINGAPORE—Singapore Airlines (SIA) said Wednesday it will launch within one year a new budget airline using wide-body aircraft to tap into growing consumer demand for low-cost travel over longer distances.

SIA already runs a short-haul mid-price airline called SilkAir and owns 32.9 percent of budget carrier Tiger Airways but said it decided to establish the new subsidiary after “an extensive review and analysis” of the market.

It did not give a name for the future airline, saying more details will be announced “in due course” including its branding, services and routes.

“Operations are expected to begin within one year. The airline will be wholly owned by Singapore Airlines, but will be operated independently and managed separately from SIA,” the company said in a press statement.

SIA said the new carrier will “enable the airline to serve a largely untapped new market and cater to the growing demand among consumers for low-fare travel.”

The move will put the new carrier in competition with AirAsia X, the long-haul affiliate of Malaysian budget carrier AirAsia and British tycoon Richard Branson’s Virgin Group.

Unlike most other budget airlines using single-aisle planes for short hops, the new carrier will operate wide-body, double-aisle aircraft to ply medium- and long-haul routes.

“We are seeing a new market segment being created and this will provide another growth opportunity for the SIA Group,” SIA chief executive Goh Choon Phong said.

“As we have observed on short-haul routes within Asia, low-fare airlines help stimulate demand for travel, and we expect this will also prove true for longer flights.”

Shukor Yusof, an aviation analyst with Standard and Poor’s Equities Research, said SIA was making a foray into a largely untapped market, which is dominated in the region by AirAsia X.

AirAsiaX flies to 14 destinations –London, Taipei, Tehran, Paris, Seoul, Tokyo, China (Tianjin, Hangzhou, Chengdu), Australia (Gold Coast, Melbourne, Perth) and India (Mumbai, Delhi).

“If you look around, there’s only AirAsia X in this region that’s doing low-cost long-haul or medium- to long-haul flights. So essentially there’s an opportunity to make money,” Shukor told AFP.

“If you look at the recent financial year you can see that they (SIA) obviously need another avenue to grow their business.”

SIA said on May 12 that full-year net profit rebounded strongly from the global recession as travel demand recovered.

It earned Sg$1.09 billion ($873 million) in the financial year ended March 31, up fivefold from Sg$216 million a year ago while revenues rose 14 percent to Sg$14.5 billion.

SIA cautioned that the near-term outlook was expected to be difficult due to surging oil prices, concerns over the US economy, the impact from Japan’s quake-tsunami disasters and worries over Europe’s sovereign debt crisis.

Shukor expects the new SIA subsidiary to position itself higher than Tiger Airways.

SIA is “putting the expertise and the money behind this new entity and I have every reason to believe that it’s going to be an exceptional airline,” he added.

Shukor noted that AirAsia X was “doing quite well” flying to Europe, Northeast Asia and Australia and this may have triggered SIA to decide about launching a competitor.

SIA’s announcement also came after a report in the Australian Financial Review that Australian airline Qantas was planning to establish a new premium carrier based in Singapore.
Qantas would not confirm the report, dismissing it as speculation, but has said its international business had not been performing to expectations, with market share in this area falling in recent years.

SIA shares were closed unchanged at Sg$14.20 on Wednesday before the announcement.

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