Singapore Air to offer long-haul budget service

Singapore Airlines Ltd, the world’s second-largest carrier by market value, unveiled budget long- haul unit Scoot as competition from low-cost carriers lures passengers from its main business.

Flights will begin in mid-2012, and destinations in the first year will include China and Australia, the company said in a statement today. Scoot will be managed independently from its parent, and all pilots will be hired from outside, Chief Executive Officer Campbell Wilson said at a press conference.

In the first year, Scoot will operate four Boeing Co 777-200 planes purchased from its parent and offer fares up to 40 per cent cheaper than full-service carriers. Singapore Air is adding the “no-frills” unit as AirAsia X Sdn and Qantas Airways Ltd’s Jetstar boost budget long-haul services to tap rising Asian travel demand.

“This is a move that they have to take to prevent losing market share,” said Andrew Orchard, a Hong Kong-based analyst at Royal Bank of Scotland Group Plc. “There are lots of travelers who are price sensitive in Southeast Asia.”

Singapore Air fell two per cent to S$11.49 at 1:38pm in the city-state. The stock has declined 27 per cent in the past year, compared with an 11 per cent drop for the Straits Times Index.

Scoot, which will operate from Changi Airport’s terminal 2, will offer two cabins. The airline will eventually expand operations to India, Europe, Africa and Middle East.

The carrier, which has a capital of S$283 million ($224m), will spend as much as S$60m in the run-up to the start of its flights, Wilson said. Scoot aims to have about 50 pilots and 250 cabin crew by the end of next year and to operate 14 aircraft by the middle of this decade, he said.

“Taking over routes of SIA is not the intention of Scoot,” Wilson said, when asked about competition with parent Singapore Air. “We’re targeting a new growing market. We are here to bring incremental business to the SIA group.”

Long-haul budget flights are a break from the traditional low-cost model, pursued by Southwest Airlines Co and Ryanair Holdings Plc, which focuses on flying single-class, narrowbody planes on routes of less than about five hours.

Global passenger air traffic may rise 4.6 per cent next year, led by growth in the Asia-Pacific region, the International Air Transport Association said in September. Airlines in the region may earn $2.3 billion in 2012, compared with a global profit forecast of $4.9bn, the group said.

Singapore Air also owns regional carrier SilkAir and has agreed to increase its stake in short-haul budget carrier Tiger Airways Holdings Ltd to about 49 per cent.

Scoot will seek to leverage its parent’s expertise in fuel and currency hedging, Wilson said.