Bloomberg News

Singapore Air Budget Arm Scoot to Serve Five Cities in 2012

February 22, 2012

(Updates with closing share price in 11th paragraph.)

Feb. 21 (Bloomberg) -- Singapore Airlines Ltd.’s Scoot Pte. plans to fly to at least five cities by the end of the year as the group adds long-haul budget services to compete with Jetstar and AirAsia X Sdn.

Scoot intends to announce destinations in China and Japan, Chief Executive Officer Campbell Wilson, 40, said in a Feb. 17 Bloomberg TV interview in Singapore. The carrier, which is due to start flights in June or July, has already said it will fly to Sydney and the Gold Coast in Australia.

Singapore Air is forming Scoot after low-cost carriers won 26 percent of passenger at its Changi Airport home, contributing to waning load factors and declining profit. The new unit may do little to help revive earnings amid a long-haul travel slowdown, said K. Ajith, an analyst at UOB-Kay Hian Research.

“The market has low expectations from Scoot,” Singapore- based Ajith said in a note today. “Meanwhile, SIA will be plagued by weak outbound travel out of Europe and increased competition at its Changi hub.”

Singapore Air’s passenger numbers rose 1.3 percent last year, trailing an 11 percent surge for Changi.

Leisure Travelers

Scoot will fly services as long as nine hours and offer fares as much as 40 percent cheaper than full-service carriers, according to Wilson, who was born in New Zealand and has worked at Singapore Air for more than 15 years. The unit will complement the company’s full-service business by either tapping new customers on existing routes or by adding new destinations that are predominately leisure markets, he said.

“Singapore Airlines set us up to provide incremental traffic,” Wilson said. The carrier is “missing out” on about a quarter of passengers at its hub, he said.

Scoot will start operations with four Boeing Co. 777-200s, purchased from its parent. The fleet will increase to 14 777s by the middle of the decade.

Singapore Air also helped formed Tiger Airways Holdings Ltd. to offer budget flights on short-haul routes beginning in 2004. The carrier, which is now listed, lost money in the last three quarters as its Australian unit pared flights after safety violations. Singapore Air also owns regional carrier SilkAir.

Singapore Air, the world’s second-largest carrier by market value, filled 77 percent of seats last month, a 1.1 percentage point decline from a year earlier and the 18th straight drop.

The carrier rose 0.3 percent to S$11.00 at the close of trading in Singapore. It has fallen 23 percent in the past year, compared with a 20 percent decline for Hong Kong-listed Cathay Pacific Airways Ltd. and a 32 percent jump for AirAsia Bhd. in Kuala Lumpur.

Profit Expectations

Scoot has said it has startup capital of S$283 million ($226 million). It will spend as much as S$60 million in the run-up to the start of flights, Wilson said Nov. 2. The carrier plans to have about 50 pilots and 250 cabin crew by the end of next year. It expects to fill 75 percent to 80 percent of seats, Wilson said.

“Our business plan ensures that we are profitable in the medium term,” he said, without elaboration.

Qantas Airways Ltd.’s Jetstar has a hub in Singapore from where it flies to destinations including Beijing, Auckland and Melbourne. Overseas budget airlines serving the city-state include Indian carrier IndiGo and the Philippines’ Cebu Air Inc., which operates as Cebu Pacific.

AirAsia Bhd., the region’s biggest budget carrier, flies to Singapore from its base in Kuala Lumpur and from hubs operated by overseas ventures. The carrier’s long-haul affiliate AirAsia X flies from Kuala Lumpur, a four-hour bus trip from downtown Singapore.

Scoot doesn’t plan to fly to Europe soon, as economic uncertainties and the region’s debt crisis damp consumer spending. AirAsia X also last month said it would stop operations to London and Paris.

“The demand scenario in Europe is very weak for obvious reasons,” Wilson said. “It’s not a particularly attractive market at the moment.”

--Editors: Neil Denslow, Frank Longid

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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