Scoot Pte is offering Apple Inc. (AAPL:US) iPads to budget long-haul travelers after ripping out aircraft entertainment systems weighing more than two tons to save fuel.
The tablets helped the carrier cut 7 percent off the weight of planes obtained from parent Singapore Airlines Ltd. (SIA) even after a 40 percent increase in seating, Chief Executive Officer Campbell Wilson said. The savings will help Scoot, which makes its maiden flight today, cope with fuel prices that have jumped about 36 percent in two years.
Fuel is “the number one worry” for any airline, as it usually accounts for at least 40 percent of costs, Wilson said in a June 1 interview in Singapore. Scoot will charge economy passengers S$22 ($17) a trip to rent the tablets, which are loaded with movies, music, games and television shows.
Cutting costs and finding new sources of revenue will be key for Singapore-based Scoot as it seeks to make a profit flying older planes than other low-cost carriers and selling tickets as cheap as S$158 one-way to Sydney, a flight of more than seven hours. Singapore Air formed Scoot after budget operators led by Jetstar and AirAsia Bhd. won 26 percent of the city’s air-travel market.
The iPads are “a very smart move,” said Corrine Png, JPMorgan Chase & Co.’s Singapore-based head of regional transportation research. “If they can make the aircraft lighter, it does help improve fuel efficiency.”
The budget carrier will loan the iPads free to passengers in its business-class seats. It eventually intends to have users access content via a wireless system onboard planes.
JetStar, Qantas Airways Ltd.’s budget arm, also offers preloaded iPads on domestic and international flights lasting longer than 90 minutes. Qantas’s main unit began trialing a wireless iPad system in December.
Singapore Air fell 1.4 percent to S$10.25 at the close of trading in the city-state. The carrier has tumbled 28 percent in the past year, compared with a 14 percent decline for the Straits Times Index.
Scoot will have four Boeing Co. 777-200s this year, each fitted with 400 seats, including 32 in business class. Flights to its second destination, Australia’s Gold Coast, will start next week.
“We view this as initially a defensive measure by Singapore Airlines,” Timothy Ross, managing director and head of Asia-Pacific transport research at Credit Suisse Group AG in Singapore, said in a Bloomberg TV interview. “The economics of long-haul low-cost are unproven,”
Charging extra for services such as the iPads and catering may help boost earnings, he said.
“Given that margins on those revenues are so much higher than they are on carrying passengers, anything you can do to increase that as a proportion generally augers well for the bottom line,” Ross said.
Scoot will begin flights to Tianjin, China in August followed by two other northern Chinese cities before the end of the year, Wilson, 40, said.
“China has a huge amount of potential,” he said. “It’s developing fast and the propensity of people there to spend is increasing dramatically.”
The country will probably be the world’s fastest-growing aviation market through 2014, with international passenger numbers swelling at an average pace of 11 percent, the International Air Transport Association said last year.
Scoot plans to increase its fleet to as many as 14 777s by the middle of the decade. The carrier will be able to pare maintenance costs by working with its parent, Wilson said.
Singapore Air also owns regional carrier SilkAir and has a stake in short-haul budget carrier Tiger Airways Holdings Ltd. (TGR)
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