Singapore Airlines &

Scoot

Case study
SIA: Its continuing struggle
with declining yield

S
decline in opera ng with net pro t totalling S$ . m aircra delivery slots (S$ m).
and net pro t at the SIA Group (US$ . m), compared with To complete the bad news, the
during the rst half of / S$ . m in April-September . Group recognised an increase in
was partly the result of one-o s and While it should be noted that share of losses totalling S$ m from
rising fuel prices — but also due to comparisons with previous nancial associated companies during the
ever-falling yield. Is Singapore Airlines years are a ected by the SIA Group half-year — mostly due to Virgin
caught between maintaining its tradi- being required by the Singapore Australia (in which the SIA Group s ll
onal priori sa on of premium prod- stock exchange to adopt IFRS ac- owns %).
ucts and building up a substan al LCC coun ng standards from April Almost all of the Group’s op-
business? — which resulted in a restatement of era ng pro t in H came from
In the rst half of SIA’s / / results and a reduc on in the mainline (S$ m/US$ m),
nancial year (the six months end- book values for aircra — the huge although this was down . % year-
ing September ), the Group fall in pro tability was due mainly on-year. SIA Engineering contributed
saw revenue rise by . % year-on- to rising fuel costs. Despite hedging a S$ m opera ng pro t but both
year to S$ . bn (US$ . bn), based on this was up by S$ . m/US$ . m SilkAir and Scoot racked up oper-
an . % increase in mainline passen- (+ . %) over the half-year com- a ng losses of S$ m and S$ m
gers carried, to . m. Mainline ca- pared with H / — although respec vely, compared with net
pacity growth of . % in the rst-half other cost categories rose faster pro ts of S$ m and S$ m in April to
of the year was surpassed by a . % than revenue growth year-on-year, September of .
rise in RPKs, leading to . percentage including aircra maintenance
Yield and co trends
point rise in passenger load factor, to (+ . %) and adver sing (+ . %). And
. %. at the net level the Group took a While pro table, the mainline is fac-
However, opera ng pro t during S$ m (US$ m) one-o loss from ing tremendous challenges, summed
the six-month period fell by a he y changes to its KrisFlyer FFP (S$ m) up by the con nuing decline in
. % to S$ . m (US$ . m), and compensa on for changes in yield, which — as the chart on the
✄ # following page shows — has been
falling more or less con nuously for
SIA GROUP FINANCIAL DATA (S$m) a decade as compe on from other
2,500 18,000 network carriers (par cularly the
16,000 Super-connectors) and the LCCs has
2,000
increased.
14,000
In response, the Group has un-
Revenue 12,000
Net Pro t leashed wave upon wave of trans-
1,500 Opera ng Pro t
10,000 forma on ac ons (aka cost cu ng)
8,000
that have slowly but steadily reduced
1,000 mainline unit costs. The problem is
6,000 that unit revenue con nues to fall
500 4,000 too, and the gap between the two is
2,000 razor thin.
In a challenge faced by many
0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 other legacy carriers, SIA is in ef-
fect “scraping the barrel” in terms
✂ ✁ of nding substan al cost savings
Source: Company reports. FYE March

December www.aviationstrategy.aero
✄ #
By the end of the current nan-
SIA MAINLINE UNIT REVENUES, COSTS AND YIELD cial year the mainline will receive an-
13S¢ other new aircra (seven A -
ULRs, three A - s and a -
Yields per RPK ), and a er disposing of three age-
12
ing A and aircra will see its
11 eet increase to .
Unit Revenues The SIA Group’s cargo business
10 operates seven - freighters
(less than it used to have and in-
9
dica ve of the tough cargo market
in general) that serve ci es in
8
Unit Costs countries.
7 Premium xa on
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
The group’s con nuing and long-held
✂ ✁ strategy is priori sing premium traf-
c. For example, SIA’s latest A s
over and above what it has already the world’s longest non-stop route, have seats in four classes — six
implemented. One area s ll be to be between Singapore and Newark, in “suites”, in business class, pre-
exploited fully is the eet. October , followed by a non- mium economy and economy
SIA mainline operates to des- stop Singapore-Los Angeles route in seats. The suites each have a full- at
na ons in countries out of its November . The aircra can op- bed and leather chair, and the rst
hub at Singapore Changi, and its eet erate for up to , nm — or more two suites in each aircra can convert
totals , comprising A s, than hours non-stop. into a double bed.
A - s, A s, - s, The mainline con nues to expand But is this con nued focus on pre-
- s and seven - s. The long-haul in general; in September mium really viable in the long-term?
eet has been overhauled over the it plans to launch a Singapore- Despite enhancing its tradi onal rst-
last few years and has an average age Sea le service using A - s that class and business products and ser-
of seven years, but further change is will be its fourth non-stop route to the vices through revamped cabins and
coming given the outstanding rm or- US market. lounges, overall yield con nues to de-
der book of aircra (see table on ✄ #
page ). This includes A - s,
- s (with deliveries star ng in SIA MAINLINE LOAD FACTOR
), and - s. 90%
The new aircra will replace the
older A s and s (for example,
the - s have an average age 85%
of almost years) as well as fu-
elling growth; overall mainline capac-
ity will grow at around % in the 80% Trend line
full / nancial year (ending
March ).
75%
During the July-September
period the mainline received the last
of its A orders as well as two
70%
of seven A - ULRs on rm or- 2012 2013 2014 2015 2016 2017 2018
der. SIA was the launch customer for
the model, and the airline started ✂ ✁

www.aviationstrategy.aero December
✄ #
new lie- at seats in business class
SINGAPORE AIRLINES LONG HAUL ROUTE NETWORK and the installa on of seat-back
in- ight entertainment systems in
New York
both business and economy classes.
Newark
According to the Group this will
“ensure closer product and service Houston

consistency across the SIA Group’s

full-service network” before SilkAir
is merged with the mainline (a er
which the SilkAir brand will disap-
pear). But the cabin upgrades won’t Los Angeles
San Francisco

Manchester
start un l “due to lead mes
London
Amsterdam
Düsseldorf Stockholm required by seat suppliers”, and the
Paris Copenhagen

Barcelona
Zürich
Munich
Milan
Berlin
Frankfurt
merger will only take place once
Moscow
Rome an unspeci ed su cient number
Istanbul of SilkAir aircra have had cabin
Athens
Harbin upgrades.
Sapporo

Beijing
Seoul
Nagoya
Based at Singapore Changi,
Tokyo Narita
Tokyo Haneda Honolulu

Dubai
SilkAir currently operates a two-class
Osaka

Jeddah
service to almost regional des -
Hong Kong
na ons in countries, comprising
des na ons in Indonesia, nine in
China, eight in India, three each in
Singapore
Malaysia and Thailand, two each in
SIA Australia, Cambodia, Myanmar, the
Darwin
SilkAir
Scoot
Broome Philippines, Vietnam and Laos, plus
Cairns

Hiroshima, Malé, Kathmandu and

Bilinga

Johannesburg
Perth Colombo. Brisbane

Adelaide Sydney
It operates a -strong eet that
Melbourne Canberra

includes two A s, eight A s,

Auckland

Wellington
- s and ve Max- s,
Christchurch

with an average age of four and a

Notes: Equidistant map projec on based on Singapore (great circle routes appear as straight
half years. Planned ASK growth is
✂ ✁ around % in
lines). Thickness of lines directly related to number of seats operated.
/ . On order are
-MAXs, although these may be
cline. The downward trend in unit rev- cluding Scoot) of the total Asia/Paci c transferred to Scoot, while the A
enues has, however, been somewhat market has hardly changed over the family aircra are gradually being
mi gated by a gradually improving last year — . % of the total passen- replaced.
load factor (see chart on the facing gers carried by the airlines report- The airline is struggling; in the
page). ing to AAPA. April-September period yield
While there is an argument that if was . S¢/RPK, compared with
SilkAir merger
the Group didn’t con nue to invest in . S¢ in H / . Units costs
premium then its yield decline would The merger of short/medium-haul of . S¢ were . S¢ higher than
be even steeper, the wider point is airline SilkAir into the mainline a year ago, while unit revenue of
that management may be too fo- SIA was announced in May this . S¢ was . S¢ down, leading to a
cused on premium, failing to capture year although the implementa on signi cant increase in break-even
the fast-growing price-sensi ve Asian metable appears long. SilkAir will passenger load factor, from . % a
tra c volumes. Despite the growth of rst undergo a S$ m upgrade of year ago to . % in H / —
Scoot, the share of the SIA Group (in- its cabin products that will include and signi cantly above its achieved

December www.aviationstrategy.aero
✄ #

SIA GROUP FLEET DEVELOPMENT

2019
at end March 2014 2015 2016 2017 2018 in out @ye On order Op ons
777-200 16 13 11 11 8 -1 7
777-200ER 13 12 10 10 8 -5 3
777-300 7 7 6 5 5 5
Singapore Airlines

777-300ER 22 25 27 27 27 27
A380-800 19 19 19 19 17 3 -1 19
A330-300 26 29 28 23 21 -4 17
A350-900 1 11 21 3 24 36
A350-900ULR 7 7
787-10 8 8 40 6
777-9 20 6
SIA Total 103 105 102 106 107 21 -11 117 96 12
Cargo 747-400F 9 8 9 7 7 7
SIA Cargo 9 8 9 7 7 7
A319 6 5 4 3 3 -1 2
A320 16 13 11 10 9 -1 8
SilkAir

737-800 2 9 14 17 17 17
737 MAX-8 3 3 6 31 14
SilkAir total 24 27 29 30 32 3 -2 33 31 14
787-8 2 4 6 10 10
787-9 6 6 6 2 8 2
777-200 6 4
Scoot

A319 2 2 2 2
A320 24 21 21 22 8 -4 26
A320neo 2 2 37 11
Scoot total 6 30 33 35 40 12 -4 48 39 11
Group Total 133 162 164 171 179 36 -17 198 166 37

✂ ✁

load factor for the half-year, which Japan (three), Taiwan (two), Vietnam
was . %. (two) plus Dhaka, Athens, Berlin,
Could the SIA Group have made Hong Kong, Macau, Malé, Jeddah and
the wrong strategic decision here — Seoul. Berlin — its second European
might it have been be er to merge des na on — was launched in last
SilkAir with LCC Scoot, with the ben- June.
e ts that the LCC model will bring to Scoot has aircra — two
overall unit costs and tra c growth? A s, A s, - s and
eight - s, and on order are
Scoot poten al
A neos, two - s and two -
LCC Scoot was launched in and s. The rst of A neos on order
operates medium- and long-haul was received in October this year,
routes from its base at Changi to and through to March Scoot
des na ons in China ( des- will receive six more A s (two new
na ons), India (seven), Malaysia ones and four currently sub-leased to
(six), Thailand (six), Indonesia ( ve), IndiGo), with overall capacity growth
Australia (four), Philippines (four), for / being % year-on-year.
Scoot has already taken over
some services from the SIA mainline
(such as to Jeddah), enabling routes
that were marginally pro table
under mainline opera on to (pre-
sumably) become more pro table
when operated by an LCC. More
group transfers will occur between
April and mid- (the Group
announced a list of such changes
in late November), though in terms
of Scoot and SilkAir’s respec ve
route networks, there is rela vely
li le overlap. Out of Changi the
two airlines double-up only on
des na ons, with India having the
greatest overlap (both airlines serve

www.aviationstrategy.aero December
✄ #

SIA GROUP REGIONAL NETWORK

Sapporo
Shenyang
Beijing
Tianjin
Seoul
Jinan
Qingdao
Tokyo
Xi’an Zhengzhou Hiroshima
Fukuoka Osaka
Amritsar Nanking
Wuhan Shanghai
Chengdu Wuxi
Chongqing Hangzhou
Delhi Ningbo
Changsha
Kathmandu
Jaipur Lucknow

Jinjiang Fuzhou
Kunming Guilin Taipei
Guangzhou Xiamen
Ahmedabad Dhaka Nanning Shenzhen Kaohsiung
Kolkata Macau Hong Kong
Mandalay Hanoi Haikou
Mumbai Luang Prabang
Chiang Mai
SIA
Vishakhapatnam
Hyderabad
Vientiane SilkAir
Yangon
Da Nang Luzon Island Scoot
Bangkok Manila
Chennai Bangkok
Bangalore Siem Reap
Coimbatore Tiruchirappalli Phnom Penh Kalibo
Kochi Ho Chi Minh City
Koh Samui
Thiruvananthapuram
Phuket Krabi Cebu
Colombo Hat Yai Davao
Langkawi Kota Kinabalu
Penang Ipoh Bandar Seri Begawan
Malé Kuantan
Kuala Namu
Kuala Lumpur Kuching
Singapore Pekanbaru
Manado

Balikpapan
Palembang

Ujung Pandang
Jakarta Semarang

✂ ✁
Bandung
Yogyakarta SurabayaLombok
Denpasar Bali Dili

Bangalore, Chennai, Hyderabad and Scoot absorbed SIA Group sub- the - .
Kochi). Partly, though, this is the sidiary Tiger Airways in July ; Scoot also owns % of Thailand-
result of many routes already having the LCC was based in Changi and based LCC NokScoot, which is a joint
been transferred from SilkAir to previously operated A s and venture with Nok Air (it owns %),
Scoot (such as between Changi and A s to almost des na ons in the LCC o shoot of Thai Airways In-
Hangzhou, Kuching, Kalibo, Langkawi Asia), with a single class. But with the terna onal. Based at Don Mueang in-
and Palembang), though SilkAir has integra on of Tiger now complete, terna onal airport in Bangkok, it op-
also taken over a route to Yangon Scoot is looking to further growth — erates ve - ERs to nine des -
from Scoot (in October ). and this includes long-haul. Routes to na ons in China, Taiwan and Japan in
But even Scoot is struggling to Athens and Honolulu were launched a two-class con gura on — “Scoot-
break-even at the moment — in the in , and a four- mes-a week Biz” and economy — and will add ve
rst-half of / revenue rose service between Changi and Berlin - s to its eet by the end of cal-
by S$ m, thanks to a . % rise started in June ; this operates endar .
in passengers carried, to . m. But alongside routes to Düsseldorf, The SIA Group also owns %
unit costs rose above unit revenue by Frankfurt and Munich that are own of Vistara, a full-service Indian joint
. S¢, and with a break-even load fac- by SIA. The long-haul routes use s venture with Tata Sons (which owns
tor of . % the airline didn’t come that Scoot operates in a two-class %), part of the Tata Group — the
close to pos ng a pro t (passenger con gura on — economy and Scoot- giant Indian conglomerate. Based at
load factor for the six months came in Biz — with the la er product having Delhi’s Indira Gandhi airport, Vistara
at . %). seats on the - and seats on operates A s to domes c

December www.aviationstrategy.aero
✄ #
then even into the mainline appears
SIA SHARE PRICE PERFORMANCE to be disregarded; instead only a few
S$16 routes are being transferred to Scoot,
15 but quite sluggishly. It was not a bi-
14 nary choice — LCC prac ces could
13 have been adopted by SilkAir while
12 keeping two classes (as Scoot does on
11
long-haul).
Looking to the rest of the /
10
nancial year, SIA says that “head-
9 winds con nue to persist in the
form of cost pressures from signi -
8 cantly elevated fuel prices, as well as
keen compe on in key opera ng
7
markets”. Despite this, the Group
✂ ✁ stubbornly remains loyal to its strat-
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

egy of priori sing premium business,

des na ons in a two-class con gura- the third largest travel market in the though the market’s view on this is
on. It aims to add A family air- world, and China will also overtake clear — as can be seen in the graph
cra and six - s to its eet as it the US to be the number one. We above SIA’s share price is about a
gears up for interna onal opera ons are so close to these two markets third lower than it was in , and a
for which it has applied to the Indian and obviously believe that those are weak rally in early has petered
regulatory body for approval. the markets that we absolutely must out, with the price now hovering
Within Asia, SIA Group’s strategy have a strong presence in”. around historically low levels.
is to dominate certain markets — the To some extent, the SIA Group is
Strategic oices
SIA Group is the largest foreign air- insulated from the full e ects of uc-
line in terms of des na ons served in Yet despite this logic, the Group ap- tua ons in its share price as Temasek
Australasia, while it also has a major pears to be s cking with priori s- Holdings — the Singaporean state
presence in the Chinese ( des na- ing the preserva on of premium traf- holding company — owns . % of
ons served) and Indian markets. c at the mainline, with expansion equity. But if the mainline’s premium
Group CEO Goh Choon Phong of the LCC model a second priority. business starts sliding, then its share-
points out that, according to IATA The opportunity to start incorporat- holders may demand that the Group’s
projec ons, by “India will be ing LCC prac ces rst into SilkAir and overall strategy be revisited.

Avia on Strategy has produced in recent years special analyses for our clients on
a wide range of subjects. Examples include:
✈ Implica ons of Virtual Mergers on the ✈ Intra-European Supply and Demand
North Atlan c Scenarios
✈ The Future of Airline Ownership ✈ Super-Connectors: Financial and
✈ Air Cargo in the Internet Era Strategic Analysis
✈ LCC and ULCC Models ✈ Key Trends in Opera ng Leasing
✈ Business Jet Opera ng Leasing
Prospects
For further informa on please contact: info@avia onstrategy.aero

www.aviationstrategy.aero December
ANALYSIS: At SIA, teamwork tops individual units
By Mavis Toh | 25 Jun 2018 - 01:19:17 GMT

The strength of the Singapore Airlines Group network is in its portfolio strategy.

Last July, the group integrated low-cost units Tigerair and Scoot, retaining the Scoot brand. Last
month, it announced plans to merge regional arm SilkAir with the mainline SIA brand, essentially
leaving the group with two main brands – one each in the low-cost and full-service segment.

Being able to deploy the right vehicle to the right market at the right time is key to the group's
network strategy, SIA senior vice-president of corporate planning Lee Wen Fen tells FlightGlobal.

"It's really looking at various markets and saying, does this market warrant an LCC, or full service, or
is the market big enough for both… and then working out amongst ourselves, co-ordinating within
the group on who should fly where and how do we manage overlaps."

GROUP PLANNING

Lee, whose team takes a holistic view of the group's network, points to the Singapore-Yangon route
as an example. SilkAir had traditionally been the carrier to fly the route, but with the opening up of
Yangon and the draw of premium traffic, along with parking bay constraints, SIA joined in with
widebodies. Tigerair had also previously flown the route, but with the group's view that Yangon is a
full-service market, it exited the space.

With a portfolio strategy, routes that SIA previously had to pull out of because they "didn't make
economic sense", could also be reconsidered. These include Jeddah, Athens and Berlin, which are
now flown by Scoot.

Scoot network – June 2018

 FlightMaps Analytics

OVERLAPS AND CANNIBALISATION

Even then, between SIA and SilkAir, there are about 10 overlapping routes today. Meanwhile, the
two full-service carriers, which will become one after 2020, have close to 30 overlapping routes with
Scoot. These include services to Sydney, Hong Kong, Jakarta, Tokyo Narita and Bangkok.

Where there are overlaps, Lee says the group is clearly targeting different market segments: "It
helps that the SQ premium position is really quite distinct. So what works for us may not work for
another carrier maybe because the differentiation may not be that distinct."

SIA and SilkAir combined network – June 2018

FlightMaps Analytics

She concedes that while there will be some cannibalisation in economy class, it is not “overly
significant”. The larger challenge to managing a portfolio strategy, rather, is to get everyone to “think
group”.

"Once you're airline centric you think I want to fly whatever routes because it serves me best…the
question is what is best for the group in total and that includes managing things like a small amount
of cannibalisation and overlaps," says Lee.

An example of the power of its portfolio strategy is how the group stands as one of the top foreign
players in China. If left to full-service units SIA and SilkAir, it would reach 11 points in China.
Together with Scoot, however, the group serves a combined 29 Chinese destinations.

MULTI-HUB STRATEGY

The group also understands the need to look beyond the Singapore market, and has set up joint
ventures Vistara in India and NokScoot in Thailand.

"The portfolio shows we play in both low-cost and full-service markets, but we are still confined in the
Singapore market. So how do we participate in growth in some of these markets, like Thailand and
India? That's our multi-hub strategy and we actively look for opportunities," says Lee.
Lee would not be drawn into discussions on where else SIA would like to pursue joint ventures,
except to say that it is critical to have a local partner that it can work well with and that has access to
the local market.

The next big thing for SIA is a return to the ultra-long-haul market with the upcoming delivery of its
first A350-900ULR in September. With the jet, SIA will again operate the world's longest commercial
flight from 11 October, with the launch of its near-19 hour nonstop Singapore-Newark service.

Another six of the long-haul, premium-heavy aircraft will be delivered by March 2019, which will also
allow SIA to launch Singapore-Los Angeles, and a third destination. These jets are fitted with 161
seats – 67 in business and 94 in premium economy.

Lee says that besides shaving four hours off flight time, the direct service also means that the airline
will not be constrained by traffic rights at a midpoint destination. The route then also becomes a one-
stop service for passengers transiting via Singapore.

"We have successfully built up the portfolio, which will underlie our network strategy, and gives us
the right vehicles and cost base to fly to the right markets. Alongside that, the SIA brand, heritage
and service is what helps us vis-à-vis our competitors."

SilkAir integration into SIA progressing on track

By Aaron Chong | 14 Nov 2018 - 04:32:04 GMT

Singapore Airlines says the integration of its regional arm SilkAir into the mainline carrier is
progressing on track.

Speaking to analysts and the media at a briefing, SIA Group chief executive Goh Choon Phong
shares that three main tasks have been completed.

SIA has set up a dedicated project management office to oversee the SilkAir integration. The office
has since established 12 workstreams to drive integration activities, including product and service
definition, operational alignment, staff integration, corporate as well as legal and regulatory
requirements.

SilkAir's commercial departments have also been integrated with that of the mainline carrier.

Goh adds that SIA has also finalised product decisions for the Boeing 737 fleet, including seat, in-
flight entertainment and in-flight connectivity suppliers. He declined to provide more details, except to
say that the new products will be available from 2020, when the merger is expected to be completed.

The Star Alliance carrier announced the merger in May this year and said that the the cabin overhaul
programme will cost more than S$100 million ($74 million). This involves upgrading SilkAir's cabins
with new lie-flat seats in business class, and the installation of seat-back IFE systems in both
business class and economy class.
The integration is part of SIA's efforts to streamline its brand portfolio, and comes after the merger of
the Tigerair low-cost brand into Scoot in late 2016.

Flight Fleets Analyzer shows that SilkAir operates 32 aircraft, comprising five 737 Max 8s, 17 737-
800s, two Airbus A319s, and eight A320s. The A320 family aircraft are being phased out in favour of
the 737s, and SilkAir has orders for 32 Max 8s.

SilkAir was launched in 1989 under the Tradewinds brand serving regional holiday destinations. It
was renamed SilkAir in 1992, and now serves 49 cities in 16 countries.

INTERVIEW: Scoot takes disciplined approach to growth

By Aaron Chong | 05 Nov 2018 - 00:01:00 GMT

Scoot has a new weapon: the Airbus A320neo. Although it had an event to celebrate the type's
arrival in its fleet, it is taking a slow approach with deliveries.

The low-cost carrier deployed the re-engined narrowbody on 29 October on its Singapore-Bangkok
Suvarnabhumi route. While the narrowbody has been earmarked for growth and to replace existing
A320ceos, Scoot will only receive one more A320neo in 2018.

Speaking to FlightGlobal, Scoot chief executive Lee Lik Hsin says deliveries of new aircraft "will not
be so aggressive in the early years". By 2020-2021, its A320neo fleet will rise to just five examples.
Scoot has orders for 38 more and options for 11.

The airline's deliveries stretch to 2025 and there is no intention to exercise the options in the near
future, though. Lee attributes the slow pace to the necessity of absorbing some SilkAir Boeing 737s
and their respective routes.

"There will be some optimisation within the [Singapore Airlines] Group that will see Scoot take some
older [SilkAir] 737NGs that are on lease and owned to reach a 70-aircraft mark," says Lee. "The first
737NG is expected to come after April [2019]."

He did not specify how many 737s Scoot will take.

Fleets Analyzer shows that SilkAir operates 32 aircraft, of which 17 are 737-800s. Of its 737s, five
are leased and are between 4.3 to 4.8 years. SilkAir's three oldest 737-800s are four years old.

The aircraft transfers follow from the planned integration of SilkAir with the mainline SIA brand from
2020.

ROUTE TRANSFERS

SilkAir has also already transferred five routes in Southeast Asia to Scoot from Singapore: Kalibo,
Kuching, Langkawi, Palembang and Pekanbaru.

Despite the complexities involved with adding a third type to its existing fleet of A320neos and
Boeing 787s, Lee says Scoot will stand to benefit from economies of scale by being part of a larger
group. He explains that Scoot is "actually leveraging off a larger SilkAir contract... [in terms of] asset
ownership and maintenance".

Scoot explains that this includes tapping into any 737 maintenance contract that has been agreed
upon earlier with SilkAir. The carrier is also able to deploy a new aircraft type "without incurring
significant additional unit costs", as compared with ordering 737s on its own.

Scoot will also deploy the A320s and 737s on fixed routes. This will aid cost efficiencies despite both
aircraft having "largely similar operating characteristics".

"For efficiency, you wouldn't operate say three times a day to Jakarta with an A320 in the morning, a
737 in the afternoon, and an A320 in the evening. That means your technical support guy in Jakarta
must be able to handle both aircraft types. We will just do all three [flights] on one aircraft type."

CAUTIOUS ON LONG HAUL

On widebodies, Lee says Scoot has been taking delivery of an average of two 787s per year and this
will continue.

Fleets Analyzer lists Scoot as having only two 787-9s on order, which are due to be delivered in
August and October 2019. However, Lee says Scoot's future 787 deliveries are tied with SIA's 787-
10 orderbook. The Star Alliance carrier operates seven 787-10s, with 42 on order. It also has options
for six more and an LOI to order a further 19.

SIA has said it has the option to downsize the -10s to smaller -8 or -9s, which Scoot operates.

Lee adds that the launch of new long-haul routes will also grow "at a very measured pace", with the
focus for the widebodies being medium-haul routes. This is due to the rise in fuel costs, which
constitute about 35% of Scoot's total expenses.

"Is long-haul viable? It is getting tougher from where we were a year ago due to fuel prices going up
so much. We need to temper those plans in such a landscape."

Lee says the 787s could also be used for slot-constrained airports that are within the range of the
A320, despite the possibility of contributing to overcapacity.

"It’s obviously better from a risk management perspective to jump from a 180-seat to a 240-seat
[aircraft], than from a 180-seat to a 335-seat [aircraft]. But if we were very slot constrained and
demand is good, who is to say that we can't make the jump?"

TRANSFER TRAFFIC NEEDS IMPROVEMENT

One area Scoot wants to improve is transfer traffic within the SIA Group and interlining with partners.

Lee says that within the SIA Group, transfer passengers onto Scoot stand at 12% – a figure he
describes as "low". Discounting the SIA Group, he adds, that figure is at "single digits".

"Every airline has its priorities and they may not always be aligned. Obviously the number one
partner would be our parent company, SIA, and there are many technical challenges.
Fundamentally, full-service systems and budget systems are quite different from each other."
Similarly, Scoot's membership in the Value Alliance has yet to reap significant rewards.

Today, the alliance comprises its seven original members: Cebu Pacific, Jeju Air, Nok Air, NokScoot,
Scoot, Tigerair Australia and Vanilla Air.

The alliance's aim is to increase sales and distribution via a single ticketing system called Air Black
Box, which provides a platform that links different airlines' reservation systems. Passengers will also
be able to make ancillary choices across all partner airline sectors in a single itinerary.

Nonetheless, Scoot is eyeing more interline partners, with the latest agreement with EasyJet
announced in September. This allows the UK low-cost operator's passengers to connect to SIA and
Scoot's respective flights from Milan Malpensa and Berlin Tegel airports.

Lee also revealed that an interline deal with Eurowings is imminent, allowing for the Lufthansa low-
cost subsidiary to connect onto Scoot's services at Berlin.
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

Singapore LCCs: Scoot's fast This analysis was generated

for:
growth, Jetstar Asia slows Andy Foster
03-Dec-2018
Cran?eld University
Scoot plans to pursue further rapid expansion over the next few years, resulting College Rd, Cran?eld
in signiQcant market share gains in Singapore. The Singapore Airlines low cost Central Bedfordshire
subsidiary plans to grow its network to nearly 80 destinations by the end of MK43 0AL
2020 and its Reet to 70 aircraft by the end of 2021. United Kingdom

Scoot currently serves 65 destinations with a Reet of 45 aircraft. Scoot has a 14%
share of seat capacity in Singapore and a 43% share of LCC capacity. Scoot is
now more than twice the size of Singapore’s other local LCC, Jetstar Asia.

Jetstar’s share of Singapore’s LCC market has shrunk from over 27% in 2010 –
when it was as large as Scoot's predecessor Tigerair – to less than 20%
currently. Its market share will shrink further and could dip below 15% as Jetstar
Asia has no plans to resume expansion, whereas Scoot is poised to grow by
another 50% over the next few years. Scoot’s share of the total Singapore
market will likely exceed 20% by 2022 but Jetstar's share could shrink below
6%.

Summary:

• Scoot is two years into an ambitious Qve-year expansion plan that

includes a doubling of the Reet: from 35 aircraft in late 2016 to 70
aircraft at the end of 2021.
• Scoot is taking 14 737-800s from SilkAir over the next couple of years
as SilkAir transfers 17 of its routes to Scoot.
• Scoot also plans to add capacity to some of its existing destinations
and launch more new destinations.
• In addition to the 737s, Scoot is expanding its Reet with new
A320neos and more 787s.
• The growth at Scoot comes as rival Jetstar and AirAsia have virtually
stopped expanding in Singapore, resulting in big market share gains
for Scoot.

The evolution of the Singapore LCC market will be a topic of discussion at the
CAPA Global LCC Summit in Singapore on 25/26-Feb-2019. For more details on
the summit click here.

Singapore’s LCC market has evolved

considerably since its inception in 2004
Singapore’s LCC era began nearly 15 years ago, in 2004, with the launch of
Jetstar Asia, Tiger Airways and Valuair. Jetstar Asia and Tiger were initially pure
LCCs whereas Valuair followed a hybrid model.

Valuair was taken over by Jetstar Asia in mid 2005 and operated as a separate
entity under the Jetstar brand until late 2014, when Jetstar Asia stopped using
the Valuair operator’s certiQcate. Jetstar Asia started pursuing a hybrid model
several years ago and now relies heavily on network traSc, including
connections with around 30 partner airlines.

Tiger, which at Qrst was partially owned by Singapore Airlines (SIA), was
rebranded as Tigerair in 2013. The SIA Group took over Tigerair in early 2016,
resulting in a delisting of Tiger Airways Holdings. Later, in Nov-2016, SIA
announced a merger between Tigerair and Scoot, which the SIA Group had
launched in 2012 as a fully owned long haul LCC subsidiary.

Page 1 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

The Tigerair-Scoot merger was completed in Jul-2017, resulting in a single LCC

subsidiary under the Scoot brand but using the Tigerair operator’s certiQcate.
Scoot started following a hybrid model after the merger and has increased its
focus on transit traSc, including connections with its full service sister airlines
SIA and SilkAir.

AirAsia and Jetstar Asia market share in

Singapore has been @at this decade
AirAsia has also had a major presence in the Singapore market since 2008.
AirAsia initially had a small presence in Singapore from 2005 to 2008, using
only its Thai aSliate, and was able to pursue rapid expansion in 2008 and 2009
after bilateral restrictions were eased in the Singapore-Malaysia and Singapore-
Indonesia markets.

AirAsia is now the largest pure LCC in the Singapore market following the
hybridization of Jetstar Asia and, more recently, Scoot. It does not have a
Singapore operator’s certiQcate but has been able to compete effectively in the
Singapore-Southeast Asia regional market using its airlines based in Malaysia,
Indonesia, Thailand and the Philippines.

AirAsia is the largest low cost brand in the Singapore-Southeast Asia market
and accounts for 14% of seat capacity, compared to 13.5% for Scoot and 13% for
Jetstar. However, Scoot is much larger overall as Southeast Asia only accounts
for 39% of its total seat capacity. Jetstar Asia also serves other markets, but
Southeast Asia accounts for nearly 80% of its seat capacity.

In 2010, the AirAsia Group had as much total capacity in Singapore as the
Jetstar Group and the Tigerair Group. LCCs accounted for 24% of total seat
capacity in Singapore in 2010, with AirAsia, Jetstar, and Tigerair each capturing
a 6.5% share.

Jetstar Group’s share and the AirAsia Group’s share of total seat capacity in
Singapore is now once again 6.5% (based on OAG schedules for the week
commencing 25-Nov-2018). Meanwhile, Scoot now has more capacity in
Singapore than Jetstar and AirAsia combined and accounts for a nearly 14%
share of total seat capacity.

Singapore LCC capacity by airline: 25-Nov-2018 to 1-Dec-2018

Rank Airline Group Code Weekly % of % of
seats LCC total
capacity capacity

1 Scoot SIA TR 223,518 43.3% 13.7%

2 Jetstar Jetstar 3K 99,000 19.2% 6.1%

Asia

3 AirAsia AirAsia AK 56,602 11.0% 3.5%

4 Indonesia AirAsia QZ 27,360 5.3% 1.7%

AirAsia

5 Cebu Cebu 5J 20,800 4.0% 1.3%

PaciQc

6 Lion Air Lion JT 18,060 3.5% 1.1%

7 Thai AirAsia FD 17,738 3.4% 1.1%

AirAsia

Page 2 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

Rank Airline Group Code Weekly % of % of

seats LCC total
capacity capacity

8 IndiGo IndiGo 6E 12,670 2.5% 0.8%

9 Air India Air India IX 10,416 2.0% 0.6%

Express

10 VietJet Air VietJet VJ 8,260 1.6% 0.5%

11 Thai Lion Lion SL 5,964 1.2% 0.4%

Air

12 Jetstar Jetstar JQ 3,930 0.8% 0.2%

Airways

13 Norwegian Norwegian DI 2,704 0.5% 0.2%

Air UK

14 Jetstar Jetstar BL 2,576 0.5% 0.2%

PaciQc
15 Spring Spring 9C 2,548 0.5% 0.2%
Airlines

16 West Air West PN 2,548 0.5% 0.2%

17 Philippines AirAsia Z2 1,440 0.3% 0.1%

AirAsia
Note: seat and capacity share Qgures are approximate.
Source: CAPA – Centre for Aviation & OAG.

LCC capacity in Singapore has doubled this

decade, driven by Tigerair/Scoot
Jetstar and AirAsia have continued to grow in Singapore this decade in order
to keep up with growth in the overall market. Total seat capacity in Singapore
has increased by approximately 50% since 2010 and passenger traSc has
increased at an even faster rate – from 42 million in 2010 to a projected 66
million in 2018.

However, Tigerair/Scoot have grown much faster, driving almost all the growth
in Singapore’s LCC penetration rate (from 24% in 2010 to 31% in 2018). Total LCC
capacity in Singapore has nearly doubled this decade: from less than 14 million
annual seats in 2010 to around 26 million annual seats in 2018.

Singapore LCC (blue) and FSC (yellow) annual one-way seat capacity: 2008
to 2018

Source: CAPA – Centre for Aviation & OAG.

Page 3 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

AirAsia has reduced its presence in Singapore

over the past ?ve years
Almost all the AirAsia and Jetstar growth in Singapore this decade occurred
during the Qrst half. In recent years, AirAsia and Jetstar have virtually stopped
growing in Singapore.

AirAsia’s capacity in Singapore peaked in late 2013 and early 2014, when it
operated more than 300 departures from Singapore and accounted for an 8%
share of total Singapore seat capacity. AirAsia subsequently reduced capacity
in Singapore by around 15%, resulting in 260 weekly departures.

AirAsia added back some capacity after moving to Singapore’s new Terminal
4 in late 2017 and this year has operated a Singapore schedule consisting of
280 weekly departures. AirAsia Group now carries slightly more than 5 million
annual passengers to/from Singapore, but its Singapore traSc has dropped
slightly since reaching a peak of 5.4 million passengers in 2014.

See related report: AirAsia resumes Singapore expansion following move to

Terminal 4, but high costs remain a challenge

Jetstar Asia has not grown over the past six

years
Jetstar’s capacity in Singapore peaked in 2013 and has since been relatively Rat.
Jetstar Asia’s passenger traSc grew by nearly 50% from 2010 to 2013, but over
the past Qve years has grown by only 15%.

Jetstar Asia passenger numbers and year-over-year growth: 2010 to 9M2018

Source: CAPA – Centre for Aviation and company reports.

Jetstar Asia Rew 4.4 million passengers in 2017 and 3.3 million passengers in
the Qrst three quarters of CY2018. Virtually all of these passengers travelled to
and from Singapore, since 94% of Jetstar Asia’s seat capacity is allocated to the
Singapore market; the remaining 6% is allocated to three freedom routes (Clark,
Manila and Taipei to Osaka).

Jetstar Asia’s ASKs surged by more than 60% from 2010 to 2012 (includes
Valuair). However, Jetstar Asia will Ry fewer ASKs this year than in 2012.

Jetstar Asia ASKs and year-over-year growth: 2010 to 9M2018

Page 4 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

Source: CAPA – Centre for Aviation and company reports.

Jetstar Airways has shrunk in Singapore

Jetstar Asia’s Reet has been stuck at 18 A320s since early 2014, when it reduced
its Reet by one aircraft and suspended Reet expansion. Jetstar Group’s
Singapore-based Reet peaked at 22 aircraft in 2013, made up of 19 A320s and
three A330-200s that were operated by its Australia-based sister airline Jetstar
Airways (but based in Singapore).

Jetstar Airways currently operates only nine weekly Rights to Singapore,

consisting of two weekly A330-300 Rights to Melbourne and seven weekly
A320 Rights to Bali. Jetstar Airways dropped widebody Rights from Singapore
to Beijing and Osaka in late 2013, and to Auckland in mid 2014. Melbourne
(Jetstar’s only remaining long haul route from Singapore) was cut from daily to
Qve weekly Rights in 2013, to four weekly Rights in 2017, and to only two weekly
Rights in Mar-2018.

Jetstar Airways also previously operated A320s from Singapore to Darwin

and Perth. Jetstar Asia still operates Singapore-Darwin but has also dropped
Singapore-Perth.

The Jetstar Group currently connects Singapore with 26 destinations. Jetstar

Asia serves 25 destinations from Singapore; Jetstar Airways has one unique
destination (Melbourne) and supplements Jetstar Asia on Bali. Jetstar PaciQc
also supplements Jetstar Asia on the Singapore-Ho Chi Minh route. Jetstar Asia
has a total of 27 destinations when Singapore and Osaka are included; Osaka
is not served nonstop from Singapore but as a one-stop using its three Qfth
freedom routes.

Scoot has a much larger network than Jetstar

Asia
Jetstar has 10 more nonstop destinations from Singapore than AirAsia but
35 fewer than Scoot (based on OAG schedules for the week commencing
26-Nov-2018).

Page 5 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

Scoot has a total of 66 destinations including Singapore. However, four of

these destinations are not served nonstop from Singapore: Dalian is served via
Qingdao; Honolulu is served via Osaka; Seoul Incheon is served via Taipei and
Tokyo Narita is served via Bangkok and Taipei. (Scoot also has Qfth freedom
routes from Bangkok and Kaohsiung to Osaka and from Taipei to Sapporo, but
there are also nonstop Rights from Singapore to Osaka and Sapporo.)

Of the 65 destinations excluding Singapore, 25 are served with 787 widebodies

(legacy Scoot) and 43 with A320s (legacy Tigerair). Bangkok (both airports),
Guangzhou, Taipei and Tokyo are currently served with a mix of A320s and
787s.

Scoot routes by aircraft type

Notes: Under the China column for narrowbody Reet, A320s are now currently operating to Guangzhou
rather than Nanjing as indicated.
A320s also currently used on some Rights to Tokyo Narita via Taipei (not depicted above).
Source: Scoot.

Scoot is planning more rapid network expansion

Scoot recent announced plans to expand its Singapore network by 12
destinations by mid 2020, which will give it a total of 73 nonstop destinations
from Singapore. As a result, Scoot will have nearly three times as many
Singapore routes as its rival Jetstar.

Scoot is taking over 16 routes from SilkAir, which is also transferring 14 737-800s
to Scoot. The routes being transferred include Luang Prabang and Vientiane in
Laos (effective Apr-2019); Coimbatore, Trivandrum and Visakhapatnam in India
(between May-2019 and Oct-2019); Changsha, Fuzhou, Kunming and Wuhan in
China (between May-2019 and Jun-2019); Kota Kinabalu in Malaysia (Dec-2019)
and Balikpapan, Lombok, Makassar, Mando, Semarang and Yogyakarta in
Indonesia (between May-2020 and Jul-2020). SilkAir is also transferring its
Chiang Mai Rights to Scoot in Oct-2019 (for a total of 17 route transfers) but Scoot
already serves Chiang Mai, so this is not a new destination.

At the same time, Scoot is dropping four of its existing Singapore routes:
Bengaluru (in May-2019), Shenzhen (in Jun-2019), Kochi (in Oct-2019) and
Chennai (in Mahy-2019). These destinations are already served by SilkAir and/
or Singapore Airlines and will only have a full service option from the SIA Group
when Scoot withdraws. Scoot is also dropping Honolulu in late May-2019, but
Honolulu is only served from Osaka (this route was only launched in late 2017).

Page 6 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

Scoot @eet grows rapidly

The 14 737-800s being transferred from Scoot will help support Scoot’s
ambitious plan to double its Reet in the Qve-year period that began when the
merger process with Tigerair began in late 2016.

When Scoot and Tigerair began the merger process their combined Reet
consisted of 35 aircraft: six 787-8s and six 787-9s under Scoot along with 21
A320s and two A319s under Tigerair.

During the Qrst few months of the merger process the Reet did not expand, but
in the Qscal year beginning 1-Apr-2017 (FY2017/18) the Reet expanded by Qve
aircraft. In the current Qscal year (FY2018/19) Reet expansion has accelerated,
with four aircraft being added in the Qscal Qrst half ending 30-Sep-2018 to a total
of 44 aircraft: 24 A320ceos, 10 787-8s, eight 787-9s and two A319s.

Scoot plans to expand its Reet by another four aircraft in 2HFY2018/2019 and
end the current Qscal year (31-Mar-2019) with 48 aircraft: 26 A320ceos, two
A320neos, 10 787-8s, eight 787-9s and two A319s. The Qrst A320neo has
already been put into service.

Four A320ceos are being returned from IndiGo during Qscal second half and
two A320ceos are being returned to lessors, for a net gain of two A320ceos.
IndiGo subleased 12 A320s from Tigerair in 2014 and 2015 for terms of three to
four years; the last of these aircraft are being returned to Scoot over the next
few months.

Scoot @eet summary: as of 26-Nov-2018

Aircraft In service In storage On order

Airbus A319-100 2 0 0

Airbus A320-200 24 1 0

Airbus A320-200neo 1 0 38
Boeing 787-8 9 1 2

Boeing 787-9 6 2 2
Total: 42 4 42
Notes: The three 787s in storage is a temporary situation due to a Rolls Royce engine issue. Scoot has
been chartering SIA 777s to Qll in for grounded 787s.
The A320 being in storage is temporary as the aircraft is being prepared for return to a leasing
company.
Source: CAPA Fleet Database.

SilkAir 737-800s enables Scoot to meet its 70

aircraft end-2021 target
Scoot plans to start operating its Qrst 737-800, which will be retroQtted from
162-seat two class to 186-seat single class conQguration, in the quarter
commencing 1-Apr-2019. All 14 737-800s are expected to be transferred to
Scoot by the end of 2021, at which point Scoot plans to have a total of 70 aircraft
in its Reet.

Scoot is also planning to add two 787-9s in 2019, two 787-8s in 2020 and two
more 787s in 2021 (variant of 787 is not yet decided) for a total of 24 widebodies
at the end of 2021.

Page 7 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

The additional 787s for 2021 have not yet been formally ordered but will be
converted from 787-10s in the SIA order book. SIA recently converted two of
its 49 787-10 orders to 787-8s for Scoot; these are the 787s slated for delivery
2020. The two 787s slated for delivery in 2019 are the last from SIA Group’s
original order for 20 787s.

Based on the 24 787s and the 14 737-800s, Scoot's A320 Reet will grow
relatively modestly over the next three years and reach 32 aircraft at the end of
2021 (assuming the target of 70 total aircraft at the end of 2021 is achieved).

Initially, Scoot takes A320neos at a slow rate

Scoot has commitments for 39 A320neos, including the two being delivered
in the current Qscal year. However, Scoot CEO Lee Lik Hsin says the rate of
A320neo deliveries “in the early years are slow” and therefore only a handful
will be received in the Qrst three years. He explains that by the time Tigerair
placed its A320neo order in 2015 most of the early delivery slots had already
been sold.

The last of the 39 A320neos is slated for delivery in 2025 and the delivery
stream is back half heavy. This matches up with when most of Scoot’s A320ceos
leases expire. Scoot's Airbus Reet will consist entirely of -neos by the end of
2025 as the last A320ceos lease expires in 2025.

Scoot leases almost all of its narrowbody aircraft as these were inherited from
Tigerair, which relied mainly on sale and leasebacks to fund aircraft acquisitions.
Scoot’s 787s are owned, following the traditional SIA Group Qnancing strategy.

Scoot’s A320ceo leases generally expire when the aircraft reach 12 years old.
All of Scoot’s current A320ceos (including the four aircraft that have not yet
come back from IndiGo) were delivered from 2010 to 2013 and its two A319s
were delivered in 2009. Scoot plans to return its two A319s, which it is eager to
phase out, in 2021.

Based on normal 12-year terms, Scoot would be returning all its remaining
A320ceos between 2022 and 2025. However, a few years ago Tigerair forged
sale leaseback deals on Qve of its A320ceos, with lease terms of only three to
four years. Two of these aircraft have already been returned and three more will
be returned over the next year.

Therefore, Scoot is expected to return three A320ceos (including the two in

2HFY2018/19) and two A319ceos by the time it reaches the 70-aircraft mark at
the end of 2021. This should give Scoot a Reet of 25 A320ceos at the end of
2021, along with seven A320neos, 24 787s and 14 737-800s.

Scoot passenger numbers increase rapidly

The rapid expansion of the Reet is driving high double digit capacity and
passenger growth for Scoot.

In addition to the doubling of the size of the Reet in just Qve years, the average
size of Scoot’s narrowbody Reet is increasing as A320neos and 737-800s are
delivered. The A320neos and 737-800s are both being conQgured with 186
seats, compared to 180 seats on the A320ceos and only 144 seats on the
A319ceos.

Scoot expects to grow capacity by 15% to 20% per annum over the next few
years. Scoot recorded ASK growth of 16% in 1HFY2018/19 and is now projecting
16% growth for the full year. Similar ASK growth is expected in FY2019/20,
FY2020/21 and FY2020/21 as the Reet expands to 70 aircraft.

Page 8 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

ASK growth in FY2017/18 (the Qrst year of the merged entity) was slightly slower,
but still in the double digits at 12%. In FY2016/2017, the year the merger process
began, Scoot and Tigerair combined achieved ASK growth of 23%. (Both airlines
were already jointly managed in FY2016/17 under Budget Aviation Holdings,
which was established by SIA at the beginning of FY2016/17.)

Scoot’s passenger numbers increased 11% to 9.5 million in FY2017/18 and were
up another 14% in 1HFY2018/19. The airline is on pace to carry nearly 11 million
passengers in the current Qscal year, compared to 7.5 million in FY2016/17.

Assuming 15% growth per annum over the next few years, Scoot’s passenger
numbers should reach almost 17 million FY2021/2022. This would represent
growth of close to 120% compared to FY2016 and would be in line with the
doubling of the Reet over the same Qve-year period.

Scoot and Jetstar Asia diverge with their growth

strategies
Assuming that Scoot continues to maintain the same amount of capacity on
Qfth freedom routes and continued 6% overall growth per annum for Singapore
Changi, Scoot’s market share in Singapore should increase from approximately
11% in FY2016/17 to 21% in FY2021/22.

Jetstar's market share in Singapore will likely decrease from slightly more than
7% in FY2016/17 to approximately 6% in FY2021/22 (based on the Singapore
Qscal year ending March.)

Scoot and Jetstar Asia strategies have converged in some respects, when it
comes to offering a hybrid product and pursuing transit traSc. However, their
strategies have diverged, with Jetstar Asia focusing on proQtability rather than
growth, whereas Scoot is accelerating expansion as part of an SIA Group drive
to resume growth in its home market.

Jetstar Asia CEO Bara Pasupathi told CAPA TV at the 9-Nov-2018 CAPA Asia
Aviation Summit that the airline had no plans at the moment to resume Reet
expansion or upgauge any of its existing A320ceos to A321neos, which the
Jetstar Group has ordered. “We will do the necessary steps to accommodate
the level of growth the market requires but for now in Singapore we are happy
with the way the aircraft are performing and how we are servicing those markets
with the aircraft”, Mr Pasupathi said.

He added that Jetstar Asia is “very disciplined”, and “we are happy that
performing in the kind of niche model we have and the way we are cooperating
with our partners and the way we are selectively growing our business”.

Jetstar Asia has added capacity in some existing markets this year while
reducing capacity in other markets. It has not launched any new destinations
this year but launched three in late 2017. Although Scoot has a much larger
(and much faster growing) network than Jetstar Asia, Jetstar Asia has nine
destinations that are not served by Scoot – Darwin, Jieyang, Medan, Okinawa,
Phnom Penh, Sanya, Siem Reap, Yangon and Da Nang.

On all nine of these routes Jetstar is the only LCC. The fact that SilkAir serves
six of these destinations and none were among the 17 recently announced route
transfers from SilkAir to Scoot is a testament to Jetstar Asia’s success in the
Singapore market.

Page 9 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

Jetstar Asia and Scoot both continue to look for

new destinations
While it is not planning to expand capacity overall, Jetstar Asia continues to look
for potential new underserved or unserved markets. “We are very focused in
terms of staying in markets where we perform and Qnding new original markets
where we get a good return for our shareholders”, Mr Pasupathi says.

However, Jetstar Asia is not the only LCC evaluating potential new routes from
Singapore. While Scoot is focusing most of its upcoming capacity expansion on
route transfers from SilkAir and additional frequencies on existing routes, it is
also keen to launch new destinations.

“We love to experiment”, says Mr Lee. He points out that with destinations
such as Kuantan in Malaysia, which Scoot launched in Feb-2018, “the cost of
experimentation isn’t so high because it’s short. We can try it out and who
knows. Sometimes some of these do very well.”

However, Qnding new markets is not easy, given how well Singapore is already
served. Singapore currently has 84 LCC routes and will add another 11 under the
recently announced route transfers. (Balikpapan, Changsha, Fuzhou, Kunming,
Lombok, Luang Prabang, Makassar, Manado, Trivandrum, Vientiane,
Visakhapatnam and Wuhan are gaining their Qrst LCC service, but Shenzhen will
lose its only LCC service.)

Signi?cant LHLCC growth from Singapore is

unlikely
The short and medium haul market within Asia PaciQc is particularly saturated,
accounting for 80 of the current 84 LCC routes from Singapore. One of the four
exceptions, London Gatwick, is being dropped in Feb-2019 when Norwegian
pulls out of the Singapore market. Scoot serves the other three – Athens, Berlin
and Jeddah.

However, Scoot is not likely to add a new long haul destination in the near term.
While its overall capacity grows another 50% over the next three years it is
focused almost entirely on further expansion within Asia PaciQc.

“Long haul isn’t easy,” Mr Lee says. “We haven’t yet conQrmed anything but it
should not come as a surprise if we take a bit of a breather and consolidate what
we have.”

Scoot’s expansion is strategic and may be

unpro?table as a standalone
Scoot’s new strategy is focused on supporting the overall SIA Group by
reducing its costs on short haul routes where there is now limited premium
demand. In deciding on route transfers, the group has also tried to select routes
that have signiQcant traSc, but not a majority of traSc, connecting beyond
Singapore. Scoot is generally a more suitable brand than SilkAir or SIA for local
point-to-point traSc, while also providing some feed to SIA’s long haul network.

Adding a third aircraft type is hardly ideal, but Scoot believes the 737s will not
signiQcantly impact its cost base as it is able to leverage existing contracts at
the group level in supporting the 737s. Scoot’s costs have been inching up as it
has hybridised but it still has a huge cost advantage over SilkAir or SIA, making
it the SIA Group’s preferred platform to grow in a highly competitive market.

Page 10 of 11
Singapore LCCs: Scoot's fast growth, Jetstar Asia slows

Scoot’s rapid expansion over the next few years will likely impact its proQtability.
Scoot was back in the red in the most recent quarter (ending 30-Sep-2018), with
a small operating loss after 11 consecutive proQtable quarters.

However, the current expansion phase is important from a strategic perspective.

Scoot is rapidly gaining market share in Singapore, improving the SIA Group’s
long term position in its home market ahead of the opening of a third runway
and Qfth terminal. The Jetstar Group and parent Qantas understandably have a
different approach from that of Singapore-based SIA.

© 2019 CAPA - Centre for Aviation

Page 11 of 11
Singapore Airlines: A new way to fly, Opinion News & Top Stories - The Straits Times 12/01/2018, 15)03

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The transformation over the last decade which has seen the national carrier recently take steps that are not
typically associated with a premium airline - such as charging for seats - has got some customers asking what it
is up to. Jet Airways stewardess
nabbed for smuggling
Two recent developments have galvanised discussions. US$500,000 in cash ou
India
Last month, SIA said that from Jan 20, some travellers will have to pay to pick a seat in advance, as part of new
fare rules. Teacher in China blocks
train doors to stop it fro
So far, those affected are economy-class travellers who used to be able to choose for free. leaving as husband was

From Jan 20, those going economy who have bought the cheapest discounted seats will have to fork out a
minimum of US$5 (S$6.70) per flight sector.
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hope Pope's visit brings
Advance seat selection will still be available at no charge for families with children 12 years old and below.
them peace
Those affected who do not wish to pay the fee can pick whatever seats are left when check-in opens, typically up
to 48 hours before a flight.
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Customers in economy will have three seat types to choose from: standard, forward zone seats which refer to
those near the doors, and extra legroom seats -previously known as preferred seats - which are near the
emergency exits, for example. BRANDINSIDER
Before this, only exit-row seats came at a cost of between US$25 and US$120 per flight sector.
Modern luxury lifestyle
The new rules do not affect PPS (Priority Passenger Service) Club members, and some KrisFlyer Elite Gold and awaits at Wallich Residen
KrisFlyer Elite Silver members.

The tweaks will also see a reclassification of fare types in economy and business class to Lite, Standard and Young couples: Is BTO yo
Flexi. only housing option?

Then SIA said last week that it would impose a credit card fee, also from Jan 20, on bookings made by some
travellers departing from Singapore. Travelling through time:
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The charge - 1.3 per cent of the total fare amount, capped at $50 - was to apply to those who buy its cheapest milestones since 1987
Economy Lite tickets, the airline said.
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Even as the news was sinking in, SIA said a day later, without giving any reasons, that it had decided not to go entrepreneurs, you could
ahead with the credit card fee. the future

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Singapore Airlines: A new way to fly, Opinion News & Top Stories - The Straits Times 12/01/2018, 15)03

Key questions are being asked: Why the U-turn? Why is SIA charging extra fees for basic things like selecting
seats, and even contemplating slapping on a credit card surcharge fee, a move associated in Singapore with small
merchants selling things at steep discounts. SPONSORED CONTENT
What does it mean for travellers?
Get an internationally
How will all this impact a premium brand that has been built over decades? recognised education rig
here in Singapore
CHANGING WINDS
The challenges SIA faces have been talked about CUT your risk of diabetes
repeatedly over the years: stiff competition from premium
and budget airlines, an overcapacity of seats in the market
that has brought fares down, and consistently low yields.
New mum shares what to
Other contributing factors have included high fuel and expect when the baby
other costs. arrives

SIA has responded in several ways, the most significant Easy, pocket-friendly hom
being the launch of budget carrier Scoot in 2012 to give cooked meals for busy
the group a presence in the medium-and long-haul low- professionals
cost market.

In a sector that SIA, with its higher costs, is ill equipped to

compete in, the need for Scoot is clear.

What is not always so clear is the role that each carrier

ST ILLUSTRATION: MIEL plays within the group and the thinking behind SIA's
recent pricing policy and fare changes, which have a direct
impact on its customers and image.

By stripping out items that used to be part of the fare and making customers pay a fee if they want it - for
example, a preferred seat - SIA appears to be going the budget way; in other words, the Scoot way.

# One can assume that the intention is to offer customers more

fare layers and options so that SIA can then afford to lower its
lowest fare to attract a broader base of travellers, including
those who usually fly budget.

This is especially so for flights during lull periods when

planes are not always easy to fill and even during busy times
such as school holidays, when fares are typically higher even
on budget carriers.

Related Story Some research, however, throws up examples of how SIA

competes even in the low end of the economy market.
Singapore Airlines' flip-flop risks hurting its
premium brand
A Singapore-Melbourne flight in April now costs about $800
on SIA, more or less the same as on budget carrier Jetstar,
# once meals and checked bags are included.

Singapore-London (Heathrow) on SIA during the same

month costs about $1,200, while low-cost carrier Norwegian,
which recently started flying between London's Gatwick and
Singapore, charges just over $900.

The gap of less than $300 looks narrow enough for some
travellers who may not mind paying extra for a better quality
of in-flight service and products on a 14-hour flight.
Related Story
SIA U-turns on credit card fee for tickets issued "Unbundling", which allows firms to charge for specific items,
in Singapore not only allows for a bigger customer base but also makes
total sense from the revenue management perspective,
financial experts say.

This is especially so in the competitive aviation business, with airlines in the region making an average of just
US$5.50 for every passenger flown.

GETTING THE NUMBERS RIGHT

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Singapore Airlines: A new way to fly, Opinion News & Top Stories - The Straits Times 12/01/2018, 15)03

Fare classes and pricing strategies that used to work in the past are becoming less relevant tools in the airline
business, said Ms Corrine Png, chief executive of Crucial Perspective which focuses on Asian transport equity
research.

"Given the highly competitive aviation market, adopting a smarter and more dynamic pricing strategy is
definitely the way to go forward, as it enables SIA to cast its net wider to cater to a larger passenger base, both
premium luxury and budget-conscious travellers, depending on their different needs and what they value and
are willing to pay for," she said.

Professor Jochen Wirtz, vice-dean of graduate studies at NUS Business School, who has co-authored two books
and several academic articles on SIA, said that while there are many ways to allocate a scarce resource, including
giving it away for free, charging a fee to those who want it most is the economically correct way.

Whether customers perceive it to be fair or not is another matter, he said.

The principle of charging for seats and other services is no different from airlines charging a higher fare for
flights during peak seasons, which is a widely accepted practice, he said.

Many other full-service airlines, especially in Europe and the United States, have adopted similar practices over
the years, charging not just for seats but also checked bags.

For airlines that have not done so, in particular those from the Middle East and several other Asian carriers, it is
just a matter of time before they do.

"If they don't, they will lose out," Prof Wirtz said.

A CAUTIOUS APPROACH
Even as SIA feels the pressure to unbundle services to increase plane loads and maximise revenues, the airline
knows well that it must move cautiously or risk hurting the premium image that has taken the company decades
to build.

This explains why the move to differentiate its products and services has been limited to only the economy
segment, and even then, SIA has opted to move slowly and carefully.

The airline is also unlikely to go as far as charging for checked bags, food, blankets and other items, even as it
thinks of new ways to boost ancillary revenue.

Singapore Management University Assistant Professor Terence Fan, who specialises in transport, said: "SIA is
trying to walk a fine line between completely alienating this group of customers and slightly nudging them to
pay a little more."

The airline must be careful not to cross the line, which could then also create confusion among customers about
the different roles and markets that SIA and Scoot serve.

Temasek Polytechnic aviation management and services senior lecturer Gary Ho said: "When a customer picks
a premium brand, he does not expect to be nickel-and-dimed...

"When customers choose SIA, they know they are choosing a premium airline and, certainly, they do not expect
SIA to behave like Scoot."

Even as it pursues a portfolio strategy to corner all segments of the air travel market, SIA must be mindful to Airport Queue
maintain a clear brand distinction between full-service premium and budget, especially on routes that both SIA
and Scoot serve. Prediction - Accurate
A good way to do this is to maintain a high level of in-flight service and to constantly upgrade aircraft cabin waiting times.
products across all classes.
Accurate waiting times for
As SIA evolves to survive in a new world, it must always remain a great way to fly. travelers entering the line.
blipsystems.com
FROM AROUND THE WEB

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