Wirraway
17th Jun 2003, 11:47
http://www.channelnewsasia.com/stories/
Blank sheet that can fly:
Why SIA’s proposed new carrier can venture where SilkAir can’t
By Joseph Rajendran
Analysts were dumbfounded when Singapore Airlines announced last week that a high-level task force had been set up to evaluate the possibility of starting a no-frills carrier.
The consensus appeared to be that such a carrier would find it hard to compete in the bargain-basement, low-cost segment of the airline market. After all, if even SilkAir has found it difficult to yield decent returns to its parent, what chance would a new entity stand?
The truth is that a separate carrier has a much better chance of countering the threat of low-frills airlines than, say, SilkAir.
Several distinct advantages come to mind.
First, a separate carrier would start with a blank sheet of paper. Without the baggage, it can dictate the terms to suit its business model.
Let’s not forget what has bedevilled Singapore Airlines in the media recently — mediation and arbitration over salaries of pilots. As it is, getting Singapore Airlines’ pilots to take a pay cut is a nightmare. Imagine making an offer to SilkAir pilots and staff and telling them that a new carrier can only afford to pay them 80 per cent of what they are now grossing ...
Using SilkAir as the vehicle and unwinding contracts and agreements will be an ordeal in the fleet-footed low-cost, no-frills airline business. But a separate entity could pay wages that make market sense.
The new entity can be focused, nimble and sharp — the very traits that are evident in successful low-cost carriers like Southwest Airlines, easyJet and RyanAir. And if Singapore Airlines can make it work through a new vehicle, it will be breaking new ground.
Many analysts have said that the no-frills business is not a place for long-haul international carriers. The failure of British Airways to make its low-cost carrier, Go, work is a startling example. Go was started in 1998 and finally hived off via a management buyout in 2001. At the point of sale in 2001, BA chief Rod Eddington said succinctly said that Go “simply did not fit with our (British Airways) full-service strategy”.
But what was more interesting was that once Go did not have to turn to its parent for every decision, it became profitable within two quarters — chasing away three years of losses under British Airways. The moral of the story is that being separate has its own merits. In a world, where variables constantly change and old rules don’t help, being agile and brisk on the feet certainly helps.
Third, a separate carrier gives Singapore Airlines room to manoeuvre and position itself in different segments of the marketplace. The conventional thinking was that SilkAir could be converted into a low-cost, no frills carrier to compete against the likes of AirAsia.
One fact is clear — SilkAir is not an ultra low-cost carrier. Let’s assume that it is re-modelled into a low-cost carrier. Being part of a financially strong parent, it is safe to say that it can suffer losses for some time while working to crush competition. Let’s also assume that AirAsia, a smaller carrier by any yardstick, finally waves the white flag.
Can SilkAir be remodelled to go back to its previous business model? Unlikely. The airline would be hard-pressed to restore its old pricing. On the other hand, it is easier to start a new vehicle to address competition.
Some would argue that this would cannibalise the parent. Would it? It may even help the parent.
Not too long ago, American Express Corporate Travel Barometer noted that about 45 per cent of business travellers view the cost of a flight as the top factor in choosing a flight. That is how the likes of RyanAir and easyJet have thrived. About 30 to 40 per cent of their seating capacity comprises business travellers. Perhaps, this separate entity can address this market segment and even help the parent.
Further, even if the new carrier is separate, surely there must be areas where it can leverage off its parent. One key area could be landing rights, where Singapore Airlines may be able to flex its muscle and secure such rights for its “separate” subsidiary.
After all, unlike countries with domestic airline markets, a carrier here cannot fly from Changi to Jurong. It has to fly abroad and landing rights will be crucial.
Very often, existing rules and norms are applied to evaluate new forays. That is probably how many arrived at the conclusion that Singapore Airlines isn’t likely to succeed in the low-cost, no frills space.
Singapore Airlines has dared to be different.
==========================================
Pic: Singapore 777-200 9V-SRF
http://www.jetphotos.net/viewphoto.php?id=85665
Photo: Wirraway
==========================================
http://www.thisislondon.com/news/business/
Malaysia takes off with no-frills airline
Jake Lloyd-Smith in Singapore, Evening Standard
16 June 2003
SOUND ideas about the airline business can travel remarkably well - just ask Tony Fernandes. The chief executive of Malaysia's Air Asia is shaking up the region's aviation sector with a low-cost operation that draws its inspiration direct from European and US pioneers.
'I think that it is now a well-established product,' said Fernandes, a former executive at Warner Music. 'If you go out into the [Malaysian] market, people have a good idea of what the no-frills, low-fares model is.'
As a regular-service, domestic airline, Air Asia had two planes, lost cash and flew about 16,000 people a month. Since it was taken over by Fernandes in 2001 and went low-cost, it has grown to eight leased aircraft, carries 150,000 people a month and turns a profit.
Former Ryanair executive Conor McCarthy is an adviser to Fernandes, and said he was struck by how similar the operating parameters were between Europe and Malaysia. 'What we really wanted to get was a company that worked on the basis of the average man in the street being able to afford our air fares, and people who would not have considered flying, or would not fly as often as they as do now,' McCarthy said.
The hallmarks of budget travel are all in evidence at Air Asia, from bold branding and the absence of inflight meals to airport turnaround times squeezed to the limit. A further 10 aircraft are due to be delivered by September of next year. A trio of strategic investors will be added to bolster the balance sheet later this month.
To help keep costs in check, Air Asia has pushed internet booking services - just as easyJet and Ryanair have. 'Our internet site is rocking and we are proving everyone wrong. It is the major distribution channel now, accounting for 40% of our business,' said Fernandes. 'We are about to be the first airline to allow direct debit from your bank account to ours, which will dramatically improve internet penetration.'
An online service that combines air ticketing with hotel bookings, car hire and travel insurance is also in the works.
The bullish start has turned heads as Asian no-frills fliers have been conspicuous by their absence. Singapore Airlines, southern neighbour to Malaysia, now says it may be forced to convert its regional subsidiary, SilkAir, into a no-frills airline. 'If somebody is foolish enough to launch a low-cost carrier in our area, then we are prepared,' SIA chief executive Cheong Choong Kong said earlier this year.
To the north, Thai Prime Minister Thaksin Shinawatra wants to get a low-cost airline running out of tourist-haven Chiang Mai. 'Soon a budget airline will be a reality,' he said.
McCarthy, who runs an aviation consultancy in Dublin, confirms that some countries have asked Air Asia to spread its wings internationally. But Fernandes said that will take time.
'Someone described it quite aptly that we may be gang-raped when we go regional,' he said. 'You are not just dealing with your own national airline, you are dealing with another national airline. We have got to be sure that our timing is right and our infrastructure is right.'
============================================
Blank sheet that can fly:
Why SIA’s proposed new carrier can venture where SilkAir can’t
By Joseph Rajendran
Analysts were dumbfounded when Singapore Airlines announced last week that a high-level task force had been set up to evaluate the possibility of starting a no-frills carrier.
The consensus appeared to be that such a carrier would find it hard to compete in the bargain-basement, low-cost segment of the airline market. After all, if even SilkAir has found it difficult to yield decent returns to its parent, what chance would a new entity stand?
The truth is that a separate carrier has a much better chance of countering the threat of low-frills airlines than, say, SilkAir.
Several distinct advantages come to mind.
First, a separate carrier would start with a blank sheet of paper. Without the baggage, it can dictate the terms to suit its business model.
Let’s not forget what has bedevilled Singapore Airlines in the media recently — mediation and arbitration over salaries of pilots. As it is, getting Singapore Airlines’ pilots to take a pay cut is a nightmare. Imagine making an offer to SilkAir pilots and staff and telling them that a new carrier can only afford to pay them 80 per cent of what they are now grossing ...
Using SilkAir as the vehicle and unwinding contracts and agreements will be an ordeal in the fleet-footed low-cost, no-frills airline business. But a separate entity could pay wages that make market sense.
The new entity can be focused, nimble and sharp — the very traits that are evident in successful low-cost carriers like Southwest Airlines, easyJet and RyanAir. And if Singapore Airlines can make it work through a new vehicle, it will be breaking new ground.
Many analysts have said that the no-frills business is not a place for long-haul international carriers. The failure of British Airways to make its low-cost carrier, Go, work is a startling example. Go was started in 1998 and finally hived off via a management buyout in 2001. At the point of sale in 2001, BA chief Rod Eddington said succinctly said that Go “simply did not fit with our (British Airways) full-service strategy”.
But what was more interesting was that once Go did not have to turn to its parent for every decision, it became profitable within two quarters — chasing away three years of losses under British Airways. The moral of the story is that being separate has its own merits. In a world, where variables constantly change and old rules don’t help, being agile and brisk on the feet certainly helps.
Third, a separate carrier gives Singapore Airlines room to manoeuvre and position itself in different segments of the marketplace. The conventional thinking was that SilkAir could be converted into a low-cost, no frills carrier to compete against the likes of AirAsia.
One fact is clear — SilkAir is not an ultra low-cost carrier. Let’s assume that it is re-modelled into a low-cost carrier. Being part of a financially strong parent, it is safe to say that it can suffer losses for some time while working to crush competition. Let’s also assume that AirAsia, a smaller carrier by any yardstick, finally waves the white flag.
Can SilkAir be remodelled to go back to its previous business model? Unlikely. The airline would be hard-pressed to restore its old pricing. On the other hand, it is easier to start a new vehicle to address competition.
Some would argue that this would cannibalise the parent. Would it? It may even help the parent.
Not too long ago, American Express Corporate Travel Barometer noted that about 45 per cent of business travellers view the cost of a flight as the top factor in choosing a flight. That is how the likes of RyanAir and easyJet have thrived. About 30 to 40 per cent of their seating capacity comprises business travellers. Perhaps, this separate entity can address this market segment and even help the parent.
Further, even if the new carrier is separate, surely there must be areas where it can leverage off its parent. One key area could be landing rights, where Singapore Airlines may be able to flex its muscle and secure such rights for its “separate” subsidiary.
After all, unlike countries with domestic airline markets, a carrier here cannot fly from Changi to Jurong. It has to fly abroad and landing rights will be crucial.
Very often, existing rules and norms are applied to evaluate new forays. That is probably how many arrived at the conclusion that Singapore Airlines isn’t likely to succeed in the low-cost, no frills space.
Singapore Airlines has dared to be different.
==========================================
Pic: Singapore 777-200 9V-SRF
http://www.jetphotos.net/viewphoto.php?id=85665
Photo: Wirraway
==========================================
http://www.thisislondon.com/news/business/
Malaysia takes off with no-frills airline
Jake Lloyd-Smith in Singapore, Evening Standard
16 June 2003
SOUND ideas about the airline business can travel remarkably well - just ask Tony Fernandes. The chief executive of Malaysia's Air Asia is shaking up the region's aviation sector with a low-cost operation that draws its inspiration direct from European and US pioneers.
'I think that it is now a well-established product,' said Fernandes, a former executive at Warner Music. 'If you go out into the [Malaysian] market, people have a good idea of what the no-frills, low-fares model is.'
As a regular-service, domestic airline, Air Asia had two planes, lost cash and flew about 16,000 people a month. Since it was taken over by Fernandes in 2001 and went low-cost, it has grown to eight leased aircraft, carries 150,000 people a month and turns a profit.
Former Ryanair executive Conor McCarthy is an adviser to Fernandes, and said he was struck by how similar the operating parameters were between Europe and Malaysia. 'What we really wanted to get was a company that worked on the basis of the average man in the street being able to afford our air fares, and people who would not have considered flying, or would not fly as often as they as do now,' McCarthy said.
The hallmarks of budget travel are all in evidence at Air Asia, from bold branding and the absence of inflight meals to airport turnaround times squeezed to the limit. A further 10 aircraft are due to be delivered by September of next year. A trio of strategic investors will be added to bolster the balance sheet later this month.
To help keep costs in check, Air Asia has pushed internet booking services - just as easyJet and Ryanair have. 'Our internet site is rocking and we are proving everyone wrong. It is the major distribution channel now, accounting for 40% of our business,' said Fernandes. 'We are about to be the first airline to allow direct debit from your bank account to ours, which will dramatically improve internet penetration.'
An online service that combines air ticketing with hotel bookings, car hire and travel insurance is also in the works.
The bullish start has turned heads as Asian no-frills fliers have been conspicuous by their absence. Singapore Airlines, southern neighbour to Malaysia, now says it may be forced to convert its regional subsidiary, SilkAir, into a no-frills airline. 'If somebody is foolish enough to launch a low-cost carrier in our area, then we are prepared,' SIA chief executive Cheong Choong Kong said earlier this year.
To the north, Thai Prime Minister Thaksin Shinawatra wants to get a low-cost airline running out of tourist-haven Chiang Mai. 'Soon a budget airline will be a reality,' he said.
McCarthy, who runs an aviation consultancy in Dublin, confirms that some countries have asked Air Asia to spread its wings internationally. But Fernandes said that will take time.
'Someone described it quite aptly that we may be gang-raped when we go regional,' he said. 'You are not just dealing with your own national airline, you are dealing with another national airline. We have got to be sure that our timing is right and our infrastructure is right.'
============================================