Singapore Airlines to launch new low-cost carrier

The long-haul LCC Scoot is the other leg in the strategy. SIA is replicating the AirAsia X model by starting wholly-owned subsidiary Scoot, which will deploy B777- 200 planes. SIA believes that the LCC industry is a largely untapped market and wants to be the pioneer of this service in Singapore. The B777-200 planes will come from the existing inventory of SIA planes, which means that the aircraft are immediately available. Hence, Scoot is constrained only by its own ability to grow operationally and by how quickly its suppliers can reconfigure the aircraft with new seats and new features.

Starting operations in mid-2012 with four planes. Scoot is expected to start operations in mid-2012 with four B777-200 aircraft and subsequently increase its fleet to six aircraft by mid-2013, eight aircraft by mid-2014, 11 aircraft by mid-2015 and finally 14 aircraft by mid-2016. This information has not yet been made official by SIA but is contained in the new airline’s IFE tender documents, which were sighted and reported by the Centre for Asia Pacific Aviation. As such, these plans are likely preliminary and may still change.

Destinations cover major population centres, except for Africa and North or South America. Scoot plans to fly to destinations that are more than four hours away, which means that Southeast Asia is excluded as well as southern China and eastern India. These are firmly Tiger Airways’s territories. Potential destinations include Australia and New Zealand, North Asia (including greater China, Korea and Japan), West Asia and India, UK/Europe and the Middle East Gulf.

Scoot will operate aircraft with almost 400 seats! SIA has again not made official the seating configuration of its planes but the same IFE tender documents indicate that seating capacity will be close to 400. This is a very huge number of passengers, considering that the mainline SIA’s B777-200s only seat 323 passengers in two classes.

The whole idea of an LCC service is to cram as many people together as is humanly possible with the ultimate aim of reducing per-seat unit costs. We guess that Scoot will pack 394 seats in two classes into its B777-200s, meaning that its unit costs will be at least 18% lower than the mainline carrier’s 323-seat planes. The actual cost savings will be higher since LCCs typically sign pilot and crew service contracts that have different terms than their FSC counterparts.

Scoot will be competitive against rivals. Scoot will be very competitive against its rivals, AirAsia X and Jetstar. Assuming that our guess of 394 seats is correct, Scoot will have denser seating than AirAsia X’s A330s, which have 377 seats, and Jetstar’s 303-seat A330s. In particular, AirAsia X’s A340s seat only 327 passengers and look distinctly uncompetitive relative to Scoot. Scoot’s seating configuration is also denser than other FSCs operating the B777-200. For instance, Emirates operates 346-seat B777-200s and JAL 380-seat B777-200s.

Scoot may have a premium class product. We expect Scoot to adopt AirAsia X’s model of incorporating premium/business class seating into its planes. Given its longhaul target markets, Scoot may adopt lie-flat beds in its premium class in a 2-3-2 configuration, following mainline SIA’s configuration, with 60 inches of seat pitch, following AirAsia X. The premium class may seat about 14 passengers in two rows. In the economy class, the seating will be 10 abreast in a 3-4-3 layout, similar to Emirates’s but denser than AirAsia X’s nine abreast or Jetstar’s eight abreast. The seat pitch in economy adopted by AirAsia X and mainline SIA is 32 inches but Jetstar adopts 31 inches and we suspect that Scoot may also offer just 31 inches. 

Scoot should be good for the SIA group. In summary, we are positive about SIA’s entry into the LCC space by starting Scoot and its more proactive management control of Tiger. Scoot appears to be planning for an attractive product profile, which we believe will appeal to the masses. Scoot’s unit costs would also be reduced by the sheer number of seats packed into the plane and it has many options for generating ancillary incomes.