Singapore Airlines Group Part 2 – Long haul LCC Scoot to deliver good news for Australian travellers and tourism as it links long haul destinations

The SIA Group has until now failed to capitalise on the potential for linking its range of intra-Group operations. That will change, which is good news for Scoot, as well as for travellers. Another piece of good news comes as Scoot expands its range of long haul destinations to serve over its Singapore hub. Athens is first to be added, in Jun-2017.

Since it launched service in Jun-2012, Scoot has struggled in the Australia market, posting an average load factor of 76%. The Singapore Airlines Group medium/long haul LCC subsidiary has succeeded at stimulating demand and growth in the Australia-Singapore market but will need to significantly increase transit traffic over Singapore to improve its Australia performance.

Singapore-Sydney and Singapore-Gold Coast were Scoot’s very first two routes after it commenced operations in Jun-2012. Perth was added in 2013 and Melbourne in 2015.

Scoot’s capacity to Australia, which fluctuates slightly depending on the time of year, has been relatively flat since late 2015. It currently operates 23 weekly flights to Australia – including seven to Sydney and Perth, five to Melbourne and four to Gold Coast.

Scoot has succeeded at stimulating demand and growth in the Australia-Singapore market but will need to significantly increase transit traffic over Singapore to improve its Australia performance.

Scoot to date has carried approximately 2.4 million passengers to and from Australia. Its traffic has increased consistently every year, including by 22% in 2016 to slightly over 650,000 passengers. This was driven mostly by the full year impact of Melbourne, which launched in late 2015.

However, Scoot’s Australia load factor has been less than stellar and below its system-wide average. Scoot’s annual Australia load factor also been lower than the Australia load factor of its full service parent Singapore Airlines over the last four years. This is somewhat surprising given that LCCs typically have higher load factors than full service airlines.

Scoot’s average seat load factor on Australia routes was 76.7% in 2016. In 2015 its Australia load factor was slightly higher, 77.9%, but was lower in 2013 and 2014. Only in 2012 was Scoot’s Australia load factor above 80%. Having to use the too-large ex-SIA 777s initially, Scoot offered extremely low fares in its initial six months of operations, producing a higher load factor at the expense of yields. More recently, the smaller 787s have provided some relief.

Scoot annual passenger traffic and seat load factor on Australia routes: 2012 to 2016

 Source: CAPA – Centre for Aviation & BITRE 

Scoot’s inability to achieve higher load factors in Australia is due to a combination of intense competition and its greater reliance on local Australia-Singapore traffic than its full service peer. While the local Australia-Singapore market has grown, aided in part by Scoot’s low fares, the overall size of the market is relatively limited. Moreover, inbound tourism to Australia (from Singapore) is slipping, down 15% in the year to Feb-2017 according to ABS data. (The SIA Group’s value to tourism is wider than this though; it has a longstanding partnership with Tourism Australia to attract tourists from more widely abroad.)

Scoot has always recognised it would need to offer connections beyond Singapore in order to succeed in the Australia market. Scoot decided to launch Singapore-Bangkok as its third route in order to provide Gold Coast and Sydney passengers a destination other than Singapore.

However, Scoot has generally struggled to attract sixth freedom traffic from Australia to markets beyond Singapore. With the overwhelming majority of its Australia traffic in the local Australia-Singapore market, its own limited network and airline partnership limits  have been the main barrier to more sixth freedom traffic from Australia. These are now starting to be addressed, so Scoot’s fortunes should improve.

In the local Australia-Singapore market Scoot also has been impacted by a significant reduction in average full service fares. British Airways has been particularly aggressive in the Sydney-Singapore market, while Scoot competes with Jetstar and Emirates for passengers from Melbourne to Singapore. Jetstar also competes in the Perth-Singapore market. Meanwhile Qantas increased local Australia-Singapore capacity after ending Singapore-Europe flights.

Scoot will need higher load factors in Australia if it is to be consistently profitable here. Higher load factors will also be necessary before Scoot can consider further Australia expansion; its Australia traffic is likely to be flat in 2017 for the first time as it has not added any capacity in the Australia market since late 2015.

As Blue Swan Daily has previously reported, Scoot is planning to retime some of its Australia flights in order to improve connections with its India and Europe flights. Once this is implemented, likely in late 2017, Scoot could experience an improvement of its Australia performance.

See related report: Scoot to improve connectivity to Europe and India by retiming some Australia flights

Scoot is also now in the process of improving connections with Tigerair as part of its merger with the short-haul LCC. Scoot and Tigerair plan to complete their merger by the end of 2017, resulting in a single brand (Scoot).

Scoot should be able to increase sixth freedom traffic gradually, enabling it to improve its Australia load factor. However, its Australia yields could decline from already low levels given the intense level of competition in the one-stop markets from Australia that Scoot is targeting. This will be good news for Australian travellers. For example, a Melbourne-Athens roundtrip can be had for under $800; equally, it should generate good inbound interest in a relatively under-served Greek market.