Singapore Airlines consolidates its multi–brand strategy by announcing the total take-over of low cost carrier Tigerair.
For a decade, Singapore Airlineshas been moving into an increasingly unstable air market in its Singapore home base. First confronted only to the competition of legacy carriers, Southeast Asia’s most successful airline must now face competition on multiple fronts: low cost airlines are fighting head to head on both regional and overseas markets. Gulf carriers have been keen to take over shares of the transfer and premium segments out of Singapore.
And finally competition comes also from other ASEAN national carriers. Over the last decade, new airports facilities are being developed while many airlines such as MAS, Philippine Airlines or Garuda upgraded their services.
SIA responded initially in a defensive manner. The airline rushed to create a low cost subsidiary, Tigerair.. Next to Irish partners from Ryanair and Singapore giant conglomerate Temasek, SIA first took 49.9% of the shares before moving to 55.8%. SIA however did not meddle in the low cost carrier’s management to avoid brand confusion.
Then it created in 2012 Scoot, a medium/long-haul low cost carrier due to mostly face the competition of Jetstar in the Australian market. Scoot is 100% owned by SIA and is now getting into an all-fleet of Boeing 787 with a network of 16 destinations.
Now, SIA is ready to take over 100% of Tigerair shares, putting on the table S$453 million (US$320.5 million). The move will then fortify Singapore Airlines multi-brand strategies. The carrier is now fully embracing the idea of having different products for different markets with four brands, a concept similar to what occurred in the hotel industry in the last 15 years.
Singapore Airlines and Silk Air remain the core brands for passengers looking at premium full services; Singapore Airlines concentrate increasingly on long haul flights and services to large regional capital cities; it will open in summer 2016 a new non-stop route to Düsseldorf in Germany. Silk Air goes for secondary and regional services.
Scoot is now flying to medium/long haul destinations. It recently opened a route to Melbourne and will next year launch a non stop service to Jeddah. Tigerair operates today with an all-Aoirbus A320 to 39 destinations. It has substantially reduced its net losses during the first half of its current financial year from US$175.6 million (S$247.6 million) last year to US$10.2 million (S$14.4 million).
Singapore Airlines move will certainly help to further rationalize its low cost segment. Both Tigerair and Scoot already have a comprehensive partnership, translating into joint operated flights (to Bangkok and Hong Kong) and easy transfers for passengers. Scoot took over Tigerair services to Perth as an example of rationalization.
The 100% takeover of Tigerair could generate further consolidation. In the longer term, Tigerair could eventually concentrate only on regional services -taking back Scoot services to Taiwan; while Scoot would only concentrate at serving markets with a flying time of 4.5 hours and more from Singapore.