Scoot's all-Dreamliner fleet starts taking shape next month

SINGAPORE - Budget carrier Scoot is poised to start its transition to an all-Boeing 787 fleet as it takes delivery of its first Dreamliner next month. The carrier will progressively phase out its B777 aircraft and eventually expand its network once again as more 787s arrive.

This coincides with efforts to deepen its alliance with short-haul budget carrier Tiger Airways, having received the green light from the Competition Commission of Singapore in August, as well as the launch of joint venture NokScoot in Thailand come first the quarter of 2015.

Taken together, the shift to more fuel-efficient Dreamliners as well as additional network points and distribution from partners such as Tiger could set the stage for a stronger performance as the fledgling carrier continues to work towards profitability.

Scoot - which took to the skies in June 2012 - reportedly lost a cumulative S$25.2 million in 2012 and 2013.

"It was always going to be measured in years, and not just a couple of years," said chief executive Campbell Wilson on profitability, stressing that wide-body, medium-haul operations are a challenging segment of the low-cost carrier market.

But he remains optimistic, highlighting that Scoot's performance in over two years of flying has been encouraging.

Scoot's first 375-seater B787-9, replacing one of Scoot's 777-200s, will be deployed to both Perth and Hong Kong starting January next year. By around 2019, Scoot will receive 10 each of 335-seater 787-8s and 787-9s.

This comes as Scoot has largely put growth on hold for about a year in anticipation of its new aircraft. However, it has bumped up frequencies on certain existing routes (such as Nanjing and Qingdao) and temporarily adjusted frequencies downwards in other markets (such as Australia and Tianjin).

Overcapacity and a weak Australian dollar have made Down Under a challenging market to operate to, while demand from Chinese travellers eased in the wake of stricter regulations being slapped on tourist packages and the disappearance of Malaysia Airlines flight MH370.

In addition, political tensions and the military taking over in Thailand have also hit demand for Bangkok.

But for Scoot, China has bounced back - potentially because its chosen destinations are underserved - while loads have been picking up for Thailand, although yields are taking longer to come back, said Mr Wilson.

By August next year, Scoot will essentially retire its existing fleet of six 777-200s by swapping them out for six 787 aircraft. The Dreamliners will also offer in-flight Internet and in-seat power throughout the aircraft, which provides additional avenues for ancillary revenue.

The new seats were on display over the weekend at Scoot's Ultimate Take-off Challenge at Marina Square.

Though analysts have pointed out the 777s were too big to work with, Mr Wilson stressed they were only ever meant to be an interim fleet. With parent Singapore Airlines (SIA) retiring the 777s at the time, they were "a convenient way to start".

Once Scoot phases out its current fleet, new planes will be used to boost frequencies on existing routes and fuel network expansion. By March 2016, Scoot will have received 11 of the 20 Dreamliners.

Growth will likely come in the form of additional destinations in Japan, China and Australia - markets that it currently flies to. In China, Mr Wilson doesn't rule out one or two primary cities as well, such as Beijing.

Separately, Scoot and Tiger are seeking to maximise the volume of connecting traffic between the two, such as through joint marketing activities.

This could take the form of feeding traffic from Scoot's Australia-Singapore flights, for instance, onward to points in China, Thailand or India in Tiger's network.

"Thirty-four per cent of AirAsiaX's business is connecting to or from short-haul AirAsia," pointed out Mr Wilson, adding that the equivalent connecting traffic for Scoot and Tiger is under 5 per cent.

"Even if we get half the proportion of what AirAsia gets in (the) short term, that's still a massive increase."

While this could take a couple of years, this would also boost Changi Airport's traffic much in the way that Kuala Lumpur International Airport has benefited from the cooperation between AirAsia and AirAsiaX, analysts have pointed out.

Other areas that Scoot and Tiger are working together on include closer integration of their IT systems to create a better experience for customers as well as operating overlapping sectors - such as Bangkok, Hong Kong and Taipei - as a joint service.

Where the latter is concerned, operating those routes with both carriers supporting all joint services means a stronger proposition through frequency and choice of aircraft. "We've got an agreement on the revenue-sharing model. We just need to figure out how to implement it," Mr Wilson added.

Both Scoot and loss-making Tiger are seen as a key part of SIA's portfolio, enabling it to serve the regional and long-haul budget routes, and guard against rival budget carriers.

SIA is boosting its stake in Tiger from 40 per cent currently to 55 per cent, and possibly up to 71 per cent following Tiger's proposed rights issue.

Meanwhile, NokScoot's launch has been pushed to the first quarter of 2015 and will operate out of Bangkok's Don Mueang Airport using 777-200s to start with.

And its operations will not only be advantageous to Scoot, it will also give the Thai Airways Group (which has a substantial stake in Nok Air) a platform to fend off low-cost, long-haul competitors such as Thai AirAsiaX. NokScoot will focus on North Asia initially, with Japan to be its first market.

This article was first published on Nov 3, 2014.
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