Singapore Sling: Is Scoot making long-haul, low-cost viable?
Scoot’s growth since 2016 has been meteoric. With capacity more than doubling from 5.3 million seats in 2017, to 12.1 million in 2018, the carrier has successfully tapped into a price-sensitive market in Singapore not fully appreciated by others. A large part of this growth since 2016 has been down to its merger with Tigerair.
SIA Group has been rationalising its brand portfolio for a number of years now, with Tigerair and SilkAir being phased out and absorbed into the Scoot and Singapore Airlines brands respectively.
One immediate advantage for the carrier is its geographic positioning. Quite apart from the 10 million people within a two-hour catchment, seasonality is very low thanks to the city-state’s year-round warm climate. All score below 0.3, or excellent, on our Seasonal Variance in Demand Calculator, indicating stable year-round demand.
Mixed performance on network; Thailand and Indonesia strongest performers
Looking at Scoot’s top-10 destinations, future growth opportunities stand out.
Thai and Indonesian destinations, notably Bangkok International, Phuket, and Denpasar-Bali, are the top performers, compared with a decrease in traffic to Hong Kong and Taipei in 2019. The Hong Kong capacity drop resulted from the protests which took place throughout the course of the year. Meanwhile, Scoot grew partly strongly in 2019 to Thailand as a whole and to mainland China, while it launched Luang Prabang, its second destination in Laos, in April.
COVID-19: daily flights down 50%, but Scoot benefits from group financial strength
One area where there is heavy variance is frequency. Being a leisure carrier, there are significantly fewer daily frequencies mid-week than on weekends. This has been exacerbated by the current COVID-19 crisis, with off-peak daily flights down 50% since the start of February, but peak time down 23%.
A positive is, however, the financial strength of the wider Singapore Airlines Group. For the nine months ending 31 December 2019, net profit was $552m, up 8.7% on the previous year and reversing a disappointing FY2018/19. Group cash reserves stand at $1.57bn, up 19%, which will help the group weather the storm ahead.
However, Scoot’s individual performance is questioned
After having three years of strong profitability and growth, Scoot posted a loss in FY2018/19, as group-level fuel costs soared by $1 billion, and the airline flattened 2019 capacity growth.
Similarly, CASK has been rising steadily since 2015, with a more marked 6.1% increase in FY18/19. Fundamentally, unit revenue performance has not kept up. After improvements in 2017, RASK decreased below CASK as of 2018, suggesting competitive pressures within the region has reduced fares. This follows a natural economic pattern of fares reducing as markets become more competitive – therefore, creating more ancillary revenue streams is crucial for an LCC like Scoot to survive.
With capacity growth having been almost flat at a seasonal level since S18, it is clear the carrier’s focus is now profitability and yield rather than growth. This follows a similar pattern to other long-haul, low-cost operators like Norwegian, and indicates the challenges faced by this high-growth operating model.