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Singapore Air eyes overseas hubs after Covid slump in domestic market, India key growth area

The strategy involves setting up an airline in another country that taps the potential growth in its domestic market. India’s allure lies in its domestic and international market.

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Singapore/New Delhi Singapore Airlines Ltd. is committing to a strategy of working with international partners and establishing overseas hubs after the pandemic exposed the financial dangers of not having a domestic air travel market.

The airline is open to opportunities and will evaluate potential synergies, Chief Executive Officer Goh Choon Phong said in an interview with Bloomberg News on Tuesday.

“We realized that without a domestic market has its challenges,” Goh said. “That’s why we have the multi-hub strategy. We establish an external hub, whereby we hope we can then participate in the growth from that market.”

Goh, a 58-year-old industry veteran who joined Singapore Airlines in 1990 and became CEO in 2011, is trying to guide one of Asia’s most pre-eminent carriers out of the toughest period in its history. This time last year, the airline had just announced a record annual loss and was flying only a few thousand people a month compared with as many as 2 million passengers in pre-Covid times. Unsure when the situation might improve, Singapore Airlines had to raise billions of dollars to get through the crisis.

Now that Singapore and most other countries around the world have opened their borders again to quarantine-free travel, the carrier was able to increase traffic to more than 1 million passengers in April, the most since the pandemic began.

Thai Setback

Singapore Airlines has tried to operate in domestic markets before, to mixed success. The airline attempted to expand its footprint in Thailand in 2014, but the joint venture carrier ended up being liquidated when the pandemic hit.

The multi-hub strategy involves setting up an airline venture in another country that can tap the potential growth in that domestic market, as well as benefit from any flow-on international services.

Singapore Airlines’ budget carrier unit Scoot set up NokScoot Airlines Co., a venture with Nok Airlines Pcl, in 2014 to provide services for short- and medium-haul flights from Thailand. NokScoot’s board decided to liquidate the business in June 2020 after failing to fully start operations of the low-cost carrier.

“I’m not ashamed to say that we have tried for example, in Thailand, with NokScoot and of course, with the pandemic it became very difficult,” Goh said.

“What’s important really is the strategy of identifying the right partner to work with in the multi-hub scenario,” he said. “It may not work, but that should not deter us from doing what we think is the right strategy. And we must be willing to take some risk.”

Importance of India

In the interview, Goh highlighted India as a key growth area, saying it is expected to become the world’s third-biggest aviation market by the middle of this decade, if not before.

Singapore Airlines teamed up with Indian conglomerate Tata Sons Pvt. to form full-service carrier Vistara, which started flying in 2014. Vistara now serves nine overseas destinations and 31 in India, though it has yet to make a profit.

“India is obviously a very important one because it’s going to be massive,” Goh said. “We want to continue to look at scaling up Vistara and ensuring that it grows well.”

Apart from the huge domestic market — already the world’s third largest — India’s allure also lies in international passengers. Close to 4.8 million people traveled between India and Singapore in 2019, before the pandemic, data from India’s Directorate General of Civil Aviation show.

With Vistara, Singapore Airlines aims to cater to Indians flying to Europe and the US, poaching them from Gulf rivals that dominate the Indian overseas air-travel market.

Goh refused to be drawn on whether Singapore Airlines would be interested in buying a stake in Air India Ltd., saying the company doesn’t comment on confidential discussions it may or may not be having with partners.

“What I can tell you is that both Tata Sons and ourselves are equally committed to ensure that Vistara continues to grow,” he said.

Indian conglomerate Tata is majority owner of four airlines — Vistara, Air India, AirAsia India Ltd. and Air India Express Ltd. — prompting speculation that it may consolidate or reorganize them into low-cost and full-service models. India doesn’t allow foreign carriers to hold more than 49% of a domestic airline, so any reorganization may bring down Singapore Airlines’s stake in Vistara, unless it invests further.

Codesharing and Alliances

Another avenue of growth is establishing and deepening partnerships with other carriers through codesharing and joint-marketing activities, which helps expand networks at less of a cost. Singapore’s competition regulator granted conditional approval on May 10 for an agreement with Malaysia Airlines that includes revenue-sharing on some flights. The regulator is also assessing a similar partnership with Japan’s All Nippon Airways Co.

A member of Star Alliance, Singapore Airlines already has partnerships with Air New Zealand Ltd., Deutsche Lufthansa AG and Scandinavian carrier SAS AB. Through its various tie-ups, the airline has been able to add more than 200 new destinations to its network, according to Goh.

“This thing about not having a domestic market is something you cannot overcome on your own,” he said. -Bloomberg

Also read: Govt should consider increasing upper caps on domestic airfares amid rising fuel prices: IndiGo CEO


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