SIA's Scoot losses

[flyguy]

Looks like Scoot is already making fairly heavy losses and will affect SIA's financial situation as its owned 100% by SIA.

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Mayday: Scoots $65 million loss shows its losing this budget dog-fight

It's only a matter of time until SIA has to ease the throttle.

You don't need radar tracking to see Scoots $60mn losses are unsustainable for SIA. In Maybank Kim Eng's estimates, Scoots posted a full-year loss of around SGD65m, dampening SIA's profitability. Maybank noted that Singapore Airlines (SIA) reported 4QFY3/14 net profit of SGD27m, in line with our expectations. The boost came from exceptional gains of SGD19.8m and recognition of tax credits that led to a positive tax charge, but this was offset by losses from associates. Group operating loss of SGD60m in the quarter was a miss (4QFY3/13: SGD44m) with Scoot likely in the red.
- See more at: http://sbr.com.sg/aviation/news/mayd....CfIf6DiP.dpuf

[FN-GM]

To be honest i expected losses for the first few years. Takes a while to get things going.

[flyguy]

Yes will take a few years before Scoot can even breakeven but the question is how many years will it take as with its delivery of new 787s by end of the year, its costs of plane financing will increase dramatically. For Tiger it took almost 8 years before it make a small profit but only for a year before it fell back into losses ever since due to bad investments in setting up overseas subsidiaries and predicted to be making losses for the next few years.

[SINFJ]

Yes will take a few years before Scoot can even breakeven but the question is how many years will it take as with its delivery of new 787s by end of the year, its costs of plane financing will increase dramatically. For Tiger it took almost 8 years before it make a small profit but only for a year before it fell back into losses ever since due to bad investments in setting up overseas subsidiaries and predicted to be making losses for the next few years.

To be honest and I stand corrected, their route network and fleet size is to small to be competitive enough. Overall, you get landing and take off slots which are not very passenger friendly. Add these to heavier cost in operating a widebody, not sure how it could be too profitable.

[kevin-sg]

Please close down Scoot quickly. It is a waste of money to operate Scoot. Scoot is likely to make losses forever. Moreover I have only heard bad things about this airline, nothing is good.
I have heard about the company's dishonest practices about refusing to refund passengers money for double booking. Some passengers who bought add-ons did not get what they have bought online for their flights, they did not get their money refunded either. They have such dishonest policies and have such a bad reputation.
If they cancel their flights, they do not do a cash refund. They would offer passengers travel vouchers as replacement which only has a validity of 6 months. What a "good" way to make quick money.
I dare think that if we removed such dishonest practices, Scoot would have EVEN MORE losses.

[cscs1956]

It should not be present in the first place.

[flyguy]

Aviationists have studied the LCCs phenomenon and observed that legacy carriers who started their own LCCs are not doing well and some have abandoned the idea. Scoot is 100% owned by SIA and Tiger air in part as SIA now owned 40% of it and Temasek also owned another third of it (and of course temasek also is the major shareholder of SIA). Both CEOs of Scoot and Tiger air now are from SIA, and a few more from SIA senior management and technical side are also seconded to Scoot and Tiger by SIA.
For the successful LCCs, these airlines are started by true entrepreneurs and are even usually not hailing from the airline business at all - such as the founder of Air Asia and even Spring Airlines from China - both who are doing well and profitable. There's more to running a LCC than just lowering air fare.
Legacy carriers LCCs tend to have their own people running their LCCs and these people are more technocrats rather than entrepreneurs and having spent years at their legacy carriers and having adopted the working style and system of the legacy carriers, it is very difficult to change their mindset or have the street business acumen of the true entrepreneurs.
But also the higher costs of operating from Singapore is also a major factor to the success of the LCC model.
Looking at the history of Tiger air with its many years of losses in the millions, and now cancelling plane orders and grounding existing planes, it would be a extremely difficult to lift it to profitability - yet alone breakeven. And with Scoot and its soon to be getting 20 brand new 787s, it seems a very daunting task.

[SQ228]

Aviationists have studied the LCCs phenomenon and observed that legacy carriers who started their own LCCs are not doing well and some have abandoned the idea. Scoot is 100% owned by SIA and Tiger air in part as SIA now owned 40% of it and Temasek also owned another third of it (and of course temasek also is the major shareholder of SIA). Both CEOs of Scoot and Tiger air now are from SIA, and a few more from SIA senior management and technical side are also seconded to Scoot and Tiger by SIA.
For the successful LCCs, these airlines are started by true entrepreneurs and are even usually not hailing from the airline business at all - such as the founder of Air Asia and even Spring Airlines from China - both who are doing well and profitable. There's more to running a LCC than just lowering air fare.
Legacy carriers LCCs tend to have their own people running their LCCs and these people are more technocrats rather than entrepreneurs and having spent years at their legacy carriers and having adopted the working style and system of the legacy carriers, it is very difficult to change their mindset or have the street business acumen of the true entrepreneurs.
But also the higher costs of operating from Singapore is also a major factor to the success of the LCC model.
Looking at the history of Tiger air with its many years of losses in the millions, and now cancelling plane orders and grounding existing planes, it would be a extremely difficult to lift it to profitability - yet alone breakeven. And with Scoot and its soon to be getting 20 brand new 787s, it seems a very daunting task.

Many excellent points packed into a couple of paragraphs, so concise too!

[FN-GM]

Aviationists have studied the LCCs phenomenon and observed that legacy carriers who started their own LCCs are not doing well and some have abandoned the idea. Scoot is 100% owned by SIA and Tiger air in part as SIA now owned 40% of it and Temasek also owned another third of it (and of course temasek also is the major shareholder of SIA). Both CEOs of Scoot and Tiger air now are from SIA, and a few more from SIA senior management and technical side are also seconded to Scoot and Tiger by SIA.
For the successful LCCs, these airlines are started by true entrepreneurs and are even usually not hailing from the airline business at all - such as the founder of Air Asia and even Spring Airlines from China - both who are doing well and profitable. There's more to running a LCC than just lowering air fare.
Legacy carriers LCCs tend to have their own people running their LCCs and these people are more technocrats rather than entrepreneurs and having spent years at their legacy carriers and having adopted the working style and system of the legacy carriers, it is very difficult to change their mindset or have the street business acumen of the true entrepreneurs.
But also the higher costs of operating from Singapore is also a major factor to the success of the LCC model.
Looking at the history of Tiger air with its many years of losses in the millions, and now cancelling plane orders and grounding existing planes, it would be a extremely difficult to lift it to profitability - yet alone breakeven. And with Scoot and its soon to be getting 20 brand new 787s, it seems a very daunting task.

JetStar seems to be doing ok though?

[addictedtraveller]

Just for a little inside information Scoot do have a very different work culture compared to other airlines, and certainly significantly different from the parent company.

[9V-SIA]

Sad that SQ had to reinvent the wheel.

At some stage I hope they will follow BA model

Stripped down, but still SQ regional, to compete with LCC

Cheaper than running 4 airlines ultimately

A few sacred cows need to be slaughtered though

Must buy single aisle aircraft. (Pity no A310 replacement)

Less than SQ service on short regional routes

[viraj735]

Aviationists have studied the LCCs phenomenon and observed that legacy carriers who started their own LCCs are not doing well and some have abandoned the idea.

NH? QF? LH? AF?

Was anyone really expecting otherwise? I'm no expert in starting businesses but I don't see how an airline, or any company for that matter posting a loss in it's first FY of operation is a total failure.

Scoot will be receiving 787s which will lower costs as they are far more fuel efficient and have nearly the same capacity. The airline will have more frames which will result in more connecting traffic.

Tiger hasn't been successful for different reasons. The company believed that if they just offered low fares passengers would come. They didn't take care of their brand image and have paid the price. This, along with questionable investments in the Philippines and Indonesia have put them in their current position. I don't see TZ having the same issues.

[flyguy]

Well no one is saying that based on the 1st year of operations that a loss incurred will mean that Scoot is a total failure. What it is - is that it will take some years at least 5 to 6 years before and if Scoot does make it to breakeven and a small profit, and that these years will be a very daunting one. Scoot's brand image is not that good as there have been several incidents of long delays and passengers complaints in the media. Although the new 787s will be 20% efficient than its current 777s but do not forget that the current 15 year old 777s have fairly low and preferential leasing rates, than that of the new 787s and this will negate the cost savings in part.
With SIA's profits taken a beating for the past 4 years and with even quarterly losses, Scoot and Tiger's losses this will have a great impact into SIA's already thin profits and may even drive SIA into the red.

[Airbus SAS A340-500]

I think for Scoot and Tigerair to survive, their operations must be as close as lips to teeth. Only then will they achieve the necessary synergistic effects that have made AK-D7 so successful.

I think that there are pockets of Scoot's network now that might be profitable, but this is definitely limited to only a few routes. I believe the -HKG, -PER, -TPE-ICN and -TPE-NRT routes are working out quite well though...

[inix]

NH? QF? LH? AF?

Was anyone really expecting otherwise? I'm no expert in starting businesses but I don't see how an airline, or any company for that matter posting a loss in it's first FY of operation is a total failure.

Scoot will be receiving 787s which will lower costs as they are far more fuel efficient and have nearly the same capacity. The airline will have more frames which will result in more connecting traffic.

Tiger hasn't been successful for different reasons. The company believed that if they just offered low fares passengers would come. They didn't take care of their brand image and have paid the price. This, along with questionable investments in the Philippines and Indonesia have put them in their current position. I don't see TZ having the same issues.

It wasn't so much about the company, but the CEO rather. Tony Davis adopted a very simple policy that was simply;

For every customer we lost because we were nonsense, 3 more will come because we are cheap.

Well, while it should have worked in South East Asia as people in developing economies are much more price sensitive, having competitors who had some semblance of service, and who were equally cheap meant that Tiger is very well disliked.

Such is the arrogance that Tony Davis actually have is that in 2006 they actually have the audacity to tell customers who complain it the local daily that Tiger does NOT reply in the press and ask customers to mail / email them directly instead.

Personally, I swore off flying Tiger unless I have absolutely no choice. At least I used to. The newer Tiger after being taken back by SQ, is well softer, and tries to be more decent. Budget is budget. I do not expect to get refunds for tickets, and I expect many things are not going to be full service airline standards, but Tiger pushed the envelope too far.

Scoot on the other hand, tries to be different. There is actually a decent customer service. Email does get responded (i tried) and phone calls do get answers. There are charges for changes and many things, but its a budget airline, so I can accept that. So personally, I would actually rate Scoot rather highly overall.