Singapore Airlines Ltd. on Wednesday said it will establish a budget airline catering to cost-conscious travelers on longer-distance routes. The proposed new airline, which will use widebody aircraft to fly medium and long-haul routes, will be wholly owned by Singapore Airlines but will be operated independently and managed separately from SIA, the carrier said in a statement to Singapore Exchange. The new carrier is expected to start operations within a year, it said.
The new carrier will likely compete with Jetstar Airways, the low-cost unit of Australia’s Qantas Airways Ltd., and AirAsiaX, the longer-haul unit of Malaysia’s AirAsia Bhd., for routes beyond the reach of traditional low-cost airlines that don’t fly for more than five hours. “This is likely a relatively defensive move by SIA to tap into a higher-growth market after they lost market share in the last two years to low cost carriers,” said Robert Bruce, an analyst with CLSA Asia-Pacific Markets in Hong Kong. “There are concerns about the potential for cannibalization but Qantas has been successfully using Jetstar to turn around loss-making leisure heavy routes that require a lower cost base, SIA may be hoping to switch passengers on similar routes it has identified.”
Analysts also said it’s difficult to say how the market will react to the news of the new carrier, as the company announcement, made after the market close, didn’t give details about the route network or the services to be offered by the low fare airline. Singapore Airlines closed flat at 14.20 Singapore dollars (US$11.37) on Wednesday. “Everyone is going to talk about cannibalization (of Singapore Airlines’ business). But a lot will depend on how the airline is structured and what routes it gets the rights to fly. To be fair, they can’t reveal their plans, but they could be looking to fly to north India and second-tier Chinese cities,” said K Ajith, an analyst with UOB Kay Hian in Singapore. Singapore Airlines said more details of the airline, including its management team, branding and route network, will be announced in due course.