Scoot to return to double-digit capacity growth

Singapore

BUDGET carrier Scoot will return to double-digit capacity growth in the next financial year as it takes delivery of new aircraft after the worldwide grounding of Boeing's 737 MAX 8 fleet prompted it to cut capacity growth.

In the current financial year ended March 31, 2020, capacity injection will drop to 6 per cent from 15 per cent in the previous year, but will go back to 15 per cent in the next financial year.

Ahead of its merger with Singapore Airlines (SIA), regional wing SilkAir was due to transfer 14 Boeing 737-800NG aircraft to Scoot, which is taking over 17 routes from SilkAir between April 2019 and July 2020. As carriers under the SIA Group, SIA, SilkAir and Scoot are able to swop routes among themselves.

However, with the global grounding of the 737 MAX - which SilkAir operates - the regional wing was no longer able to transfer the 737-800NGs to Scoot.

The shortage of aircraft saw Scoot cutting flight frequency to some destinations while weak demand also prompted the suspension of others - namely Lucknow, Kalibo, Quanzhou, Male and Honolulu.

Like other carriers, Scoot has also dialled back frequency to Hong Kong this year, going from 21 times weekly to an average of 14 flights weekly as the ongoing protests dampen travel demand.

So far, the budget carrier has added 11 new points to its network in the current financial year, of which 10 were handed over from SilkAir.

"We have been on double-digit growth for several years now," said Scoot chief executive officer Lee Lik Hsin. "This year, we had to scale down to 6 per cent But we quickly found ourselves a solution, which will kick in next year. This will help bring us back up to 15 per cent again for FY2020/2021."

In July, it announced it would take delivery of 16 Airbus A321neos, with the first four planes to arrive next year.

Of the 16 single-aisle aircraft, six have been converted from Scoot's existing order for A320neo aircraft from Airbus, while 10 will be leased. Following the six conversions, it now has an outstanding order for 31 A320neos.

At 236 seats, the A321 offers 50 and 56 more seats, respectively, than its A320neos and A320ceos.

This allows it to boost capacity in an efficient way by plying the aircraft on well-performing routes currently served by an A320 without having to mount an additional flight or deploy the bigger Boeing 787. The unit cost is also lower for the A321 vis-a-vis the A320.

"We are looking forward to moving back to double-digit growth," said Mr Lee, adding that the A321 gives it an opportunity to improve profitability.

The low-cost arm of the SIA Group currently has a fleet of 48 aircraft, comprising 20 B787s and 28 A320s.

The fleet will grow to 54 aircraft by December next year, as it takes delivery of four A321neos, three A320neos and two B787s, enabling it to expand further. Three A320ceos from its existing fleet will be replaced by the incoming three A320neos.

Meanwhile, SilkAir will transfer six Indonesian destinations to Scoot's network - namely Balikpapan, Lombok, Makassar, Manado, Semarang and Yogyakarta - between May and July 2020.

Scoot will also work to ensure the recently added destinations transferred over from SilkAir successfully reach a stable state, Mr Lee said.

"There's a lot of work and effort involved in helping the consumer understand the change in the product and continue to secure the business," he pointed out.

Where its long-haul flight ambitions are concerned, Mr Lee doesn't rule out adding on another city in Europe, complementing existing points Athens and Berlin, but there are no immediate plans to do so.

The route has to be the right fit and the budget carrier will avoid trunk routes heavily plyed by major carriers, where competition will be stiff, he said.

In South-east Asia, overcapacity remains a challenge for low-cost carriers, where the fight for the same customer can "drive down yields to the point where profitability becomes challenged''.

In the most recent financial year ended March 31, 2019, Scoot chalked up an operating loss of S$15 million, following three years of profits.

For the six months ended Sept 30, 2019, Scoot sank deeper into the red, with operating losses widening to S$77 million from S$10 million a year ago.

The bleed resulted from lower yields and a decline in other operating revenue. Weak market conditions affected cargo revenue, which accounted for under 10 per cent of the company's topline in the last financial year.

Fares on its China routes have also trended lower. Total revenue for Scoot, however, improved S$7 million, as capacity expansion was matched by higher passenger traffic.

"With the strong backing that we have from our parent, we will be able to ride it out and as with all cycles, eventually come back up again," said Mr Lee, adding that airline will need to remain competitive, keep unit costs low and grow its network in the meantime.

"We would want to grow our footprint to make sure our market presence is strong and relevant (so) we can reach many more customers in Asia and around the world," he said.

As carriers worldwide turn to digitalisation to improve operations, Scoot has embarked on a similar journey. In particular, customer and employee engagement is high on the agenda.

It has developed a chatbot to respond to enquiries from customers, speeding up the process and reducing manpower needs for its call centre. Presently, some 20 per cent of customer enquiries are answered via chatbot.

In addition, it has equipped its cabin crew with iPads this year, making it easier for them to send information involving aircraft defects or feedback from customers back to headquarters.

Meanwhile, it has also established a digital platform for employees relating to staff matters and queries on areas such as benefits, annual leave and IT.

Where operations are concerned, it has been working to improve on-time performance, and has done so by reducing its aircraft utilisation hours, hence raising the likelihood of having a spare aircraft when one is needed during a major delay.

Scoot has also partnered with customer experience platform Qualtrics to garner feedback from passengers.

Based on the customer insights, it has put in place initiatives to improve the check-in and boarding process such as zonal boarding for flights out of Singapore.

It has stepped up aircraft cleanliness checks and tweaked the portion sizes and packing design of in-flight meals.

"Beyond growth, we also want to make sure our connection with the customer remains strong. We will continue to put in effort in that area," said Mr Lee.