The Business Times

SIA plans new cabin class, sticks by Tiger

It'll launch premium economy on medium-to-long-haul flights in the middle of next year

Published Fri, May 9, 2014 · 10:00 PM
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SINGAPORE Airlines (SIA) is not giving up on wounded Tiger Airways, and is also fighting back with a premium economy class on its own brand.

"As a shareholder, we would certainly want to demand that Tiger work out some plan to see how it can turn around, and I think the Tiger board and management want to do it too," SIA chief executive Goh Choon Phong told the media on the sidelines of a post-earnings briefing yesterday. "So there is clearly an interest from both parties to want to improve the situation."

Tiger, in which SIA has a 40 per cent stake, booked its third straight year of losses last week, reporting that it was $223 million in the red. Days after that, the budget carrier's chief executive, Koay Peng Yen, stepped down. SIA Cargo president Lee Lik Hsin is slated to replace him on Monday.

Asked about the possibilities of privatising Tiger or actively increasing SIA's stake in the budget carrier, Mr Goh said: "At this point in time, there is no plan of that sort. Our main concern and focus is to see how Tiger can turn around."

Yesterday, SIA also announced that it would launch a premium economy class in the middle of next year. It will be introduced on the Boeing 777-300ERs, and then on the Airbus A380s.

According to SIA executive vice-president commercial Mak Swee Wah, this new class is meant for the medium-to-long-haul flights. It will be aimed at a mix of leisure and corporate travellers who want a bit more comfort than in economy class.

"There is a niche there that is quite established in the market now. We are now designing the product to fit that segment and we will come up with something that will be interesting," Mr Mak said.

This additional space is going to come out of economy class. "We will have to take out some economy class (seats), but at the end of the day, premium economy is a product that we think can command a better premium than the equivalent economy."

UOB Kay Hian analyst K Ajith said the move carries the risk of cannibalising SIA's business class product, but also noted that the airline has little choice, given stiff competition and how other airlines already have similar offerings. "But they could, of course, price it in such a way that there is still a differential. Typically, business class seats before promotions can generally be 3-5 times that of economy. SIA could price the premium economy seats 100-150 per cent higher than economy class on routes where there's less competition," he said.

About a decade ago, SIA had a similar class option in place, billed as "executive economy", on its non-stop flights to the United States. These seats were phased out in 2008 for an all-business-class configuration.

On Thursday, SIA reported a Q4 operating loss that widened year-on-year to $60.3 million. Had it not been for large tax credits and exceptional gains, its quarterly bottom line would have been red, too. Even so, the group is doubling down. It said yesterday it will spend US$325 million to retrofit the cabins of 19 Boeing 777-300ERs, starting in early 2015 and completed by September 2016.

Last July, a unit was set up within the group to examine ways to grow revenue through other channels apart from ticket sales. This "new revenue unit" already has several ongoing initiatives, such as the involvement of commission-based third-party products and advertising.

"We have undisclosed but ambitious targets for this unit to meet," Mr Goh said.

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