Singapore

SINGAPORE Airlines (SIA) is capitalising on its long-haul budget carrier to fend off lower-priced rivals and drive traffic through the Singapore hub.

Scoot - which flies the latest Boeing 787s - will launch flights to Europe starting with Athens from June next year, and other European destinations are expected to follow.

The move comes as SIA faces increasing competition from players such as the Gulf carriers and even some European airlines that have been aggressively adding capacity to Europe at highly competitive fares to garner market share.

As Scoot adds more European destinations to its belt, it will likely focus largely on cities that it is better suited to tackle compared to the parent airline, leaving SIA free to focus on higher-yielding routes and premium passengers.

This is in line with the SIA group's portfolio strategy, previously outlined by group chief executive Goh Choon Phong, where it leverages SIA, SilkAir, Scoot and Tigerair to compete in multiple market segments.

"Athens is only the start," said Budget Aviation Holdings CEO Lee Lik Hsin, confirming recent speculation that the medium/long-haul low-cost carrier (LCC) would be making its foray into Europe. "We hope to be able to announce other exciting destinations in Europe very soon."

Scoot is turning its focus to Europe after an aggressive expansion path in Asia Pacific in recent years as it built up its fleet to its current size of 11 B787s; it has a further nine Dreamliners on order. Four of its B787s are being equipped with bunk beds for its cabin crew, which will likely be used for long-haul flights.

The fuel-efficient Dreamliner delivers a key competitive advantage and makes the entry into Europe a feasible one, reckons Mr Lee. Flying to Athens over 10,000 km away, Scoot (which turned in its first full-year operating profit in FY16) will earn the distinction of operating the longest flight by a budget carrier.

Following the privatisation of short-haul budget carrier Tigerair this year, the SIA group recently set up Budget Aviation Holdings, which houses both Scoot and Tigerair.

Mr Lee added: "We believe now, with the integration (of) Tigerair and Scoot, we will be able to maximise on the connectivity. And the Singapore hub is a very powerful one."

To ensure the route works, Scoot will have to depend on feed from other markets, such as Australia and South-east Asia. This will mean tapping connecting traffic across the SIA group, including from Tigerair, SIA, and regional wing SilkAir.

Up to two more European cities could be on the cards for Scoot, with one more to be announced this year. There could even be some handover of routes from SIA to Scoot.

CAPA analyst Brendan Sobie, who previously cited Athens as a likely destination, pointed to Barcelona, Istanbul, Madrid and Rome as other likely European candidates for Scoot.

"The main competitors (for Scoot) are the Gulf carriers, which is not easy," he told The Business Times. "The Gulf carriers have good products and their fares are extremely aggressive, but it's easier for Scoot to compete than SIA. SIA cannot afford to match some of those fares offered by the Gulf carriers, but Scoot can."

With a route like Athens being primarily a leisure destination, it could be a challenge ensuring that there is strong demand year-round, Mr Sobie also noted.

SIA suspended year-round services to Athens in 2011, choosing instead to offer seasonal services in the summer months in 2012, 2014 and 2015. It is not offering any flights to the Greek capital presently.

Yields on Scoot's European routes could also come under pressure if fares are priced low to stimulate traffic and attract consumers, analysts warned.

Other LCCs presently operating long-haul flights between Asia and Europe include Eurowings and Norwegian Air. There is also Malaysia's AirAsia X, which is restarting flights to Europe after pulling out in 2012 amid sky-high fuel prices. However, AirAsia's long-haul budget arm will be starting with Istanbul and Barcelona on Oct 30.

From June 20, Scoot's flights to Athens will be operated four times weekly using a 329-seater Boeing 787-8, which will include 18 ScootBiz seats at a 38-inch seat pitch. Meanwhile, the seat pitch for its Standard and Stretch seats ranges from 30-34 inches, with in-flight Wifi and meals available at a cost.

At launch, one-way flights to Athens on Scoot are starting at S$288 (including taxes) for Economy seats and S$888 for ScootBiz.

SIA shares closed at S$10.92 on Tuesday, down two cents.

READ MORE: SIA to begin offering Tigerair connecting flights this year