The Blue Swan
* SilkAir is expected to transfer all 17 of its 737-800s to Scoot over the next three years;
* The 17 737-800s will result in Scoot further accelerating expansion as it doubles its fleet in three to four years instead of an initial plan of five years;
* SilkAir plans to accelerate 737 MAX 8 deliveries, enabling it to maintain its fleet size prior to SilkAir being absorbed into Singapore Airlines;
* Singapore Airlines is expected to eventually operate an all-MAX narrowoby fleet of 37 aircraft with lie flat seats in business and seatback IFE in economy.
* SilkAir is expected to become an all 737 MAX operator by the end of 2021 – just before it is folded into Singapore Airlines (SIA). The group’s entire 737 MAX fleet will feature lie flat business class seats while the existing 737-800s will be retrofitted to an all-economy configuration.
Last month, CAPA first reported that SilkAir plans to transfer 737-800s to Scoot as part of an ongoing rebalancing of the SIA Group’s regional network. Several other media outlets followed CAPA in also reporting that the SIA Group was planning to transfer 737-800s from SilkAir to Scoot.
Blue Swan and CAPA expect all 17 of SilkAir’s 737-800s transferring to Scoot over the next three years. The aircraft will be reconfigured from 162 two-class to 186 seat single-class configuration prior to entering service with Scoot.
Scoot currently operates a fleet of 25 A320ceo family narrowbody aircraft and 17 787 widebody aircraft. The airline has orders for 39 A320neo aircraft, which are slated to be delivered starting late this year in 186 seat single-class configuration. Scoot has only three more 787s on order to be delivered by the end of 2019.
In completing its merger with Tigerair Singapore a year ago, Scoot stated it planned to double its fleet over the next five years. Under this plan, the Scoot fleet would have grown from 35 aircraft at the end of FY2017 (31-Mar-2017) to 70 aircraft at the end of FY2022 (31-Mar-2022).
Under a revised fleet plan that includes the transfer of 17 737-800s from SilkAir, Scoot would reach 70 aircraft more than a year earlier and would more than double its fleet over the five-year period.
Scoot’s accelerated growth rate is made possible by transferring several short haul routes from SilkAir to Scoot. The SIA Group has already transferred five routes from Scoot to SilkAir since late 2017 and several more routes are expected to be transferred over the next few years.
The transfer of routes and aircraft should improve SIA Group’s position in the short haul market. Scoot has a much lower cost structure than SilkAir and therefore can compete more effectively in price sensitive markets.
However, Scoot’s costs will likely increase over the next few years as it adds a second narrowbody type, which is generally considered a faux pas of the LCC model. Scoot is adopting a network hybrid airline model, which is gradually bringing it further and further away from its roots as a pure LCC.
Scoot recently introduced a new corporate structure that mimics SIA, the latest in several steps to align Scoot more closely with its parent. Several executives with independent LCC experience have unfortunately left as Scoot took over Tigerair and as Scoot has restructured.
The potential loss of LCC DNA was identified by CAPA as a threat in a SWOT analysis on Scoot that was published in May-2018. “Scoot, in many respects, no longer looks and feels like an LCC,” CAPA stated. “There is a risk that it may also lose its LCC mindset and culture as SIA involvement increases.”
Scoot in some respects is becoming the new SilkAir, taking on a feeder role under SIA – but with a lower cost structure than SilkAir that enables the group to better compete for local traffic in a market segment dominated by LCCs. As Blue Swan and CAPA have highlighted in prior analysis, SIA decided earlier this year to absorb SilkAir. The SilkAir brand will disappear and SIA will operate 737 MAX 8 narrowbodies in the first half of next decade.
SIA is planning to retrofit SilkAir’s 737 MAX 8 with new lie flat business class seats and seatback IFE in both cabins – therefore providing a similar product as SIA’s widebody fleet. SilkAir’s 737-800 fleet will be retrofitted earlier – and at a much cheaper cost – to an all economy LCC configuration.
SilkAir currently operates five 737 MAX 8s and plans to take one more 737 MAX 8 this year. The group plans to accelerate 737 MAX deliveries starting in 2019 which should enable SilkAir to maintain a fleet of over 30 aircraft as its 737-800s are transferred to Scoot and as its remaining A320 family aircraft are phased out. SIA initially stated it expected the first lie flat narrowbody aircraft to be in service around 2020 but the group is now trying to accelerate this project, enabling it to potentially avoid having to retrofit more than six 737 MAX 8s.
SilkAir has 32 737 MAX 8s on order, which means SIA is expected to operate an all-MAX narrowbody fleet of 37 aircraft. This represents growth of four aircraft compared to the current SilkAir fleet. While SilkAir will be transferring several short haul routes to SIA, the group is expected to grow its medium haul full service narrowbody operation.
Under SIA, the narrowbody product and network will be significantly different than the current SilkAir product and network. Hence Scoot in some respects will become the new SilkAir. While the upcoming changes at the SIA Group should improve the group’s long term positioning there are obvious drawbacks as Scoot moves away from the typical LCC model.