SIA flies to underperforming locations thru SilkAir merger

SilkAir has arrived at Kuala Lumpur and Penang, which SIA's widebody planes cannot reach.

Singapore Airlines (SIA) is looking into the optimisation of its operations through its merger with regional wing, SilkAir. They do so by letting Silk Air take over underperforming trips to Kuala Lumpur and Penang that used to be too small for SIA's widebody flights.

SilkAir's fleet renewal started in 2014. As of now, additional planes have been used to launch new destinations, such as Luang Prabang and Vientiane (Laos), Fuzhou (China) in 2016 and Colombo (Sri Lanka) in 2017. SIA is also looking into transfering routes and aircrafts between different airlines within the SIA group. This is aside from the upgrades which are predicted to start by 2020.

CGS-CIMB analyst Raymond Yap compared the merger as “akin” to the Scoot-Tigerair merger that was completed in 2017. In the long term, Yap believes it will be positive for the SIA group as it will have Scoot as its low-cost carrier (LCC) brand, and SIA as its full service carrier (FSC) brand.

“It will save operating costs and merge the booking platforms, which are currently on two separate websites, as well as project a unified brand to customers,” Yap said.

The $100m merger requires SilkAir to make upgrades such as lie-flat seats in Business Class and install seatback in-flight entertainment (IFE) systems in both Business Class and Economy Class. 

Yap also viewed the new lie-flat business class seats and seatback IFE in both Business and Economy classes as positive for the customer proposition of the SIA group. The analyst recalled that in 2014, SilkAir did not upgrade its narrowbody product to include seatback in-flight entertainment, which many of its FSC competitors in the region had already introduced.

“We believe that customer feedback probably prompted SilkAir to finally introduce seatback IFE, which will narrow the product gap with its competitors,” he explained.

As SilkAir grows its network across Southeast Asia, India, and China, as well as ferries connecting passengers to longhaul SIA network, Yap thinks that it is critical and relevant for SIA’s FSC business to be offering a consistent product across the board.

The group has been working on changing service schedules of SIA widebody aircrafts to better-performing routes. Smaller SilkAir narrowbody will then be deployed to thinner routes to replace widebody planes.