AWSJ : Singapore Airlines Plans To Launch Budget Carrier
Yap Yok Foo
10 December 2003
Singapore Airlines Plans To Launch Budget Carrier
By CRIS PRYSTAY and SCOTT NEUMAN
Staff Reporters of THE WALL STREET JOURNAL
Premium-priced Singapore Airlines, acknowledging that it can no longer
fly above the turbulence created by low-budget airlines in Asia, has
tapped several high-profile airline financiers to help launch Tiger
Airlines, a no-frills service.
Both the founder and the current chairman of popular European budget
carrier Ryanair are each planning to take a stake in the new venture,
while Ryanair's former director of ground and in-flight operations,
Charlie Clifton, will take the lead in setting up Tiger Airways. The
executives declined to say how much the partners will invest in the
new airline.
The decision by Singapore Airlines, after months of deliberation, is
yet another indication of how the emergence of budget airlines is
changing the Asian aviation landscape. "This is pretty much a
defensive move," said Philip Wickham, an aviation analyst with ING in
Hong Kong. "Singapore Airlines is really trying to protect its
position."
The new airline plans to start flying by the second half of 2004 and
will use one type of aircraft, which has yet to be determined.
Executives declined to specify its planned routes but said it will fly
to destinations within a four-hour reach of Singapore -- putting
popular tourist destinations such as Bali and all of Thailand, as well
as Hong Kong and Madras, within reach.
Irish Investment
Tiger Airlines may operate on routes now plied by Singapore Airlines
subsidiary SilkAir, which acts as a feeder airline to the mainline
carrier but doesn't offer budget prices. "We will continue to invest
in SilkAir. We don't think this is a zero-sum game," said Chew Choon
Seng, Singapore Airlines's chief executive.
The Singapore carrier will take a 49% stake in Tiger Airways.
Singapore government investment vehicle Temasek Holdings (Pte.) Ltd.,
which owns 57% of Singapore Airlines, will hold 11% of Tiger.
The rest of the business will be owned by executives with close ties
to Ryanair. Irelandia Investments Ltd., the private-family investment
vehicle of Ryanair founder Anthony Ryan, will hold 16%, and Indigo
Partners LLC, a private-equity fund that has investments in the
airline industry, will have 24%.
Indigo's founder, Texas financier David Bonderman, is chairman of
Ryanair. He once owned 20% in the airline through a separate
investment vehicle but has reduced his stake to about 1%. Mr.
Bonderman played a key role financing and directing the business
turnarounds of Continental Airlines and American West Airlines in the
U.S. in the early 1990s as both underwent bankruptcy reorganizations.
By bringing in people with such experience, Singapore Airlines appears
"determined to be different and avoid the mistakes" made by other
airlines trying to set up low-cost carriers, ING's Mr. Wickham said.
Ryanair provides a successful model. After it was founded in 1985, the
carrier based in Ireland quickly emerged as one of Europe's key
carriers, largely at the expense of traditional airlines. Ryanair,
which Mr. Ryan says will carry about 24 million passengers this year,
charges an average fare of about $50.
"Low-cost travel is taking off, literally, all over the world, and I'm
sure it will be extraordinarily successful out of this hub
[Singapore]," Mr. Ryan said. He predicted that 10% of Asian air
traffic would be on low-cost carriers within 10 to 15 years.
Tuesday's announcement illustrates how fast and far Singapore
Airlines, which targets upscale business travelers, is willing to go
to protect its turf from the slew of new no-frills airlines taking
flight in Asia. It also heralds a second wave of budget start-ups that
analysts say will reshape the region's aviation industry.
In recent months, several plans for new low-cost carriers have been
announced. Among those planning such ventures are Thai Airways and a
former Singapore Airlines executive.
So far, Asia's most developed budget airline is two-year-old AirAsia
of Malaysia, founded by a former Warner Music executive. The airline
received financial and management assistance from Connor McCarthy, a
former director of group operations at Ryanair, who now holds a 5%
stake.
New Thai Carrier
Singapore "is looking a bit busy, but our ambitions won't be any
different," Mr. McCarthy says. "We will definitely have a 'go' at the
market if we can get our cost base down." AirAsia has balked at flying
out of Changi, Singapore's international airport, because of high
costs.
Last month, AirAsia formed a regional budget airline based in Bangkok
with a company controlled by the family of Thai Prime Minister Thaksin
Shinawatra. That airline intends to start flying next year.
When AirAsia announced its Thailand deal, aviation analysts predicted
airlines and governments around the region would feel pressure to
respond to the upstart competitor by setting up budget airlines of
their own.
Mr. Chew says he began talks with Messrs. Ryan and Bonderman "a few
months ago" but maintains the Tiger Airways partnership came together
"independently of developments elsewhere."
Write to Cris Prystay at cris.p...@wsj.com and Scott Neuman at
scott....@wsj.com
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