CONSTRAINED by the extent of cost reductions, Singapore Airlines’ (SIA) budget arm Scoot strives to raise revenue from seats sold and add-on offerings to mitigate the impact on its profit margins, said chief executive officer Leslie Thng.
In a recent quarterly update, SIA group posted a 19.3 per cent decline in operating profit for the third quarter of FY2024. This was due to a 9.5 per cent increase in non-fuel expenditure and a 9.1 per cent rise in net fuel cost.
Scoot’s operating profit for the quarter amounted to S$39.8 million, a 70.5 per cent drop compared with Q3 FY2023. Passenger yield dropped 15.3 per cent as competitors added capacity, while unit cost rose by 3.2 per cent in an inflationary environment.
Given that cost increases would lower profitability, and there is a limit to what Scoot can cut in fuel cost and other expenses, the carrier seeks to improve its top line to mitigate the impact.
“We do then measure in terms of how we can maximise the revenue that we can generate from the seats that we sell. How can we look at initiatives to improve on ancillary revenue…” Thng told the media in a wide-ranging interview on Thursday (Mar 7).
Currently, carriers in the low-cost segment generate 15 to 20 per cent of their total revenue from ancillary offerings such as choosing of seat, excess baggage, meals on board and travel insurance.
Scoot, which is operating at a capacity comparable to pre-pandemic levels, will ramp up its capacity. Thng, however, declined to provide a number when asked about the targeted increase in capacity, citing commercial sensitivity.
All he would say was that Scoot will fly to five to seven more destinations in South-east Asia in FY2025, bringing the network points to as many as 74, as the airline takes delivery of more Embraer aircraft.
Scoot will be taking delivery of five Embraer planes in 2024 and four in 2025, and has announced two new routes using the Brazil-made jets.
When it takes delivery of 18 narrowbody planes from makers including Boeing and Airbus beginning from 2025, Scoot will consider adding more destinations.
Currently, China accounts for about 20 to 22 per cent of Scoot’s total capacity or 80 flights weekly to 17 destinations.
This is still 20 per cent below pre-pandemic levels as travel demand from the North Asian country, which only reopened its borders in January 2023, was not back to where it was before the lockdown.
However, Scoot has seen a rise in travel demand after the start of the mutual visa-free travel arrangement between Singapore and China on Feb 9 to boost Chinese visitor arrivals. There was a spike of two to three times in bookings shortly after the announcement, for example.
“It does give us confidence to say that in the coming months, with the plan to go back to 100 per cent – 100 weekly services, we would want to tap the returning demand of the Chinese travellers,” Thng said.
However, the recovery in travel demand from Chinese cities was not even, as some including Nanjing, Hangzhou and Tianjin have seen stronger demand but not others such as Changsha and Kunming,
Thng also observed that mainland Chinese used to travel in bigger groups, but now they travel individually or with families. They make more trips to Singapore as well.
In contrast, Scoot’s capacity to India is back to almost pre-pandemic levels. In spite of the Air India-Vistara merger pending antitrust clearance, Thng said it is “premature” to talk about cooperation with the entity that SIA would eventually own a 25.1 per cent stake.
Scoot last year recruited slightly more than 500 staff, with half being cabin crew, 20 per cent of them as pilots and 30 per cent to fill office positions. Given that the Embraer planes are a new fleet to SIA group, Scoot has roped in some SIA pilots to help fly the new planes temporarily.
The carrier is looking at a three-digit addition to headcount this year, including one to two batches of 20 cabin crews per batch that complete training every month.
SIA’s counter was trading at S$6.43, S$0.08 or 1.2 per cent lower, at 2.39 pm on Thursday.
