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Low-cost carrier Scoot aims to double fleet size in five years
Budget airline Scoot has vowed to be "aggressive" with its growth ambitions, unveiling five new destinations and a plan to double its fleet, following an official merger with Tigerair.
Just months after announcing their intentions to pursue a tie-up under the single Scoot brand, the two Singapore Airlines (Singapore Exchange: SIAL-SG)-backed low-cost carriers are becoming one under a single operating license.
"The two companies were brought under a single holding company last year in May, and within the short span of just a little over a year, we've managed to achieve full integration into a single airline," Scoot CEO Lee Lik Hsin told CNBC's "Capital Connection."
The new Scoot plans to expand its network by adding five new destinations by June 2018. Among them are Honolulu, Scoot's maiden U.S. destination, and Harbin in northeast China.
Scoot will also take over two routes from sister carrier SilkAir for Malaysia and Indonesia, as parent Singapore Airlines undertakes a wide-ranging review to slash costs and improve efficiency after announcing a fourth-quarter loss.
"I think the merger is a baseline platform that allows us to be in the space and to be a significant player in the space. Previously, both airlines were sort of small-to-medium size. Now we have the ability to scale up very dramatically," said Lee.
The group has been working to integrate reservation systems, flight schedules and connections as part of the efficiency drive. It's also rationalizing its conditions of carriage, check-in counters and call centers to save costs.
"The completion of the merger unlocks synergies, reduces unit costs and enables the group to optimize aircraft resources," said Brendan Sobie, chief analyst at CAPA - Centre for Aviation.
"The SIA Group is now better positioned to compete and expand in the bottom end of the market," he added.
Stiff competition, soft yields
As the capital-intensive aviation sector battles the rising regional headwinds such as thin margins and intense pricing competition, Scoot aims to differentiate itself in the market by elevating the low-cost carrier experience for travelers.
The medium-to-long haul operator is taking on rivals such as AirAsia by offering premium services, with on-board internet connectivity and in-seat power available in some of its aircraft.
"While we have never given very firm numbers on our growth plans, I think I would be happy to share that it is certainly aggressive," Lee said.
"A ballpark figure would be that in five years-time, we would expect to double our fleet size."
The group saw an average passenger load factor of 82.4 percent for the 2016-17 fiscal year and posted an operating profit of 67 million Singapore dollars (about $49 million) in the same period.
By combining the Tigerair network and the SilkAir routes, the total destination count now stands at 65 across 18 countries. Lee said low-cost long-haul flights are a key part of the Scoot strategy.
"We have entered into long haul in a big way," he said. "We intend to grow to at least three to four long-haul destinations in the next two to three years."
Aircraft on the way
The combined group will operate 14 Boeing 787 Dreamliners, with six more on the way.
"It was not so well publicized that in Singapore Airlines' recent order of wide-body airplanes, there were options within that order to convert it to Scoot configuration, so we can have definitely more airplanes even beyond the current 20," said Lee.
"We don't have to do that straight away because we have enough aircraft to grow for the next two to three years, and then we will make a decision later on," he added.
A new uniform was also revealed for the airline's crew members alongside a new marketing campaign. The current Tigerair fleet will be repainted and the complete livery change is targeted for completion by mid-2018.
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