Singapore Air to set up low-fare long-haul carrier

Wed May 25, 2011 7:42am EDT

* New carrier to operate within one year
* To use wide-body planes for medium, long haul
* Move comes as competition increases from budget airlines
* AirAsia boss dismisses threat from new carrier
(Adds AirAsia chief executive)

By Harry Suhartono and Charmian Kok
SINGAPORE, May 25 (Reuters) - Singapore Airlines (SIAL.SI), the world's second-most valuable listed airline, set out plans to enter the long-haul budget carrier market by setting up a new subsidiary expected to compete with AirAsia X.
The premium carrier faces competition from other players in Asia and the Middle East that cater to high-end passengers as well as fast-expanding budget airlines in Asia.
Wednesday's move by Singapore Airlines' new Chief Executive Officer Goh Choon Phong marks a major reversal from his predecessor's strategy.
"This is driven by the changing landscape in the industry. If you look at what's happening (in Malaysia), AirAsia X has really made leaps and bounds in terms of their operations," an aviation analyst at Standard & Poor's, Shukor Yusof, said.
"It's a new direction and it's been driven by a need for them to grow within the market," he said.
Singapore has built its reputation on high-quality cabin service.
Goh's predecessor Chew Choon Seng had questioned whether the budget carrier strategy could be successfully applied to long-haul routes, noting that passengers on 13-hour flights would expect to be served meals and enjoy some degree of comfort and entertainment.
"As we have observed on short-haul routes within Asia, low-fare airlines help stimulate demand for travel, and we expect this will also prove true for longer flights," said Goh, who has been in the top job for about six months.
The carrier controls about a third of Singapore-based budget carrier Tiger Airways (TAHL.SI), which mostly operates on short-haul routes, and owns regional carrier SilkAir.
AirAsia X is the long-haul budget carrier unit of Malaysia's AirAsia (AIRA.KL).
AirAsia Chief Executive Tony Fernandes dismissed the new threat.
"Not worried. They should be worried. Their p and l (profit and loss statemwent) going to hurt. Business(es) should stick to what they know best," he said on Twitter.
Fernandes is in the midst of negotiating a major deal with Airbus (EAD.PA) that could include more long-haul A330 passenger jets for AirAsia X as well as medium-haul A320neo aircraft.
Singapore Airlines, 55 percent owned by state investor Temasek Holdings [TEM.UL], had said near-term weakness in load factors and high fuel prices are the top threats for the carrier and will affect its operating performance.

http://www.reuters.com/article/2011/05/25/singaporeairlines-idUSL3E7GP1HE20110525