Karamjit Kaur, Aviation Correpondent

Scoot grapples with long-haul challenge

Do not expect Scoot to move from red to black in the next one to two years, aviation experts say.

The long-haul budget airline started operations in June 2012. By the end of last year, it had reported cumulative losses of $25.2 million.

The cash bleed is expected to continue, but it's not the end of the world for Scoot or the carrier's parent, Singapore Airlines (SIA).

Fact is, many airlines lose money in the first few years of operations, said Mr Brendan Sobie of the Centre for Asia Pacific Aviation, an industry think-tank.

The past several years have also been tough for all Asian carriers, both full-service and budget. An oversupply of flights has hurt fares and margins.

Still, Scoot could have done some things better, like pick a different aircraft than SIA's hand-me-down Boeing 777-200.

Mr Shukor Yusof of aviation consultancy Endau Analytics said: "They are using B777-200s that in my opinion have hurt their bottom line as this aircraft isn't economically viable for Scoot's operations."

For one thing, the 400-seater is too big for some of the airline's routes. Its network covers 13 destinations in South-east Asia, North-east Asia and Australia.

Also, closer ties with short-haul budget carrier Tigerair (40 per cent owned by SIA) could have helped the two airlines feed traffic to each other.

Where budget carriers are concerned, those offering long-haul often find the going harder than those focusing on shorter trips.

With long-haul, carriers incur higher costs related to labour and fuel.

The low-cost model is more suited for short-haul flights, said Mr Shukor.

Short flights require less fuel. The plane reduces its overall weight, which in turn means less fuel burnt. On long flights, such savings are not achieved.

A plane that does five Singapore-Kuala Lumpur runs a day - carrying 180 passengers each time - is used more efficiently than one that is in the air once a day, for 10 hours.

Long flights also mean hotel and meal costs if pilots and cabin crews need to be put up overseas before the aircraft does a turnaround.

Such challenges explain why many of the nearly 50 budget carriers operating in the Asia-Pacific today do mainly short-haul flights of less than four hours.

To be sure, other airlines have tried to operate long flights on a budget model.

The world's first long-haul budget airline, Laker Airways, took flight more than three decades ago. But the British carrier went bust in 1982 amid a global recession.

In October 2006, Australian low-cost carrier Jetstar Airways started flying long-haul. It was followed by Oasis Hong Kong Airlines and Malaysia's AirAsia X the year after.

The Hong Kong carrier lasted just 18 months - its owners put the blame on soaring fuel prices and a lack of funds.

AirAsia X had a good run at first, reporting a maiden profit of RM87 million (about S$34 million) in 2009, a year and a half after it started. But it plunged into a loss in 2011. It saw three straight quarters of losses that culminated in a second-quarter loss this year of RM129 million.

As for Jetstar's long-haul operations, how they are faring remains unclear, as they come under the low-cost Jetstar group backed by Australian carrier Qantas. The group's financial statements do not provide a breakdown for each unit.

Asian carriers - including budget airlines such as Tigerair, Jetstar Asia and AirAsia - are actively cutting flights or slowing growth. Overcapacity in Singapore and the region should become less of an issue in the next one to two years, Mr Sobie said.

There is thus time for Scoot to review its business and implement measures to ensure a turnaround within one to two years.

Later this year, the first of 20 new Boeing 787 aircraft will arrive for Scoot. They use a fifth less fuel than the current fleet does.

Closer ties with Tigerair are planned. Also on the cards is Scoot's first overseas joint venture. NokScoot, a tie-up with Thai carrier Nok Air, is expected to take off from Bangkok in the first quarter of next year.

As the artillery is beefed up, giving Scoot a real fighting chance, the pressure will be on management to deliver.

Meanwhile, SIA continues to be squeezed in the very competitive premium long-haul market. For its long-term viability, it is depending on subsidiaries such as Scoot and a soon-to-be-launched Indian carrier Vistara, a tie-up with Indian conglomerate Tata.

From SIA's point of view, therefore, failure is not an option.

Scoot must succeed.

karam@sph.com.sg