Southeast Asian aviation just got interesting!

With four upcoming airlines, competitors could give each other a run -- or flight -- for their money.

CIMB described the Asean aviation sector as “becoming extremely interesting” with the upcoming launch of four new airlines in the next 12 months. These are SIA’s long-haul LCC provisionally named Scoot, Qantas’s Asia-based super-premium full-service carrier RedQ, Thai Airways’s Thai Smile and MAS’s Sapphire.

Here’s CIMB’s take:

Will Scoot turn SIA’s fortunes around? SIA has been under pressure over the past few years from short-haul LCCs and Middle East airlines and has also not benefitted as significantly as Cathay from the Chinese aviation boom. Under these circumstances, we are enthusiastic about its bold move to start Scoot because it is much better to take the bull by the horns than to be paralysed with fear. Cannibalisation will be manageable, in our view. We are also positive on SIA’s deeper involvement in Tiger. However, the competitive environment is challenging and it remains to be seen if growth in the LCC segment will be enough to offset potential market share loss to RedQ. RedQ’s super-premium A320 FSC based in Singapore could compete with SilkAir and SIA on short- and medium-haul routes.

AirAsia X had better watch out. It appears that Scoot is planning a product superior to AirAsia X and the latter will have to invest to improve its customer service proposition. The economics of Scoot’s 400-seater B777-200 also look superior to the 327-seater A340-300 that AirAsia deploys to London and Paris. However, AirAsia X has a very strong brand name, a larger fleet and a headstart in this industry. Product enhancements can be made. We do not expect AirAsia’s KLbased short-haul A320 operations to be affected by Scoot.

MAS needs oneworld’s support. Both Scoot and RedQ will add depth to the Singapore aviation market and could slow or impede MAS’s plans to compete with the Singapore hub. The gales around MAS remain fierce. Nevertheless, there are some bright spots. We think MAS’s impending oneworld alliance membership could see Qantas and British Airways resuming flights to KLIA, feeding traffic into MAS’s continental European and Asian routes. In return, BA/Qantas may also take a stake in Sapphire, the new premium regional carrier that is modelled on SilkAir.

Unimpressed with Thai Smile. Thai Smile will operate a fleet of single-class A320s that should have lower unit costs than Thai Airways’s existing fleet. However, as a unit within Thai Airways, cost savings would not be sufficient to compete with Thai AirAsia. Hence, we view Thai Smile as a relatively weak strategic proposition.

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