Singapore's low-cost plan has rivals quaking

To use the satirical vernacular, Singapore Airlines unlocked a Pandora’s floodgate of worms when it announced plans last month to launch a new low-cost subsidiary to fight for the turf occupied by Jetstar and AirAsia X on long-haul international routes.

For years, the airline industry collectively believed that long-haul flying was best suited to full-service airlines because people demand comfort if they’re going to be sitting in the same seat for 8-14 hours. Low-cost flying works only if the passenger foregoes enough of the frills to get the cost of providing the seat low enough so the fare can be at least a third cheaper than the full-service product.

The thesis is fundamentally sound, as low-cost carriers (LCCs) continue to have major problems justifying anything but the basic formula: one plane type, narrow-body (737/A320), one class, maximum five hours’ range; anything longer than Brisbane-Perth is an LCC killer.

Nevertheless, Jetstar went first in November 2006 with long-haul low-cost and has become the Qantas group’s star performer financially at a time when the parent’s full-service long haul is struggling.

Almost exactly a year after Jetstar’s first A330 international services,  AirAsia founder Tony Fernandes saw the potential for even longer routes, launching AirAsia X on the 13-hour-45-minute Kuala Lumpur-London route with 327-seat A340s, later including 60-inch-pitch (152-centimetre) lie-flat beds as an option.

The decision by Singapore Airlines to take a slice of the no-frills market, when its entire operation until now has been based on customer service, truly shocked most of its competitors and is potentially a “game-changer”.

The airline world is waiting to see exactly how much customer service Singapore Air puts into its new subsidiary. (Let’s call it SQ Lite). It’s impossible to imagine it will style its new creation anything like European LCC Ryanair or even its own step-child Tiger Airways, both of which have elected to achieve sizeable savings by avoiding customer service where possible.

Whatever SQ Lite turns out to be, there’s no doubt it’s caused a flurry of remodelling at Jetstar, which recently based its first two A330s in Singapore to run daily flights to Melbourne and Auckland. Jetstar plans to base a sizeable chunk of its order for 15 Boeing 787 Dreamliners in Singapore when they begin arriving next year.

Jetstar has said it plans to operate to southern European cities such as Athens and Rome with the 787s, but I reckon Jetstar boss Bruce Buchanan will be gulping hard at the prospect of putting his product up against an SQ Lite.

SQ Lite will also need to be careful not to cannibalise the parent’s successful long-haul network. Even though Jetstar now overlays its low-fare option over the top of much of Qantas’s domestic network, long-haul international routes are a different beast.

Jetstar International has concentrated on providing Qantas-replacement services on long-haul routes where the fares on offer are too cheap to make money for Qantas. In fact, there’s only two common long-haul routes where both Qantas and Jetstar operate, Sydney-Honolulu and Melbourne-Singapore.

What’s your advice for the brains trust at Singapore Airlines as it formulates its new brand? Should SQ Lite fly to Australia? Are there particular routes you'd like to see it fly? What about offering budget beds like AirAsia X, which has been rejected by Jetstar?