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Singapore Airlines’ Subsidiary to Extend its Wings in Thailand

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Scoot, a low cost carrier and wholly-owned subsidiary of Singapore’s full service carrier Singapore Airlines (SGX: C6L), has been busy inking new deals recently.

Apart from a new cooperation framework it has signed with budget carrier Tigerair (SGX: J7X) that is subjected to regulatory approval from the Competition Commission of Singapore (CCS), Scoot has also set up a 49-51 joint-venture with Nok Airlines Public Company Limited, a “well-established low-cost airline within Thailand”.

The joint-venture is subjected to the approval of the Department of Civil Aviation and Ministry of Transport, Thailand, and would require an initial investment of THB2b (approximately S$80m).

It would entail the establishment of a new low-cost airline based in Bangkok named NokScoot that would be operating widebody aircrafts on medium and long-haul international routes.

Within Thailand, Scoot currently operates no-frills flights between Bangkok and a number of international locations, including Singapore and Perth, Australia. Meanwhile NokScoot would be aiming to take advantage of Thailand’s status as a “premier tourist destination” to develop a new market segment and offer travellers to-and-from Thailand more travel options.

As of Oct 2013, Scoot’s operating fleet consisted of six B777-200 aircrafts. Compared to the parent airline’s fleet of 103 passenger aircrafts, the low cost carrier is currently still a very small portion of SIA’s overall business.

Nonetheless, it still bears watching as SIA tries to compete with other low cost carriers. Low cost carriers have been eating away at the market share of full service carriers for years, and any inroads that SIA can make in the low cost carrier market from its own efforts would be beneficial for itself.

While SIA has been one of the best performing airlines in the world, profits at the airline have slid dramatically, from S$1.09b in the financial year ended March 2011 to S$493m in the last 12 months.

It might not be the only cause for SIA’s share price performance, but the airline’s falling profits could also go some way in explaining its 33% decline in share price since the start of 2010. That’s a long way off from the Straits Times Index’s (SGX: ^STI) 6% gain in the same period and any sustained improvements in SIA’s operational results would almost surely be of welcome news to shareholders.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.