Scoot Sees Losses for the Past Two Years: What’s Next?

Scoot, the wholly-owned, low-cost, subsidiary of Singapore Airlines Ltd. (SGX: C6L), announced that it saw losses of S$25.2 million for 2012 and last year. In its financial statements, SIA does not reveal Scoot’s profitability. Scoot was formed in 2011 and launched its operations in mid-2012.

Bleeding Tiger

An affiliate of SIA, Tiger Airways Holdings Limited (SGX: J7X), which is also a low-cost carrier like Scoot, saw losses for the past three financial years. For the financial year that ended 31 March 2014, it plunged deeper in the red as it posted a net loss of S$223 million. In the previous year, it saw lesser losses of S$45 million. Tigerair commenced services in 2004 but went public much later in 2010. It was profitable in both 2010 and 2011.

Not surprisingly, for the past four years, shares at Tigerair has slumped around 74%. In comparison, the broader market, represented by the Straits Times Index (SGX: ^STI), is up 16% for the same period.

Going Forward

Last month, Competition Commission of Singapore gave the go-ahead to Scoot and Tigerair to form an alliance that will allow both the airlines to increase passenger traffic by coordinating marketing, scheduling, routes, and ticket prices.

Scoot also formed a joint-venture with low-cost Thai airline, Nok Airlines, to establish a new medium-haul airline called NokScoot. The newly formed airline is set to take to the skies in the first quarter of 2015 but it has not revealed its destinations yet.

The two developments above may help to boost revenue and profitability in Scoot but the ultimate booster for the low-cost airline may come in the form of new aircraft.

20 Boeing 787 Dreamliners, totalling US$4.6 billion, have been ordered with the first batch scheduled for delivery in November 2014. The second batch is expected to be delivered early next year. The 20 aircraft comprise of both Boeing 787-800s and 787-900s.

With the introduction of the new aircraft, Scoot will begin the process of retiring its age-old Boeing 777 fleet. The current fleet was transferred from Singapore Airlines.

Boeing 787 Dreamliner is touted to be more fuel-efficient and has an estimated 20% better fuel burn. It also has a smaller seating capacity of 330-375, compared to the seating capacity of 402 for Boeing 777s. With a smaller aircraft, the turnaround will be faster and thus, the number of flights per day can be increased.

According to SIA’s latest Annual Report, the fuel savings could “potentially be passed on to travellers or in the very least allow Scoot to continue offering good value airfares. Converting to the Dreamliners will give Scoot the option and flexibility to expand further with the possibility of increasing flight frequencies or launching new destinations”.

Foolish Bottomline

The game-changer for Scoot may come soon when the Dreamliners are delivered and become operational. It pays to watch if the new aircraft can indeed deliver and cut costs for the airline in the long-haul. If it does, it may bring the low-cost carrier back to profitability and help boost the bottom-line for SIA as well.

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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 contributor Sudhan P doesn’t own shares in any companies mentioned.