Scoot, the low-cost subsidiary of Singapore Airlines (SIA), has signed a Letter of Intent (LOI) with aircraft lessor, Azorra, to add nine new Embraer E190-E2 aircraft to support its network growth strategy. The first aircraft will join the fleet in 2024 with the ninth coming in by the end of 2025.
Azorra leasing is headquartered in Fort Lauderdale, Florida, USA and one of its recent deals was the Sale and Leaseback of five E195-E2 for Porter Airlines, Canada.
This will be the smallest aircraft in Scoot’s fleet and also that of Singapore Airline Group. Scoot currently operates 50+ aircraft comprising the 787 dreamliner and A320/A321s. Scoot started with B777s coming in from parent Singapore Airlines, before shifting to the dreamliners. The merger of Tiger Airways with Scoot led to Scoot operating the A320 family.
This is a remarkable achievement for Embraer – which has been struggling to sell the E2 in this part of the world. Last November, it got certification for the aircraft in China. This marks a tectonic shift in the strategy of a low cost airline where the focus all along has been to chase the lowest cost per seat to help keep fares low.
Read: Exploring the E190-E2
How does it help scoot?
Now that the decision is done, it is important to see how this helps Scoot and what could be the plans?
Over the years, Scoot has aligned well with Singapore Airlines. This involves selling itineraries which have both Scoot and Singapore Airlines with the passengers booked via Singapore Airlines and traveling on Scoot being eligible for few freebies like seat selection and meals.
The aircraft, expected to be in 112 economy seats could help the airline in two ways.
- Open new Routes
Asia Pacific is a price conscious market and that is exactly how Scoot came into being from a premium heavy Singapore Airlines. Scoot is flanked by AirAsia Bhd in the North and Lion Air in the south and while they are LCCs, both have built an empire and earned fortune from selling connections.
Can Scoot do the same? To do the same, it would have to expand and offer connections which are currently offered by competition. To do that with a larger aircraft means waiting till the market size grows to at least 60% or more of aircraft capacity to be able to cater to demand, steal traffic from others and stimulate the demand. All of this will only give you loads and revenue, not profits.
With the E190-E2, the airline could play out the same plan, albeit earlier than what it would have with the A320.This would mean the E190-E2 becomes the route launcher and when the market grows, the A320 takes over the route from the E2.
- Augment capacity on existing
When a flight or a sector does well, airlines typically add capacity to counter competition or further dominate the market. This would mean replacing one sector operated by A320 with the A321 and adding a frequency at a different time of the day. This also offers better two way connections and improves passenger experience.
But to wait for the loads and potential to build up for a second frequency with the A320 would mean having to wait considerably longer and this is where the E2 could open up a possibility of adding capacity but not doubling your presence overnight.
The E190-E2 helps add capacity by 60% over the A320neo which helps deploy a stepwise increase in capacity rather than doubling it overnight. To avoid doubling of capacity, airlines resort to a non-daily increase in frequency. While this helps capacity control at a weekly level, it does not always cut the teeth with the market forces and dynamics.
What could be the destinations?
Singapore is a large transfer hub and Singapore has a larger presence in India, one of its largest source markets. The absence of direct flights to Indonesia from India have been very beneficial for Thai Airways, AIrAsia Group and Singapore Airlines group.
The E190-E2 with its capacity can become the aircraft to start services to Medan, Jayapura, Da Nang, Vientiane, Luang Prabang, Siem Reap and Brunei – some of which will be new routes for the group while others a mere presence of Scoot in addition to Singapore Airlines to help cater to both ends of the market spectrum.
Network Thoughts
In an industry which is obsessed with CASK and ability to lower it, Scoot would do well with just nine of the new types being inducted. It operates the dreamliners which have lower CASK and there won’t be a significant impact on it.
The smallest member of the group would pave the way for opening up many new routes and possibly transfer few from the A320 to E190-E2. There is magic in seeing the routes turn profitable with a change in aircraft type as the cost dynamics change.
Over to 2024 to wait for the first aircraft to show up in Scoot livery!
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