Singapore Airlines is leveraging a plethora of partnerships with carriers in neighbouring countries to significantly expand its network and create a super-presence in Asia. Tony Harrington examines its strategy
The announcement was unremarkable. Singapore Airlines and Thai International were forming a strategic partnership, through which the two Star Alliance cousins would codeshare on each other’s flights between Singapore and Bangkok, their national capitals and primary hubs.
Subject to regulatory approvals, Thai would also code on Singapore Airlines flights to nine long-haul destinations, seven in North America and two in South Africa, and the pair would explore further “wide-ranging commercial collaboration” including additional codeshares to provide “more options and value” for their passengers.
In isolation, this was a textbook commercial arrangement between two airlines. Shared resources, mutual gain. They happen all the time. But this was not an isolated arrangement.
It was the fifth in a chain of new, renewed or expanded airline collaborations inked by Singapore Airlines in just over a year, each announced individually, but all part of a bigger, more sophisticated plan to build scale in the Asia-Pacific (APAC) region.
“Partnerships with like-minded carriers are an integral part of Singapore Airlines’ strategy,” said Goh Choon Phong, the airline’s Chief Executive, when announcing one of the deals.
Historically, most of its partnerships are through its membership of the global Star Alliance, among them stand-alone agreements with partners including airlines of Europe’s Lufthansa Group, and the world’s third-largest carrier, United Airlines, the only American operator to fly nonstop between the US mainland and Singapore.
But with no domestic network of its own, Singapore Airlines has long wanted and needed to assemble a substitute by building a multi-hub operation across the Asia-Pacific region, to complement its mature home hub at Changi Airport.
Its strategy is to access a critical mass of passengers in large, nearby nations, not just by serving their major gateways more frequently, but also through detailed linkups with their airlines to gain deeper market penetration.
In return, those airlines can expand their own global reach, without deploying their own planes or people, by codesharing on flights operated by Singapore Airlines between Changi and long-haul destinations – an initiative that also swells Singapore’s loads. Everyone wins.
Between the end of 2021 and the end of 2022, Singapore Airlines announced commercial partnerships of varying scale with neighbouring competitors Malaysia Airlines and Garuda Indonesia (from the rival oneworld and SkyTeam alliances), the unaligned Virgin Australia, and the tie-up with Thai.
Some deals were new, others refined and rebadged versions of pre-existing pacts that had been disrupted by Covid.
Singapore Airlines also announced plans to intensify its already significant presence in India, the world’s third-largest air transport market, through a strategic partnership with, and equity investment in, the fast-growing Air India Group, owned by the diversified industrial giant Tata Sons.
Join the dots, and the populations of these five airlines’ home markets collectively exceed 1.8 billion people. That’s 307 times greater than Singapore’s 5.86 million, and more than China and the US combined – a serious scale-up by Singapore Airlines in a rapidly evolving air transport world.
Tie-up with Tata
While all are important to Singapore Airlines, the biggest and by far the most promising of its APAC partnerships is the Air India deal with Tata. This takes a bit of explaining.
The Air India Group is comprised of Air India (another Star Alliance partner), its low-cost division Air India Express, and, subject to government approvals, Air Asia India, a low-cost airline which Tata previously co-owned with Malaysia’s Air Asia Group but is now buying outright. Together with Singapore Airlines, Tata also co-owns Vistara, another full-service Indian airline which the two established in 2013 – Singapore with 49%, Tata with 51%.
The first step in the Singapore-Tata deal is to integrate Vistara into the new Air India conglomerate. In addition, Singapore Airlines has committed US$250 million to secure a 25.1% stake of the enlarged Air India Group, which, once the deal is approved, will have an initial 24% share of the Indian domestic market.
Singapore Airlines has also confirmed it might provide as much as US$615 million more, on top of extra capital from Tata, to help fund further growth by the Air India Group, which is targeting 30% of the domestic market by 2030, and significant international expansion. Assuming success, that’s a serious elevation of Singapore’s status as a power player in APAC aviation.
“Vistara has given us the ability to participate in the Indian growth story,” explained Singapore Airlines. “The merger, which is due to be completed by March 2024 subject to regulatory approvals, will bolster our presence in India, strengthen our multi-hub strategy, and allow us to continue participating directly in a large and fast-growing aviation market.”
Atop these partnerships, Singapore Airlines has teamed with global logistics group DHL Express to operate and maintain five jointly branded Boeing 777 freighters, which will fly between Singapore, DHL’s South Asia freight hub, and North America, via points in North Asia and Australia, adding yet another dimension to its APAC partnership plan.
Then there is Scoot, the low-cost sibling of Singapore Airlines, which not only has a sizeable network of its own within the APAC region, but also relationships with other carriers such as Cebu Pacific, the largest airline in the Philippines, and Korean low-cost operator Jeju Air.
More or deeper collaborations are also considered likely, with Japan’s All Nippon Airways, yet another Star Alliance partner, the centre of warm speculation following the recent signing of an aviation pact between the governments of Singapore and Japan.
Objectives of this agreement include “enhanced air connectivity” and greater co-operation between airlines of both countries, a hint that Singapore Airlines could broaden its APAC footprint even further with new north-south links, and potentially deeper access to the Japanese market.
Mayur Patel is Head of Asia for OAG Aviation, a global company which collates and interprets detailed data on airline, airport and air route performance.
“If you don’t have a network, you become a point-to-point carrier,” he said. But by developing multiple hubs across the APAC region, he went on, Singapore Airlines is anticipating and evolving for a different future that demands greater scale, lower cost, and more passengers.
Significant growth will be generated by new and increased access to neighbouring markets through a combination of flights by its two brands, Singapore Airlines and Scoot, and new codeshare connections operated by partner airlines, including to regional ports. There will also be greater connectivity between those markets and the Changi hub.
A further enabler of change, Patel said, is an easing of restrictions by Star Alliance, which in recent years has cleared the way for its member airlines to develop relationships with carriers outside the alliance – in Singapore’s case with Malaysia Airlines and Garuda Indonesia, both now valuable members of its APAC coterie.
In its January 2023 list of the top 10 international air routes by seats deployed, OAG ranked Kuala-Lumpur-Singapore first and Jakarta-Singapore seventh, with Bangkok-Singapore, its recently added route with Star partner Thai, ranked sixth.
Others provided further insights into the Singapore Airlines strategy.
Manish Raniga is Chief Executive Airline Investments of the private equity group 777 Partners, before which he was a senior executive of airlines in the Middle East, India, and Africa. He also headed Value Alliance, an Asia-based grouping of low-cost carriers.
Raniga sees the Singapore Airlines initiatives as part of a sophisticated masterplan which stretches well beyond day-to-day codeshares, not only leveraging the benefits of multiple hubs, liberalised skies in south-east Asia, and extraordinary access to India, but also more diverse synergies which could include joint procurement of fleet, supplies and services, shared maintenance of aircraft, and collaboration across functions ranging from training to sales and distribution.
“This is not about separate partnerships,” said Raniga. “It is one big story. These are deep collaborations, not just typical codeshares.
“Singapore Airlines is fortifying its position across the Asia-Pacific region. It’s expanding its own geographical reach by tapping into the most populous and fast-growing hubs in Asia, outside China. Without China, it’s actually tapping into a market of nearly 2 billion people,” said Raniga.
Assuming its approval and success, the stake in the Air India Group would deliver extraordinary benefits to Singapore Airlines, he said, not just through greater connection to its own services, but also access by the new group’s airlines to as many as 12 major hubs across India, which in turn would be connected to each other, and multiple other markets across and beyond the APAC region.
As well, he said, there is a long and strong relationship between Singapore Airlines and Tata, whose aviation division has synergistic links to many of its other activities, which include technology, aerospace, energy, tourism, finance and retail.
“This is not a three-to-five-year strategy,” said Raniga. “They’re future proofing.”
While its multi-hub strategy is taking shape across the APAC region, Singapore Airlines’ pursuit of scale is not new.
For decades, the Republic of Singapore has shaped and sold itself not only as a key destination for business and tourism, but also a major air transport gateway to and through the booming south-east Asia region. Integral to this plan has been a strong and well-resourced national carrier.
Singapore Airlines was created just over half a century ago off the base of another regional partnership.
From 1966 until 1972, Malaysia Singapore Airlines (MSA) was jointly owned and operated by the two governments. It had grown from Singapore-based Malayan Airways, established in 1946 to operate local and then regional international flights, before being rebranded as Malaysian Airways in 1963 when the Federation of Malaysia was created.
When Singapore exited the Federation, MSA was formed to singly grow the aviation scale of both countries before they dissolved the partnership to pursue separate strategies – Singapore an international air network, Malaysia predominantly domestic and regional.
The Government of Singapore quickly sought air services agreements with as many countries as possible to help attract international visitors and transit traffic to support its ambitions. In return, it wanted reciprocal air traffic rights to enable the gradual growth of Singapore Airlines.
That seemed a pretty good deal for governments around the globe, which signed with Singapore, few if any imagining that such a small but strategically located nation would create such an ambitious, competitive and well-resourced airline.
Nor did many expect Singapore to accrue and stockpile such extensive air traffic rights, let alone ever use them. One rival airline executive joked that if rights were available to fly to Mars, Singapore Airlines would pursue them.
Today, around 130 countries and territories have air services agreements with Singapore, 60 of which are open skies deals which enable almost limitless access between given markets.
Key among these is an umbrella agreement between the 10 member states of the Association of Southeast Asian Nations (ASEAN) – Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam, Cambodia, Laos, Brunei Darussalam, and Myanmar – which have progressively deregulated passenger and freight flights between and within their borders, creating an Asian version of the European Union.
In addition, supported by serious and undisguised financial support from its shareholder, the state investment vehicle Temasek, Singapore Airlines has always been well resourced and protected, a showpiece enterprise continually investing in next-generation aircraft, industry-leading in-flight product, and network growth enabled by the government’s early pursuit of traffic rights.
It was first to fly the Airbus A380, is the only operator of the ultra-long-range A350-900 (which it flies nonstop between Singapore and New York), and from 1977 to 1980, even partnered with British Airways to operate jointly branded Concorde services between London and Singapore, via Bahrain.
By comparison, neighbouring airlines have attracted far less generous support from their shareholders, leaving them less able to effectively respond to economic downturns, extraordinary events, their own poor management, or the fierce competition dished out by a new generation of low-cost carriers such as the Malaysia-based Air Asia Group or Indonesia’s Lion Air. Most of the legacy carriers, including many of Singapore’s APAC partners, had experienced life-saving restructures and reductions well before the pandemic.
When Covid erupted, no region was hit harder than Asia Pacific, which was first to shut down and last to reopen, creating havoc on a scale which totally diminished all previous upheavals caused by SARS, MERS, bird flu and the backwash of international events such as the post-9/11 shutdowns.
While many of the region’s carriers grounded or severely curtailed their international operations, Singapore Airlines, which flew only international routes, rapidly redeployed aircraft to repatriate displaced citizens to their homelands or uplift vital supplies such as vaccines and food on passenger jets repurposed to carry just cargo.
It was also a major beneficiary of the Singapore Government’s creation of Vaccinated Travel Lanes, which quickly boosted its passenger volumes when verified vaccinated travellers were permitted to enter the island state from destinations deemed safe.
Combined with fiscal measures including sale and leaseback of aircraft, deferred delivery of new jets, the issuance of convertible bonds and notes, a rights issue, new lines of credit, and the merger into the main airline of another sibling airline, SilkAir, these measures helped to drive a significant financial turnaround in 2022.
From a loss of S$4.1 billion (US$3.1 billion) in 2020-21, “the toughest year in its history”, the Singapore Airlines Group achieved a record operating profit of S$1.23 billion (US$933 million) in the half-year from 1 April to 30 September 2022, ahead of its APAC airline partners, most of which had reactivated internal services, but still struggled to restore their international operations.
Like most carriers, said Patel, Singapore Airlines will face increasingly tough competition on global routes once other large APAC carriers with which it is not aligned rebuild their operations to and beyond pre-Covid levels – particularly airlines of China and North Asia, which have been impacted by the longest border lockdowns, but also resurgent low-cost carriers and Middle East giants.
Patel also singled out Cathay Pacific as a big, high-quality, and re-emerging threat, once its access to mainland China is restored, and its massive and competing Hong Kong hub is fully functioning again, having been critically impacted by China’s zero-Covid policy.
But Singapore Airlines will be strengthened and emboldened not only by shareholder support, early reactivation of services and a return to profit, but also the returns and potential of its new APAC partnerships, sealed or signalled during Covid.
“No-one has the depth of Singapore Airlines in the ASEAN context,” said Patel. Assuming it effectively meets the return of big competitors, “ASEAN is Singapore’s to play with.”
You just have to join the dots.