Boeing 787 Grounding Threatens Scoot’s Expansion: Southeast Asia

Scoot Pte, the budget carrier owned by Singapore Airlines Ltd. (SIA), said its growth hinges on getting Boeing (BA) Co. Dreamliners, which have been grounded worldwide for three weeks amid an investigation into battery fires.

Boeing is keeping the airline “well informed” about the Dreamliner, Chief Executive Officer Campbell Wilson said in an interview yesterday in Singapore, where the carrier is based. Singapore Air in October transferred its 20 on-order 787s to Scoot, which currently operates Boeing 777s. Scoot is scheduled to get its first Dreamliner next year and 10 more in 2015.

Getting the planes on time is critical for the airline, which started operations last year, as some of the 787s are to replace the existing fleet and the rest needed to expand the network. Even as regulators probe the battery faults, Boeing is boosting output and developing two more versions of the 787, which the planemaker has touted as burning 20 percent less fuel.

“Until we get the 787, we won’t be growing much,” Scoot’s Wilson said. Without the 787s, “we aren’t going to be growing as fast as we would like to.”

Singapore Air, which owns all of Scoot, started the long- haul budget airline as demand for low-fare travel surges in the Asia-Pacific market. Singapore Air also owns regional carrier SilkAir and has a stake in short-haul budget carrier Tiger Airways Holdings Ltd. (TGR)

“If solutions are not found soon for the 787’s problems, it would have a devastating effect on operators as well as Boeing,” said Harsh Vardhan, chairman of Starair Consulting, a New Delhi-based aviation consultancy company. “It is affecting the airlines which are to put the planes in schedule.”

Tiger, Cebu

Scoot, Tiger, Cebu City, Philippines-based Cebu Air Inc. (CEB) and more than 20 budget carriers that started in the Asia- Pacific region in the past decade are all competing for a travel market that may grow 15 percent to 20 percent in the next decade. Travel within the Asia-Pacific region overtook intra- North American travel as the world’s biggest aviation market in 2009, according to the International Air Transport Association.

Passenger growth within the region, both domestic and international, is expected to add about 380 million passengers between 2012 and 2016, IATA said in December.

The share of low-fare airlines may increase to 40 percent by 2020 from the current 24 percent, Citigroup Inc. analyst Rigan Wong said in a note last month.

Scoot, which flies to eight cities such as Gold Coast, Australia, Bangkok, Taipei and Tokyo, aims to add three more routes this year, Wilson said. The airline, which has carried more than half a million passengers, has a fleet of four Boeing 777 aircraft and a fifth plane will be added by May.

New Technology

“Boeing is keeping us exceptionally well informed about the progress of their investigation,” Wilson said. “Their chief engineers are down to Singapore for business updates. We are fully confident of the aircraft.”

The 787 is Boeing’s most advanced jet and uses new technology such as carbon-fiber materials to save weight and improve efficiency. Boeing has won 848 orders for the plane, according to the Chicago-based company’s website. Boeing has so far delivered 50 787s to eight customers around the world, including All Nippon Airways Co., Japan Airlines Co. and Qatar Airways.

Emergency Landing

The airlines stopped flying 787s after the Federal Aviation Administration ordered the suspension of all flights following a lithium-ion battery fire, and an emergency landing by an ANA (9202) plane in Japan Jan. 16. Boeing Jan. 30 forecast 2013 profit that met analysts’ estimates, assuming no drag from the grounding of the marquee jet.

The plane, which entered service with ANA in late 2011, has a starting list price of about $207 million. Airlines typically get discounts when they order. While deliveries of the Dreamliner have been halted, 787 production is continuing, according to Boeing.

The 787s are essential for the airline to expand because of its capacity, Wilson said. The plane can carry up to 250 passengers.

“The 787s would be a more manageable size,” Wilson said. “That would give us more flexibility in deploying, allows us to open secondary markets.”

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Jasmine Wang in Hong Kong at jwang513@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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