By Jamie Freed
SINGAPORE (Reuters) - Singapore Airlines Ltd (SI:SIAL) said on Thursday it expected to transfer some jets from its SilkAir regional airline to budget carrier Scoot, allowing it to compete more effectively against low-cost rivals like AirAsia Group Bhd (KL:AIRA) and Lion Group.
The plan comes after the carrier announced last month it would absorb underperforming SilkAir into the parent brand after 2020 when a program to upgrade cabins at a cost of more than S$100 million ($73.5 million) gets under way.
Singapore Airlines has been undertaking a three-year transformation program designed to cut costs and boost revenue amid competition from Chinese and Middle Eastern rivals and low-cost carriers.
Scoot recently began listing job ads for Boeing Co (N:BA) 737 jet pilots despite operating a narrowbody fleet of rival Airbus SE (PA:AIR) A320s.
Singapore Airlines said in a statement on Thursday that it expected to transfer some of SilkAir's 737s to Scoot to help optimize the overall group's network, but it declined to provide further details such as the number of planes involved.
As part of the transformation program, it has already transferred routes to five destinations in Southeast Asia from SilkAir to Scoot.
Brendan Sobie, chief analyst at the CAPA Centre for Aviation, an independent aviation research firm, said those destinations, which include Kuching and Langkawi in Malaysia, had a relatively low proportion of traffic transferring through the Singapore hub relative to other routes.
Part of the reason Singapore Airlines is absorbing SilkAir is to better align the brands for travelers from long-haul destinations like Europe and North America using Singapore as a connecting hub, the airline said last month.
Sobie said several Indonesian routes could be transferred from SilkAir to Scoot, as well as others like Chang Mai in Thailand and Da Nang in Vietnam.
SilkAir has 32 737s on order. Sobie said it would have been more attractive for Scoot to add A320s for growth to keep its short-haul fleet all one type, but that would not have solved the problem of the looming 737 deliveries.
"Ultimately it is clear that Scoot needs additional capacity to take over more SilkAir routes and the transfer of the 737s was the best solution for the Singapore Airlines Group," he said.
"The route transfers should improve the group's profitability and long-term position, outweighing the additional costs associated with Scoot operating two narrowbody families."
Sobie said he expected the first jets would be transferred in late 2018 or early 2019, giving the airline time to remove business class seats from SilkAir jets and to hire pilots.