Three success stories of carriers that have carved their own niche
Snugly wedged between the highly acclaimed longhaul full-service carriers and the very aggressive low-cost carriers are three successful regional airlines – Dragonair, SilkAir and Bangkok Airways – who are by no means miniscule. Each of these three is bigger than some of the flag carriers in the region and are equally at home competing against or cooperating with much larger airlines. At a time when full-service longhaul carriers struggle to maintain market share and yield, these airlines ride on the vibrant regional economies and are performing robustly with better yields.
Although the circumstances leading to the birth of these three regional airlines are vastly different, their success is founded on a very similar formula – being based in a key aviation hub, being affiliated to a highly successful parent airline (with the exception of Bangkok Airways) and having a whole menu of interesting destinations to operate to within five hours’ flying time.
Over time, each airline’s network of destinations began to gain strength in specific markets – China for Dragonair, Indonesia for SilkAir and the Indochina region for Bangkok Airways.
The presence of small capacity aircraft in their fleets has allowed these carriers to be more adventurous and nimble in opening up services to destinations that larger carriers cannot profitably serve. And it is here that well-run regional airlines are desirable partners for hub-to-hub full-service carriers.
Dragonair
Dragonair in its current form is a wholly owned subsidiary of Cathay Pacific Airways and provides onward carriage for many of its passengers arriving in Hong Kong. Back in 1985, the gulf between the two could not have been greater as Dragonair was privately owned and aimed to challenge Cathay Pacific’s monster grip on Hong Kong. At a time when the Chinese market was a mere flicker of a very distant candle, Dragonair saw the potential of a market that Cathay Pacific missed. Fast forward to 2006, the incumbent and the challenger became one as Dragonair was fully acquired by Cathay Pacific in a strategic move that has proven to be valuable to both carriers and to Hong Kong.
Today, Dragonair operates its own aircraft to 22 Chinese cities, operating alongside Cathay Pacific on two Chinese routes – Beijing and Shanghai. Both airlines collectively operate about 400 weekly services to 22 cities in China.
Dragonair’s CEO, Patrick Yeung, said: “With the hub synergy, Dragonair is able to provide extensive connections for regional and international passengers via the extensive international network of sister airline Cathay Pacific.”
Recognising the value of Hong Kong as a gateway from and into the Pearl River Delta region, Dragonair provides a cross-border upstream check-in facility from six ports in five cities, namely Shenzhen Shekou, Shenzhen Fuyong, Dongguan Human, Zhongshan, Zhuhai Jiuzhou and Guangzhou Nansha. It also offers the same convenience at three locations in Shenzhen for those travelling overland to Hong Kong and travelling with Dragonair and Cathay Pacific.
Dragonair is no stranger to competition and faces 17 low-cost carriers at its home base, mostly from South-east Asia, China, Japan and South Korea. Together with Cathay Pacific, it is vehemently opposing the establishment of Jetstar Hong Kong, which only has a 33.3 per cent local shareholding and is seen by both as a franchise operation controlled from Australia. Indeed with slots at Hong Kong International Airport (HKIA) becoming increasingly scarce, the slots that are needed for organic growth will quickly fizzle out.
Cautioned Yeung: “HKIA is already very close to maximum capacity. Given that the lead time to construct the third runway is about 10 years, this means our home airport – so crucial to Hong Kong’s economic success – will reach saturation point even before the third runway is completed.”
Meanwhile, Dragonair continues to improve its value proposition, and in January 2013 it rolled out a major product enhancement, which includes its New Business Class and New Economy Class cabins together with a new inflight entertainment system named StudioKA.
SilkAir
SilkAir’s birth was unconventional and it took the form of Tradewinds, a tours and travel arm for Singapore Airlines (SIA). In February 1989, it finally emerged as an airline – unsurprisingly named Tradewinds the Airline. At the time, there was another British airline by the same name and in April 1992, the SilkAir branding was born and the travel and tour operating arm became a wholly owned subsidiary.
SilkAir’s CEO, Leslie Thng, said: “We play a role to extend the Singapore Airlines Group network by seeding and developing new and exciting destinations in the Asia-Pacific region.”
The strength of regional markets has allowed SilkAir to outperform even SIA in terms of yield. Today, China, Indonesia and India are the key markets that SilkAir continues to bet on. It currently operates to 11 cities in Indonesia, and by November 2013 it will reach a dozen with the addition of Jogjakarta to its network. It also serves eight cities in India and another seven in China.
In recent months, the load factor on SilkAir may have dropped but this is the result of a strategic move by the airline to grow its frequencies and capacities in these key markets at a pace that is slightly ahead of demand. It considers this to be medium- and long-term growth with the prospect of short-term bumps.
And often, the seeding function leads to both SilkAir and SIA operating parallel to one another to the same destinations – such as Surabaya and Yangon – to cater to different segments but more importantly, to hand over the already-developed higher-yield corporate market to SIA.
SIA and SilkAir provide strong cross-feeding into each other’s network and according to Thng, “the proportion of passengers from Singapore Airlines connecting on to SilkAir has been seeing a healthy year-on-year increase”. Currently, about half of its passengers are connecting from SIA flights. This allows SIA’s longhaul passengers to travel from London to Lombok on one fare and ticket with a single stop in Singapore.
SilkAir has also been extremely adapt at sniffing out city pairs where it does not face any competitor, and it currently enjoys this exclusivity on services to Changsha, Chiang Mai, Chongqing, Coimbatore, Danang, Davao, Kathmandu, Lombok, Manado, Palembang, Solo and Visakhapatnam.
In an order that underscores SilkAir’s confidence in the future, it ordered 23 Boeing 737-800s and the first of these will be delivered in February 2014. A parallel order for 31 Boeing 737-8Max will be delivered starting end-2017 or 2018.
Thng remarked: “Our new Boeing aircraft presents us with many exciting opportunities, one of which is the longer range on the B737Max compared to our existing aircraft. The new planes will allow us to fly farther, giving us the opportunity to look at expanding to destinations within a six-hour radius, compared to five hours now.”
Bangkok Airways
Bangkok Airways’ existence dates back to 1968 when it was established under the Sahakol Air branding. At that time, it was purely aimed at supporting the booming oil exploration and mining industries in the region. In 1986, it was designated as Thailand’s first privately owned airline and in 1989, it took on its current name, Bangkok Airways.
To overcome its disadvantage of not having a parent airline with an extensive international network, Bangkok Airways has inked codeshares (with Etihad Airways, Malaysia Airlines, SilkAir and Japan Airlines) and prorate interlining agreements with many international airlines serving Thailand.
Bangkok Airways has yet another trump card – it built, owns and operates three airports at Koh Samui, Sukhothai and Trat. This offers comprehensive long-term spin-offs in the form of reduced user charges, aeronautical revenue (gained from other airlines wishing to serve Koh Samui) and non-aeronautical revenue from commercial space rentals at these airports. For some time, it successfully kept other airlines from serving Koh Samui but eventually relented.
The airline markets itself as Asia’s Boutique Airline, a branding that allows it to maintain healthy yields. The opening up of Myanmar has also brought a windfall. The carrier has been quick to ramp up capacity and frequencies to Yangon, and in September 2013 it added services to Mandalay and Nay Pyi Taw. It consequently holds the distinction of being the only international airline to serve Nay Pyi Taw.
Today, Bangkok Airways’ network comprises eight domestic cities (including its home base Bangkok) and 12 international destinations. Its coverage of China and India – markets that are of great importance to Dragonair and SilkAir – is extremely thin with only one destination in India (Mumbai) and none in China.
Although Bangkok Airways does not hold any orders for aircraft, it has in the last year acquired several previously owned Airbus A320s and A319s.
Back at its home base Suvarnabhumi Airport, congestion has resulted in the relocation of most domestic services by low-cost carriers to the re-opened Don Mueang Airport. This is a move that Bangkok Airways cannot consider in view of its valuable codeshare and interline arrangements with various airlines. In addition, the relief from moving LCCs away from Suvarnabhumi Airport was temporary and congestion is once again beginning to set in.
The future
The three regional carriers have very successfully maintained and stamped their position on the greater aviation landscape, embracing the nimbleness and ability to quickly pounce on potential new destinations yet consistently deliver a brand of service that more closely matches those expected of large full-service carriers – perhaps even with a dash of informality and casualness.
