Expanding Horizons: The Strategic Route Optimization of Low-Cost Carriers

In a conversation with Asia Business Outlook magazine, Calvin Chan, Chief Commercial Officer, Scoot shares his views pertaining to the Strategic Route Optimization of Low-Cost Carriers. He has over 13 years of experience in the airline business. He started his airline career With Singapore Airlines, where he held roles in Network Revenue Management and Network Planning. Prior to joining Scoot, he held other positions in transport business planning and pricing and revenue management consulting.

What is your post-Covid analysis of the aviation industry landscape and challenges faced, especially for LCCs?

The airline industry today is marked by a blend of recovery and new challenges. The initial surge in post-Covid travel has stabilized, requiring careful management of capacity to match with passenger demand. This involves strategic adjustments to avoid over capacity and underutilization of resources.

Firstly, the rising costs of fuel have added pressure on airlines' operating margins. Geopolitical conflicts and market dynamics have caused higher fuel prices, impacting operating costs. Airlines need to find ways to mitigate these costs through hedging and efficiency improvements.

Secondly, regulatory changes and the push for sustainability have been demanding significant investments. Airlines must adapt to new environmental regulations, requiring upgrades and innovations to meet sustainability goals. This transition, while necessary, can be financially challenging and requires long-term planning.

Thirdly, the industry continues to face supply chain disruptions which have resulted in delays in aircraft parts and onboard supplies, complicating maintenance schedules and affecting operational efficiency.

Lastly, the operating landscape has become more competitive because airlines generally have also injected more capacity into the market post-Covid.

Given the competitive landscape in the low-cost carrier sector, what innovative strategies do you believe could effectively differentiate the airline from competitors?

While we are currently operating at a capacity above pre-pandemic levels, achieving record passenger load factors for the financial year ended March 31, 2024, it is important that we continue to work hard to maintain profitability in this competitive landscape.

Some ways that airlines can leverage innovative strategies and stand out in the competitive low-cost carrier sector includes:

Dynamic Pricing Models: In a highly competitive environment, travellers are increasingly price-sensitive especially in the LCC market. Implementing advanced pricing algorithms that adjust fares dynamically based on booking trends, market conditions and demand elasticity can help optimize prices to offer value and maximize revenue and flight loads.

Enhanced Customer Experience: Our customers’ experience continues to be our priority as we enhance our customer touch points through digitalization and self-help options, for a more seamless and convenient end-to-end experience. Some examples include rolling out are architected website that supports customization and hyper- personalization, new mobile app features, improving on our chatbot and making it available through more channels like Whatsapp, strengthening our survey ecosystem so that we can better gather and respond to customer feedback for improvements, and making it easier and more rewarding for members of our frequent flyer programmer – KrisFlyer, to earn and redeem miles on Scoot. We want to continue to innovate and push boundaries, to meet evolving customer expectations and preferences.
Adoption of AI and GenAI: There is tremendous potential for the application of such technology in the airline industry to augment revenue and drive greater productivity, operational efficiency and customer experience, such as in the areas of revenue management, marketing and personalization, customer servicing and business processes optimization.

Sustainability Initiatives: The push for sustainability has been the industry’s focus and airlines must continuously adapt to new environmental regulations to meet sustainability goals. At Scoot, we believe that sustainability is a journey and we recognize that our stakeholders (customers, employees, suppliers, and community) are concerned not only about our business, but also how we do business. Sustainability is a priority for the Singapore Airlines (SIA) Group, and we have made tangible progress in integrating environmental, social, and governance (ESG) initiatives across our operations. In 2023, the SIA Group announced their target of replacing 5% of their total fuel requirements with sustainable aviation fuels (SAF) by 2030. This is on top of the Group’s commitment to achieve net zero carbon emissions by 2050.

Why is it important for LCCs to expand their networks through point-to-point routes and international destinations?

It is crucial for LCCs to expand their networks as it allows the airline to:

Expand foot print by tapping into underserved markets, creating new air links, improving connectivity and providing customers with more choice and convenience.

Provide feeder traffic to support and strengthen the network.

Facilitate tourism and trade, driving economic growth.

Improve efficiency and economies of scale.

Diversify source and destinations markets to mitigate exposure.

What are the benefits of diversifying suppliers and aircraft types?

As the industry continues to face supply chain disruptions resulting in delays in aircraft parts and onboard supplies, having a diversity of aircraft and relationships with multiply suppliers can help to reduce dependency on a single source, to mitigate risks.

Unlike a typical low-cost carrier that operates only one single fleet, Scoot operates three aircraft types – wide body Boeing B787 Dreamliners, narrow body Airbus 320-family aircraft, and most recently, the EmbraerE190-E2.Having multiple fleet types and even