Industry Update
Opinion Article24 August 2012

Airlines go low cost, hotels go luxury – will the twain meet?

By Yeoh Siew Hoon

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Siew Hoon

At the HSMAI Asia Connect held Wednesday in Singapore, one thing that stood out is the disconnect between what's going on in hotel development and aviation.

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According to the Centre for Aviation, Sydney, half of all air seats in Asia will be low cost in 10 years time. At Singapore Changi, low cost is now 26% of all air traffic. Japan's gone from zero low cost to nine registered entities and that looks ready to shake up the market.

As AirAsia proved a decade ago, low fares allow everyone to fly. In Singapore, I heard that Australia has seen a spike in visa applications from Filipino service workers and taxi drivers, thanks to Scoot's low fares to Sydney and Gold Coast. And it's not only the budget travellers who are flying Scoot. I had lunch with a fairly affluent businessman today who told me he was flying with his family of four to Gold Coast on Scoot this December – for S$2,500, he can buy four return tickets instead of just the one on a traditional premium airline.

"I'd rather spend the money on the ground," he said.

A friend who runs an inbound tour company in Sarawak, Malaysia, is also seeing good growth in travellers and a good percentage are longhaul visitors coming in on AirAsia which is the only low cost airline with flights to Kuching. "They are good customers and they are spending a lot on tours," he said.

So flip over to hotels and according to STR Global, of the 1,871 hotels (421,331 rooms) opening in the next 3-5 years, luxury accounts for 25%, upper upscale 27%, upscale 31%; and mid/economy 19%.

Jonas Ogren, who shared these statistics at the event, agreed there's a disconnect between hotel development in the mid/economy segment and how airlines are changing. "Budget hotels are not as sexy, but their performance in terms of returns is often better," he said.

By the way, of the new hotel pipeline, 58% are in China and 17% in India.

It was interesting thus that on the panel moderated by myself, there was Campbell Wilson, CEO of Scoot, alongside Stephane Laguette, Vice-President Sales, Marketing & Distribution, Sofitel Asia Pacific and Rosmalia Hardman, director of sales & marketing, W Singapore-Sentosa Cove.

Sofitel So is the Euro-style boutique, luxury product being rolled out by Accor. I learnt that So is the label and Sofitel the brand so its hotels are called Sofitel So Singapore (opening next year, looks stunning by the way) and the new one in Thailand, Sofitel So Bangkok, which I had the opportunity to visit a few months ago. The staff wear designer attire, Christian La Croix being the designer of choice in Bangkok and Takada Kenzo for Mauritius. They look amazing at the Bangkok hotel (pictured), better dressed than I ever will be for sure.

When asked which personality best defined their brand, Laguette chose David Guetta, the famous music deejay. He's French, has a distinct European style but his music style is global, catering to fans all over the world, and he's playful and quirky, Laguette said, explaining his choice.

W Singapore, at the high end Sentosa Cove, is pitched at people who want to "chill out" and who want something different, said Hardman, who named model Elle McPherson as the personality most embodied in W Singapore. She is elegant, classic, beautiful and constantly evolving and reinventing herself, said Hardman.

Wilson did not name a person but stuck to "Scootitude", the attitude Scoot's trying to own in the way it does things, from marketing, to social media engagement, to cabin service.

"Everybody has their own definition of Scootitude and we ask our staff to interpret it according to how they want to be," he said.

Personally I think that's rather clever. Scoot's created a new word and left it to individual interpretation.

What's not open to interpretation is still the reluctance of luxury brands to work with low cost airlines even though it is clear that just because you fly low cost doesn't mean you are a low cost consumer in every stage of the journey.

When I asked Laguette if he would consider working with an airline like Scoot, he was hesitant although he said he would be open to the idea "but we have to be careful about the brand".

Which is a shame because I think So Scoot might make quite a nice campaign.

Luxury brands though cannot ignore the changes taking place in aviation and low cost is making it possible for the same traveller to travel several times in different guises. And just as lines are blurring everywhere - Google & Travel, Facebook & Travel, Citizen & Journalist - I think there will be far-sighted luxury brands that will cross this invisible barrier and work with the future fidrivers of growth.

One change that's definitely coming too is "transparency and disintermediation", said Wilson. Customers want transparency and technology is disintermediating traditional distribution channels.

Currently, 95% of Scoot's business comes through its website but this should come down slightly when it fully turns on its travel agency channel.

Laguette said 50% of Accor's business came through the website direct and he expects the shift to move to 70%. Accor is cranking up direct distribution and is beefing up its digital and distribution team in Asia Pacific.

Outside low cost territory though, airline direct (online) still has some ways to go. According to Ho Hoong Mau, Division Head of Airline Distribution at Abacus International, in terms of the entire airline direct (online) universe, the ratio of airline direct sale is much lower, at 10-15%.

Citing a survey, he said that in 2011, active travelers in the USA use OTAs 62% of the time, branded suppliers (airlines etc) 46% of the time, meta-search sites 14% of the time.

"Within the Abacus portfolio, our online travel agencies are growing their business strongly and are probably taking a larger piece of the travel business – example, our collaborations in Philippines, Singapore, Taiwan, Indonesia etc are seeing strong growth."

What else will change travel, the panel was asked, and answers included AirBnB, mobile and China.

Personally I think the biggest change that's needed is mindsets.

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Yeoh Siew Hoon

Yeoh Siew Hoon is the Editor-at-Large for Shy Ventures – a company that she founded, that is driven by the mantra: “Content, Communication, Connection”. The multi-talented Miss Yeoh also created and manages the highly regarded travel insider website www.thetransitcafe.com, while publishing her signature columns and features in key travel industry titles, and business and lifestyle magazines.

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