Singapore Airlines is a reference for the air transport industry not only within ASEAN but also around the world. Singapore Airlines has been profitable since its inception over 40 years ago. However, times are tougher today as Singapore Airlines faces increased competition from Gulf carriers in the luxury and premium traveller’s markets while its economy class has been challenged by the rise of low cost and hybrid airlines. According to Bloomberg, SIA Group latest yield from passengers is the lowest in six years.
Singapore Airlines has seen its yield dropping by 0.6 point between Financial Year 2014-15 and FY 2015-16. It stood in FY 15/16 at 10.6 cents (expressed in Singapore dollars) compared to 11.2 cents earlier. Regional subsidiary Silk Air saw its yield down by 2.9% while budget subsidiary Scoot reported flat yield during FY 2015/16.
Despite the negative evolution of its yield, the Group reported a net profit of $804 million in the 2015-16 financial year, a $436 million improvement over the net profit recorded in the last financial year (+118.5%). Group operating profit increased $271 million (+66.1%) year-on-year to $681 million.
However, the airline continues to be exposed to the expansion of carriers from the Gulf area as well as expanding networks from low cost carriers. SIA multiplied over the last decade initiative to fight both Gulf and budget airlines. Retaining its premium passengers translated into an upgrading of services on board and on the ground.
The airline ordered more than US$10 billion in new aircraft and re-positioned its first and business class. It launched last year an Economy Premium which is already considered as one of the best in this segment. On the other end of the market, SIA has developed its own budget/hybrid carriers. Its portfolio comprises Scoot – a mostly medium/long-haul carrier while it has just taken over the shares of Tiger Air, Singapore largest low cost airline.
A third strategy has been the creation of joint ventures and the formation of alliances with partners across the globe. This translated into the creation of a subsidiary in India, Vistara while it stepped up its presence in Virgin Australia with a share of 23.11%. They are information that SIA could probably take over the 25% share owned by Air New Zealand in the Australian carrier.
Talking to some analysts, Bloomberg mentions Maybank analyst Mohshin Aziz who indicates that SIA low yields are due to the fact that SIA has had no choice but to discount “heavily”, sacrificing yields to fill more seats among rising competition”. More pressure is expected on yields in the coming months while oil prices show more volatility in recent weeks.
Operating profit peaked eight years ago and sales reached a high in the financial year ending in March 2009 as the global financial crisis crimped premium travel. The carrier is now counting on cabin comforts to draw higher-end passengers used to its fully flat beds, as well as more price-conscious customers. It will also launch new routes as the company expects to take delivery of 13 A350-900s, of which 12 are planned to enter into service by March 2017. Capacity will however remain flat due to cabin refurbishing with less seats per aircraft.
In the coming months, SIA will add three new destinations, with thrice-weekly A350-900 Dusseldorf service from 21 July 2016 and four-times-weekly 777-200 Canberra-Wellington service from 20 September 2016.
Services in selected markets across the network will also be adjusted. Increased frequencies have commenced to Bangkok (from five flights daily to six daily), Colombo (from seven flights per week to ten per week) and Milan (from five weekly to six weekly) services. Brisbane will be served with three additional flights per week with effect from 28 May 2016, increasing weekly operations to 24 flights.
(Partial source: Bloomberg)