SIA not out of the woods yet

SINGAPORE AIRLINES (SIA) reported an operating loss of S$39 million on revenue of S$10,145 million for the full year ended March 31, 2010. Revenue fell 22.3 per cent while expenditure amounting to S$10,184 million decreased by 16.7 per cent.

While stronger revenue performance in the latter half of the year could not reverse the S$428 million operating loss incurred in the first half, the final result nevertheless reflects the resilience of the airline bouncing back towards profitability as the global economy recovers.

On a precautionary note, the airline recognizes that uncertainties remain. Chief operating officer Chew Choon Seng said: “We are not out of the woods by a far stretch.”

 Optimistically the Singapore flag carrier is encouraged by improved advanced bookings and “a pronounced recovery in demand for travel in business class.”

SIA would not reveal the improved make-up of business class travel except to say it is “almost systemwide improvement” with the best result coming from the United States. The impact should be significant if you consider how before the recession took its toll on premium travel, the front cabins provided 40 per cent or more of its revenue. Then, SIA was forced to cut back its all-business class flights between Singapore and the US.

The indicators are positive. In FY 2009/10, passenger load factor improved to 78.4 per cent, but note that this was on the back of a capacity reduction of 10.3 per cent. The breakeven load factor came down from 88.8 per cent in the second quarter to 79.0 per cent and then 77.5 per cent respectively in the subsequent two quarters. However, passenger yield was down by 16.8 per cent. The good news is that by passenger yield in the last quarter was the highest in 12 months.This is where the challenge lies for SIA – to improve yield and further reduce the breakeven load factor. The increased demand for business class travel will be a boost if the airline continues to maintain, if not reduce, its unit cost, which came down by 6.5 per cent in FY 2009/10.

Since reduced costs are also attributable to reduced capacity, this may not be the time for expansionary plans. After all, the whole industry is lumbering on. It is when discretion is most valued as the better part of valor.

SIA’s finance chief Chan Hon Chew reiterated Mr Chew’s message: “Notwithstanding the improvement, we are still below pre-crisis levels.”

It looks like a comparatively subdued year ahead for SIA, which was used to making headline news of bold and unprecedented moves.

Capacity is expected to increase by two per cent to pace the demand for seats. SIA hopes to see load factor pushing to achieve 80 per cent.

Fleetwise, the net increase is one aircraft by the end of the next FY, totaling 109, as SIA takes delivery of four A380-800 and eight A330-300, replacing 11 Boeing aircraft.

According to senior executive vice president for marketing and corporate services Bey Soo Khiang, SIA will stick to the 3-class configuration for its new deliveries with no indication of an expanded business class, betraying caution of a definitive and substantial recovery, if not seeming diffidence in it, to erstwhile levels. 

The much anticipated renewed interest in acquiring China Eastern Airlines seems to have fizzled out. Mr Chew said that since China Eastern has decided to join the SkyTeam Alliance – SIA is a Star Alliance member – “that would make it hard to envisage how we could tie in with them commercially.”

The uncertainty of the fuel price will continue to be the bugbear – the cost of fuel accounting for close to 40 per cent of SIA’s operating cost. In FY 2009/10, the airline made a fuel hedging loss of S$460 million, but Mr Chew said that would not stop SIA from continuing to hedge. If it is any consolation, many other major airlines have fared worse.

Indeed, uncertainties abound. One never knows what snags may unexpectedly emerge even as the global economy recovers, as when Iceland’s volcano Eyjafjallajokull erupted in April this year and caused extensive closures of European skies.

Clearly, SIA recognizes the airline’s vulnerability.

Also published on Fleetbuzz.com, Jun 3 2010

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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