Singapore Airlines or Cathay Pacific: Who will be driving the competition?

IN a new aviation era ushered by the global economic recovery, we can expect competition among old rivals to resume. Which airline in the Asia-Pacific region which, according to the International Air Transport Association (Iata), will register the highest growth – 16 per cent compared to the global 10 per cent – is most likely to lead the field?

The choice seems obvious: Is it Singapore Airlines (SIA) or Hong Kong-based Cathay Pacific Airways?

SIA is achieving an impressive load factor of more than 80 per cent. in June. Growth for passengers carried continues to outstrip capacity growth, achieving double-digit improvement. By all counts, the airline is heading back into profitability after losing S$39 million last year, encouraged by advanced bookings and recovery in demand for business class travel.

Yet it looks like a subdued year ahead for SIA. This seems quite out of character that the airline, which was used to making headline news of bold and unprecedented moves, should be treading so cautiously.

SIA intends to keep a lid on capacity to improve the breakeven load factor. Even when there is an apparent crunch on seats, the airline is not demonstrating much of its erstwhile conviction that capacity will create demand – a familiar battle cry when it was actively pushing for open skies. In the current year, the SIA fleet will show a net increase of only one aircraft, totaling 109.

So far, the only new product development that SIA is rolling out is an electronic version of its three inflight magazines – Silver Kris, Kris Shop and KrisWorld. The initiative will later be extended to cover menu cards, newspapers and other magazines. It is a commendable move to be saving the environment while the airline will also save fuel from the reduced weight.

Rival Cathay is also upbeat about its future. Performing better than expected in the first six months of 2010, analysts are forecasting a record full year. The airline posted a net profit of HK$6.84 billion – its best-ever six-month performance – up from HK$812 million a year ago. Passenger numbers rose 8.5 per cent to 13 million.

By comparison, SIA carried 4 million passengers in the first quarter of financial year 2010/11.

Cathay will be boosting its 166-strong fleet with new orders of up to 30 A350-900s from Airbus and exercising purchase rights to acquire another six B777-300 ERs from Boeing – for fleet replacement as well as for growth. Herein lies a distinct divergence in the strategies of both SIA and Cathay. The former subscribes to the larger A380 while the latter prefers the smaller aircraft which can be deployed to secondary cities in Europe and the United States where demand is insufficient to fill larger planes.

Both airlines recognize the lingering uncertainties in the near term. SIA chief executive officer Chew Choon Seng said: “We are not out of the woods by a far stretch.” Cathay chairman Christopher Pratt warned: “Our results would be adversely affected, and very quickly so, by a significant further increase in fuel prices or any return to the recessionary economic conditions of 2008 and much of 2009.”

However, Cathay seems more ready to embrace behavioral shifts in the industry. While SIA stakes its optimism on the rebound of premium class travel, Cathay is deliberating on a possible launch later in the year of a Premium Economy class which it sees as a new opportunity to win business from competing carriers. Cathay chief executive Tony Tyler told Bloomberg: “There are pretty good arguments for it.”

In shrugging off the concept of a middle class between business and economy, is SIA marginalizing itself as a niche premium player?

Think back to when the business class concept was first introduced. Then, reputable airlines such as Swissair and Japan Airlines were slow to accept it. In fact, the Swiss carrier pooh-poohed the idea. Today, many airlines are shedding first but increasing the capacity for business.

Premium economy is not a new concept. However, considering the widening gap between business and economy, and the increased price elasticity of demand, some carriers are beginning to see new opportunities in its introduction. Air New Zealand has earlier announced its version of this subclass – the Skycouch.

No doubt SIA will continue to thrive on its superior inflight service, especially in the front cabins, though the same cannot be said of its ground support. This, however, will be challenged by the market’s price sensitivity within a comparable range.

At a time when the aviation industry is taking a backseat in product development, Cathay is stealing a march on SIA to bring some excitement back into the business of flying. It has announced plans to fit its entire fleet (including Dragonair services) with full broadband Internet access, a mobile phone service and live television by 2012. While this looks set to be an inevitable global trend, the PR plug in these insipid times is being first.

Other airlines known to be also updating their fleets with WiFi systems include Delta Airlines and Virgin Atlantic Airways.

SIA used to boast Connexion by Boeing in first and business class on some routes – WiFi connections that allowed passengers to surf the Web, send and receive e-mail and view broadcast TV channels. But that was discontinued. A spokesman of the Singapore carrier said the airline is looking into WiFi reintroduction.

While Cathay takes big strides ahead, the industry is waiting to be surprised by SIA. For now, the latter seems more intent on consolidating its position after the global recession. But it is not one known to be shy after being bitten. Or has it become so?

Cathay operating from the doorstep of China will enjoy plenty of potential for growth. However, SIA has never been discouraged by geographical disadvantages. It will need to step up product innovation to stay ahead of the competition, and demonstrate why not only is it still a great way to fly but also great value for its fare.

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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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