Air New Zealand leads the pack

Courtesy Air New Zealand

Courtesy Air New Zealand

Air New Zealand is the world’s best airline according to AirlineRatings.com based on criteria that include fleet age, safety, profitability and leadership in innovation for passenger comfort. The agency’s Airline Excellence Awards program which lists the winning airlines is endorsed by the International Civil Aviation Organization.

Many travellers would recognize ANZ for its attention-grabbing in-flight safety video that takes them into Middle Earth, the kind of out-of-the-aircraft features that a few other airlines have tried to imitate but fared only poorly. AirlineRatings.com Editor-in-Chief Geoffrey Thomas said: “Air New Zealand came out number one in virtually all of our audit criteria, which is an exceptional performance.” The airline was favoured for its record-breaking financial performance, award-winning in-flight innovations, operational safety, environmental leadership and motivation of its staff.

Skycouch: Picture courtesy Air New Zealand

Skycouch: Picture courtesy Air New Zealand

But, of course, there are surveys and there are surveys that publish their own lists of favourites. Some airlines such as Singapore Airlines (SIA) and Cathay Pacific have a ubiquitous presence, and there also notable absences. This is where it is most telling, bearing in mind that the ranking is dependent on several factors such as the excellence-defining criteria and the population surveyed.

The other nine airlines ranked behind ANZ in the top ten list by AirlineRatings.com are in descending order: Qantas, SIA, Cathay, Virgin Atlantic, British Airways (BA), Etihad, All Nippon Airways, EVA Air and Lufthansa.

It is interesting to note that the top two airlines come from the remote Southwest Pacific. Qantas has in recent years been working on upgrading its product offerings, winning accolades for catering and airport lounges. Not surprisingly, innovation along with good service seem to be the driving winning streak going down the list – SIA and Cathay for their premium economy and revamped business classes, Virgin for its cabin ambience and friendly crew, BA for its leadership in in-flight entertainment, and Etihad for its equally impressive service in front and at the back of the aircraft.

Notable absences in the list are US carriers (no surprise there) and two of the big three Middle-East carriers (Emirates and Qatar).

Many survey rankings are skewed by the weight they place on service in the premium classes. However, Mr Thomas of AirlineRatings.com said: “We are looking for leadership and airlines that innovate to make a real difference to the passenger experience particularly in economy class.” Considering that the majority of travellers are seated in coach, it is time that airlines crowned with the halo of excellence pay more attention at the back of the aircraft, for this may well make the difference as the competition intensifies. And, it is where the differentiation becomes even more challenging. Perhaps too, this could be the reason why Emirates and Qatar, known for their lavish premium service, did not make it to the top ten of the list.

Air New Zealand poised for growth

Courtesy Air New Zealand

Courtesy Air New Zealand

Air New Zealand (ANZ) is probably best known for its innovative approach in its in-flight safety video presentation. Drawing inspiration from the Men In Black to Hobbits of the Middle Kingdom, what used to be or is supposed to be a staid, no-nonsense delivery of critical information that is often ignored by many travellers, particularly repeat fliers, the presentation has become entertainment. Though not without controversy, the videos show how ANZ is not only innovative but also bold enough to break tradition. While the initiative cannot be said to be a marketing strategy to attract more customers, one is tempted to ask if ANZ is in like manner finally emerging, albeit slowly, from a lacklustre past and turning heads across the industry.

The kiwi airline has just reported an impressive full-year performance. Operating revenue as at end-June 2015 was NZ$4.92 billion (US$3.01 billion), increasing by 6% over last year. But annualised earnings before taxation rose by 32% to NZ$496 million, and the statutory net profit after taxation was NZ$327 million, up 24%. The results were released right after Qantas’ announcement of a dramatic turnaround and were not surprisingly overshadowed by the hype drummed up by the flying kangaroo’s performance and no less the outspoken personality of its chief executive Alan Joyce (See Qantas is Asia Pacific’s New Star Performer, Aug 27, 2015).

In their part of the world, ANZ and Qantas are major rivals. Indeed, considering that ANZ’s short-haul load makes up 88% of the 14.3 million passengers carried for the full year, the kiwi airline is more a regional than international airline. Australia was its biggest membership base for ANZ loyalty program Airpoints, with growth in that market exceeding 20% during the year. ANZ chief executive officer Christopher Luxon said: “This doesn’t surprise us as more Australian than ever are embracing the Air New Zealand product and service offering whether it be on the Tasman, to the Pacific Islands, North America or South America.”

Obviously Australia is an important market which is critical to ANZ’s growth as an international airline, perhaps an ironic corollary to how Qantas probably sees New Zealand as a necessary appendage by offering a one-dollar fare for onward travel through Australian gateways. Both airlines have enlarged their interest bases in each other’s land – Qantas through its budget subsidiary Jetstar Airways and ANZ its investment in Virgin Australia. And both airlines, situated at the far end of the kangaroo (and beyond) route, face competition beyond their shores from a slew of airlines such as Singapore Airlines (SIA), Cathay Pacific and Middle East carriers.

Mr Luxon said: “We remain focused on the Pacific Rim as our growth strategy and will continue to provide the best connections, product and service at competitive prices, to maintain and grow our market share in these regions. Next year will see further capacity growth in international markets as we look forward to new routes starting in December 2015 to Houston and Buenos Aires. And while we are gearing up to launch these exiting new routes we have a team assessing potential new opportunities in Australia, Asia and the Americas.”

Can ANZ overcome an apparent geographical disadvantage and turn it into a strategic marketing benefit, and identify new windows of opportunities?

Mr Luxon has identified the Pacific Rim as its focus. So, fly west. The Americas are much closer and offer room for growth. Qantas too in recent years has been ramping up its connections westward, penetrating deeper into the US. It operates the world’s longest non-stop flight, between Sydney and Dallas (the record will go to Emirates when it introduces a service between Dubai and Panama City in February 2016). The challenge remains whether ANZ has enough hinterland traffic to sustain that initiative, and whether this will hinge on how successfully it can challenge Qantas on market share for the region. To turn a geographical advantage into a benefit demands a lot of the innovative spirit to make it work. ANZ is already flying onward from Los Angeles to London with fifth freedom rights.

Meantime Qantas has not only strengthened its alliances with American Airlines but also entered into partnerships with airlines in other regions, especially China having identified Asia as a potential area of growth in its restructuring plans. While still maintaining a hub for Asian connections in Singapore (after moving the hub on the kangaroo route from Singapore to Dubai in partnership with Emirates Airlines), it has been active in mounting direct flights between Australian and Chinese destinations. This, of course, makes sense when China has become Australia’s biggest inbound tourism market. The Qantas/China eastern connection now commands 87% of the market share on the Sydney-Pudong (Shanghai) sector. Qantas would have commanded a strong presence in Hong Kong in a tie-up with China Southern Airlines had the Hong Kong administration not rejected the Jetstar Hong Kong’s application.

Qantas offers a ready lesson since Mr Luxon had expressed ANZ’s interest to grow in Asia although, to be noted, Virgin Australia which is 26% owned by ANZ has also entered into an alliance with Air China for flights between China and Australia. Just that it seems a couple of steps behind. However, there are situational differences between Qantas and ANZ although the challenges may be similar. Among the factors for ANZ’s success, ANZ chairman Tony Carter cited “the continued development of our alliance partner relationships”. ANZ and Air China will jointly launch a Peking-Auckland service in December.

Mr Carter is optimistic about ANZ’s immediate future. He said, “Given the current known operating environment, along with our increased capacity and improved operating efficiencies, we expect to achieve significant earnings growth in the coming year.” How “significant” that will be is to be seen, but Mr Carter seemed encouraged by “current sales momentum”. Of course, the lower fuel prices help, but then as Qantas Joyce said, “Every airline gets the benefit.” What lifted Qantas above the rest, according to Mr Joyce, was its transformation program. This does not mean ANZ should roll out a similar program. Far from it. We’d rather be surprised by ANZ’s knack for innovation a la Lord of the Rings.

This is an abridged version of the article which was first published in Aspire Aviation, titled “Partnership is Air New Zealand’s answer to litmus test” .

Air New Zealand reconstructed

Courtesy Air New Zealand

Courtesy Air New Zealand

IF you are planning to visit the Hobbits and the Kingdoms of Middle Earth, don’t think twice about flying Air New Zealand (Air NZ). The Kiwi carrier is probably best recognized in recent times for its innovative in-flight safety videos before take-off.

Keeping a relatively low profile, Air NZ is entering a new era of growth. In a way it is like the proverbial phoenix rising from the ashes if you recall how in 2001 with the collapse of Ansett Airlines, it had to be bailed out by the government. Air NZ acquired 50% of Ansett in 1996 for A$475m and the other 50% for A$680m in 2000. Ansett became bankrupt in 2001 and was written off with a tag of $1.32b, adding to the losses suffered by Air NZ itself.

Since then it has been a long road of reconstruction for Air NZ, which today reported earnings growth for the third consecutive financial year ending June 2014. Normalised earnings before taxation were NZ$323m (US$254m), which was an increase of 30% on last year. Statutory earnings before taxation were NZ$357m, an increase of 40%. Operating revenue held steady at NZ$4.7b, increasing by NZ$48m. However, statutory net profit after taxation increased by an impressive 45% from NZ$181m to NZ$262m. Air NZ also reported a strong operating cash flow of NZ$730m.

The good results were attributed to an increase in passenger revenue of 4.6% to NZ$3.9b and yield improvements across its network of 3.3%. The airline carried 2.3% more passengers. Of course, like many airlines presently, it has benefitted from decreased fuel costs due to falling oil prices. But additionally and perhaps more importantly, Air NZ attributed the lower cost to fleet efficiencies.

What makes Air NZ’s performance worthy of note is how it has been able to sustain a turnaround at a time when many of the world’s airlines are still see-sawing between profit and loss, that in spite of New Zealand’s not too favorable geographical at the end of the active business line. A comparison with neighbour Qantas, which was unsuccessful in bids to acquire stakes in the beleaguered airline during its tumultuous years, is inevitable. In the last three years, Air NZ has done far better than its bigger rival although Qantas has just announced a spectacular performance for 2014.

Air NZ chairman Tony Carter said: “Air New Zealand continues to be a world leading airline both in terms of customer experience and financial performance.” He added, “We have made significant progress on our key strategic initiatives. With new aircraft offering better operating economics, an optimised network with the right alliance partners, disciplined cost management and a daily focus on improving the customer experience, we are very well positioned to continue growing.”

Air NZ’s revival stems from a strategy of focussing on its strengths, and that means not pursuing willy nilly a certain course of action just because every other player is doing it. Its domestic arm is a sterling performer with a load factor above 80% and a yield of NZ$0.29 (cents per RPK). Capacity grew by 5.4%. While it is doing better, key rival Jetstar’s market share fell from 22.4% to 20.7%. It is also maintaining its market lead in the Tasman and Pacific Islands region, with a load factor of 83.4%. While Qantas was promoting Jetstar and other major airlines were spawning budget offshoots, Air NZ grounded its low-cost Freedom Air, preferring to carry “all” in one plane for trans-Tasman flights. The airline has learnt that what works for one airline may not necessarily work for another.

Internationally, the airline continues to realign its long haul network. With capacity adjustment, the load factor continues to improve, up 1.4% pts to 85.4%. Air NZ withdrew from the Hong Kong route with onward connection to London. Although a Star Alliance member, it has instead tied up an arrangement with OneWorld member Cathay Pacific. While rival Qantas is expanding aggressively in Asia and boosting its kangaroo route dominance in an alliance with Emirates to use Dubai International as its European hub (replacing Singapore Changi), in a market that has become very competitive, Air NZ is turning New Zealand’s remote geographical location into an advantage by dominating trans-Pacific channels and flying to London via Los Angeles with full fifth freedom rights.

The Kiwi carrier has learnt the bitter lesson of hasty over-expansion in its bid to take on Qantas through Ansett and competing with others in the larger world. But it is crawling back, forming strategic alliances. It is reliving its Australian dream, having increased its equity investment to 25.99% in Virgin Australia, of which Singapore Airlines (SIA) and Etihad Airways are also partners. It has also expanded its alliance with SIA to recommence flying from Auckland to Singapore, aiming to boost route capacity by 30%.

Mr Carter is optimistic. He said: “Based on our current expectations of market demand and fuel prices, we expect to improve on the 2014 result in the coming year.”

With innovative product development, Air NZ is catching the attention of competitors. And it’s not just about jazzing up in-flight safety videos; this, to Air NZ’s credit, stands it out as being bold and refreshing. The airline was among the first to introduce a premium economy cabin. And it has beaten arch-rival Qantas in the race to introduce business class seats that can be reclined for take-off and landing.

What some airlines say about themselves

United Airlines used to “fly the friendly skies”, which have proven to be far from being so for competing airlines as more of them spread their wings. The sky may not be the limit after all. In 2010, United merged with Continental Airlines which has promised its customers: “We really move our tail for you.” Well, it’d better be, as no airline can afford to sit idle on the tarmac. The partnership realized a dream of United to “fly united”, professed through the depiction of two mating geese in the air.

BA to fly to serve
British Airways (BA) prides itself as “the world’s favourite airline”. But is it really, even when no one bothers to challenge the claim? Little wonder that Iberia Airlines, which has merged with BA, claims it is “one of the world’s best airlines”. There is no jostling with the dominant partner. The UK carrier says it swears by four words which have “always been at the heart of everything we do”: To Fly. To Serve. Isn’t that what is expected, you may ask. Trust the Brits to go nano on the language they own and to assume that foreigners do not quite understand the finer or deeper meaning of words as simple as “fly” and ”serve”. BA explains: “It’s what we do. It’s who we are.” Apparently those four words were painted on the tailfins of early aircraft and the pilots still wear them in the lining of their jackets and on the peaks of their hats. Do they even need to be reminded of their jobs? BA has said that will never change. It is after all British tradition.

qantas2
It is distant cousin Qantas that puts it better: “You’re the reason we fly”. It goes on to say: “While you might fly for many different reasons, we fly for one. You’re the reason we fly.” The attention shifts from the flyer of the airplane to the rider in the plane, and from the server to the person who is being served. Qantas clearly demonstrates a better understanding of marketing principles.

But Cathay Pacific Airways decided it might rephrase BA’s pride in reaching out to its customers when it rolled out a series of ads in 2011 under the banner: “People. They make an airline.” The campaign intended to showcase a team that would go the extra mile to assist someone, who, by implication, could be a customer. But when a scandal involving flying crew on board an aircraft began circulating on the internet, it had to curb its enthusiasm in extolling its staff.

Courtesy Singapore Airlines

Courtesy Singapore Airlines


Does the crew make it a great way to fly? Yes, very much so. Yet no one makes a better case of the ambiguity than Singapore Airlines (SIA) whose tagline – “Singapore Girl, You’re a great way to fly” – has become a self-fulfilling prophecy of sorts. The sarong-clad stewardess has become synonymous with the airline and everything that it represents; its name might well be Singapore Girl. Feminist activists have derided it as being sexist, but it has done the airline wonders. However, the Singapore flag carrier’s latest ad campaign, which draws on the theme of “the lengths we go to” to demonstrate its commitment to the customer, pales by comparison to the early poetic catch phrases such as “You’re as young as you feel” and “It’s the journey, not the destination”. While SIA insists that the Singapore Girl remains the protagonist in its latest ads, sometimes you wonder if you need to go to that length to drive home the point. When the Singapore Girl smiles, enough is said.

Lufthansa tries to go one-up. It says, “There’s no better way to fly.” But don’t we want to know why, if not how? But listen to American Airlines: “We know why you fly. We’re American Airlines.” That sounds a bit too arrogant, doesn’t it? In the same vein, the Northwest Airlines tagline: “Northwest Airlines. Some people just know how to fly.” Maybe it is an American thing; modesty has no place on the world stage. Yet Delta Air Lines simply promises: “Delta gets you there.” We certainly hope so, as says Air New Zealand: “Being there is everything.” Southwest Airlines wants to be known as “a symbol of freedom”, whatever that means – another American thing?

By comparison, European airlines are more down to earth. Austrian Airlines is “the most friendly (sic) airline” and Virgin Atlantic “no ordinary airline.” Or, they are simply factual. Alitalia is “the wings of Italy” the way that EVA Air in Asia is “the wings of Taiwan” but not quite what Cathay Pacific claims to be “the heart of Asia.” Cut the French some slack about “making the sky the best place on Earth.” They have the airs. But when Swiss becomes “the most refreshing airline in the world”, it suggests a toothpaste-like struggle to impress anew. Sadly, speaking the truth may be detrimental to one’s fate, as when British Caledonian Airlines confessed before it was bought by BA: “We never forget you have a choice.”

Many of the airlines pay big bucks to have those words coined and put into their mouths. Yet does it matter what airlines say or how they say it when the test of the pudding is in the eating? Think it this way – it dresses the pudding to make it look more palatable. In advertising, it is referred to as “recall”. What happens after is reinforcement or disappointment. That is why SIA has for a long time become a great way to fly and BA, whether proven or not, the world’s favourite airline, but Austrian Airlines is forgettable as one of the world’s best airlines, an epithet that is universally applicable to one and many in fluid time. You do wonder though whether for some airlines, considering the cost of their words, what has been said may best be left unsaid.

It’s the age of mega carriers: Will Air France-KLM raise its stake in ailing Alitalia?

Courtesy Wikipedia Commons

Courtesy Wikipedia Commons


Alitalia is fighting bankruptcy as its shareholders initiate efforts to raise funds in light of its main fuel supplier threatening to cut off supply. The Italian postal service will contribute 75m euros (US$101.6m) to the rescue package of 500m euros.

Meantime, Air France-KLM – already the biggest shareholder of the beleaguered airline – waits to see if it should increase, possibly double, its stake of 25 per cent. Air France-KLM chief executive Alexandre de Juniac is in favour of the takeover to gain greater access to the Italian market, but the Franco-Dutch board is cautious about the debt incurred by Alitalia. The Italian flag carrier last made a profit in 2002 and has so far lost 294m euros in the first half of this year. Air France once made a bid in 2008 to take over the airline but was thwarted by a consortium led by then Prime Minister Silvio Berlusconi. The timing today may not be right as the new Air France-KLM is itself struggling with restructuring and cost issues.

The age of the mega carriers has long arrived and it appears the trend, predicted in as early as the ‘80s, looks set to continue. In Europe, besides the Air France-KLM merger, there is the International Airline Group comprising British Airways and Iberia. Lufthansa wholly owns Austrian Airlines and Swiss, and owns 45 per cent of Brussels Airlines, 14.44 per cent of Luxair, and varying interests in a string of other airlines. The competitive field – not only in Europe but also in the United States and to a lesser extent elsewhere – has narrowed to a few mega groups of airlines with fiscal partner interests beyond mere marketing alliances.

In the United States, United Airlines is merged with Continental Airlines under United Continental Holdings; Northwest Airlines is merged with Delta Air Lines; and American Airlines is merged with US Airways. Delta made news when it acquired a 49-per-cent stake in Virgin Atlantic, the stake bought from Singapore Airlines (SIA) which until then had maintained a passive interest in its holding. For Delta, more than for SIA, it would materially increase its presence across the Atlantic.

In South America, LAN Airlines of Chile absorbed TAM Airlines of Brazil to form LATAM.

Somehow the trend is less prominent in Asia and the extended region where flag competing flag carriers generally prefer marketing alliances such as the partnership between Qantas and Emirates, and that between Singapore Airlines (SIA) and Virgin Australia. But it is changing as the competition intensifies in a tight market and as blocs begin to form to make bigger bites, and as countries relax their rules on foreign ownership. SIA now owns 19.9 per cent of Virgin, which is also 19.9 per cent owned by Etihad Airways and 23 per cent owned by Air New Zealand (ANZ). ANZ has announced it will increase its stake to 25.9 per cent, and thus continues to be Virgin’s largest shareholder outside the Virgin Group.

Cash-rich Middle-East carrier Etihad seems to be particularly active on this front, picking up stakes in Air Berlin, Air Seychelles and Aer Lingus, and targeting to complete a 49-per-cent acquisition of Air Serbia in January next year.

Yet the interest seems more as a matter of pure investment or hedging against a shifting competitive landscape. There is no white knight appearing in the horizon to rescue ailing Kingfisher Airlines while many foreign carriers have expressed interest to enter the large and growing Indian market now that India has relaxed its policy on foreign ownership. Etihad is more interested in the less vulnerable Jet Airways. Malaysian budget operator AirAsia and SIA have initiated separate deals with local investors to start new airlines. There is really no valid reason to buy into debts unless the potential for recoup plus growth is visible, almost tangible. But the Indian market has been somewhat of a come-and-go melee, susceptible to changing regulations.

Yet what should make the Alitalia case different for Air France-KLM? It is probably one of market proximity, where the impact may be more immediately felt by the suitors. It goes beyond passive investment – a case in point as mentioned earlier is the SIA/Virgin deal compared with Delta/Virgin deal – to more strategic considerations of how the acquisition would advance the Air France-KLM cause vis-à-vis its competitors within the same region. It becomes an issue of survival in itself.

Interestingly, Etihad was asked if it would be interested to buy into Alitalia, and chief executive James Hogan sidestepped the issue, telling AFP: “At the moment I’m focussed on India, transactions in India. We look at many businesses but we are primarily focused on Jet Airways.” Yet it is rumoured that Hogan has been meeting up with Air France-KLM to discuss the matter, purportedly to persuade Air France-KLM to raise its stake or let someone take its place. Does it appear obvious enough who that “someone” may be? You make a guess.

Jostling downunder

Photo courtesy Bloomberg

Photo courtesy Bloomberg

Underlying Air New Zealand (ANZ)`s increasing its stake in Virgin Australia to 23 per cent and thus becoming the Australian carrier`s biggest shareholder, the kiwi carrier said it was not seeking a position on the Virgin board nor was it interested in taking control of the airline.

Virgin chief executive John Borghetti was quick to check any speculations that things might change drastically as a consequence, reiterating that ANZ`s move would not in any way affect the business. He said: `I`m still going to work. Nothing changes for us. They don`t have a board seat.”

Courtesy Singapore Airlines

Courtesy Singapore Airlines

Singapore Airlines (SIA) which had only recently agreed to acquire an additional 9.9 per cent stake to add to its current shareholding of 10 per cent – making a total of 19.9 per cent – dispelled any concerns about the ANZ challenge, insisting it remains committed to the Virgin partnership and that SIA has no intention of further increasing its stake.

Billionaire Richard Branson’s Virgin Group holds a 22.4 per cent stake and Dubai’s Etihad Airways owns 10 per cent.

Is it really a round of handshakes auguring a permanent pact of peaceful co-existence among piecemeal partners which have not in recent aviation history boasted much in common except that two of them (SIA and ANZ) belong to the broad Star Alliance group? It may be the same tune that they will sing for now, to break into Qantas’ 65-per-cent hold of the Australian domestic market through the Virgin partnership, and that through this it will support its international operations. However, the collective strategy cannot disguise the individual agenda for each of these airlines, notably ANZ, SIA and Etihad.

Mr Borghetti who said “tomorrow is the same as yesterday” may soon find it cannot be so.

Courtesy wikipedia

Courtesy wikipedia

Interestingly, attention has already been turned to a likely tussle between ANZ and SIA, though both airlines have brushed aside any controlling interest. What is more interesting is how history has once again brought the two competitors together in a similar tussle for control of the ailing Ansett Australia in 1999/2000 and how SIA became badly bruised subsequently in its acquisition of a 25-per-cent stake in ANZ – a lesson that seems to have weighed heavily on the SIA in its subsequent approaches to acquisitions. Even in its stepped-up acquisition of the Virgin stake, it reflects a somewhat overly cautious step that took longer than expected.

Yet more interesting in the present situation is Virgin’s recent takeover of the Australian offshoot of SIA’s budget setup Tiger Airways. That was supposed to boost SIA’s presence across Australia. That should not change, unless Virgin changes course under new directions.

As for Virgin, it should thrive with renewed faith from its partners. Both ANZ and SIA have echoed their faith in the Australian carrier, hence their equity investments in it. But Virgin is facing tough competition from Qantas, having forecast a further slip in annual profit for the third time in five years. It has also been tardy in seeking breakthroughs internationally, much as it has boasted several commercial tie-ups with airlines such as SIA and Delta Air Lines. Something has to change, beyond the handshakes.

Singapore Airlines disappoints

Courtesy Singapore Airlines

Courtesy Singapore Airlines


Singapore Airlines (SIA) prefaced its report on its annual performance (2012/13) with attribution to high fuel prices and lower yields owing to a weak global economy for its lacklustre results. The announcement concluded with an equally dismal outlook, saying very much the same thing, warning that “the global economic outlook remains uncertain with the ongoing weakness in the Eurozone and sluggish recovery in the United States” and that “yields are likely to remain under pressure amid weak economic sentiment.”

So what’s new, indeed?

While the results per se disappoint, the presentation disappoints even more so, simply because it does not provide any excitement going forward, almost in resignation to whatever the circumstances that will decide its fate. Perhaps it is because we have come to expect so much more from an airline that has for a long time been considered one of the world’s most profitable, most innovative and most gungho airlines.

Group operating profit fell 19.8% to S$229 million (US$184 million) with only the parent company registering an increase of 3% from S$181 million to $187 million on the back of a growth of 7.3% in passenger carriage, and cushioned by the surplus on sale of aircraft spares and spare engines. SIA Engineering and SilkAir reported lower profits, the former from S$130 million to S$128 million (1.6%) and the latter from S$105 million to S$97 million (7.6%). Losses for SIA Cargo deepened by more than 40% from S$119 million to S$167 million.

The not so-good-signs for SIA the airline are falling yields, a weak fourth quarter of losses and relatively flat demand in forward booking for the next few months. In fact, SIA’s last quarter performance ran contrary to industry performance which, according to the International Air Transport Association (Iata), saw air passenger travel growing by 5.9%, boosted by emerging markets. Iata chief Tony Tyler added: “Strong demand for air travel is consistent with improving business conditions.” However, developed markets were experiencing relatively low growth. That could explain SIA’s limited growth – operating largely in mature markets that are highly competitive.

The pressure on yield will continue to be a challenge – and with time, a bigger challenge – as SIA faces increased competition from rival airlines for not only the long haul but also regional routes. Middle-East airlines such as Emirates, Etihad Airways and Qatar Airways in particular have become very aggressive in the premium air travel segment, investing heavily in the product and forging strategic partnerships with other operators. Their increased popularity is likely to also shift hub airport activity to the Middle East, threatening Singapore Changi Airport’s hub status in east-west connections between Asia-Pacific and the regions of Europe and Africa. No doubt SIA will benefit from Changi’s ability to remain a favourite hub among airlines and their customers.

At the lower end, SIA also faces exposure to cheaper options from regional and budget operators that in pre-economic crisis days would have been scoffed at. Consequently SIA is adopting a broad catch-all strategy – that saw the launch of budget subsidiary Scoot last year – which may not necessarily work in its favour as it dilutes its premium product and compromises yield. The other airlines in its fold are not exactly star performers: Little has been reported of Scoot’s performance to date; Tiger Airways in which SIA has a 33% stake is losing money; and SilkAir is operating below capacity growth.

SIA needs a more robust and focussed strategy than that – to lead, rather than follow, and to pro-act, rather than react. In a highly competitive environment, the player that sets the rules wins. High fuel prices and the continuing sluggish state of the global economy are by now givens since they are woes that cut across the industry, and they should be viewed as challenges and not as excuses for poorer performances. The success story of Japan Airlines’ turnaround in spite of these circumstances provides a lesson on not accepting things as they are; the Japanese carrier emerged from bankruptcy to become the world’s most profitable carrier in 2011. Certainly the credit must go to the man at the helm – honorary chairman Kazuo Inamori, who very humbly attributed his success to hardworking employees.

Some observers think that SIA is hugely disadvantaged by its lack of strong partners, but the airline has a speckled history of failed relationships, notably its acquisition of stakes in Virgin Atlantic and Air New Zealand in 1999/2000. Both stakes were later relinquished at a loss. SIA also failed to buy into China Eastern Airlines, which today has entered into a codeshare arrangement with Qantas. To be fair to SIA, a number of other airlines have also bought lemons. The International Airlines Group which owns British Airways and Iberia has reported a first-quarter loss of 630 million euros (US$808 million) – almost five times more than the 129 million euros loss in the same quarter last year – attributed to the poor performance of the Spanish partner.

The choice of the right partner is key to success. SIA has recently increased its stake in Virgin Australia from 10% to 19.9%, added to extensive marketing cooperation in schedule meshing and the use of each other’s premium lounges int heir networks. While there is potential in Virgin making big forays in the international arena, the alliance at best will present a stronger domestic presence for SIA in Australia for now and pales by comparison with the mega alliance (albeit a non-equity partnership) between Qantas and Emirates which is an attempt to shift the traditional competition to a new playing field such as replacing Changi with Dubai as Qantas’ hub for flights on the kangaroo route.

It is always with great interest and perhaps somewhat unfortunately with high expectations that the industry awaits moves by SIA to regain its lead in the business of flying. But the introductory and closing remarks of its latest result announcement provide little to excite the imagination. Somehow it seems SIA prefers to bide its time. SIA chief executive officer Goh Choon Phong said at the results briefing: “We think at some point there’ll be a recovery, and we’ll be well positioned to tap the recovery with the growth and the partnerships that we’ve established within Asia and other parts of the world.”

However, telling the same bleak story may be consoling, but it can also be dangerously self-fulfilling in resignation. The good neBut it seems SIA prefers to bide its time. SIA chief executive officer Goh Choon Phong said at the results briefing: “We think at some point there’ll be a recovery, and we’ll be well positioned to tap the recovery with the growth and the partnerships that we’ve established within Asia and other parts of the world.”ws is that many still believe in the airline’s ability to do better, in spite of gloomy weather. Backed by a strong balance sheet, not many of its rivals have the privilege of believing still that the game is theirs to lose.