Singapore Airlines’ third quarter performance: Silver lining before the clouds darken

Courtesy Singapore Airlines

Singapore Airliners (SIA)’s double-digit profit growth for the third quarter (October to December 2019) is a silver lining before the clouds darken.

SIA posted a 3Q operating profit of S$413 million (US$297 million) – S$44 million or 12 per cent more than the same quarter a year ago. This gives a 9-month total of S$878 million which is 13 per cent short of the full FY 2018/19 profit of S$991 million Of that, 4Q contributed 21 per cent.

The question is whether SIA can match last year’s performance in the current situation with the dip in global travel because of COVID-19.

SIA has cancelled almost 700 flights to destinations not only in Asia but also in the United States, Europe, Australia and New Zealand, and Africa and West Asia. Some flights are suspended from February with others taking effect in the months following until May.

The full impact of the cancellations will not be felt in FY2019/20 which nevertheless will be impacted by present and continuing dip in demand.

In particular, China is a large market for SIA and its low-cost subsidiary Scoot, which has cancelled all flights to China. SilkAir which will in time be merged with the parent airline has also drastically reduced its services to China.

SilkAir’s 3Q performance was flat, posting an operating profit of S$7 million. The airline’s capacity has been impacted by the grounding of the B737 Max jet.

Scoot posted an operating profit of S$4 million for 3Q 2019/20. In light of its reliance on the China business, it is not likely to fare any better in the last quarter.

Of course, SIA is not alone in this unfortunate situation. Other airlines such as Cathay Pacific, Malaysia Airlines and Royal Brunei Airlines have also cut back services to cope with reduced demand. In the case of Cathay, capacity has been reduced by as much as 40 per cent.

It is during times like this that confidence is most needed. SIA is optimistic that the airline is “well-positioned to weather current challenges posed by COVID-19 outbreak” according to its statement released on February 14.

CAAS’ quick suspension of Boeing 737 MAX 8 a right call, but could SilkAir have done better?

https://www.todayonline.com/commentary/quick-suspension-boeing-737-max-8-right-call-caas-could-silkair-have-done-better

Why SilkAir’s merger with SIA is long overdue

https://www.todayonline.com/singapore-0/why-silkairs-merger-sia-long-overdue

Singapore Airlines and Scoot do well, but Silkair lags behind

Courtesy AFP

Singapore Airlines (SIA) posted full-year operating profit ending March 2018 of S$703 million (US$523 million), an increase of more than 80 per cent from last year’s S$386 million, favoured by improved passenger carriage and load factor. The airline attributes its success to early fruits of a three-year transformation programme that incorporates a new revenue management system, new airfare pricing structure and the set-up of a centralised pricing unit, and other initiatives to save fuel and reduce waste.

Budget subsidiary Scoot also showed improved profitability but at a lower but commendable rate, increasing by almost 15 per cent from last year’s S$67 million to S$77 million.

However, regional carrier SilkAir suffered a decline of 57 per cent as its operating profit plunged from S$101 million to S$43 million.

As a group (which includes SIA Cargo and SIA Engineering), the company’s operating profit surpassed S$1 billion, yielding a net profit of S$893 million, which is 183 per cent more than last year’s S$533 million – its highest since 2011. This came on the back of traffic growth higher than the decline in yield, and improved cargo and engineering revenue. Also notable is the impairment of the Tigerair brand and trademarks, and a fuel hedging gain compared to a loss last year.

The outlook looks positive with strong advance passenger bookings, but of course there are the usual caveats of competition and the volatility of fuel prices which are beginning to trend upward.

More interesting is how, following the announcement, SIA confirmed the rumour of an impending merge between SilkAir and the parent airline. The latest performance results only serve to make sense of the initiative for SilkAir to go the way of Tigerair in yet another step towards rationalizing the Group’s operations. This is no surprise (see After the merger of Scoot and Tigerair, will it be Singapore Airlines and SilkAir next? Aug 29, 2017).

Singapore Airlines does better without Tigerair

Courtesy Singapore Airlines

Singapore Airlines (SIA) reported 3Q (Oct-Dec 2017) operating profit of S$155 million (US$118 million), an increase of S$4 million or 2.6 per cent year-on-year. This adds up to a nine-month total of S$566 million compared to S$427 of the previous year, an increase of S$139 million or 32.6 per cent.

SIA can look forward a strong recovery for the full year, as the amount already exceeds last year’s S$386 million, which declined by S$99 million or 20.4 per cent.

Subsidiaries SilkAir and Scoot faced different fortune. Regional carrier SilkAir suffered a dip in operating profit of S$11 million or 36.7 per cent from S$30 million to S$19 million despite an increase in revenue and passenger carriage. Budget carrier Scoot on the other hand reported operating profit of S$43 million, an increase of S$25 million or 48.3 per cent, overtaking its sibling airline.

Courtesy Scoot

As a group (including SIA Cargo and SIA Engineering), 3Q operating profit was S$330 million – an increase of S$37 million or 12.6 per cent – in the absence of Tigerair, which incurred a S$79 million writedown of the its brand a year ago. This adds up to S$843 million for the nine months to December 2017, an increase of S$248 million or 41.7 per cent.

A challenge ahead would be rising fuel cost, which rose by S$86 million or 9.2 per cent in 3Q, fortunately cushioned by gains in hedging. SIA and SilkAir will face pressure on yields from more aggressive competition while Scoot without Tigerair may find opportunities in the low-cost trend for the longer haul and its appeal to millenials.

A Brief History of Singapore Airlines Going Forward

Courtesy Bloomberg

The history of Singapore Airlines (SIA) dates back to the incorporation of Malayan Airways on May 1, 1947. The airline changed its name to Malaysia Airways in line with the formation of Malaysia in 1963. The entity splits into SIA and Malaysian Airlines System in 1972, seven years after Singapore left the Malaysian federation and became a nation in its own right. Then on SIA expanded quickly and became one of the world’s top airlines.

SIA established Tradewinds in 1975 as a regional carrier catering mainly to the leisure market. This was SilkAir’s predecessor as the airline looked beyond into the business segment and assumed its new identity in 1976. With the growth of budget travel, SIA partnered leading budget carrier Ryanair to set up Tiger Airways which commenced services in September 2004. Tiger underwent several changes over the years, performing below expectations. In the meantime SIA set up Scoot, a fully-owned budget subsidiary said to be targeting the medium (and now long-haul) while Tiger focused on the short-haul. The line soon blurred, and by the end of 2016, Tiger was assimilated into Scoot.

As SIA expanded as it grew, so did it reconsolidate by contracting as the aviation landscape shifted. The demise of Tiger was imminent when Scoot was formed, not only to extend the range of the budget operations but also to recapture ground lost by Tiger. The intra-competition that followed did not make much sense. The costly lesson from Tiger is that it can be hard to repair a badly tarnished image and easier to start a new slate.

Now, from four down to three, will there be further restructuring of the SIA stable?

Courtesy AFP

According to OAG, an air travel intelligence agency based in the UK, Scoot has overtaken SilkAir in the number of seats offered. The budget airline is also about a third as big as SIA in the economy market. And it is growing at a faster rate than its regional sibling. Besides, parent SIA looks set to refocus on premium travel, a move that some analysts believe to favour the expansion of Scoot, particularly when the line between budget and legacy airlines begins to blur across the industry.

This does not augur well for a carrier like SilkAir operating in the middle of the field. Since its inception, the so-called regional carrier has been operating in the shadow of the parent airline and continues to do so despite recent efforts to change that image. Does this forebode a merger between SilkAir and Scoot, going forward, although the former has time and again insisted it is not a budget airline? Can Scoot on the other hand be more than a budget carrier?

What’s in a name anyway? So says the Bard, a rose by any other name would smell as sweet.

After the merger of Scoot and Tigerair, will it be Singapore Airlines and SilkAir next?

Courtesy Wikimedia Commons

Will Singapore Airlines (SIA) and its subsidiary SilkAir take the merger route of Scoot and Tigerair, now that their finance operations are merged, perhaps as a first step in that direction?

While SIA maintains that such initiatives are part of an ongoing programme to be more competitive, the speculation is only to be expected in the oontext of the company embarking on “a comprehensive review that leaves no stone unturned, cutting across all divisions of the company” as stated by its CEO Goh Choon Phong.

SlkAir started in 1975 as Tradewinds Charters which became Tradewinds Airlines in 1989 when scheduled services were introduced. Three years later, it was renamed SilkAir, shedding its leisure image and is often referenced as SIA’s regional arm.

However, in its long history, SilkAir hardly comes into its own, seen as operating in the shadow of parent SIA. Therefore, consolidating operations – finance, for a start – makes sense since some of the routes operated by SilkAir were previously operated by SIA and in light of SIA re-focussing its operations in the region. Besides, as the competition intensifies, a strong SIA brand across the region is imperative. There is no reason why a regional carrier so-called should be viewed as one providing services one notch below, an unfortunate perception that is difficult to shed.

At the height of the budget travel boom in the region, SIA launched Tigerair in 2003. Then there were already questions asked about the continuing operations of SilkAir which the company reiterated is a regional airline and not a budget carrier. Then Scoot came into being in 2012 as a medium haul budget carrier, differentiated from Tigerair’s short haul operations. It soon became clear the SIA Group was having one too many on its plate, resulting in intra-competition. Tigerair and Scoot finally merged under the Scoot brand this year.

Now that the number has been trimmed from four to three, will it be cut down further to two, typically the structure of most global airlines, between full-service and low-cost operations?

SilkAir may be likened to Cathay Dragonair, which Cathay Pacific has also insisted is not a budget but regional airline. But then, Cathay has never believed in adding a budget carrier under its wings. You might say that place is filled by Dragonair. By comparison, however, SilkAir’s status is somewhat ambiguous depending on how SIA delineates the geography as being regional or international.