Not world class, five-star is still a winner

Not world class but five-star as named by the Airline Passenger Experience Association (APEX). The distinction may not raise too many brows. Five stars are as far as you can go by definition in the universal ranking of service excellence.

Only 23 airlines made it to the APEX five-star list which of course includes the magnificent seven also named by the orgnisation. (See APEX names world cass airlines, none from North America, Dec 13, 2021). Asia tops the list with seven airlines, followed by Europe (six), Middle East (five), North America (four) and Latin America (one).

According to APEX, the result was based on passenger surveys collected over nearly one million flights operated by 600 carriers worldwide.

Courtesy Boeing

Asian carriers are the familiar brands of Cathay Pacific, China Airlines, EVA Air, Japan Airlines, Korean Air and Singapore Airlines with the notable absence of All Nippon Airways (ANA). The seventh carrier in the list is the comparatively new Xiamen Airlines which outperformed the larger three competitors o Air China, China Eastern Airlines and China Southern Airlines. Hainan Airlines is another notable omission.

Courtesy Getty Images

No surprise either of the winning Gulf carriers, namely Emirates, Etihad Airways and Qatar Airways. Joining them are El Al and Saudi Arabian Airlines (Saudia).

Courtesy Turkish Airlines

The European list of five-star winners is made up of Aeroflot, KLM Dutch Airlines, Lufthansa, Swiss International Air Lines, Turkish Airlines and Virgin Atlantic. One may note the absence of aAir France and British Airways.

Courtesy Getty Images

While none of the world class airlines in the Apex list came from North America, four of them made the five-star grade, namely Air Canada, American Airlines, Delta Air Lines and United Airlines.

Courtesy Boeing

Outside these regions, only Aeromexico from Latin America made the cut.

Once again, neither Qantas nor Air New Zealand in Sputhwest Pacific achieved any mention.

If there is one key to winning, it is one of consistency. According to APEX, the winning airlines require “the vast majority of their independently verified customer ratings to be five-star.” As an example, APEX says it “requires four times the number of five-star votes to counteract a single one-star vote. This provides tremendous power to customers when they are disappointed by their customer exoerience.”

At a time when many airlines are hard-hit by the coronavirus pandemic as they struggle to stay afloat, cutting back on frills, it is a challenge to maintain service standards and meet, let alone exceed, cusotmer expectations. Theefore, to be five-star recognized is no mean feat.

Can newbie Greater Bay take on veteran Cathay Pacific?

Courtesy Greater Bay Airlines

Waiting in the wings is a new Hong Kong carrier with ambitious plans to fly to 104 destinations in mainland China and other parts of Asia.

Named Greater Bay Airlines, the carrier was founded by property magnate Bill Wong who already owns one other carrier, Donghai Airlines Co, headquartered in Shenzhen in the Chinese mainland not far from Hong Kong.

Greater Bay’s greater ambition is to take on Cathay Pacific.

It looks like the Covid pandemic is levelling the field, reopening on a clean slate as and when Hong Kong relaxes its travel restrictions. Cathay has been badly hit by the dive in passenger numbers to as high as 95 per cent as it cuts back routes and capacity, and seems restrained by the territory’s Covid Zero policy.

So, as suggested by Greater Bay Airlines’ Chief Executive Officer Algernon Yau, who said, “We’re starting from new, so we don’t have the burden or the baggage.” He explained further, “Now we’re all starting from the same line. When business comes back, we can easily catch up and not be left behind.”

Can Greater Bay? And should Cathay be wary?

Courtesy Cathay Pacific

It seems the pandemic has lent an easy transfer of redundant but trained and experienced crew from Cathay to Greater Bay. Yau himself was an ex-Cathay executive. But in as much as the pandemic is hurting Cathay, the waiting can prove costly for Greater Bay too. On the other hand, it can mean cheaper aircraft and other resources in a time of uncertainty when supply far exceeds demand.

If travel restrictions continue to erode Hong Kong’s aviation hub status, it will mean a diminished international market. But with Chinese connections and a potentially strong presence in the domestic mainland market, Greater Bay may enjoy an edge over Cathay, which, though, is about 30 per cent owned by Air China.

But when restrictions are lifted soon enough, Cathay will be able to bounce back internationally a stretch ahead of Greater Bay whose initial focus would be regional destinations including Bangkok and Phuket, more leisure than business. Yet never underestimate how quickly Chinese carriers such as Air China, China Eastern and China Southern spread their wings across the globe, not in the least Hainan Airlines which ranks among the world’s best in service although it is now struggling in red ink.

In true political fashion, a Cathay spokesperson said in reaction to the news, “There’s a wealth of potential for both business and leisure travel as the region continues to develop.”

No one can deny that healthy competition helps to strengthen the business. Yet we recall how Cathay fought tooth and nail to keep Qantas from starting Jetstar Hong Kong in the territory and succeeded, pushing the argument that there was no room for budget carriers in Hong Kong. Today Cathay owns budget carrier Hong Kong Express, which operates services to destinations in mainland China, Northeast Asia Southeast Asia and the northern Marianna Islands, in a way replacing regional carrier Dragonair which has since been assimilated in the parent airline during the Covid pandemic.

Cathay too had seen how long-haul budget Oasis Hong Kong Airlines arrived on the scene with a bang in 2004 and exited with a whimper three years later. The carrier operated services from Hong Kong to London, and to Vancouver.

This time, the game may be different as unlike Jetstar, Greater Bay is by definition not a foreign entity. Yet Cathay ought to be wary of how the large China hinterland is an important market for its international network.

Interestingly, Greater Bay aims to be a “value carrier” according to CEO Yau. So it is neither a budget carrier nor a full-service one, but somewhere in between. There will be no seat-back screens on its planes, and customers will be able to use an app to customize their journey before boarding, such as ordering food from McDonald’s and premium whisky.

That might set it apart from Cathay, which may explain how it seems to be not quite perturbed by the announcement of a new kid on the block.

2020: Annus Horribilis for the airlines

Courtesy AFP

Some of us may remember back in 1992, how Queen Elizabeth referred to the year as “not a year on which I shall look back with undiluted pleasure. In the words of one of my more sympathetic correspondents, it has turned out to be an Annus Horribilis.”

When International Air Transport Association (IATA) Director-General Willie Walsh reported the performance of airlines in 2020, he echoed the sentiment that it was “a year that we’d all like to forget”. No doubt last year was an annus horribilis for the industry, as Walsh recognised it to be “the most difficult year in its history.”

The numbers tell the story.

Only 1.8 billion passengers flew in 2020 compared to 4.5 billion in 2019, a decrease of 60.2 per cent. Demand for international travel fell by 75.6 per cent and for domestic travel by 48.8 per cent. Consequently total industry passenger revenues plunged 69 per cent to US$189 billion and net losses amounted to US$126.4 billion.

The worst hit was the Middle East whose passenger traffic dropped by 71.5 per cent, followed by Europe (67.4 per cent), Africa (65.7 per cent), North America (60.8 per cent), Latin America (60.6 per cent) and Asia-Pacific (53.4 Per cent).

Domestic markets did better than international markets with China topping the list. China Southern Airlines and China Eastern Airlines were among the top five performers in the domestic market, the others being North American carriers American Airlines, Delta Airlines and United Airlines.

But what of the future?

IATA thinks global air travel will bounce back strongly before the end of 2023. Passenger numbers would reach 52 per cent of pre-Covid levels by the end of this year and 88 per cent next year. And,optimistically, surpassing pre-Covid levels by 5 per cent in 2023.

The main reason for that is increased vaccination across the globe, which should lead to reopening of more borders and easing of restrictions such as the need for quarantine and pre and post-flight testing. When that happens, as Walsh expected, there would be a surge in bookings already evident in North America and Europe during this summer.

But with new waves of infection and re-infection circling the globe, it is still anybody’s guess.

Yet you cannot fault Walsh’s optimism as it is his job as much as it is the wishes of member airlines of IATA to get the industry back on its feet. Nothing like a good dose of that for encouragement. But he recognised the challenges, which, he said, would “require governments and industry to work in partnership. “ And then, somewhat in lamentation, “Aviation is ready. But I don’t see governments moving fast enough.”

The way ahead is for governments to open up gradually with the necessary precautionary measures, facilitated by policies that instead of discouraging travel would make it possible for those who satisfy assessed safe standards. For example, as suggested by Walsh, restriction-free travel for vaccinated people, and testing alternatives for those who are unable to be vaccinated.

Of course, it might be easier said than done when different countries are implementing different measures of restrictions and policies which may not support the global effort towards efficiently checking the spread of the virus across regions. It calls for greater global understanding and co-operation.

Re-enters the B737 Max

Courtesy Boeing

On November 18, the US Federal Aviation Administration (FAA) lifted the ban on the Boeing B737 Max jet after a 20-month long suspension following two disastrous air crashes within five months of each other, killing 346 people.

FAA chief Steve Dickson said he was “100% confident” in the safety of the aircraft, adding that “we’ve done everything humanly possible to make sure that these types of crashes do not happen again.”

Among the conditions mandated by the FAA were software upgrades and pilot training. The FAA which had been criticized for oversight laxity will no longer allow Boeing to self-certify and sign off on the airworthiness of the aircraft.

Boeing as the manufacturer which had been censured for shoddy work, scant attention to safety, poor supervision and a broken work culture, assured its customers the company has fixed the problems and improved its systems and procedures.

How then will the world receive the comeback of a once popular aircraft said to be a Boeing cash cow?

The Regulators

Other regulators around the world generally go by the FAA’s recommendations but have taken several steps back since the Max disasters. Some of them have said they would undertake additional processes and procedures of their own.

The European Union Aviation Safety Agency (EASA), for example, has its own set of criteria to be additionally satisfied. It will take a while into next year before Max jets under its jurisdiction are certified to fly again.

Transport Canada too has said it is not ready.

However, the FAA decision will pave the way for other regulators to follow suit, albeit at a later date.

The General Authority of Civil Aviation of the United Arab Emirates for one said it will “issue a safety decision stipulating the technical requirements to ensure the safe return of service for Boeing 737 Max aircraft, and will announce the schedule for the return authorization in a timely manner.”

The time will come, no matter how late.

The Airlines

American Airlines which owns a sizable fleet of 22 Max jets looks set to be the first airline to reintroduce the aircraft into service on Dec 29.

Southwest Airlines, which is the world’s biggest Max jet operator with 31 aircraft said this would not happen until the second quarter of next year. United Airlines, which owns 14 Max jets, has similar plans.

While some airlines have cancelled their orders, Delta Air Lines, which does not own any Max jet, is a potential customer to take advantage of the discounts offered by Boeing. The airline’s chief executive Ed Bastian said: “If there is an opportunity where we would feel comfortable acquiring the Max, we’d have no hesitation doing that.”

Alaska Airlines plans to lease 13 Max jets to replace 10 Airbus A320 aircraft inherited from Virgin America which it assimilated, to return to an all-Boeing fleet.

The confidence of US carriers over time will encourage other Max jet operators around the world to follow suit. These include Canadian carriers Air Canada and WestJet, and Chinese carriers Air China, China Eastern, Airlines and China Southern Airlines, pending the go-ahead by their respective aviation authorities. These airlines will not want their aircraft to sit idle.

The Travellers

All well and good with the regulators and airlines, but the travelling public is the ultimate customer. Many passengers may still be uncomfortable with the idea of flying the Max jet, and consumer associations are urging airlines to post the information upfront and allow their customers to switch flights without penalty

Ryanair chief Michael O’Leary has said nervous passengers may disembark the Max jet before takeoff and find another flight free of charge.

However, passengers are often left holding the short end of the stick. Understandably flights and the operating aircraft are scheduled early and are subject to change. A last minute change can be disruptive, and passengers may under the circumstances be persuaded to accept a compromise. Multiple connections across different airlines make it even more onerous.

Then again, people travelling out of certain airports may not have a choice of flights or airlines, but to fly blind and on a prayer.

Time helps to restore confidence though, and so too it makes people forget.

Timing

The Max jet is re-entering service at a time when airlines are cutting back capacity in light of falling demand for seats. Not an ideal time for new orders of aircraft although Boeing is still facing a backlog of unfulfilled orders. There is catch-up to be done as it has also lost time to rival Airbus which saw an uptick on its narrow body A320 to rival the Max jet.

But time may be a blessing in disguise for the Max jet to grow its acceptance. The International Air Transport Association is not expecting the industry to recover until 2024. But the good news is that the short haul will recover faster than the long haul, and that’s how the Max jet (in competition with its rival) may find it is still very much in the game.

Airlines need to incentivise travel

Courtesy Singapore Airlines

Singapore Airlines (SIA)’s performance for Q1 FY2020/21 is anything but surprise. Passenger carriage fell by 99.4 per cent compared to the same quarter last year. Its subsidiaries fared no better, with 99.8 per cent for SilkAir and 99.9 per cent for budget carrier Scoot. As a group, that worked out to 99.5 per cent. If that’s not shocking enough, round up the numbers and you get 100 per cent. Let’s just say it’s as close it could get to that. As a result, the SIA Group reported a net loss of S$1.12 billion (US$0.82 billion) for the quarter April to June 2020.

However, SIA is not alone. The whole industry is in the doldrums. Of course, blame it on Covid-19; the uncertainty of its containment to at least a reasonable level of infection will continue to test the airlines’ capability to survive the pandemic. Just only yesterday, Sir Richard Branson warned that Virgin Atlantic could run out of cash tors did not approve a £1.2 billion (US$1.57 billion) rescue deal. Meanwhile the British carrier is also seeking bankruptcy protection as a matter of course.

Industry experts are of the view that it will take at least two to four years before passenger numbers are back to pre-Covid-19 levels. Travellers are staying on the sideline, apprehensive about health safety and discouraged by frequent change at short notice of rules governing entry and mandatory quarantine amidst the resurgence of infection in some countries which had previously declared reasonable success in handling the coronavirus outbreak.

Airlines, of course, are implementing measures to regain customer confidence such as deep cabin cleaning and frequently disinfecting touchable surfaces of touchable surfaces, reduced crew handling and interaction, doing away with in-flight reading materials and mandatory wearing of face masks or coverings. To show that they mean what they say, passengers who are refusing to cover up have been taken off the flight. Delta Air Lines for one has blacklisted over 100 people for future travel so far.

Courtesy Getty Images

Initially a number of airlines are committed to keeping the middle seat vacant or at least the seat next to a booked passenger shall not be sold. But as the demand creeps back and the need to fill seats, some airlines have thrown that policy out but may allow those passengers who do not feel comfortable to re-book, which is an unnecessary inconvenience if in the first place you are really hoping for some though limited social distancing. Delta is one of the few airlines that continue to assure their customers that the seat next to them will be left unoccupied.

Besides measures to assure travellers that they will be flying in a safe environment, airlines may begin thinking of new creative ways to incentivise travel and lure erstwhile customers back and others away from the competition in light of the lean pickings.

Courtesy Reuters

In China, which is still not open to foreign visitors, at least eight carriers have launched “all-you-can-fly” deals for domestic travel at extremely low fares. These include major carriers China Southern Airlines and China Eastern Airlines. The promotion seems to be working judging by Lucky Air which said it had hit capacity for monthly and seasonal passes soon after it launched offers for unlimited travel. Others are offering variations of the deal, such as unlimited weekend travel, special packages for children travelling with parents, and unlimited upgrades at no additional cost.

Emirates Airlines of the UAE is offering different perks, pledging to cover medical, quarantine and funeral costs of any passenger diagnosed with Covid-19. It looks like some form of insurance, and the onus of proof may be difficult to determine whether the virus was contracted on board a flight. In any case it is one of those things that are as good as when in the event that they are needed, but it does seem a little unsettling to think the chances of getting infected on board a flight are only too real!

Malaysia Airlines: Waiting for the white knight

Courtesy Reuters

IN July, there was much excitement about Qatar Airways’ interest in acquiring Malaysia Airlines (MAS), being one of four proposals received by the ailing flag carrier of Malaysia. It seems that has as quickly dissipated.

According to sources, apparently only one proposal from local investors Jentayu Danaraksha Sdn Bhd (JDSB) is left on the table. The consulting firm is fronted by former MAS chief executive officer Tan Sri Abdul Azia who retired in 1991.

But MAS’ owner Khazanah does not seem to favour JDSB which in 2014 said it was keen to revive the carrier but was snubbed.

There has been ambiguity as to whether MAS prefers a local or foreign investor. But there is now new excitement about the possibility that Japan Airlines (JAL) might be that white knight. Much has been hyped about JAL being a good fit for MAS since it had only not too long ago pulled through a difficult time of near collapse and would therefore know what’s needed to rescue MAS.

JAL has earlier tied up with MAS to operate joint flights between Japan and Malaysia, and it looks like a natural step forward to take on a bigger role. Besides, both airlines belong to the OneWorld Alliance (and so too Qatar Airways).

And while the powers that be at Khazanah are gushing with excitement about that prospect, JAL president Yuji Asaka said it was too early to consider an equity investment in MAS but future discussions were possible.

Extending its reach internationally may be a strategy for JAL in competing with rival All Nippon Airways. So far it has partnered with airlines which include China Eastern Airlines, Hawaiian Airlines and Garuda Indonesia in commercial agreements. But equity acquisition is so far not on the card. So it may be a long road, so patience may just be what MAS needs right now.

Caution keeps B737 Max jet grounded

Courtesy Getty Images

Carriers which had been hopeful that the Boeing B737 Max jet would return to the skies as early as next month have deferred scheduled dates to operate the aircraft.

Earlier in August, Boeing CEO Dennis Mullenburg was hopeful that this would happen in the fourth quarter of the year and the airlines could look forward to capturing the peak holiday season traffic.

American Airlines which owns 24 of the Max jet is pushing the date to Dec 3. United Airlines with a fleet of 14 is moving it further down the road to Dec 19. It looks like both carriers are still hoping to cash in on what shall remain of the peak season including the Christmas holiday. But Southwest Airlines, the largest of the Max operators worldwide with 34 aircraft has moved the scheduled date to Jan 5 next year.

North of the border, Air Canada (which owns 24 Max jets) and Sunwing (with 4 aircraft) are not expecting the aircraft to be operational until next year. For Air Canada, it is Jan 8. And for Sunwing, even later in May. WestJet (with a fleet of 13 Max jets) too is not scheduling Max flights during the year-end holiday season, but said the company might consider an occasional flight to ease the demand should the ban be lifted then.

WestJet’s vice-president in charge of scheduling said: “It’s a little harder to unmix the cake at that point, but we would look at peak days, the Friday before Christmas (for example) where we can still sell seats and we’ll put the airplane back in.”

Elsewhere across the world, affected carriers remain non-committal on their plans. Other major operators until the jet was grounded include Norwegian Air Shuttle (18 aircraft), China Southern Airlines (16), TUI Group (15), China Eastern Airlines (14), Lion Air (14), FlyDubai (14), Turkish Airlines (12), and XiamenAir (10).

The B737 Max jet was grounded globally following two fatal incidents, one involving Indonesian carrier Lion Air in Oct last year and the other involving Ethiopian Airlines in Mar this year, both crashes claiming a total of 346 lives.

Quite naturally, carriers which own the Max jet are keen to see its early return to the skies. Many of them have cut back capacity to cope with the shortage of aircraft and are reporting losses as a consequence. United which took out 70 flights a day in its September schedule will see the number increased to 90 in December. Together, the three airlines – American, United and Southwest – have cancelled 30,000 flights. Delta Air Lines, however, stands to gain from these airlines’ disadvantage as it does not own any Max aircraft.

Budget carrier Norwegian Air Shuttle which plies the ultra-long haul is said to be on the brink of collapse, and the grounding of the B737 Max jet isn’t helping. According to former CEO Bjorn Kjos, the restriction has cost the airline US$58 million. Norwegian, which took the US by storm with its low fares, raising objection from American carriers, has cancelled numerous flights between Europe and the U.S.

Both the US Federal Aviation Administration (FAA) and Boeing have suffered some loss of credibility in the wake of the two crashes. Stories about Boeing’s shoddy work at is plants and allegations of FAA’s relegating its oversight role to the manufacturer had hit hard. FAA’s delayed action to ground the Max jet after a number of authorities across the globe had done so also called into question FAA’s leadership role in the field.

However, FAA may have learnt its lesson. Following meetings between Boeing and various industry players where disagreement on the readiness of the Max jet was apparent, FAA had said, “Our first priority is safety, and we have set no timeframe for when the work will be complete. Each government will make its own decision to return the aircraft to service, based on a thorough safety assessment.”

Europe’s aviation safety watchdog – the European Aviation Safety Agency (Easa) – for one will not rely entirely on a US verdict on whether the Max jet is safe to resume flying. It will instead additionally conduct its own tests on the plane before giving its final approval.

Transport Canada has insisted on the need for essential simulator training in early discussions when Boeing said it was not necessary since the Max jet was a variation of the B737 master model. The authority said it “will not lift the current flight restriction… until it is fully satisfied that all concerns have been addressed by the manufacturer and U.S. Federal Aviation Administration, and adequate flight crew procedures and training are in place.”

According to a report by the Wall Street Journal, multiple regulatory bodies around the world were not satisfied with Boeing’s briefing on the Max software update. They contended that Boeing “failed to provide technical details and answer specific questions about (the) modifications.” Boeing is expected to resubmit documents providing more details, and that these should be first approved by FAA before a follow-up meeting is convened. This in a way reminds FAA of its oversight role.

While affected airlines are looking forward to normalising their operations with the return of the B737 Max jet, what happens post-ban is another story. In fact, it may present a more difficult problem to handle than the technical aspects of the saga as the carriers try to win back the trust of travellers. If, indeed time is the healer, then taking the time to be absolutely convinced of the jet’s airworthiness before lifting the ban may be a good thing for the airlines.

Is the Boeing Max ready to fly?

Courtesy Boeing

Airlines looking forward to fly their fleet of Boeing B737 Max 8 aircraft have just got their planned schedules jiggered up by the Federal Aviation Administration (FAA)’s announcement that it may take up to a year before the jet is cleared again for commercial flights.

According to the BBC, FAA chief Daniel Elwell said: “If it takes a year to find everything we need to give us the confidence to lift the (grounding) order so be it.”

It may be read that underlying this is the FAA’s understanding that time is needed to regain the world’s trust – in both the aircraft and the FAA as regulator. While Boeing seems ready to sign off the improved jet, saying it has finished updating the pertinent flight-control software, FAA in an apparent redeeming move following censure of its lax oversight is assuming control as the final authority to certify the jet’s safety.

According to Bloomberg, Mr Elwell added at a meeting with representation from across the globe, “If there is a crisis in confidence, we hope this will help to show the world that the world still talks together about aviation safety issues.”

In Boeing’s favour, some airlines have voiced their support of the Max. Understandably so, particularly if the airline owns a sizeable fleet of the jet. American Airlines (AA) for one is confident of an “absolute fix” but CEO Doug Parker was also quick to add, “But…it’s not for us to decide whether or not the aircraft flies. It needs to be safe for everyone.” The airline, which has a fleet of 24 Max jets, has cancelled thousands of flights and has now cancelled Max schedules through mid-August.

Another airline which has pledged its commitment to Boeing is Singapore Airlines (SIA). The airline is pledging its commitment to purchase 39 Dreamliner jets and its re-commitment for a previous order of 30 planes. Although this is not related to the Max aircraft of which its subsidiary SilkAir has six of them, it gives Boeing a boost of confidence after reports of shoddy production and poor oversight at the Boeing plant in North Charleston surfaced, and following grounding of some Dreamliner jets because of problems with the Rolls Royce Trent engine fitted to the aircraft.

Read also:

https://www.todayonline.com/commentary/grounding-boeing-max-and-dreamliner-planes-how-can-singapores-airlines-reassure-customers

It’s good to have friends, indeed. But while it’s not yet known if airlines such as AA and SIA have sought or will seek compensation from Boeing, others which have made known their intention include Norwegian Air Shuttle, Ryanair and the big three Chinese carriers of Air China, China Eastern Airlines and China Southern Airlines. A strongly worded report from the Chinese Global Times newspaper said: “We must use punishment and tell the Americans their practice of using concealment and fraud to extract benefits from others, while benefiting themselves, is unfair.”

Never say never: Cathay Pacific enters budget market

Courtesy AFP

In 2015, Cathay Pacific together with Hong Kong Airlines opposed Qantas’ application to set up Jetstar Hong Kong Airways – co-owned with China Eastern Airlines and billionaire Stanley Ho’s Shun Tak Holdings Ltd. Cathay was particularly vehement about there being no room or need for budget travel in Hong Kong. The authorities were convinced and Jetstar HKG never took off.

Today, Cathay announced its decision to buy Hong Kong’s only budget carrier, Hong Kong Express Airways, for HK$4.93 billion (US$628 million). This expands Cathay’s stable of airlines to three, which includes regional carrier Cathay Dragon. It will boost Cathay’s market share to 50 per cent in Hong Kong.

A Cathay spokesperson said: “We intend to continue to operate Hong Kong Express as a stand-alone airline using the low-cost carrier business model.”

Now what caused Cathay to change its mind?

Cathay is not alone in facing stiff competition in the long-haul and premium market, from not only neighbouring rivals such as Singapore Airlines (SIA) but also Middle east carriers such as Dubai Airlines. Besides, Chinese carriers from mainland China are also fast expanding, flying direct and more services to Europe and North America.

At the same time, Cathay can no longer ignore the encroachment by the flourish of budget carriers in the region, particularly those operating out of mainland China. The Hong Kong authorities too may begin to realise how all this may be reducing Hong Kong International Airport’s hub status, particularly when limited options are resulting in Hong Kong being bypassed.

It could be a matter of timing. In 2017 Cathay reported its first annual net loss in eight years and introduced a three-year transformation program. It was later in that same year that Cathay CEO Rupert Hogg affirmed that Cathay had no plans to start a low-cost carrier. But the debt-ridden HNA Group which owns Hong Kong Express offers a timely opportunity not to be missed even as Cathay posted its first full year profit in 2018 of US$299 million.

The business climate can change fairly quickly, but unfortunately airlines may be slow in catching up with the changes because of the huge investment and lead time to implement many of the changes, apart from a host of other reasons, some of which could be largely circumstantial.

Many legacy airlines pooh-poohed the threat of budget airlines to their traditional market when it was first mooted, and as many of the carriers fell by the wayside before they could assert any impact.

SIA for one came on the scene later than most others, setting up Tigerair jointly with Ryanair, and then Scoot. Its strategy has changed yet again with the merger of Tigerair and Scoot, and now SIA is in the process of assimilating SilkAir into the parent airline.

One wonders if this is the path that Cathay may take should Hong Kong Express and Cathay Dragon find their services overlap as they expand.

Whatever the reading, it would be discreet to never say never. The question is always if so, when?

SIA’s transformation is long overdue

Courtesy Bloomberg

Singapore Airlines (SIA) announced it will be taking “bold radical measures” in a major business transformation plan after the parent airline incurred a fourth-quarter operating loss of S$41 million (US$30 million). SilkAir and Budget Aviation Holdings (Scoot and Tiger Airways) reported lower profits for the same quarter: the former down 19 per cent to S$27 million and the latter more than 50 per cent to S$22 million.

Full-year operating profit for SIA was S$386 million, a decline of S$99 million or 20 per cent year-on-year. For SilkAir it was a fall of 11 per cent and for Scoot and Tiger a combined drop of 60 per cent.

SIA chief executive officer Goh Choon Phong said: “The transformation is not just about how we can cut cost but also how we can generate more revenue for the group, how we can improve our processes more efficiently, …so that we can be lot more competitive going forward.”

If anyone is surprised at all, it is not because it is happening but that it has taken so long coming. The writing has been on the wall since the global financial crisis when the airline suffered a loss of S$38.6 million in FY 2008/09, and from then onward the margin has averaged less than three per cent compared to seven per cent in the five years leading to it.

SIA cited intense competition that is affecting its fortune. Lower fuel costs that contracted by S$780 million (down 17.2 per cent) didn’t help. Capacity reduction trailed the reduction in passenger carriage, and passenger load factor as a result dipped lower to 79.0 per cent.

While details of the transformation are yet to be announced, it will do SIA well to recognise that the aviation landscape has changed dramatically over the years and will continue to shift. Competition in the business is a given, and we cannot help but recall how the fledgling airline from a tiny nation leapfrogged its more experienced rivals in its early days to become the world’s best airline and one of the most profitable in the industry. No doubt the competition has intensified, but the salient point here is that it can never be business as usual.

What then has changed?

Low-cost carriers are growing at a faster rate than full-service airlines and are now competing in the same market, and while SIA may have answered that threat with setting up its own budget subsidiaries, the parent airline is not guaranteed it is spared. Until the merger of Scoot and Tiger under one umbrella, there had been much intra-competition. And while the subsidiaries compete with other low-cost carriers, the concern should be that they are not growing at the expense of the parent airline. That calls for clearly defined product and route differentiation such that they are not substitutes at lower fares.

Low-cost carriers are also venturing into the long-haul, aided by the current low fuel price and technologically advanced and more fuel-efficient aircraft. The launch of Norwegian Air Shuttle’s service between Singapore and London in October at drastically lower fares poses a challenge to SIA on one of its most lucrative routes.

The market is becoming increasingly more price sensitive since the global financial crisis, and that favours the low-cost model of paying for only what a passenger needs. Dwindling may be the days when one is more willing to pay a higher fare for SIA’s reputable in-flight service as other carriers improve their products and services, often the reason cited for the competition laid on by the big three Middle East airlines of Emirates Airlines, Etihad Airways and Qatar Airways.

These rivals are also offering a slew of connections out of their home bases and reduced layover times which are the forte of the SIA network. The growing importance of airports such as Dubai and Hong Kong as regional gateways may disadvantage not only Changi Airport but also SIA in the competition against airlines such as Emirates and Cathay Pacific. In 2013, Qantas shifted its hub on the Kangaroo Route from Singapore to Dubai, and is now planning to build a hub out of Perth for the same route. SIA will have to heed the geographical shift that may affect the air traveller’s preference for an alternative route.

Along with this is also the increased number of non-stop services between destinations, particularly out of the huge, growing Chinese market. This may eliminate the need for travellers to fly SIA to connect out of Singapore, say from Shanghai to Sydney when there are direct alternatives offered by Qantas and China Eastern Airlines. It has thus become all the more imperative for SIA and Changi to work even closer together.

Well and good that SIA is constantly looking at improving cost efficiency and productivity. But more has to be done. As Mr Goh had said, it calls for a “comprehensive review on whatever we are doing and how we can better position ourselves for growth.”

The key word is “transformation”, in the same way that Qantas chief executive Alan Joyce went about restructuring the Australian flag carrier following the airline’s hefty losses four years ago. Drastic measures were introduced that include the split between international and domestic operations for greater autonomy and accountability, and concrete targets were set over a specific timeline. The continuing programme seems to have worked for Qantas as it bucks the trend reporting record profits while other airlines such as Cathay are hurting.

SIA will have to look beyond its own strengths at the strengths of others. It has thrived on the reputation of its premium product, but that has taken a toll as business travellers downgrade to cheaper options. Although that business segment is slowly recovering, other airlines have moved ahead to introduce innovative options, such as the premium economy which Cathay revitalised as a class of its own and which SIA was slow in embracing, reminiscent of how SIA too did not foresee the increased competition posed by low-cost carriers. It is a pity that SIA, once a leader in innovation, has lost much of that edge.

Timing is everything in this business to cash in on early bird advantages, but this is not made easy by abrupt geopolitical changes and new aviation rules and the long lead time in product innovation and implementation. All said, SIA may begin by looking at what worked for it in the past and ask why it is no longer relevant.