What Qantas’ strategy shift means for Changi, SIA

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More Middle East airlines allow laptops in cabin

Good news for Middle East carriers as the United States gradually exempts them from the ban imposed on the carriage of laptops and other electronic gadgets in the cabin.

Etihad Airlines was the first to announce the lift of the ban, followed by Emirates Airlines and Turkish Airlines. Now Qatar Airways becomes the fourth airline to join the list this week. Saudia, the flagship carrier for Saudi Arabia, said its passengers would be able to carry the electronics on board US-bound flights from 19 July.

This follows strengthened security to meet US standards, which include measures such as enhanced screening, more thorough vetting of passengers and the wider use of bomb-sniffer dogs.

Morocco, Jordan, Egypt and Kuwait have yet to announce similar exemption. The UK government which followed the US in imposing similar restrictions on flights originating from Turkey, Lebanon, Jordan, Egypt, Tunisia and Saudi Arabia have not indicated its readiness to also lift the ban.

For all the initial outcry against the ban and questions about its wisdom, one might concede that the good that came out of it was the greater awareness of in-flight security. But for the airlines compliance means holding up the bottom line. Emirates for one had reported a drop in business because of the ban.

The isolation of Qatar Airways

Courtesy Alamy

AT a time when its neighbours – Saudi Arabia, Egypt, Bahrain, the United Arab Emirates, Libya and Yemen – cut diplomatic ties with Qatar, winning the Skytrax world’s best airline award could not have tasted sweeter to the Qatari flag carrier. It displaced last year’s winner, Emirates Airlines, which fell to 4th ranking.(See Consistency defines Skytrax best airlines, Jun 21, 2017)

The Gulf countries are stopping flights between them and Qatar, and closing their airspace to Qatar Airways. According to Qatar’s chief executive Akbar Al Baker, this has resulted in the cancellation of 52 routes and adding flying routes to others. He was quoted as saying at the Paris Air Show where the award was announced: “At these difficult times of illegal bans on flights out of my country by big bullies, this is an award not to me, not to my airline, but to my country.”

Now Qatar Airways is setting eyes on getting a slice of OneWorld partner American Airlines. It is hoping to buy up to 10 per cent of the US carrier. Investing in foreign carriers is not something entirely new to Qatar Airways. In 2015, the Gulf carrier acquired 10 ten per cent of the International Airlines Group (IAG) which owns British Airways, Iberia, Vueling and Aer Lingus. This was subsequently increased to 20 per cent.

Qatar Airways also owns 10 per cent of South American carrier LATAM and is finalizing a deal to acquire 49 per cent stake of Italy’s Meridiana Fly. It has also expressed interest in Royal Air Maroc and setting up a joint venture in India.
Mr Al Baker has hinted at more acquisitions in the pipeline, but said the airline“is not going to collect crap.”

The timing of Qatar Airways’ interest in American Airlines smacks of more than just part of an expanding acquisition program although it is just as obvious being so. While other Gulf carriers may see the Trump’s restrictions on travel from the region and ban on in-flight carriage of electronic gadgets as a setback, Qatar Airways is keen to expand further into the United States. The isolation by the Gulf neighbours has made it all the more imperative for it to seek stronger relations elsewhere across the globe.

Consistency defines Skytrax best airlines

The 2017 Skytrax list of the top ten airlines is as in previous years hardly changed of note. Only two airlines dropped out of the list – Turkish Airlines and Qantas, making way for Garuda which was listed in 2015 and 2014, and Hainan Airlines which in 2014 was commended for clean cabins and amenities in business class.

Courtesy Qatar Airways

year’s champion Emirates Airlines went down to fourth place, followed by Cathay in fifth, making way for All Nippon Airways (ANA) in third.

This speaks of the consistency that makes these airlines the travellers’ perennial favourites. SIA has long been reputed for premium service and emulated by the Middle East carriers making them fierce competitors in the field.

However, it is more interesting to look at the movements into and out of the top ten list. Turkish Airlines which was included in the last three years dropped to 12th position this year, and Qantas moved further down from 9th last year to 15th this year. What is most noticeably absent is Asiana Airlines, which was voted the best in 2010 and continued to be one of the best since then until last year when it dropped to 11th and this year ranks 20th. If the Skytrax ranking is anything to go by, then Asiana should be concerned, perhaps not as much about the quality of its service as being surpassed by the competition.

On a more positive note, Hainan Airlines becomes the first China carrier to be ranked in the top ten, and Garuda re-entered the list boosted by its best cabin crew win.

Not surprisingly, the top ten list is dominated by Asian carriers with the exception of Lufthansa. Just a dash shy of that honour and ranked 11th is Thai Airways International.

No US airline has made it to the top ten, and don’t bother asking if they were really concerned,

Cathay Pacific axes 800 jobs: Is this the answer?

TIMES are hard for legacy airlines, it seems, when major airlines such as Singapore Airlines (SIA) and Cathay Pacific are beset with economic woes.

Courtesy Cathay Pacific

SIA announced a plan to transform the airline after reporting a last quarter loss of $S41 million (US$ 29 million) (see SIA’s transformation is long overdue, 27 May 2017). Cathay, losing HK$585 million (US$103 million) in 2016 – its first annual loss in eight years – is set to cut 800 jobs. Both airlines cited intense competition, mainly from the big three Middle East carriers of Emirates Airlines, Etihad Airways and Qatar Airways, and carriers from China. Cathay additionally suffer substantial fuel hedging losses.

Invariably cost cutting is almost every airline’s clarion call to try to get back into the black. It helps, of course, and such an exercise can eliminate wastage and improve productivity when in good times the airline has lost the discipline. However, more may be needed to be done if the issues are structural and operational. It calls for a deeper review of product, procedures and processes, and marketing strategies against a changing aviation landscape that renders old successes irrelevant and demands new innovative approaches.

Like SIA, Cathay is caught in a price-sensitive market where competitors have been able to provide comparable services at lower fare, and that’s not talking about low-cost carriers (LCCs) alone. Cathay risks losing its position as the gateway airline at the door of the huge China market as more carriers from the mainland commence direct services to destinations beyond China and offer connections out of Shanghai and Beijing. Also, partnerships between China carriers and other airlines are also threaten to cut Cathay out of the game.

Some analysts think Cathay is disadvantaged by the absence of budget arms, unlike SIA which is supported by Scoot and Tigerair. The solution really is not for Cathay to go budget, but to make that difference between flying low-cost and flying full-service in its favour.

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.

For United Airlines, it never rains but it pours

Courtesy Getty Images

For United Airlines, it never rains but it pours. A passenger flying in business class from Houston in Texas to Calgary in Canada said a scorpion fell from the overhead bin onto his head during lunch service. He put it on his plate and was stung before flinging it to the floor. A crew member placed a cup over the insect, which was subsequently flushed down the toilet.

However, the passenger said he had no plants to sue United, which had offered him and his companion flying credit as compensation.

These days, all kinds of strange creatures are flying too. Last month a rat was found on a British Airways flight departing from London Heathrow for San Francisco. There were earlier stories about the rodent found on flights operated by Air India, Emirates Airlines and a Chinese carrier Loong Air. In March, a snake was found loose on a Ravn Alaska commuter flight, apparently a pet left behind by a passenger on an earlier flight. In January, Emirates cancelled a flight from Dbai to Muscat after a snake was spotted in the cargo hold. Earlier in November last year, a snake fell from an overhead storage compartment in first class on n Aeromexico flight.

So United is not alone, but it must be wondering when all the flak is going to stop raining down on it. Everything that happens subsequent to the David Dao incident could be another contentious issue to drag its name into the mud.

There was some good news for the airline though at the start of the week as it reported a profitable first quarter which exceeded expectations even though there was a sharp drop in profit of almost 70 per cent to US$96 million. And while one wonders how the Dao incident would affect profitability in the current quarter, United president Scott Kirby said: “We saw positive trends in the revenue environment in the quarter and are optimistic about the year ahead.”

Anyway, to repair its dented image, CEO Oscar Munoz vowed: “ We are more determined than ever to put our customers at the center of everything we do.” From now on, police personnel will not be called to remove passengers from a flight in an overbooked situation.

Time helps, if United stays competitive and shows it means what it promised.