Emirates suspends all passenger flights: Will the global industry grind to a standstill?

Courtesy Reuters

Emirates Airlines becomes the first carrier to announce complete suspension of all passenger flights. This will take effect on Wednesday, March 25 when its entire passenger fleet will be grounded. The airline has already cut back capacity by 70 per cent.

It is not just that more people are refraining from travel for fear of contracting the coronavirus, more countries are beginning to ban travel by foreigners into their ports. Consequently airlines are flying empty seats. And especially for airlines which rely on transiting and connecting traffic such as Emirates, this takes a heavy toll on their business.

Emirates chairman Sheikh Ahmed bin Saeed al-Maktoum said: “As a global network airline, we find ourselves in a situation where we cannot viably operate passenger services until countries reopen their borders and travel confidence returns.”

Is this a sign of more airlines following suit, notwithstanding those which are already teetering on the line facing bankruptcy?

Other major carriers which rely heavily on similar traffic as Emirates include Singapore Airlines (SIA) and Cathay Pacific.

SIA has reduced capacity by 50 per cent to the end of April. Further reduction is not off the table. The airline attributed this to “the growing scale of border controls”. SIA CEO Goh Choon Phong said: “We have lost a large amount of our traffic in a very short time, and it will not be viable for us to maintain our current network.”

Cathay too has made deep capacity cuts, particularly to mainland China as high as 90 per cent.

For the premium Hong Kong carrier, it is a double whammy as it moves from an embattled 2019 into an uncertain 2020. Profits plummeted in 2019 caused by the political unrest in the latter half of the year. The full year profit was HK$1.7 billion (US$220 million), down by 26 per cent from HK$2.3 billion in 2018.

Looking ahead, the airline said in a statement that “the outbreak of COVID-19 since January 2020 has resulted in a challenging operational environment, and will adversely impact the Group’s financial performance and liquidity position.” Cathay chairman Patrick Healy added, “We expect to incur a substantial loss for the first half of 2020.”

While some carriers may fall by the wayside, it is however unthinkable that the global airline industry will grant to a halt. Some governments are already promising reliefs to help them pull through. Nobody can say for sure when normalcy will return while acknowledging it is anything but foreseeable.

What’s behind the partnership between Singapore Airlines and Malaysia Airlines?

This article was published in Today on 26 November 2019

https://www.todayonline.com/commentary/whats-behind-partnership-between-singapore-airlines-and-malaysia-airlines

Will Singapore Airlines, competing with United Airlines, have the last laugh?

Courtesy Getty Images

Two years ago, United Airlines stole a march on Singapore Airlines (SIA) when it launched a non-stop service between Singapore and San Francisco four months ahead of its rival.

Then it did it again last year when it started flying non-stop between Singapore and Los Angeles while SIA awaits delivery of an ultra long range jet to ply the route probably by next year. However, this second service, barely a year old, will cease operations at the end of October.

It looks like good news for SIA, but is it really?

It seems United might have sprinted too soon only to lose stamina to sustain the race. Yet it is anyone’s guess as to when the timing is right, and United stood to gain first-mover advantage, benefitting from the early start to build up brand loyalty.

Courtesy Reuters

SIA itself used to fly non-stop to Los Angeles and New York before the flights, introduced in 2004, were suspended in 2013 because of poor yields against the backdrop of a declining world economy and unfavourable fuel prices.

But things have since changed – the global economy has recovered from the 2007/2008 financial meltdown, fuel prices have steadied, and more fuel-efficient aircraft are reviving interest in the ultra-long range.

A big problem faced by airlines though is anticipating the change and making timely adjustment, failing which may mean lost opportunities or sunk costs depending on how the market is trending.

If there is a lesson that United has learnt from operating the non-stop Los Angeles run, it is the constant need to re-strategise. In terminating the service, it is hoping to replace it with a second non-stop San Francisco service, thus upping the ante in competition with SIA.

United said in a media statement that the changes were in response to “customers’ desire for alternative departure and arrival times.”

Travellers will now have a choice of three non-stop flights between Singapore and San Francisco, the number leaning in favour of United which is said to be also offering cheaper fares. While SIA, having earned the reputation as one of the world’s best airlines, will leverage on its superior service, the pressure on fares cannot be ignored.

Clearly, both airlines, which are Star Alliance partners, are not thinking of end-to-end traffic alone. Certainly in the case of SIA, the sole Singapore market will not have the volume to support the operations. Connecting traffic therefore is a key component.

In this respect, United boasts an extensive domestic network in the US and numerous connections to other cities in North and South America. For SIA, Changi Airport is the region’s major hub.

The game plan is explicit in the words of United’s senior vice president Worldwide Sales Dave Hilfman when he said at the launch of the Los Angeles service: “United is making travel to Singapore easier and even more convenient than ever before and customers arriving in Los Angeles will have multiple opportunities to connect to hundreds of United destinations in the US, Canada and Latin America.”

As United wraps up its Los Angeles operations, the main driver for its San Francisco service remains unchanged.

SIA CEO Goh Choon Phong expressed the same sentiment when he announced plans to once again fly non-stop to New York in October ahead of the Los Angeles service. He said that “the flights will help boost connectivity to and through the Singapore hub.”

Rivalry between SIA and United is expected to intensify. The US has been traditionally a strong market for SIA, and United is the leading American carrier in Asia. But it would be a mistake to think that the competition is confined to only these two airlines as many Asia-Pacific carriers are also well connected directly to the US.

When SIA suspended its non-stop New York services in 2013, Cathay Pacific filled that void with connections out of Hong Kong.

With more ultra-long range services connecting major cities directly, airlines thriving on connecting traffic such as SIA will be challenged to make it worth the traveller’s while to fly via their home ports to the final destinations.

Mr Goh said at the recent annual meeting of the International Air Transport Association in Sydney that SIA was looking into more non-stop services to other US destinations. Besides New York, Los Angeles and San Francisco, the airline currently also serves Houston via Manchester in the UK.

This will set the stage for a different ball game altogether if SIA moves increasingly to feed directly into US destinations, chipping away at United’s domestic strength. The question is whether there is enough load to justify more non-stop flights.

In tandem, SIA is said to be reassessing its stopover flights to the US, but it is unlikely it will skip stopovers altogether in favour of non-stop flights. While it is true that some passengers may prefer a break in their long journeys to get off the plane and stretch their legs, SIA is also able to tap into the traffic that originates or ends at stopover airports. It therefore makes economic sense to continue operating some flights via Hong Kong, Taipei, Seoul and Tokyo.

United’s cessation of the Los Angeles-Singapore service will not deter SIA from mounting a similar non-stop flight, although New York takes precedence when the new Airbus A350-900ULR aircraft joins its fleet in September. What SIA has now is lead time to build up demand for the service. On the other hand, if United succeeds in mounting a second non-stop service to San Francisco and it becomes a threat, this may hasten plans for an earlier launch to promote Los Angeles as an alternative gateway to the US.

Where United has failed, SIA may succeed since it had been down that road before. Only then can SIA confidently have the last laugh.

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.

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.

The end draws near for Tigerair

ScootTigerThe announced assimilation of Tigerair into Scoot by the end of next year does not come as a surprise. In fact, it has long been anticipated.

The two airlines will operate under the single identity of Singapore Airlines (SIA)’s youngest subsidiary airline Scoot which was originally intended as a medium-to-long haul budget carrier in contrast to Tigerair’s short-haul status. To be expected, Scoot is performing much better than Tigerair, which has been plagued by an ill-gotten past. Faced with stiff regional competition, the lines soon blur between the networks of the two brands as they lapse into each other’s domain. The intra-competition does not make economic sense, which led to a policy of co-operating rather than competing.

A new company Budget Aviation Holdings (BAH) was formed in May to manage the two carriers. So said SIA CEO Goh Choon Phong: “The integration has already led to commercial and operational synergies between Scoot and Tigerair that are providing growth opportunities for both airlines. Following a review, we have determined that the logical next step is to pursue a common operating licence and common brand identity to enable a more seamless travel experience for customers.”
BAH chief executive Lee Lik Hsin added: “A single brand is less confusing for consumers and more effective to build brand loyalty and affinity.”

Multiple branding within a family is not a new economic phenomenon. But it has not worked for the Scoot-Tigerair differentiation when the market becomes restricted by its defined limits that may hurt both carriers in their pursuit of growth, particularly for Scoot in its own right to tap into source markets to grow beyond those confines. Besides, the poor reputation of Tigerair does not help. More than that, what really is happening in the big picture is that the aviation landscape has shifted drastically. The so-called niche budget market has extended beyond its boundaries. Tigerair seems a lame and superfluous appendage when Scoot could do the job better, and the neater structure will better position the Group in an integrative strategy rather one that is segmented overall.

Scoot and Tigerair go where it makes sense

ScootTigerSingapore Airlines (SIA)’s decision to bring its budget subsidiaries Tigerair and Scoot under the control of a common holding company – Budget Aviation Holdings – is no surprise. Expected and long predicted. It just didn’t make sense for the two carriers to be competing for the same market in apparent collaboration although the initial division is for one to operate the short haul and the other the medium haul. The lines soon blurred.

The new entity will be headed by Tigerair CEO Lee Lik Hsin.

SIA chief executive Goh Choon Phong said: “The holding company structure will drive a deep integration of our low-cost subsidiaries, which are important parts of our portfolio strategy in which we have investments in both the full-service and budget aspects of the airline business.”

Indeed, as the aviation landscape keeps shifting, one may even wonder why this has not happened much earlier with Tigerair’s poor performance and Scoot competing in the same market. While major airlines are consolidating their strengths, SIA may be finding it one too many on its plate to try and catch-all but risks dilution of its core strategy. Well, as it has always been said, better late than never, and better now than later.

This may be the prelude to the merger of the two carriers with one identity although SIA has said there may be difficulties with traffic rights, airline/aircraft registration and licensing. But it can happen. “We would not rule it out,” said Mr Goh. “But for the moment, we do see a benefit in them having their own separate identities.”