Is Singapore Airlines better off without its subsidiaries?

Courtesy The Straits Times

Courtesy The Straits Times


THERE comes a time when the question must be asked: Is Singapore Airlines (SIA) better off without its subsidiaries?

Besides an engineering and a cargo arm, SIA also owns three carriers: wholly-owned regional carrier SilkAir, wholly-owned budget subsidiary Scoot, and 40%-owned budget carrier Tigerair. Scoot’s performance has not been reported separately, but neither SilkAir nor Tigerair is meeting expectations, if not faring poorly.

The SIA Group posted a Q1 (Apr-Jun) operating profit of S$39 million (US$31.2 million) which is 52% lower than last year’s S$43 million. It attributed the decline to intense competition that resulted in weaker yields and “depressed travel demand in some key Asian markets.” The bottom line was affected by dips in operating profit for not only the parent airline but also subsidiaries SIA Engineering and SilkAir. Only SIA Cargo showed some improvement, albeit that of reducing losses from S$40 million to S$18 million.

The parent airline’s operating performance deteriorated by almost 50% (amounting to S$44 million), partly the result of a 1.8% fall in yield. This was in spite of lower fuel costs. SilkAir’s operating profit suffered an even steeper decline of more than 85% (amounting to $12 million) also attributed to weaker yields. For the same quarter, Tigerair reported separately an operating loss of S$16.4 million, which is more than twice the loss of S$6.2 million last year. (Tiger air sinks deeper, Jul 30, 2014) The budget carrier has been plagued by bad investments in joint ventures that include Tigerair Philippines and Tigerair Mandala of Indonesia. The former has since been sold to Cebu Pacific Air and the latter ceased operations on July 1. Tiger Mandala alone added S$35.3 million to the Group’s loss for the quarter, widening the loss to date to S$65.2 million.

All three carriers are facing increased and intensive competition. In a statement that it issued, SIA said: “Aggressive fares and capacity injections from competitors will continue to place pressure on yields.” It is unlikely that the situation will change to be any less competitive, if not becoming more so even as the global economy improves further. Much has been said about the aggression of the Middle East carriers, namely Emirates Airlines, Etihad Airways and Qatar Airways, but SIA is also strongly challenged by carriers closer home, Cathay Pacific being its closest rival. The Singapore flag carrier’s dependence on Changi as the hub for East-West connections too has been challenged by the growing importance of Dubai and Hong Kong as alternatives.

To be fair, SIA is as affected as any airline by the state of the global economy. Last year was one of renewed optimism for the industry. Both the SIA and Cathay groups reported improved performance for their last financial year (note the time period’s difference by a quarter); although hit by a surprise Q4 loss of S$50.3 million, SIA’s profit of S$259 million for the year ended Mar 31, 2014 was an increase of 13% while Cathay’s HK$6.2 billion (US$800 million) for the year ended Dec 31, 2013 was an impressive more than 200% improvement. Though not entirely the case, the difference reflects the impact of the competition even in good times.

Do not, however, be mistaken. SIA is still a formidable competitor. Few airlines have achieved its consistency in product quality that makes it a perennial favourite among travellers. Unless it is resigned to the new state of play, it has to do much more than wait for the pressure to ease. It cannot be business as usual.

In recent times, it has become fashionably strategic for a protagonist to spawn sidekicks but not every airline subscribes to that philosophy. Some of the offshoots have become successes in their own rights, and many others on the other hand had been shelved or disposed off as impulsive ill-conceived by-products.

Somehow SilkAir continues to be a middle-of-the-road carrier which after 25 years is still not quite an airline with a distinct identity of its own. The competition aside, its fortunes are in a way dependent on the generosity and good name of the parent airline, operating so-called regional routes and supporting feeder traffic. Unlike Cathay’s Dragonair, it lacks the kind of hinterland market that China offers the Hong Kong regional carrier. But as the region adopts a more liberal aviation policy, SilkAir provides a good alternative to reach growing secondary destinations that are less viable options for SIA, but not when both parent and offspring (along with others) have set their eyes on the same market where segmentation by class is not critical.

It was widely speculated that SIA would shed Tigerair when it set up Scoot. That might still be on the card now that Scoot is not quite the mid-to-long haul budget carrier it was intended to be but competing with Tigerair on the short haul, and perhaps a likely direction following on its sale of a 60% stake in Tiger Australia to Virgin Australia last year. A stronger Scoot could be positioned to make better use of Tigerair’s rights (or, in the event that it is sold, better compete without compromises), which can complement its longer haul operations.

But SIA has come across as a cautious airline inclined to tread carefully on such matters. With healthy cash flow and a strong balance sheet, there just isn’t the urgency. If it waits long enough the tides may just turn. The question is when, and whether it is worthwhile waiting.

This article was first published in Aspire Aviation.

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Singapore Airlines’ challenges

Courtesy Singapore Airlines

Courtesy Singapore Airlines


THE good news is that Singapore Airlines (SIA) carried more passengers – 18.6 million passengers or an increase of 2.3 per cent – in FY2013/14 but the bad news is that yield has not caught up. In a statement issued by the airline, SIA said: “Passenger bookings in the current quarter are expected to match the planned increase in capacity. However, yields are expected to remain under pressure due to promotional activities undertaken to support loads, and other airlines offering aggressive fares while increasing capacity.”

Overall it is good news that the airline made an operating profit of S$256 million (US$205 million), an increase of 36.9 per cent – this, despite a Q4 operating loss. It is the other companies within the Group that are not performing as well. SIA Cargo continued to incur losses, though at S$100 million it was an improved performance compared to a loss of S$167 million a year ago. Both SIA Engineering and SilkAir suffered a decline in profitability; and the latter in particular, down by more than 50 per cent from S$97 million to S$35 million. Losses in Tiger Airways worsened by S$109 million.

Moving forward, it is the airline that will continue to shore up the performance of the Group, which earned an operating profit of S$259 million in FY 2013/14, an increase of 13.1 per cent. Cargo yield is expected to remain weak, and SilkAir appears to have a problem forging an identity of its own. Investment in Tiger Airways will continue to take a toll on the overall result as it struggles to shed its Indonesian Mandala joint-venture. Refocusing on the parent airline’s challenges in an increasingly competitive landscape must be a priority. The recent announcement that SIA will introduce premium economy is a positive step forward. It cannot afford to lose its place in the main stream competition.

Singapore Airlines posts improved Q2 results but faces yield pressure

Courtesy Singapore Airlines

Courtesy Singapore Airlines


Singapore Airlines (SIA) carried more passengers in the second quarter (Jul-Sep 2014) than the preceding quarter, thus boosting the numbers for the first half of its current financial year 2013/14. However, year-on-year, while Q2 carriage saw an increase of 6.2% from 4.53m to 4.81m passengers, the first half posted a lower increase of 4.0% from 9.03m to 9.39m passengers. This translates into a Q2 operating profit of S$97m (US$78m), up 15% from S$84 year-on-year. Yield was lower, thereby pushing the passenger breakeven load factor up from 79.8% to 82.7%.

If the improved Q2 performance is any indication of the trend, then it is good news for the airline which last full year posted an operating profit of S$187m, increasing by only 3% from the previous year’s S$181m, attributed to a growth of 7.3% in passenger carriage and sale of aircraft spares and engines. A straight line projection would lift SIA’s full-year expected profit above $190m but below $200m. With Europe showing positive signs of recovery, particularly of premium travel, this should augur well for SIA. But with falling yield and the absence of an aggressive marketing thrust while not ignoring its latest enticement of increased checked-in baggage allowances, it will be a challenge.

SIA is projecting higher advance bookings for the coming months compared to the same period last year. This is a critical factor as Q3 performance cashing on the year-end peak season will determine more accurately how the profitability graph will shape up for the full year, not forgetting the dismal Q4 that it experienced last year dipping into the red. Competition, it seems, is becoming increasingly a major concern of the airline. The outlook, according to SIA, “remains challenging amid continued global economic uncertainty.” With airlines such as British Airways reporting impressive results and close rival Cathay Pacific expressly optimistic about improved performance, the real challenge is one posed more by the competition than by the world economy continually dragging its feet. Fuel, a perennial bugbear, was given scant mention in the statement that SIA issued, the usual expectation that prices are likely to remain high and volatile.

For an airline not known to shy from a good fight, SIA has become somewhat diffident about its prowess in the open but changing landscape. Increased competition from Middle East carriers, the mega partnership of Qantas and Emirates, and the encroachment of low-cost operators have shaken the ground on which SIA stands somewhat. Naturally that calls for more aggressive counter measures. In that context, SIA is expecting increased pressure on yields resulting from “ongoing promotional activities necessitated by intense competition.” Yes, indeed, if only you can have the cake and eat it!

Wholly-owned subsidiary SilkAir posted a lower Q2 operating profit of S$8m compared to S$19m for the same quarter last year, attesting to the intense competition in the region. The plunge of almost 58% was attributed to passenger carriage growth not keeping pace with capacity increase apparently aimed at developing new markets in the region. There was in fact an increase of 3.0% in the number of passengers carried, from 802,000 to 826,000 for Q2 year-on-year. The inability to fill up capacity points to the limited growth facing SilkAir.

SIA did not report any numbers for budget subsidiary Scoot but mentioned that the carrier would be launching flights to Hong Kong and Perth before the end of the year. So much for the competition when both destinations are already served by SIA itself and Tigerair. Hong Kong will see increased competition when Jetstar Hong Kong, a joint venture between Qantas and China Eastern Airlines and a local investor, commences operations before long.

SIA Cargo continued to incur losses, albeit reduced (S$31m) when compared with the same second quarter last year (S$31m). Cargo demand is expected to stay flat.

Including SIA Engineering which posted a lower operating profit by 12.5% at S$28m, the SIA Group earned an operating profit of S$87m in Q2, an increase of S$17m or 24.3% over the same quarter last year. At half-time, the operating profit was S$168.6m, an increase of 18.4% over S$142.4 of the same quarter last year. Looking ahead, the interest is not whether SIA would do better this year after the disappointment last year. That much may already be in the bag. The moot question is: By how much? It will depend largely on Q3 performance since the last quarter is generally a slow one.

Singapore Airlines’ Q1 profit masks operating performance

sia

Singapore Airlines (SIA) reported a net profit of S$122 million (US$96.5 million) for the first quarter (Apr-Jun) of its current financial year. This is a dramatic rise of 56 per cent compared to the same quarter last year. However, the result masks the operating performance of the airline as the improvement was mainly due to gains from the sale of aircraft and exceptional items, including a net gain of $336 million from the sale of its 49-per-cent stake in Virgin Atlantic to Delta Airlines. The Virgin stake by itself was sold at a loss, after more than a decade of holding on to the lacklustre investment.

With the exception of SIA Cargo, which continues to incur losses ($40 million), the other entities of SIA the airline, regional carrier SilkAir and SIA Engineering reported positive results. Only SIA the airline showed an increase of under five per cent from $85 million to $89 million; SilkAir and SIA Engineering saw reduced profits by 22 per cent and 18 per cent respectively. For both SIA and SilkAir, passenger growth lagged behind capacity growth.

In a statement that it released, SIA reiterated the twin demons of an uncertain global economic climate and high fuel prices – although it was blessed with lower fuel costs in the first quarter – as challenges and recognized “the intense competitive environment”.

The increased competition from Middle-Eastern carriers in particular and from cheaper options provided by other airlines including budget carriers are apt to suppress yields even if passenger carriage increases. The months ahead will see the impact of the collaboration between Qantas and Emirates for the kangaroo route. SIA will have to do more than just wait for the good times to return, to regain its lead.

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.

Singapore Airlines improves bottom-line, Tiger Airways reduces loss: Too early to celebrate

SINGAPORE AIRLINES (SIA) posts an operating profit of S$85 million (US$68 million) in the first quarter (Apr-Jun) of its 2012/13 financial year, against a loss of S$36 million last year.

This was the result of increased passenger carriage by 9.6 per cent – the traffic growth outpacing capacity growth of 4.3 per cent – although yields declined by three per cent. The passenger load factor was 3.9 percentage points higher at 9.6 per cent.

Things are looking up for the SIA, which was once billed as the world’s most profitable airline. So it seems. But the outlook continues to be one of uncertainty in light of the sluggish global economy, particularly in Europe and the United States, which affect SIA more than regional carriers. The Q1 result shows the need to continue managing capacity in the near future.

The relatively flat performance of subsidiaries SIA Engineering and SilkAir, as well as the loss incurred by SIA Cargo shows it is not quite the time to celebrate. SIA Engineering’s operating profit for Q1 was S$34 million, compared to $35 million in 2011. SilkAir’s operating profit dipped 14 per cent from S$21 million to S$18 million. SIA Cargo’s loss deepened from S$14 million to S$49 million.

As a Group, operating profit improved from S$11 million to S$72 million.

Meanwhile, budget carrier Tiger Airways in which SIA has a 32.84-per-cent stake reported a reduced loss of S$14 million for the same quarter, from S$21 million last year. The better result came on the back of improved loads and better aircraft utilisation. Tiger Singapore posted an operating profit of S$4 million while it is expected that Tiger Australia’s performance will continue to improve following the lift of the ban by Australian regulators over safety concerns. Tiger has also staked its fortunes in two joint ventures – one with Indonesia’s Mandala Airlines and the other with South East Asian Airlines (SEAAir) in the Philippines.

Certainly it looks promising. But it too may be too early to celebrate, considering how the regional budget competition continues to intensify with the entry of more players. We can expect Tiger’s immediate goal to be recapturing its lost market. SIA itself has launched a new budget carrier – Scoot – operating to Australia and China.

Dark clouds over Asia-Pacific

THERE has not been much good news lately in Asia Pacific aviation. This is worthy of note, not that airlines in other parts of the world are faring better – far from it – but that this region, in particular Asia, in these challenging times has been touted as the only region expected to be showing any growth.

Air Australia went bust. It is not the first nor will it be the last to bite the dust in light of rising fuel costs against the backdrop of a sluggish global economy. The Australian carrier’s demise raises the question as to whether there is room for such a supposedly boutique airline that grew from the charter business, relying heavily on government contracts, to expand into the wider and more competitive commercial arena of the more established carriers.

The future of India’s Kingfisher Airlines is hanging in the balance as it posted deeper losses – R4.44 billion in the last Oct-Dec quarter compared to R2.54 billion in the previous year, plunging 75%. The airline has never made a profit since it was launched in 2008. In a statement that it issued, Kingfisher said: “Steep depreciation of the Indian rupee coupled with consistently high crude oil prices has led to a challenging quarter for the Indian aviation industry.” Its fuel costs had risen by 37% to R1.9 billion. The company has already wounded up its budget arm.

Tiger Airways reported a net loss of S$17 million for 3QFY11/12 (Oct-Dec) compared to a profit of S$22.5 million in 3QFY10/11. Both Tiger Australia and Tiger Singapore were in the red. Latest data for Jan 2012 showed a fall in the number of passengers flown by 16% to 466,000 against seat capacity of 621,000 – giving a load factor of 75% compared to 83% in Dec 2011. High fuel costs and fleet under-utilisation were cited as the culprits.

Malaysia budget carrier AirAsia reported a 56% decline in Q4 (Oct-Dec) profit from M$311.1 million a year ago to M$135.7 million. However, full-year result showed increased operating profit by 12% to M$1.2 billion compared to M$1.0 billion the previous year. This was achieved despite a 36% increase in fuel costs. The airline had earlier announced it was terminating flights to Europe and India because of high fuel process and weak demand.

Performance for AirAsia’s 49% stakes in both AirAsia Thailand and AirAsia Indonesia was not encouraging. Although both carriers reported growth in revenue, AirAsia Thailand posted a profit of Bt2.04 million against Bt2.01 the year before, and that for AirAsia Indonesia dropped 53% to Rp150 billion from Rp312 billion. Two new joint-ventures – AirAsia Japan (in which AirAsia has a 49% stake) and AirAsia Philippines (40% stake) have been added to its stable this year.

It is not just the smaller airlines that are feeling the pinch, but the big guys too. Qantas posted a 52 per cent drop in first half profits before tax from A$417 million to A$202 million. Earnings for the airline plunged from A$165 million to A$66 million, down 60%. This was attributed largely to the cost of industrial action amounting to A$194 million and increased fuel costs that jumped 26% or A$444 million to A$2.2 billion.

Singapore Airlines (SIA) too reported that fuel prices had adversely affected its performance as net profit for 3QFY11/12 fell 64% from S$378 million to S$137m. Expenditure on fuel – which accounted for 40% of expenditure – went up by US$386 million or 33%. All three wholly-owned subsidiaries also recorded fall in operating profit: SIA Engineering, S$28 million down from S$34 million; SilkAir, S$32 million, down from S$45 million; and SIA Cargo, S$40 million from S$48 million. Looking ahead, SIA expects passenger yields to remain under pressure while cargo yields will continue to decline.

Thai Airways International posted a net loss of Bt10.2 billion for the year ending Dec 31, down from Bt14.7 billion the year before. Again, this was attributed largely to a 38.7% increase in jet fuel prices.

In announcing the results for Qantas, chief executive Alan Joyce said: “The highly competitive markets and tough global economy in which we operate mean that we must change.” For Qantas, it means cutting jobs and unprofitable routes – the most likely route that most other airlines would similarly adopt. An added strategy is to grow budget subsidiary Jetstar, which achieved record EBIT of A$147 million, up A$4 million and focus more on the Asian market with the setting up of two new subsidiaries – a joint-venture with Japan Airlines and Mitsubishi Corporation and a regional all-Asia premium carrier.

SIA is also well supported by SilkAir, Tiger Airways (for which it has a 32.8% stake) and a new budget arm – Scoot – to be launched in July, operating regional long haul to destinations in Australia and China. In a climate of uncertain trends, it is a catch-all strategy.

Loss-making Malaysia Airlines is probably working on a similar strategy, announcing its intention to cooperate with compatriot AirAsia to divide the market between them, with Malaysia Airlines focussing on the long-haul full-service, AirAsia on budget and the likelihood of a regional premium airline in the fashion of Qantas amidst growing speculation that it could be a three-way partnership which, if it materializes, will base the new carrier in Kuala Lumpur.

While some airlines such as SIA, Thai and Hainan Airlines have reported improved traffic in January this year (and all eyes are now turned to Cathay’s impending result announcement in mid-March), dark clouds still loom large overhead considering the debt crisis that Europe continues to face and the escalating fuel price especially now that Iran has curbed its export to the European Union and the likelihood of its extension to other political foes. This is apt to squeeze the low-cost operators more than their bigger competitors, considering that fuel expenses make up a higher proportion of the former’s total operating costs. Full-service airlines may be able to cushion the impact by new rounds of fuel surcharge hikes, something that budget carriers are less likely to afford doing without losing market share.

The higher fare as a consequence of higher fuel costs may reduce the demand for leisure travel, which is likely to affect more the budget carriers that operate to vacation destinations (as in the case of Air Australia), whereas business travel is largely price inelastic. Several full-service airlines which thrive on the high yield of the premium market are hopeful of its recovery. The market has strengthened towards the end of 2011, contributing to a full-year growth of 5.5%. While mindful of the risks posed by the Eurozone crisis, the International Air Transport Association (IATA) is expecting some increase in business travel, lending some support to premium travel, in the months ahead. One cannot be too sure too if this lends enough credence to HongKong Airlines’ optimism to launch all-business class flights between Hong Kong and London.

What is happening in Asia-Pacific may be reflected in the strategy of an airline outside the region, namely Swiss International Air Lines – the successor of once the world’s most reputed airline, Swissair, that went bust in 2001. The resurrected Swiss airline has identified business class as its main focus in the competition, and its catchment has to extend beyond Switzerland.

It has also identified Middle East carriers such as Emirates as the “real” competitors, which are threatening to shift intercontinental hubs to where they are based – clearly the same threat that Qantas is facing on the kangaroo route as these carriers are offering strong connection alternatives, and a similar concern for SIA that an airport like Dubai is diverting hub traffic away from Singapore Changi Airport.

Swiss International chief commercial officer Holger Hatty opined that budget and network carriers would become increasingly similar in the short and medium haul business, and that the main battleground for competition is shifting to the long-haul trunk routes. Are the days of unprecedented growth for short-haul budget carriers over, which explains how some of them are already looking beyond the 4-hour flight-time limitation of the conventional budget model?

As for the long haul, Swiss International believes it has the right ingredients, where it can compete on product quality providing such creature comforts as air-cushioned seats and freshly-made food in first and business class, and on personalized customer service with some “intimacy”. That should be good news for airlines such as SIA and Cathay Pacific, and perhaps Qantas as it restructures its international arm.

Currency conversion
US$1 = A$0.93 = R48.98 (Indian rupee) = S$1.25 = M$3.02 (Malaysian ringgit) = Bt30.32 (Thai Baht) = Rp9,046 (Indonesian rupiah)