Will Singapore Airlines finally get to fly trans-Pacific from Australia to the United States?

Singapore, a leading voice in advocating open skies, is hoping to conclude a more liberal aviation agreement with Australia, following a recent meeting of the two nations’ leaders, namely Singapore’s prime minister Lee Hsien Loong and his Australian counterpart Malcolm Turnbull.

Courtesy Singapore Airlines

That naturally revives Singapore Airlines’ dream of gaining rights to the lucrative trans-Pacific route from Australia to the United States.

While both Singapore and Australia have already agreed to allow carriers from both countries to operate unlimited flights between them, with Australian carrier Qantas benefitting from using Singapore Changi Airport as a regional hub to points beyond Singapore, it has been more than two decades since SIA expressed its interest in operating trans-Pacific flights from an Australian port.

A review in 2006 by the Australian authorities denied SIA’s application to fly the route that has since been opened to only American carriers besides home carriers. Despite SIA’s argument that the proposal would boost tourism in Australia, clearly Qantas was the thorn in SIA’s side as the authorities were apprehensive that the reciprocity would not be in the flying kangaroo’s favour.

Since then there has been no new overt push in that direction. So, will SIA finally get to fly trans-Pacific from either Sydney or Melbourne to the United States?

As Qantas grows from strength to strength as demonstrated by its record performance in the last couple of years, perhaps Australia could afford to be a little less protectionist.

While for now, it looks like the answer is still blowing in the wind, there is nevertheless a ray of hope emanating from the high-powered meeting.

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Basic economy set to become the norm as more airlines adopt budget model

TO face off competition from low-cost carriers, more legacy airlines are rebranding their economy class. Basic economy, as different from the normal economy, looks set to be the mode of travel for many of its customers.

This has been introduced for quite some time now in the United States, and by other carriers for the long haul including Cathay Pacific nad Singapore Airlines. In some way, many other carriers are already taking steps in the same direction as they begin to adopt the budget model of charging additionally for services now considered as ancillaries, such as checked baggage, seat selection and meals.

Courtesy British Airways

British Airways, which has since done away with complementary in-flight meals and is implementing non-reclining seats in the economy cabin, has announced it will be offering basic economy for the long haul from April 2018. Passengers will not be able to pre-select seats at the time pf booking, and checked baggage is subject to a fee. The fare is expected to be some 10 to 20 per cent less than the normal economy.

It goes to show how the threat by low-cost operators isn’t something that legacy airlines can dismiss as easily as it was once thought as they continue to feel the squeeze of the competition.

Over the years, the class configuration of air travel has evolved from a single luxury class to a two-class of first and economy to a three-class division to include a business class, which, when first introduced, was dismissed as redundant by then successful airlines such as Swissair.

In the same way, the budget model was viewed by legacy airlines as a non-threat because they catered to a different market, which today proves to be not entirely the case.

The blip in the global economy that caused a decline in the demand for premium travel led to a new economy subclass of premium economy, which again was initially scoffed by some airlines including Singapore Airlines, which today is aggressively promoting it. Premium economy is increasingly taking on an identity of its own, and may well be considered a fourth class in its own right, squeezed between business and economy, in the gamut of classes.

Now comes basic economy, and you wonder where the normal economy is heading.

Qantas continues winning streak

It’s happy days again for airlines, more specifically carriers in Asia Pacific which is identified as a growth potential for the industry.

Just over a week ago, Singapore Airlines announced Q3 (Jan-Mar 2018) group profit of S$330 million (US$250 million), increasing by S$37 million or 12.6 per cent (see Singapore Airlines does better without Tigerair, Feb 15, 2018).

Courtesy Qantas

This is now followed by Australia’s Qantas reporting record half year profits (Jul-Dec 2017) of A$976 million (US$761 million), increasing by 14.6 per cent. This came in the face of higher fuel costs, a competitive domestic market and challenges in international capacity growth. The result beat the previous first half record achieved in 2016.

Impressively, Qantas Domestic and budget subsidiary Jetstar’s domestic flying operations combined posted their highest ever first half Underlying EBIT of A$652 million. Qantas controls nearly two-thirds of the Australian market. However, Qantas International, in the words of Qantas chief Alan Joyce, “held its own” with a six per cent decline in profit against a slight increase in revenue.

Mr Joyce remained upbeat about future earnings propsects – the kind of sentiment that is not often expressed by many an airline CEO these days. Surely the airline must be doing something right, and Mr Joyce would remind you that the Transfomration program he introduced in 2014 has certainly borne good fruit.

As Mr Joyce put it, “After several years of turning this business around, Qantas now has a momentum behind it.” He added: “Today’s result comes from investing in areas that provide margin growth and a network strategy that makes sure we have the right aircraft on the right route.”

After Qantas, Air New Zealand is expecting to also announce record profit, boosted by tourism growth.

Singapore Airlines does better without Tigerair

Courtesy Singapore Airlines

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

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

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

Courtesy Scoot

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

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

Airlines dangle the premium economy carrot

IT looks like the traditional economy class may be heading toward a split between premium economy and basic economy, with the in-between normal economy not quite as exciting in terms of perks or costs.

While basic economy as already introduced by American carriers (American Airlines, Delta Air Lines and United Airlines) and Asian rivals such as Cathay Pacific and Singapore Airlines (SIA) in an attempt to stamp a potential loss of the business to low-cost carriers, the premium economy in a way will make up for reduced profit at the very bottom of the scale.

Courtesy Singapore Airlines

United Airlines may be Johnny-come-lately, but it promises to be as good as the slew of airlines that are already in the game. Its version of the class to be known as United Premium Plus will have more spacious seats, and customers according to its spokesperson will “enjoy upgraded dining on china dinnerware, free alcoholic beverages, a Saks Fifth Avenue blanket and pillow, an amenity kit, and more.”

EVA Air may be said to be a pioneer of such seats, but it is Cathay that has created an exclusive class with its own cabin that has propelled the popularity of a product that is better than economy but not quite business class, particularly for long-haul flights.

But airlines, which have been cautious about hopping on the premium economy bandwagon are not going to abandon the old workhorse but will instead make it work harder. A number of them are already making plans to increase more seats at the back of the aircraft,with British Airways announcing recently that economy seats in its new planes will no longer be able to recline.

More space in the forward sections of the plane can mean less legroom at the rear as airlines dangle the premium economy carrot to entice customers to upgrade.

Legacy airlines go the budget way

It’s yet another sign of how legacy airlines are feeling the heat of the competition posed by budget carriers.

Courtesy Getty Images

British Airways (BA) will operate planes for the short haul with seats in economy that cannot recline. The airline said the seats will be “pre-reclined at a comfortable angle”. Affected flights up to four hours include runs from Heathrow to Rome, Madrid and Paris.

BA which already ceased providing complimentary booze and meals for the short haul last year admitted to the pressure. It said the move will allow the airline to “be more competitive” as it will then be able to “offer more low fares”.

Many legacy airlines are already adopting the “pay for what you want” model of budget carriers, charging for extras such as checked luggage and seat selection at booking.

The big three US carriers of American, United and Delta have introduced “basic economy” fares which will board such ticket holders last with seat assignment only at boarding. There may be other restrictions.

Asian rivals Cathay Pacific and Singapore Airlines (SIA) are also moving in the same direction. Cathay’s economy supersaver and SIA’s economy lite do not permit seat selection at booking and do not accrue full mileage perks. SIA is also charging additionally a credit card service fee for tickets purchased out of certain ports. (See Same class, different fare conditions, Jan 5, 2018)

While legacy airlines are finding ways to cut costs to offer lower fares, this can be a double-edged sword that only serves to narrow the gap between them and budget carriers. What price, therefore, the differentiation? But, good news for travellers not too fussy about brands.

Same class, different fare conditions

Legacy airlines, faced with increased competition from no-frills operators, are going the budget way by restructuring their economy fares.

In the United States, the big three carriers of American, Delta and United have introduced basic economy fares, which are quite akin to the budget fare. Conditions include no pre-seat selection at the time of booking, seat assignment only at the gate, last to board and other restrictions that may concern baggage allowance and flight changes.

Courtesy Singapore Airlines

In Asia, rivals Cathay Pacific and Singapore Airlines (SIA) too have revised their fare structures. At the lowest level, Cathay’s economy supersaver and SIA’s economy lite may seem attractive, but travellers should check out the restrictions so as not to be disappointed or surprised by hidden costs. Such fares do not permit pre-seat selection at the time of booking, unless you are prepared to pay a fee for the privilege. Mile accruage has also been reduced – 50% in the case of SIA and 25% in the case of Cathay.

There may be other charges. Earlier in the week, SIA announced that it would levy a 1.3% credit card service fee maxing at S$50 for outgoing flights from Singapore from January 20 only to retract the policy before its implementation, following a public outcry. However, this fee has already been introduced for flights departing Australia since November 2016 and others departing New Zealand, Belgium, the Netherlands and the United Kingdom since April last year. SIA referred the fees to as “costs relating to the acceptance of credit cards” when really it is not a fee imposed directly on the consumer but rather the vendor. It brings to mind how airlines faced with rising fuel costs so adroitly levy additionally a fuel surcharge as if it was something between the fuel companies and the consumers.

True, whatever the costs incurred by the airlines, they are likely to be passed on to the consumer. How much is reasonable will be decided by the competition, given that there is indeed fair and open competition.

Many travellers may not be aware of the different tiers of fare and their conditions, and are consequently unhappy if they had to top up what they had initially thought was an attractive offer. Same class, but different fare conditions. So, as always, caveat emptor.