Singapore Air loses out as flyers swap champagne for cheap seats

Singapore Airlines Ltd., first in the world to put a double bed, mattress and duvet on a commercial plane, posted a surprise loss at its marquee brand for the first time in three years. Its two budget carriers reported a profit.

Intense competition from Emirates, Qatar Airways and Etihad that offer services such as a personal butler and shower on board aircraft has crushed profits at Singapore Air and its Hong Kong-based rival Cathay Pacific Airways Ltd. as the two Asian airlines conduct a strategic review of their business. To fight back, Singapore Air Chief Executive Officer Goh Choon Phong is boosting borrowings to fund a record USD53 billion order for new planes.

“Evidently, the pressure of the Middle Eastern carriers and the lack of a domestic market is impacting, similar to Cathay,” Joshua Crabb, head of Asian equities at a unit of Old Mutual Plc, said from Hong Kong. Crabb said he doesn’t own Singapore Air stock.

Singapore Air group – which includes brand Singapore Air, a regional airline and two budget carriers – announced a surprise net loss of SGD138.3 million (USD99.3 million) in the three months ended March, compared with a median forecast for a profit for SGD54.3 million in a Bloomberg survey of six analysts. The company took a previously-announced provision of SGD132 million in the quarter relating to its cargo unit.

Brand Singapore Air had an operating loss of SGD41 million in the quarter while Budget Aviation Holdings – which operates the two low-fare carriers Scoot and Tiger – had a profit of SGD22 million at the operating level, according to a statement the carrier issued to the Singapore stock exchange yesterday after the market closed for trading. The loss at the main airline is the first since the fourth quarter of fiscal year 2014, according to company filings.

“A dedicated transformation office is conducting a wide-ranging review, encompassing network and fleet, product and service, and organizational structure and processes, to better position the group for long-term sustainable growth across its portfolio of full-service and budget airline operations,” Singapore Air said in the statement.

Cathay has embarked on a three-
year revamp to cut costs after reporting in March its first loss in eight years. Cathay has set a target to save 30 percent in employee costs at its Hong Kong head office as part of the biggest revamp in two decades.

Passenger yield at Singapore Air, or the money earned from carrying a passenger for one kilometer, fell to 10.1 Singapore cents, hovering around the lowest level in six years.

Singapore Air is the only Asian airline to fly the Concorde and the first in the world to fly the superjumbo A380. When the aircraft entered service in 2007, the plane featured suites created by French luxury-yacht designer Jean-Jacques Coste and cushions from fashion house Givenchy. In 2015, Singapore Air started offering champagne to passengers who flew its premium economy seats.

“Business travel demand has not been very strong and this impacts Singapore Air parent airline, which derives around 45 percent of its passenger revenue from the first and business class cabin,” said Corrine Png, Singapore-based CEO of Crucial Perspective, a research firm focused on Asian transport equities. Long-
haul routes are facing overcapacity and there’s pressure on yields, she said.

Singapore Air also announced a total dividend for the fiscal year of 20 Singapore cents per share, compared with 45 Singapore cents last year. Abhishek Vishnoi, Bloomberg


Categories Business