Turbulent skies ahead for Singapore Airlines?

Near-term earnings will be shaky due to plummeting yields and anemic demand for European long-haul flights.
While Singapore Airlines has been cutting down its staff bonus and jet fuel costs, it still won't be enough to make up for tepid passenger and cargo market demand. The revenue contributions from Scoot won't kick in until after FY13, which certainly doesn't help the near-term prospects for the airliner.
Here's more from CIMB:

Continued pressure on yields due to promotional activities, and an increasingly weak outlook for European economies suggest that SIA could struggle for a while yet with long-haul travel demand. We think that LCCs remain in a better position to weather the downcycle.

We downgrade our relative call from Neutral to Underperform on better expected returns for FSSTI. We raise our forecasts by around 30% for FY12-13 on better yields as we were too bearish a few quarters ago.

SIA will be announcing FY12 results on Wednesday evening, followed by an analysts’ briefing on Thursday morning. We expect a 4Q core net profit of around S$120m, and a full-year core net profit of around S$400m. Our previous forecasts were too low, and we are raising them in anticipation of the results.

SIA’s 4Q (January-March 2012) ASK capacity grew by 4%, while its RPK demand rose 7% yoy, with its passenger load factor improving 2.1% pts to 77.6%. This was due to an easy comparison base that was affected by Japan’s earthquake. Meanwhile, 4Q’s cargo AFTK capacity dipped 2% but RFTK demand fell an even faster 3% yoy, leading to a 0.7%-pt decline in the cargo load factor to 61.9%. Yields for both the passenger and cargo segments should decline yoy due to
the current weak environment.

However, the impact on profits is partially mitigated by lower staff bonuses than last year, while jet fuel prices also weakened from US$135 in 3Q to US$127/barrel in 2Q.

We do not expect the results to catalyse its share price, as its near-term outlook remains hazy. We also do not expect Scoot to be a material earnings contributor in FY13, since it is a longer-term project.

http://sbr.com.sg/aviation/in-focus/turbulent-skies-ahead-singapore-airlines

Flying straight into the competition

Karamjit Kaur
The Straits Times
Publication Date : 19-08-2011

Australian airline Qantas is looking at either Singapore or Kuala Lumpur as the base for a new premium carrier it plans to launch. Its decision either way will have an impact not only on rival Singapore Airlines (SIA) and local carriers, but on the hub status of Singapore's Changi Airport. Qantas' new start-up is among several initiatives to boost business and salvage its loss-making international operations. Chief executive Alan Joyce has not disclosed much about it. What is known is that the new entity will be a separate brand from Qantas' distinctive flying kangaroo, and will kick off with a fleet of 11 single-aisle Airbus 320 aircraft. Many aviation watchers think Qantas will pick Singapore. But KL's appeal cannot be dismissed either. In some ways, Singapore is the obvious choice because Qantas and its low-cost arm Jetstar, is already the largest single foreign player at Changi, accounting for about 10.5 per cent of the total number of weekly seats. The SIA group, including regional airline SilkAir, controls 40 per cent of the market. Singapore is also a key hub for Qantas on the Australia-Britain route. In contrast, Qantas does not fly direct to KL. Picking Singapore would allow the new Qantas carrier to leverage on Changi Airport's position as a hub for premium and business travellers, and let it tap Changi's network of over 100 airlines operating to more than 200 cities. Kuala Lumpur International Airport is served by about 60 carriers. But there are also sound arguments in favour of KL being the base of the new carrier. For one thing, it allows Qantas to deepen existing partnerships with AirAsia and full-service carrier Malaysia Airlines (MAS). In January last year, AirAsia and Jetstar inked a deal to pool resources and expertise in a drive to slash costs and lower ticket prices. More recently, Qantas sponsored MAS' entry into the Oneworld global aviation alliance, which includes Qantas, British Airways and Cathay Pacific. This allows Qantas, which has a limited presence in Asia, to leverage on MAS' network to expand its own reach. But business links between the Qantas family and the MAS family do not necessarily mean that the Australian carrier should plant its new flag in KL. Flying out of KL could be counter-productive as the new entity could take away market share from the local players. By the same token, a new Qantas arm in Singapore that targets the premium market is going to hurt SIA and its regional carrier SilkAir. Already, SIA's market share and yields have eroded in recent years, in the face of competition from regional budget carriers and improved service from full-service airlines like Emirates and Cathay Pacific. A new Qantas-backed carrier flying out of Singapore will intensify the heat on SIA. SIA is already preparing for a more competitive skyscape. It plans to launch its own long-haul low-cost carrier by the middle of next year. It recently struck a deal with Virgin Australia to code-share - sell seats on each other's services - and coordinate flight schedules for seamless transfers. Whether its preferred choice is Singapore or KL, Qantas will need the official nod from the relevant civil aviation regulator to launch its new carrier. If Qantas wants to fly its new carrier out of Singapore, the Civil Aviation Authority of Singapore (CAAS) must scrutinise what value the new carrier will bring to Singapore. How will the new carrier enhance Singapore's position as a premier air hub in the region and make Changi more attractive to both airlines and travellers? Will the new carrier launch new routes and markets? Or is the intention merely to snatch market share away from SIA and other incumbents that fly out of Singapore? CAAS will have to strike a balance between promoting Changi as an air hub, and safeguarding the interests of existing airlines, including SIA, that fly out of Singapore. Its assessment must be guided ultimately by what is best for the country. Unlike some other countries reluctant to open their skies to foreign carriers for fear of weakening their own local airlines, the Singapore Government has always adopted a liberal stance. Having more airlines and linkages out of Singapore makes Changi attractive to travellers, and promotes business links and overall economic growth. The interests of SIA and other local airlines sometimes have to take a back seat to this paramount objective. This was a position then Senior Minister Lee Kuan Yew reiterated when he got involved in a dispute between SIA and its pilots several years ago. He had declared in January 2004 that if budget airlines were to eat into SIA's profits, his reaction would be: "So be it". This was because the more important objective was "our remaining a busy air hub". This of course does not mean that the Government does not push for SIA's rights and that of other local carriers. When air deals are sealed between countries, these are often the end result of delicate manoeuvring, with one eye on the commercial interests of the country's carrier/s and the other on the wider benefits that increased traffic will bring to that country. The ideal scenario from Singapore's point of view would be for the Australian carrier to fly out of Singapore in return for SIA getting air rights between Australia and the United States which it has long lobbied for. But even if no such deal is struck, CAAS should consider an application from Qantas on its own merit. If satisfied that Qantas' new arm will benefit Changi Airport and Singapore's aviation industry, then it must say yes to the kangaroo, even if it hurts Singapore's national airline SIA. But even that need not be a zero sum game. In fact, one can argue that SIA's success to date is due in part to the airline having to constantly upgrade and improve its services and products to deal with the competition. To its credit, SIA has risen to the challenge. There is every chance it will do so again, even if Qantas is allowed to plant its new flag at Changi.

SIA to form long-haul low-cost subsidiary

By Siva Govindasamy

Singapore Airlines (SIA) plans to establish a no-frills low-fare subsidiary that will serve medium and long-haul routes using widebodies.
Operations at the Singapore-based wholly-owned subsidiary will begin within a year, and it will be managed separately from SIA, said the Star Alliance carrier.
"The new airline is being established following extensive review and analysis. It will enable the SIA Group to serve a largely untapped new market and cater to the growing demand among consumers for low-fare travel," added the airline.
This is the airline's first major decision under new CEO Goh Choon Phong, who took over the reins at SIA on 1 January and has largely kept a low profile while reviewing the carrier's medium to long-term strategy.
"We are seeing a new market segment being created and this will provide another growth opportunity for the SIA Group," he said. "As we have observed on short-haul routes within Asia, low-fare airlines help stimulate demand for travel, and we expect this will also prove true for longer flights."
The company remains committed to its flagship airline's premium model, and this new subsidiary will supplement the existing businesses, he added. "We remain fully committed to the further growth of SIA, which will continue to offer the highest-quality products and services to our customers."
Kuala Lumpur-based AirAsia X, in which Malaysian low-cost carrier AirAsia has a 16% stake, pioneered the long-haul low-cost model in Southeast Asia and has gradually grown since it began operations in November 2007. Its network now includes London, Paris, Tehran, Gold Coast, Melbourne, Christchurch, New Delhi, Mumbai, Chengdu, Tianjin, Hangzhou, Taipei, Seoul, Tokyo and Perth.
From Singapore, Qantas associate Jetstar Asia flies Airbus A330s long-haul to Melbourne and Auckland. It also plans to offer services to Japan and points in Europe in the near term.
Details related to the new airline's branding, products and services, and route network will be announced by its management team "in due course", said SIA.
Aircraft will initially be sourced from the parent carrier, which has 20 Boeing 787-9s and 20 Airbus A350-900s on order. SIA's spokesman said that subsequently, "all options are open on aircraft sourcing".
He added that there could be routes on which both the parent airline and the new subsidiary could operate on, although this will be decided by the management team.
SIA's regional airline SilkAir will retain its business model, he said. "SilkAir is a network carrier while this subsidiary will have a point-to-point model," he added.

http://www.flightglobal.com/articles/2011/05/25/357171/sia-to-form-long-haul-low-cost-subsidiary.html

Singapore Air to set up low-fare long-haul carrier

Wed May 25, 2011 7:42am EDT

* New carrier to operate within one year
* To use wide-body planes for medium, long haul
* Move comes as competition increases from budget airlines
* AirAsia boss dismisses threat from new carrier
(Adds AirAsia chief executive)

By Harry Suhartono and Charmian Kok
SINGAPORE, May 25 (Reuters) - Singapore Airlines (SIAL.SI), the world's second-most valuable listed airline, set out plans to enter the long-haul budget carrier market by setting up a new subsidiary expected to compete with AirAsia X.
The premium carrier faces competition from other players in Asia and the Middle East that cater to high-end passengers as well as fast-expanding budget airlines in Asia.
Wednesday's move by Singapore Airlines' new Chief Executive Officer Goh Choon Phong marks a major reversal from his predecessor's strategy.
"This is driven by the changing landscape in the industry. If you look at what's happening (in Malaysia), AirAsia X has really made leaps and bounds in terms of their operations," an aviation analyst at Standard & Poor's, Shukor Yusof, said.
"It's a new direction and it's been driven by a need for them to grow within the market," he said.
Singapore has built its reputation on high-quality cabin service.
Goh's predecessor Chew Choon Seng had questioned whether the budget carrier strategy could be successfully applied to long-haul routes, noting that passengers on 13-hour flights would expect to be served meals and enjoy some degree of comfort and entertainment.
"As we have observed on short-haul routes within Asia, low-fare airlines help stimulate demand for travel, and we expect this will also prove true for longer flights," said Goh, who has been in the top job for about six months.
The carrier controls about a third of Singapore-based budget carrier Tiger Airways (TAHL.SI), which mostly operates on short-haul routes, and owns regional carrier SilkAir.
AirAsia X is the long-haul budget carrier unit of Malaysia's AirAsia (AIRA.KL).
AirAsia Chief Executive Tony Fernandes dismissed the new threat.
"Not worried. They should be worried. Their p and l (profit and loss statemwent) going to hurt. Business(es) should stick to what they know best," he said on Twitter.
Fernandes is in the midst of negotiating a major deal with Airbus (EAD.PA) that could include more long-haul A330 passenger jets for AirAsia X as well as medium-haul A320neo aircraft.
Singapore Airlines, 55 percent owned by state investor Temasek Holdings [TEM.UL], had said near-term weakness in load factors and high fuel prices are the top threats for the carrier and will affect its operating performance.

http://www.reuters.com/article/2011/05/25/singaporeairlines-idUSL3E7GP1HE20110525

Airbus A380: how the airlines compare

With Korean Air soon to become the sixth carrier to operate the Airbus superjumbo, Business Traveller and seatplans.com examine the different A380 layouts offered by SIA, Emirates, Qantas, Air France, Lufthansa and Korean.

http://www.businesstraveller.com/news/airbus-a380-the-layouts

Strategy and organization at Singapore Airlines: Achieving sustainable advantage through dual strategy

ABSTRACT
Singapore Airlines has consistently outperformed its competitors throughout its history, in the context of
an unforgiving industry environment. We examine how Singapore Airlines has achieved its outstanding
performance and sustained its competitive advantage, through effectively implementing a dual strategy:
differentiation through service excellence and innovation, together with simultaneous cost leadership in
its peer group. We examine the organizational elements that have allowed the company to do so,
illustrate its strategic alignment using a vertical alignment framework, and conclude by highlighting the
significant challenges ahead.
2008 Elsevier Ltd. All rights reserved.


https://www.bschool.nus.edu.sg/Departments/Marketing/Jochen%20papers/jatmheracleouswirtzstrategyorganizationsingaporeairlines2009.pdf

I’d happily pay extra to an airline to treat me like a VIP. Would you?

http://simpliflying.com/2010/id-happily-pay-extra-to-an-airline-to-treat-me-like-a-vip-would-you/#more-1820

INTERVIEW with : SIA CEO Chew Choon Seng

http://www.flightglobal.com/articles/2010/01/21/337362/interview-singapore-ceo-chew-choon-seng.html

Singapore Airlines - An Excellent Asian Brand

http://www.allaboutbranding.com/index.lasso?article=382