While its overall financial position remains healthy, Singapore Airlines’ (SIA) latest financial report revealed that passenger yields have suffered in the face of “capacity injection and aggressive fares from competitors, particularly on Americas and Europe routes”.
The challenges that the Star Alliance member faces on its long-haul routes are not surprising, given that these operations have failed to post profitable returns since the 2009 financial year. This has been reflected in the carrier’s growth strategy in the US.
Having previously operated two of the world’s longest non-stop commercial flights to Los Angeles and Newark, SIA dropped both flights in 2012. The airline quietly retreated from flying to Newark completely, and now requires a stopover in Tokyo to fly to Los Angeles.
From SIA’s perspective, the changes it made to those services made financial sense given that both routes were operated by the Airbus A340, which it has since retired. No other aircraft in its fleet currently has the legs to operate non-stop flights to both US cities, meaning that stopovers are necessary.
These operational limitations, combined with growing competition from the likes of the “Big Three” Middle East carriers, have led to the deterioration of SIA’s long-haul profit margins.
“Regional peers have upped their game and encroached into SIA’s markets, whilst the Middle East carriers continue to drink SIA’s milkshake. Long-haul flights are in structural decline, short and medium-haul is where the money is,” said Mohshin Aziz, associate director of equity markets (research) at Maybank Investment Bank, speaking to Singapore Business Review.
New business class on the B777-300ER
However, according to Nicholas Ionides, SIA’s vice president of public affairs, the soon-to-be delivered Airbus A350s may finally provide a solution to the issue.
“Our new fleet of more fuel-efficient A350s, which are due to start entering service from early 2016, will offer us the potential to open up even more long-haul services.”
Ionides rejected a suggestion by Aziz that SIA should follow in the footsteps of neighbour carriers Malaysia Airlines and Thai Airways in consolidating its long-haul operations and focusing on regional and medium-haul routes.
He said doing so would be short-sighted and go against the carrier’s efforts in offering a diversified route network – something integral in ensuring Singapore’s role as a powerful aviation hub in Asia.
“It would certainly be incorrect to suggest that SIA will be looking to move away from long-haul services. We are committed to long-haul flying as a key component of our network strategy,” said Ionides.
“SIA's strategy is to build a portfolio of airline products catering to multiple market segments across a range of brands. Long-haul services comprise an important component of that strategy.”
Premium economy
Premium economy, which SIA launched earlier this month, is another means for the carrier to achieve higher returns. Having already deployed the new cabin class to Sydney and Hong Kong (see here), similar rollouts to Beijing, Shanghai, Frankfurt and Paris are scheduled to follow next month.
While overall aircraft capacity is expected to drop following the installation of the premium economy cabin, most of that cutback comes from economy class. While the B777-300ERs are losing four first class seats, SIA is expanding the business cabin by offering 48 seats in that class, up from 42.
If successfully embraced by passengers, premium economy could potentially help to double the average yield from economy class. SIA has priced its newest cabin class competitively, with the majority of fares costing just slightly more than the carrier's "Flexi" economy class rates.
Combined with a range of ongoing deals that offer upgrades to premium economy at attractive prices, and the ever-inflated costs of regular economy fares during peak season travel, premium economy may just prove to be an attractive choice for discerning travelers that do not mind chipping in a bit more for the extra comfort.
For more information, visit singaporeair.com
Clement Huang
