Singapore Airlines has not replicated the early signs of recovery seen in the comparable Cathay Pacific statistics in its operating results for September.
The airline boarded 10% fewer passengers in September than a year earlier (compared to a fall of only 2% for Cathay Pacific), and flew 7.9% less measured by revenue passenger kilometres. Singapore Airlines says “While the ongoing global economic slowdown continues to impact demand, fare promotions have helped mitigate the decline in loads.
The airline has however achieved effective capacity reductions, and appears to have mastered the art of introducing the Airbus A380 much more smoothly than Qantas.
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But if their load factor is up, Ben, might not this be good for the bottom line?? At the same time they are also discounting their fares more than most (thereby inducing people like me to fly with them, but generating less revenue per km).
That’s true, and caused my reference to effective capacity management. For the month the average revenue load factor on Singapore Airlines was 80.9% and on Cathay Pacific & Dragonair 80.2%
However in terms of market shrinkage in their respective hubs, Cathay Pacific’s -2% versus Singapore Airlines being down -10% by passengers boarded is indicative of a trend toward less relevance for Changi.
A wider difference in Cathay Pacific’s favour in air freight is also apparent. I don’t see this as a reflection on their managements, both of which are very effective and run rings around those of their other competitors, but on differentials driven by other factors.
There were times, and they extended over almost all of the jet age, when Singapore Airlines seemed bullet proof. This is no longer the case. For a long time it looked like being the driver of regional consolidation. But in recent years I’ve come to the view, right or wrong, that Singapore Airlines, in the absence of timely success in initiating rationalisation, will in fact be rationalised.
Seeing as SIA’s breakeven load factor is 84.5% now compared to the low 70s a year ago, only Europe and SW Pacific are breaking even (and even then, barely).
Choose the optimum fleet configuration is indeed a challenging task for any airline to ensure the optimal return per square metre of cabin space. After British Airways introduced the flat bed in business class in 2001, various airlines tried to outdo each other by improving upon the first generation flat bed business class product.
SIA took this to an extreme, and at the end of 2006, introduced a monstrous business class seat of 1 metre across, in a 1-2-1 configuration – similar to what most good airlines have in First Class.
While SIA can only fit 42 Business Class seats in their Boeing 777-300ERs, Air France fits 66. Emirates packs in 378 pax in their 777-300ERs, while SIA can only fit in 278 pax.
Since SIA has 30% fewer seats in their 777-300ER aircraft compared to Air France, they have to make up for it by charging far higher fares.
In the boom years of 2006 and 2007 and the first half of 2008, this is exactly what SIA did. They basically charged whatever they felt, and the banks and mining companies paid whatever SIA asked for. Fares were S$11,000 SIN-Europe, and 4000 pounds for LHR-SIN. In those days, 4000 pounds was S$12,000.
Let’s not even get to the reconfiguration of the Airbus A340-500s which operate the SIN-LAX and New York sectors to an all-business class configuration. It’s an irony that the cabin reconfiguration programme was complete in August 2008, just a year before Lehman Brothers collapsed, decimating premium travel from the USA.
As the financial crisis played out in the West, SIA held out lowering fares, but as passenger numbers plummeted, they started fire sale fares from the US and the UK. They were selling London-Singapore for GBP1500 in Business Class and London-Australia for GBP1900 in Business Class. 2 years ago, they were selling for 4000 pounds * 3 = S$12,000. Today they’re selling at less than half that.
SIA’s current business model hinges upon corporations willing to pay whatever premium SIA decides to charge them. Sure they may discount, but other airlines, with their less flash products, have more seats to sell at lower prices than SIA.
It is also interesting to note that Changi Airport’s passenger numbers year on year are rising, as SIA’s continues to fall. It won’t be fair to say that Changi Airport is fading into oblivion, as other new entrants are eroding SIA’s market share in its home base. From nearly 60% 2 years ago, SIA’s market share stands at a shocking 43% in Changi today. As to how SIA will regain a nearly 20% loss in market share remains to be seen, but Changi Airport is lucky not to have put all its eggs in the SIA basket, and facilitated the development of Qantas Group airlines and LCCs through the airport.