Shares in Singapore Airlines fell 4.54% in a rout on the Singapore Stock Exchange today after its fourth quarter operating losses widened and the company issued a gloomy outlook for its current financial year to 31 March 2014.
By contrast Tiger Airways Holdings, in which it holds a 32% stake, reported a strong profitable turnaround in its 4Q to 31 March this year result, even though its Australian division remained in loss in the period but saw improved sales and yields.
The sale of 60% of Tiger Airways Australia to Virgin Australia, 19.9% owned by Singapore Airlines, isn’t expected to be completed until mid July, making today’s developments a report about the diverging fortunes of full service and low fare Singapore carriers that may be relevant to the differing trajectories of these types of airlines in this market.
The misfortunes of Singapore Airlines are reported succinctly by Bloomberg here. They contrast to some weak mind rubbish being run by News.com which dresses them up as ‘good’ and appears to be written straight off the Singapore Airlines press release that preceded the SGX debacle.
(Question. Why would we pay News titles to subscribe to rehashed media releases when Bloomberg provides a balanced well research story for free?)
Turning to Tiger, the SGX filing shows that the consolidated activities of Singapore, Australia, Indonesia and Philippines carriers made an operating profit of $SG 12.7 million for the last quarter of its 31 March 2013 financial year, which mightn’t seem like much, but compared well to a combined operating loss of $ 17.2 million in the corresponding quarter of FY12. (All figures in Singapore dollars).
Singapore was the only profitable Tiger operation in the quarter, making $21.5 million in the three months, compared to a corresponding loss of $6.7 million in 2012. Tiger Australia narrowed its last quarter losses to $15.1 million in 4QFY13 from a corresponding $17.7 million in 4QFY12. However the really interesting figure in the Australian results was an 82% growth in revenue on an increase of 77.5% in traffic.
This shows how crippled Tiger Australia was by limitations imposed by CASA on its sectors and thus fleet utilisations following the airline’s decision to ignore Australian air safety rules and its grounding and supervised return to service.
There is a bigger set of questions hovering over the differing fortunes revealed by Singapore Airlines and Tiger today, concerning where the money in airlines is to be made these days.
The answer appears to be that it is the low cost, low fare and, often, high fee tight pack shorter haul carriers that make the profits. If this persists as an answer it will have the effect of growing market share at the expense of full service carriers, encouraging them to also reduce the quality of their product in order to curb the costs of serving a shrinking demand base of gradually declining relevance.
It’s an issue that might be on the management mind in Virgin Australia as it refines its intentions and goals for Tiger Australia.
In the meantime, and seemingly undeterred by the changes affecting it, Singapore Airlines will reveal new seat and cabin products early in July for introduction on part of its fleet from later this year. This will, if the history of Singapore Airlines innovations continues, be a problem for competitors like Qantas and Emirates as it chases their higher yielding customers.