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Singapore Airlines Sacrificing Yields To Defend Market Share
Perspective | 13 November 2013
By Reuters
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Struggling Singapore Airlines (SIA) is showing little sign of a recovery with passenger yields falling to near four-year lows, highlighting SIA’s eroding pricing power in a weak market for premium airlines.

SIA’s yields fell for the third consecutive quarter as it faced stiff competition on its medium- and long-haul routes from Gulf carriers such as Emirates Airline and others, including Malaysian Airline System and Cathay Pacific Airways.

Premium-class travel, which makes up about 40 percent of SIA’s revenue, has been hit as businesses cut travel spending and budget carriers including AirAsia and privately held Lion Air are also attracting more passengers and now operate more than 50 percent of seat capacity in Southeast Asia.

“We are going through a period in the world where demand is sluggish, but there has been a lot of capacity growth by many airlines, some more than others,” Mak Swee Wah, head of commercial activities at SIA, told Reuters on 13 November 2013 after a presentation to analysts.

On 12 November 2013, SIA reported a 24 percent rise in operating profit to $86.9 million (US$69.5 million) in the quarter ended September from a year earlier, matching an average estimate of $87.2 million in a Reuters poll of four analysts.

Passenger yield, or the average price a passenger pays to fly one kilometre, fell to $0.11 from $0.14 at SIA’s flagship airline unit. Passenger numbers rose about 6 percent to 4.8 million.

Promotional activities and a rising Singapore dollar against major revenue-generating currencies pushed yields lower.

“This is one business where there’s no one single factor. You have to push all accelerators and at the same time making sure that your cost is under control,” Mak said.

Though advance bookings are picking up, SIA expects yields to remain under pressure. Analysts said this was surprising, given that Cathay Pacific was keeping its prices firm.

“Singapore Airlines is obviously just lacking confidence in its ability to price its products appropriately,” said Timothy Ross, analyst at Credit Suisse, who cut SIA’s net profit estimate for this year by 20 percent and downgraded the stock to “neutral.”

“On every basis, Cathay is a much better-run airline,” said Ross, adding that Cathay was more nimble, more responsive on products and more aggressive on pricing products appropriately.

To win customers, SIA and its regional arm, SilkAir, said checked-in baggage allowances would increase by 10 kilograms for all classes of travel from 15 November 2013. Economy-class passengers will be able to carry 30 kilograms of free baggage.

Under chief executive officer, Goh Choon Phong, SIA has been diversifying its revenue streams and aims to create new ones, such as an Indian joint venture for a full-service airline it expects to start operating from next year.

SIA, 56-percent owned by Singapore sovereign investor Temasek Holdings, started Scoot, a medium- and long-haul budget airline last year and it has raised its one-third stake in short-haul budget airline Tiger Airways Holdings.

“It certainly seems to be running faster just to stand still. There is a lot of capital being expanded, but it’s not clear that there’s going to be a return on that capital,” Ross said of SIA.

Singapore Airlines  9.090 -- --   
Business: Co provides air transportation services to destinations spanning a network spread over 6 continents. [FY19 Turnover] SIA (80%), Budget Aviation (10.5%), SilkAir (6.2%), SIAEC (3.1%), others (0.2%).

Insight: May-19, FY19 revenue edged up 3.3% to $16.3b. Pass... Read More

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