Singapore Airlines' Competition Rises
Singapore Airlines has long been known for its iconic Singapore Girls, the demurely smiling stewardesses whose beauty and in-flight pampering harken back to a day when aviation was glamorous—and profitable. That allure, made famous in ads, drew high-paying premium-class flyers to Singapore Air, which in 2006 became the airline with the highest stock market value in the world. Thanks to belt-tightening by business travelers and the rapid growth of Middle Eastern airlines intent on offering even more in-cabin luxury, Singapore Air’s passenger count has fallen 12 percent since 2008—the biggest drop among 12 major full-service Asia-Pacific carriers. Air China overtook it in 2009 to become the world’s most valuable airline by stock value. Even worse, Singapore Air, which hasn’t recorded a full-year loss since it went public more than a quarter century ago, on May 10 reported red ink for the first quarter and slowed capacity growth at its flagship unit. “The fact is that they’re hurting,” says Peter Harbison, executive chairman of CAPA Center for Aviation, a Sydney-based company that advises airlines. “There’s good cause for a fundamental review of Singapore’s strategy.”
The carrier, controlled by Singapore state-investment company Temasek Holdings, reported a loss of S$38.2 million ($31 million) in the three months ended March 31, compared with a S$171 million profit a year earlier. That followed five straight quarters of declining earnings. The company’s yields, a measure of average fares, are “under pressure” as competition forces it to keep prices low, Goh Choon Phong, Singapore Air’s chief executive officer, told reporters on May 10.
Adding to the pressure, the price of jet fuel in Singapore has risen 37 percent since April 2010. Fuel now accounts for 41 percent of Singapore Airlines’ costs vs. an average of 27 percent since 2004. A “high fuel price and weak economic environment are particularly challenging to long-haul airlines,” Goh said.
Singapore Air faces greater competition on Europe-Asia routes as Emirates Airline and Qatar Airways expand their more centrally located hubs and win premium passengers with improved front-cabin service. At the same time, regional and economy travelers are being targeted by low-fare airlines such as AirAsia and the Jetstar unit of Qantas Airways. “They’re being squeezed at both ends of the plane,” says Andrew Orchard, a Royal Bank of Scotland analyst in Hong Kong. “They have less growth now and a lot more competition.”
Last year Qatar was named the world’s best airline by rating group Skytrax, an award that Singapore Air received in three of the five years through 2008—and has not won since. Southeast Asian rivals Thai Airways International and Malaysian Airline System will this year both add Airbus A380s, Singapore Air’s flagship plane. “Clearly, the competition in some areas has got a lot better,” notes Skytrax spokesman Peter Miller, citing Qatar and Seoul-based Asiana Airlines. “We are seeing a more level playing field in product standards as many carriers seek to match Singapore.”
At Singapore’s Changi Airport, Emirates and Qatar now operate a total of 74 flights a week. Low-cost carriers including Tiger Airways Holdings, part-owned by Singapore Air, have boosted their share of Changi’s passengers to 26 percent last year, from 5.6 percent in 2005, helped by the opening of a budget terminal. Singapore Air now accounts for about a third of Changi’s passengers, down from more than half in 2008. Tourist spending in the city has jumped by half since 2008, aided by two new casinos and a 23 percent rise in passenger traffic through Changi. Many of those flyers didn’t choose Singapore Air, however.
With its front-cabin business under pressure, Singapore Air’s management is moving to increase the airline’s presence in the low-fare market. Besides its 33 percent stake in Tiger Air, Singapore Air is setting up a long-haul discount operator called Scoot. It will start budget flights from its base in Singapore to Tianjin in China, Bangkok, Sydney, and Australia’s Gold Coast this year.
Singapore Air may have little choice since business travelers, long the backbone of its profitability, are trading down. First- and business-class growth industrywide peaked in May 2010 and has lagged the overall market since October, according to the International Air Transport Association. Singapore Air’s available-seat kilometers—the standard measure of capacity—have fallen by 5.1 percent since 2008. And the number of seats occupied by paying passengers has dropped even further, sinking 7.3 percent over the period. The carrier isn’t expecting a robust turnabout anytime soon: It recently began offering some of its pilots up to two years of unpaid leave to seek work with other carriers. “The world has changed for them,” says CAPA’s Harbison. “The days of being able to rely on the Singapore Girl to pull people in are gone.”