Friday, May 11, 2007

With new boeing jets, can Singapore Airlines face up to the challenge?

Singapore Airlines, the world's largest airline by market value, has been speculated to top the competition with the nine new Boeing Co. 777-300ERs after Airbus SAS postponed deliveries of its A380 superjumbo jet. The planes may have resulted in Singapore Airlines doubling its net income to S$549 million ($360 million) in the quarter ended March, according to the median estimate of six analysts surveyed.
Sales probably climbed 4.7 percent to S$3.55 billion. While the Airbus debacle slowed Singapore Airlines's expansion plans, the company replaced the missing jets faster than Emirates Airline and other carriers. Singapore Airlines received its ninth 777 in March. Emirates, the biggest A380 customer, with 45 on order, will let out five 777s as stopgap replacements for its superjumbos, it said. It won't get the 777s until the second half of this year.
SIA’s Chief Executive Officer Chew Choon Seng said that purchasing new planes would enhance service. The carrier previously ordered nine more A380s, raising its total to 19, and 20 mid-range Boeing 787s. It also signed a letter of intent to purchase 20 A350 XWBs, a twin-aisle plane that Airbus is developing. Singapore Airlines spent $360 million refitting its planes last year, including fixing business-class seats wide enough to fit two people.
Its passenger numbers rose 7.6 percent in the three months ended March to 4.6 million. It filled 81.1 percent of its seats, compared with 77.1 percent a year earlier. On the other hand, Dubai-based Emirates, is challenging Singapore Airlines on long-haul routes by expanding its fleet and adding destinations in China and India. Qatar Airways and Etihad Airways, based in Abu Dhabi, United Airlines Emirates, are following suit. At least 18 low-cost carriers are also now operating in Southeast Asia, including AirAsia. The airline, with a noteworthy fleet of 150 planes on order, may begin flying from Kuala Lumpur to Singapore by the end of next year. The rise of budget carriers spurred a 5.9 percent increase in Asia-Pacific international passenger traffic in the first quarter, according to the International Air Transport Association in Montreal.
Traffic, or the total distance flown by paying passengers, may rise 5.7 percent a year until 2010, according to the group, which represents 250 carriers worldwide. To fend the competition, Singapore Airlines is reducing costs by moving its call center services in the U.S., Canada, Australia and New Zealand to India to benefit from lower wages. The company has also created new friendships instead of rivalry as a tactic to woo more passengers. Malaysia Airlines has teamed up with SIA in the roll out of interline Electronic Ticketing, allowing SIA to issue eTickets to all destinations it services to passengers of both airlines.

Despite its efforts, SIA’s cargo volume fell 2.5 percent in the three months ended March because of increasing competition. It filled 60.1 percent of its freight capacity in the period, down from 64.1 percent a year earlier. However, Singapore Airlines had its passenger traffic increased by 9.8 percent in the three months ended March, outpacing growth in the Asia-Pacific region.

It is observed that Asia's airlines are facing the worst conditions in the cargo market since 2001. Capacity expansion is expected to outpace demand growth for the next two years. With the exporters moving more goods by sea instead of air owing to higher jet fuel costs, what other cost-cutting measures can a luxury airline like SIA take to fend against narrowing cargo margins? It is evident that SIA is depending on the profits from passenger traffic to offset its cargo losses, but with the rise of budget airlines sharing the same air routes, can SIA be sure of continuing its winning streak?