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273 total articles
51 total articles
(updated following 13-Nov-2013 analyst briefing to include additional comments on SIA yields, Scoot and joint venture with Tata)
Singapore Airlines (SIA) has reported higher profits for the three months and fiscal first half ending 30-Sep-2013. But the carrier’s operating margin was once again low, particularly by SIA standards, as it continues to see a drop in yields.
Market conditions for SIA remain unfavourable. Competition in Southeast Asia has been intensifying while the cargo and long-haul passenger markets remain relatively weak. But the group has been trying to position itself for higher growth and profitability over the long term through a series of major strategic changes.
The last of several major strategic initiatives came towards the end of the most recent quarter as SIA unveiled plans to launch a joint venture full-service carrier in India with Tata. The new Indian carrier, which is expected to launch in 2014, follows the 2012 launch of Singapore-based long-haul low-cost carrier Scoot and an acceleration of expansion at regional full-service subsidiary SilkAir. Scoot is not yet profitable and SilkAir has seen its profitability decline in recent months but over the long-run the SIA Group will have a stronger portfolio with a potential for a return of higher profits.
SIA, Jetstar & Tigerair drive Myanmar-Singapore growth but visa restrictions remain major impediment
The Myanmar-Singapore market is facing potential over-capacity as more flights are added, led by low-cost carriers. Tigerair launched services to Yangon in Oct-2013 while Jetstar Asia and Golden Myanmar have both unveiled plans to add capacity on the Yangon-Singapore route.
Passenger numbers between Myanmar and Singapore have increased by about 50% over the last two years. But capacity levels are now up nearly 100%.
Without a waiver of current visa restrictions it is unlikely the market will be able to absorb the additional capacity. Singapore has not approved a proposal from Myanmar to lift visa restrictions although Myanmar is the only Southeast Asian country for which Singapore requires visas. A visa free environment is particularly important for the LCCs, which are eager to stimulate demand on the Yangon-Singapore route.
Singapore-Indonesia has emerged as one of the world’s fastest growing markets with capacity up 40% year-over-year. While capacity increases on the two largest routes connecting the two countries – Singapore to Jakarta and Bali – have captured most of the attention, secondary routes are growing even faster.
The third and fourth largest Indonesian destination from Singapore, Surabaya and Medan, will see capacity nearly double in Nov-2013 compared to Nov-2012. To the 10 other smaller Indonesian destinations served from Singapore, capacity is increasing by a collective 78%.
LCC group Tigerair has quadrupled its Singapore-Indonesia operation over the last year, growing its share of capacity in the process from about 4% to 15%. Tigerair now serves eight Singapore-Indonesia routes, up from only two a year ago.
AirAsia has a 17% share and also now serves eight Singapore-Indonesia routes, up from four a year ago although its capacity has increased a more modest 34% from a much higher base. The Singapore Airlines (SIA) Group is the market leader with a 31% share and will soon serve all 14 routes as regional subsidiary SilkAir has added three Indonesian destinations.
Asia's aviation axis has shifted from Singapore Airlines (SIA) to Cathay Pacific as the region undergoes both cyclical and structural change. SIA is more exposed than Cathay to the weak economies of Europe while Cathay can more effectively serve North America, currently a strong market. Cathay's Hong Kong hub is far better suited to capturing Chinese growth than is Changi, and Hong Kong's more northerly location than Singapore means diversions through the Middle East on Gulf carriers are less of a threat than at SIA.
Cathay's decision to offer premium economy – which SIA is still hesitant to do – is bearing fruit. SIA however has made more significant and bolder change than Cathay, embarking on new partnerships and launching long-haul LCC Scoot. These will take time to mature – Scoot especially.
These factors are unlikely to change in the short term, but the long term contains much greater uncertainty. The possibilities of deep partnerships, acquisition, consolidation, changes in bilaterals or a surge in growth out of India and Indonesia, to name but a few, could potentially re-balance not only SIA and Cathay, but all of Asian – and probably global – aviation. This report looks at where Cathay and SIA compare today and what the future may hold as they pursue different strategies.
Singapore Airlines (SIA) has reported improvements in profits for the three months ending 30-Jun-2013 but its short-term outlook remains bleak as yields continue to slip. The group would have incurred a drop in operating profit and revenues were it not for a settlement related to aircraft delivery delays.
SIA is hoping its strategic shift to focus more on the regional and low-cost markets, along with new investment in its long-haul premium product, will drive improvements in profitability over the medium to long-term. But SIA faces challenges on all fronts.
In the long-haul passenger market, competition continues to intensify and market conditions remain unfavourable. Conditions are better regionally within the Asia-Pacific region, but recent capacity increases at SIA and full-service short-haul subsidiary SilkAir have outstripped demand, leading to lower load factors. Long-haul low-cost subsidiary Scoot and short-haul low-cost affiliate Tigerair remain unprofitable. The cargo sector, which has traditionally been an important business for SIA, is also a concern.
It is better late than never for Hong Kong to use its proximity and scale with mainland China to cater to the booming China-Maldives market. Chinese nationals are the single largest inbound group to the Maldives, with 230,000 visitors in 2012 – more than double the next largest market, Germany, with 98,000 visitors in 2012. A few weeks after Hong Kong Airlines resumed service to Male, the main gateway of the Maldives, Cathay Pacific on 22-Jul-2013 opened reservations for four weekly flights from 27-Oct-2013. Reflecting inertia at the legacy carrier, Cathay spent over a year deliberating on whether to serve the Maldives, while Singapore Airlines and scheduled/charter carrier MEGA Maldives effectively cleaned up the market.
Cathay's services will bring stiff competition to SIA. Cathay and its Dragonair subsidiary have a far deeper China network than SIA and its SilkAir subsidiary, and connecting through Hong Kong is shorter than via Singapore. But SIA has a strong frequency advantage – double daily – and uses regional aircraft light on premium seats whereas Cathay will use a long-haul aircraft heavy on premium seats.
Although there is considerable wealth in the outbound Chinese leisure market, it is still price sensitive and primarily package-driven. Existing operators Hong Kong Airlines and MEGA Maldives should consider gaining scale to reduce unit costs.
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