SIA corporate, premium advantage with Newark nonstop return

Summary

• Singapore Airlines has set an 11-Oct-2018 launch date for the resumption of nonstop flights from Singapore to Newark.
• SIA will regain the status of operating the world's longest route; it lost this distinction in 2013 when it suspended Singapore-Newark services.
• SIA has opted for a low density two class configuration for its new A350-900ULR fleet, but is using the same business and premium economy seats as on its existing A350-900s.
• SIA's US capacity will increase by a relatively modest 10% as Newark is resumed, but business class capacity will increase by 22% and premium economy by 58%.

SIA opts for same premium seats as on the non-ULR A350

The low density configuration is not a surprise, since SIA was not expected to offer a regular economy product and would focus entirely on the premium segment with the resumption of nonstop Newark and Los Angeles flights. SIA will continue to provide an economy class option in the US market using its existing flights to Los Angeles, Houston, New York JFK and San Francisco.

Somewhat surprisingly, SIA has decided to use the same business class and premium economy seats that are now on its existing fleet of 21 non-ULR A350-900s. Some inflight product upgrades are planned for the new ultra long haul flights and will be announced later, but the hard product will not be new.

SIA has decided against using the business class seat that it introduced in late 2017 on its new A380s; at least for the medium term, this seat will at least be an exclusive for the flagship A380 fleet. As CAPA has previously analysed, SIA has installed the new generation business class seat, along with its new first class Suites product, on five new A380s that are replacing its five oldest A380s, and will be retrofitting its remaining 14 A380s with the new seats.

See related report: Singapore Airlines A380: seat density increase, new cabin products to improve fleet profitability

SIA has flexibility to convert ULRs into standard A350s

SIA took delivery of its first standard A350-900 in early 2016, but the business class seat on the A350 first debuted in 2013 on the 777-300ER. The premium economy seat that is now on the A350 debuted in 2015 on the 777-300ER and A380.

Using the same seats as the standard A350-900 gives SIA more flexibility in the future, should it decide to turn some or all of its A350-900ULRs into non-ULRs. The two versions are interchangeable; there are no extra fuel tanks or major design changes.

The ULR is able to access more fuel through interior replumbing. Airbus has increased the maximum takeoff weight (MTOW) to support uploading higher fuel volumes, and has improved fuel burn by close to 1% through aerodynamic tweaks. However, these tweaks will become standard in future non-ULR variants and a MTOW increase is also available to non-ULR operators.

To follow Newark: Los Angeles and one route yet to be determined

SIA is so far the only airline to have committed to the A350-900ULR, which was essentially developed by Airbus at the airline's request. Flight testing of the first A350-900ULR began on 23-Apr-2018, and SIA plans to take delivery of the first aircraft in Sep-2018.

The new nonstop to Newark will be operated in the first week with three frequencies, using one aircraft, but will be quickly increased to daily from 18-Oct-2018 following delivery of the second aircraft. The third and fourth A350-900ULRs will be used to relaunch nonstop flights to Los Angeles. A launch date for resuming nonstop flights to Los Angeles, which SIA operated from Feb-2004 to Oct-2013 with SIA's previous fleet of five A340-500s, will be announced within the next several weeks.

All seven of the A350-900ULRs that SIA has ordered are slated to be delivered in 2018. The fifth and six aircraft will be used for a third US nonstop route, while the seventh aircraft will be essentially a spare.

SIA has not announced the third route. San Francisco, which is now served nonstop with the non-ULR version of the A350, is an option. A potential fourth nonstop US destination is also a possibility.

SIA has the option of using non-ULR A350s for US west coast routes

SIA now has payload limitations on the San Francisco-Singapore sector during certain times of the year. Ironically, it could operate San Francisco-Singapore using the non-ULR version without any limitations if it had only 161 seats on the standard A350-900.

SIA's existing A350-900 fleet is in a 253-seat three class configuration. A 161-seat standard A350-900 could also potentially operate Los Angeles-Singapore without payload limitations.

However, SIA needs the improved range of the ULR in order to make New York feasible, even with the light configuration selected. Other potential US destinations in the northeast or central parts of the US can also only be served with the ULR - although the economics are not very attractive because other US destinations have much smaller local markets, with much lower premium demand.

Los Angeles-Singapore, which was launched last year by United with 787-9s, is now the second longest flight in the world by duration. Doha-Auckland, which was launched last year by Qatar Airways, now has that distinction. Singapore-New York, which is over 18 hours in both directions, will regain the distinction of the world's longest flight after it is relaunched.

SIA changes flight timings and focuses on Singapore connections

SIA has flipped the flight timings for Newark compared to the schedule that SIA operated from 2004 to 2013. The flights will carry the old flight numbers: SQ21 from Newark and SQ22 from Singapore.

The new flight will depart Singapore close to midnight and land in Newark in the early morning. Previously, the flight departed Singapore in late morning and landed in Newark in the late afternoon.

The new flight will depart Newark in the late morning and land in Singapore in the early evening. Previously, the flight departed Newark in the late evening and landed in Singapore in the early morning.

Both schedules are good for connections in Singapore. While New York-Singapore is a relatively large premium market, SIA needs to rely on regional connections throughout Southeast Asia, and to Perth in Australia, to fill up the nonstop flight.

However, the new earlier departure from Newark is not as good for connections at the US end. This is not a big concern for SIA, since SIA is focused mainly on connections at the Singapore end.

Newark has some connectivity and a train link

With the previous nonstop flight some Newark passengers connected to other flights within the Americas, mainly using interlines. Connections will still be possible for some of these destinations, but will require early morning departures. For some destinations there will not be any same-day connections on the outbound leg.

SIA does not work closely with United, which has a hub at Newark, even though the two airlines are both part of the Star Alliance. The SIA and United relationship has always been rocky, and competition between the two airlines has intensified since United's launch of nonstop flights from Singapore to San Francisco and Los Angeles.

Newark enables SIA to attract some passengers from Philadelphia and Washington DC via the train. This connection will be maintained with the new flight, but early morning train departures will be required. There is a direct train to Newark Airport from Washington DC and Philadelphia - as well as from smaller cities in Maryland, Delaware and New Jersey - making Newark more convenient than JFK for some passengers.

SIA will continue to serve JFK, which is much more convenient than Newark for some parts of the New York City area, with its existing one-stop flight via Frankfurt. This flight will provide the only regular economy and first class options for the New York market.

SIA to resume capacity growth in the US market

The resumption of Singapore-Newark nonstop flights will increase SIA's capacity in the US by approximately 10%.

SIA reduced capacity to the US by 16% in late 2013 when the nonstop flights were suspended, and by another 5% after premium economy was introduced in 2015 (which resulted in slightly lower density aircraft on most US routes). Capacity growth resumed in late 2016, when San Francisco nonstop flights were launched, but current capacity is still 14% below June-2013 levels.

SIA one-way seat capacity by US destination: 2013 to 2018

	Jun-2013	Dec-2013	Jun-2016	Dec-2016	Jun-2018	Dec-2018*
San Francisco	3892	3892	3794	3717	3619	3619
Los Angeles	3797	2863	2653	3696	3696	3696*
New York JFK	3297	2863	2653	2653	2653	2653
Houston	1390	1390	1390	1390	1265	1265
Newark	700	0	0	0	0	1127
US TOTAL	13,076	11,008	10,490	11,456	11,233	12,360

Note: *based on Newark nonstop resumption only; other A350-900ULR flights not yet included in the Dec-2018 data.
Source: CAPA - Centre for Aviation.

With the resumed daily service to Newark, SIA will have only 5% fewer seats in the US market than it did five years ago. SIA's US capacity will likely reach new record levels once all seven A350-900ULRs have entered service. However, the exact increase will depend on what, if any, adjustments SIA makes to its existing US services when Los Angeles nonstop flights resume and when the last batch of A350-900ULRs enter service.

SIA currently has two daily flights to Los Angeles (a 777-300ER service via Seoul and a 777-300ER service via Tokyo Narita). It only had one daily one-stop flight to Los Angeles back when it operated the nonstop flight, although at the time, the one-stop flight via Tokyo was operated with the larger A380.

SIA switched the Seoul service from San Francisco to Los Angeles when it introduced the nonstop San Francisco flight in Oct-2016. It also switched the stopover of its Houston service from Moscow to Manchester in Oct-2016. SIA reduced capacity to Houston a few months later, in Jan-2017, when it switched from 777-300ERs to smaller A350-900s.

More changes in the US operation are likely as SIA places all seven of its A350-900ULRs in the US market. However, there will almost certainly be an overall increase in capacity.

Premium capacity to increase significantly

Most significantly, there will be a large increase in premium capacity as SIA resumes the nonstop flights to Newark and Los Angeles.

The Newark flight alone will increase SIA's business class capacity in the US market by 22%, and premium economy capacity will increase by a staggering 58%.

SIA's business class capacity in the US market is currently 34% lower than five years ago. The resumption of the Newark service will narrow the decline to 9%. The resumption of the Los Angeles nonstop service will result in a new record level of business class capacity in the US market - assuming SIA does not reduce any of the existing flights.

However, some adjustments are likely, particularly when a third route is launched with the A350-900ULR fleet. SIA's business class capacity in the New York market will also decline in 2019 or 2020 as SIA reconfigures its A380 fleet.

SIA one-way premium seat capacity by US destination: 2013 to 2018

	Jun-2013 FIRST/BIZ/PY	Dec-2013 FIRST/BIZ/PY	Jun-2016 FIRST/BIZ/PY	Dec-2016 FIRST/BIZ/PY	Jun-2018 FIRST/BIZ/PY	Dec-2018* FIRST/BIZ/PY
San Francisco	112/588/0	112/588	84/630/196	56/588/168	28/630/364	28/630/364
Los Angeles	84/920/0	84/602	84/602/252	56/672/392	56/672/392	56/672/392
New York JFK	84/420/0	84/602	84/602/252	84/602/252	84/602/252	84/602/252
Houston	40/210/0	40/210	40/210/0	40/210/0	0/210/120	0/210/120
Newark	0/700/0	0/0/0	0/0/0	0/0/0	0/0/0	0/469/658
US TOTALS	320/2838/0	320/2002/0	292/2044/700	236/2072/152	168/2114/1128	168/2583/1786

Notes: Jun-2013 figures are for the period prior to suspension of Los Angeles and Newark nonstop;
Jun-2016 figures show the changes after introduction of premium economy on most routes (it was introduced later on Singapore-Hong Kong-San Francisco)
*Dec-2018 figures based on Newark nonstop resumption only; other A350-900ULR flights not yet included.
Source: CAPA - Centre for Aviation.

SIA bets on premium economy

Premium economy capacity in the US market will increase to nearly 1,800 weekly one-way seats after Newark is launched, and will likely exceed 2,400 one-way seats after the nonstop service to Los Angeles is launched.

SIA will also significantly increase premium economy capacity in the San Francisco market, resulting in nearly 3,000 weekly one-way seats, if it switches to the A350-900ULR on the San Francisco nonstop. This is a huge amount of capacity for a relatively niche product, and would make SIA one of the largest premium economy players in the US international market.

In the New York market there will also be a premium economy increase in 2019 or 2020, because the A380 retrofit project involves increasing premium economy capacity (as well as regular economy capacity) while reducing business and first. SIA currently uses the low density 379-seat A380 configuration on Singapore-Frankfurt-JFK, but the airline is transitioning to a 471-seat configuration for all A380s.

The premium economy cabin on the A350-900ULR will be two to three times larger than the premium economy cabin on SIA's other long haul aircraft. Even compared to the retrofitted A380, the A350-900ULR will have 50 more premium economy seats (slightly more than double).

SIA's A350-900ULR fleet will also have a significantly larger premium economy cabin than those of virtually all other airlines. SIA will need to rely heavily on the corporates, which have increasingly been implementing premium economy policies for long haul flights, to make the A350-900ULR operation successful.

SIA's improves its position in Southeast Asia-New York market

Offering a nonstop product is important for the premium and corporate segments as it reduces travel time between New York and Singapore. SIA currently competes with close to 20 airlines in the one-stop New York-Singapore market, several of which offer transit times that are similar to SIA's. Reintroducing the nonstop is a key differentiator, and should enable SIA to regain the market share it lost in the key New York-Singapore premium market in 2013.

The nonstop also reintroduces a one-stop option between several secondary cities in Southeast Asia and New York. This again will provide SIA a competitive advantage that it lost when it suspended the nonstop flights in 2013.

Primary cities in Southeast Asia already have one-stop options to New York via multiple hubs in North Asia, the Middle East and Europe. In this case SIA's services will be a better match to its competitors, compared to its current two-stop product. Only a two-stop product will still be provided for economy passengers, but this is a low-yielding and extremely competitive segment of the market that SIA prefers to cede to other airlines.

In a 30-May-2018 statement Changi Airport stated that the "new SIA New York service is Southeast Asia's only non-stop connection to the North American east coast", and that the airport is "confident it will be well received by Changi Airport's passengers, especially time-pressed business travellers".

In fact, Changi will only have the distinction of having the only nonstop from Southeast Asia to the North American east coast for a few weeks, because Philippine Airlines (PAL) is planning to launch four weekly nonstop flights to New York on 28-Oct-2018. PAL will have the only economy nonstop Southeast Asia-New York product as it will be using three-class A350-900s (non-ULR). However, PAL will generally cater to a different segment of the market, and will not be a concern to SIA.

While the A350-900ULR is only a slightly upgraded version of the standard A350-900, the A350 overall offers game-changing economics for ultra long haul routes. Even with fuel prices again increasing, SIA has a much better chance of achieving profitability in its second attempt at the nonstop Newark route.