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

Singapore Airlines new A380 to be placed into service next month

SIA on 2-Nov-2017 unveiled new premium products for its A380 fleet, which will debut on the Singapore-Sydney route on 18-Dec-2017 and gradually be introduced on all its A380 routes over the next three years.

SIA is taking delivery over the next year of five new A380s in a new 471-seat four class configuration. These will be the first five aircraft to feature its new long haul premium cabin products and replace its five oldest A380s, which are being returned to lessors. SIA plans to take delivery of the first new A380 in Dec-2017 and four more A380s in 2018. SIA has already returned one A380 and plans to return its other four leased A380s by the end of 2018.

SIA plans to retrofit its 14 owned A380s from late 2018 to 2020. These aircraft will have the same 471-seat four class configuration as the five new A380s after the retrofits are completed.

SIA A380 average seat density increases by 14%

SIA currently operates 17 A380s, consisting of nine aircraft in 441 seat four-class configuration and eight aircraft in 379 seat four-class configuration. SIA had 11 aircraft in 441 seat four-class configuration prior to removing two from service over the last five months.

By the end of 2020 SIA will again have 19 A380s in operation. However, the total seat count for these 19 aircraft will be 14% higher than the total seat count for its original fleet of 19 A380s. The total seat count is increasing from 7,883 seats (as of 2Q2017) to 8,949 seats (by the end of 2020).

Economy class has the most pronounced increase, growing by 16% from 5,623 seats to 6,517 total seats. On 11 of the aircraft the increase in economy capacity is only 3% while on the eight lower density aircraft the increase is a staggering 40%.

Premium economy capacity is increasing by 22% on all aircraft from 36 to 44 seats. SIA installed 36 premium economy seats on all 19 of its original A380s in late 2015 and early 2016.

Total business class seat capacity is increasing by 10% from 1,348 seats to 1,482 seats. For eight aircraft business class capacity will be reduced by 10% while for 11 aircraft business class capacity will increase by 30%.

Singapore Airlines reduces Suites capacity by 50%

Suites capacity will be cut by 50% on all aircraft from 12 to six seats. This is a sensible move as the average load factor for Suites since the product was introduced in 2007 has been low.

By reducing the number of Suites seats, the load factor should improve significantly without a significant decline in Suites revenue. For the most part only non-revenue passengers (redemption bookings and redemption upgrades) will be turned away.

Yields should also improve as the new Suites product is significantly more spacious than the current product. SIA did not want to eliminate the Suites product entirely as it generates sufficient yield to justify the space allocated and is beneficial from a marketing standpoint.

New A380 layout is much more efficient

SIA is moving the Suites cabin upstairs with the new and retrofitted A380 fleet. The narrower fuselage upstairs enables for a much more efficient use of space.

The new Suites cabins are 30% more spacious than the current cabins, enabling SIA to improve the product with an in-suite wardrobe and separate swivel chair in addition to a standalone bed. However, with the old layout there was significant wasted space. Therefore, SIA has been able to improve the product significantly, creating marketing buzz, while not having to allocate significantly more floor space.

The efficiency of the business class layout also improves with business class situated behind Suites and taking up the entire upper deck. In the current configuration, eight aircraft only have business class in the upper deck while the other aircraft have a small economy section behind business class. The all upper deck business class configuration proved to be too many business class seats, impacting SIA's business class load factor while having a small economy section upstairs was inefficient (although popular with economy customers).

Offering 78 business class seats across the entire fleet should improve business class load factors and, therefore, revenues. SIA is also hoping to improve business class yields as customers respond positively to the product improvements.

With the new configuration, SIA is much more efficiently using the floor space in both decks. Upstairs it will have 78 business class seats and six Suites. In the current aircraft with the all premium upper deck, there are 86 business class seats. Therefore, SIA is only reducing the total seat count in the upper deck by two despite the fact each Suites takes up the equivalent of approximately four business class seats.

SIA introduces dedicated lavatories in premium economy

Premium economy is being moved to the front of the downstairs deck. This enables SIA to provide two dedicated lavatories for the premium economy cabin and have a separate boarding entrance. Currently premium economy shares the lavatory with the economy cabin and uses the same aerobridge as economy.

With Suites upstairs, there is plenty of space downstairs for the larger premium economy cabin and a larger economy cabin. The additional economy and premium economy seats should generate additional revenues - more than offsetting the pressure on economy yields.

With business class revenues also increasing and Suites revenues not declining significantly, the overall profitability of the A380 operation should improve significantly.

SIA should be able to recoup its investment in new A380 products

SIA is obviously hoping the higher revenues generated by the A380 fleet offset the A380's relatively high operating costs and the investments in the new products. SIA stated the research, design, development and installation of the new products on the 19 A380s represents an investment of approximately USD850 million.

SIA expects to continue operating 19 A380s for several more years and is not likely to phase out the type until late next decade. This should give SIA sufficient time to recoup the USD850 million investment.

A380 retrofits enable SIA to resume ASK growth

SIA's A380 operation should generate 14% more ASKs once the retrofits are completed, driving a 2% to 3% increase in total ASKs for SIA. While this may not seem significant it will enable SIA to resume capacity growth after a period of capacity reductions.

SIA's ASK have dropped four consecutive years, including by 1.5% in 2015, 0.5% in 2016 and 0.3% in the first nine months of 2017. SIA will end 2017 with less ASKs than it had a decade earlier in 2008.

Singapore Airlines ASKs: 2008 to 9M2017

Source: CAPA - Centre for Aviation and company reports.

The declines the last three years have been partially driven by the introduction of premium economy. SIA removed 30 seats in all 19 of its A380s as it introduced premium economy and has been removing 14 seats from 777-300ERs (the last of the 777-300ER retrofits will be completed in 2018).

Fleet growth to drive further increases in ASKs

SIA is also intending to grow its fleet - although not its A380 fleet - resulting in further capacity ASK increases. Over the next few years SIA will take delivery of 787-10s and additional A350s, more than offsetting the A330s and older model 777s which are existing the fleet.

Singapore Airlines fleet summary: as of 6-Nov-2017

Aircraft	In service	On order
Airbus A330-300E	22	0
Airbus A350-900ULR	0	7
Airbus A350-900XWB	18	42
Airbus A380-800	17	5
Boeing 777-200	11	0
Boeing 777-200ER	10	0
Boeing 777-300	5	0
Boeing 777-300ER	27	0
Boeing 777-9X	0	20
Boeing 787-10	0	49
Total:	110	123

Source: CAPA Fleet Database.

SIA has 49 787-10s and 49 additional A350s on order, some of which will be used to replace 22 A330s and 26 older model 777s. CAPA analysed in a 10-Oct-2017 report SIA's plans for its regional fleet, which operate short and medium haul routes, and expected improvements in its regional product.

See related report: Singapore Airlines Group faces critical decisions with regional strategy as 787-10s, 737 MAXs arrive

SIA's long haul fleet currently consist of 17 A380s, 18 A350s and 27 777-300ERs. As highlighted in the 10-Oct-2017 report, SIA's fleet of 777-200ERs were originally used on long haul services but have been redeployed over the last two years on medium haul routes as A350s have been delivered. Singapore-Istanbul is the only long haul route still operated with 777-200ERs but uses the equivalent of less than one aircraft as it is operated less than daily.

SIA plans to take delivery of another three A350s in long haul configuration by the end of the current fiscal year in Mar-2018 (FY2017/18) along with three new A380s. SIA plans to take delivery in its next fiscal year (FY2018/19) of the remaining two A380s on order - although these will replace older A380s coming off lease - and seven A350-900ULRs, which will be used to resume nonstop flights to Los Angeles and New York. SIA may also take delivery of a small number of A350-900 non ULRs in long haul configuration FY2018/19 before starting to take a new regional configuration of A350-900s in FY2019/20.

Both the long haul and regional fleets will grow by several aircraft in the coming years. For the long haul fleet, the growth will be driven by more A350s (both ULRs and non-ULRs) as the number of A380s and 777-300ERs is constant.

Singapore Airlines will not expand its A380 fleet

SIA has repeatedly stated that it has no intentions of growing its A380 fleet beyond 19 aircraft. SIA operated 19 A380s from late 2012 to mid 2017 but is now going through a three-year period in which it will have slightly less A380 capacity due to the delivery schedule of the five new A380s and the subsequent retrofit of the 14 owned aircraft.

SIA currently has 17 A380s in its active fleet, as highlighted earlier in this report, and will likely operate 17 or 18 A380s until the retrofit programme is completed in 2020. SIA intentionally delayed the delivery of new A380s, which were initially expected to begin around the middle of this year, in order to create a lag between A380s exiting the fleet and new A380s being delivered. This essentially will result in a fleet of 17 to 18 A380s until the retrofit programme begins in late 2018, which will again result in an active fleet of 17 or 18 aircraft until the last retrofit is completed in 2020.

SIA should be able to add some A380 flights once the retrofit programme is completed, resulting in a further capacity increase.

Singapore Airlines to increase capacity on A380 routes by up to 24%

SIA currently uses its A380 fleet on 12 routes, based on the schedule for the week commencing 6-Nov-2017. Six routes are currently operated only with the 441 seat A380 and three routes are operated with the lower density 379-seat configuration. Three routes are operated with a combination of two configurations, including SIA's two largest A380 routes - Singapore to London and Sydney.

The Singapore-Frankfurt-New York and Singapore-Zurich routes will have the largest increase in capacity as SIA transitions to the new 471-seat configuration as these have traditionally been the only routes that are served entirely with the 379-seat configuration. Both these routes will experience a 24% increase in capacity, assuming they continue to be operated by A380s.

Network changes are possible, and perhaps likely, as SIA increases the density of its A380 fleet. Singapore-Frankfurt can likely support a 24% capacity increase given the relatively large size of this market and connections available on joint venture partner Lufthansa beyond Frankfurt. However, the Frankfurt-New York leg and the Singapore-Zurich route could prove to be challenging with 471 seat aircraft. Ultimately SIA could decide to focus the A380 fleet to slot constrained medium haul destinations within Asia Pacific and London Heathrow.

SIA will likely increase capacity to London by 9% in 2018

London is now served with one 441-seat A380 daily frequency, one 379-seat A380 frequency and two daily 264-seat 777-300ERs. Based on the current schedule, capacity to London will increase by 9% from 9,436 to 10,290 one-way weekly seats once the 471-seat aircraft are introduced. This will likely occur in 2018 as SIA typically selects London as the second route after Sydney when it introduces a new long haul premium product; Singapore-Sydney is first as it can be operated with one aircraft while London requires two aircraft.

However, the projected 9% capacity increase for London is not assured as SIA has changed its London schedule several times over the last several years in terms of the number of A380 flights (operating up to three daily A380 flights previously) and the mix of configurations. Generally speaking, capacity to London will almost certainly increase as capacity across the A380 network increases.

SIA also has changed its Sydney schedule several times over the years in terms of number of A380 flights and the mix of configurations. SIA currently uses the 379-seat configuration A380 on one of its five daily Sydney flights and the 441-seat A380 on another daily frequency but during certain times of the year has used the 441-seat aircraft for both A380 frequencies. It is the 441-seat A380 flight that will initially be upgraded to the 471-seat A380 from 18-Dec-2017. SIA uses a mix of 777-300ERs and 777-200ERs on its other Sydney flights.

Singapore Airlines has rather complicated A380 schedule

SIA also frequently swaps between the two A380 configurations on the Singapore to Beijing and Shanghai routes. For the week commencing 6-Nov-2017, Beijing is being operated entirely with the 379-seat configuration and Shanghai is using the 441-seat aircraft with the exception of one flight with the 379-seat aircraft (on Wednesday). However, during other periods of the year Shanghai uses the 379-seater and Beijing the 441-seater; and during certain periods both use the 441-seater.

On SIA's other regular A380 routes - Auckland, Delhi, Hong Kong, Mumbai and Paris - SIA is consistently using the 441-seat aircraft. In these markets a relatively modest 7% increase in capacity will be generated as SIA transitions to the new 471-seat configuration.

Delhi, Hong Kong and Mumbai are year-round A380 routes while Auckland is only served with A380s during the northern hemisphere winter schedule. Paris currently has only two A380 frequencies and for most of this winter (from early December) it does not have any A380 flights. Paris was previously with a daily A380 year round flight but SIA recently introduced three additional frequencies to Paris for a total of 10 flights and at the same time down-gauged most frequencies to 777-300ERs.

With the changes on the Paris route, Auckland and New York have become the only current destinations served entirely with A380s. On a year-round basis New York is the only destination with this distinction (as Auckland is only served with A380s during the northern winter).

SIA also operates A380 seasonally on some flights to Melbourne and Osaka. These flights only operate for a few weeks during peak periods rather than the entire summer or winter schedule. At the moment, there are no A380 flights to Melbourne or Osaka.

Singapore Airlines A380 routes ranked by seat capacity: week commencing 6-Nov-2017

Route	Number of A380 weekly one-way frequencies	Configuration (by weekly frequency)	Total Seats* (A380 only)
Singapore-London Heathrow	14	441 seats (7) and 379 seats (7)	11,480
Singapore-Sydney	14	441 seats (7) and 379 seats (7)	11,480
Singapore-Frankfurt-New York	7 (per sector)	379 seats (7 per sector)	10,612
Singapore-Auckland	7	441 seats (7)	6,174
Singapore-Delhi	7	441 seats (7)	6,174
Singapore-Mumbai	7	441 seats (7)	6,174
Singapore-Hong Kong	7	441 seats (7)	6,174
Singapore-Tokyo Narita	7	441 seats (7)	6,174
Singapore-Shanghai	7	441 seats (6) and 379 seats (1)	6,050
Singapore-Beijing	7	379 seats (7)	5,306
Singapore-Zurich	7	379 seats (7)	5,306
Singapore-Paris	2	441 seats (2)	1,746

Note: Total seats include flights in both directions; for the Singapore-Frankfurt-New York both sectors are included.
Source: OAG.

SIA's decision to go with one A380 configuration is sensible

Splitting the A380 fleet into two configurations has created challenges for SIA, particularly during periods of heavy maintenance and unexpected service disruptions. During the premium economy retrofit programme the A380 schedule became even more difficult to manage as there were four configurations across the 19 aircraft.

The decision to go with a single configuration is sensible given the realtively small size of the A380 fleet. However, SIA will first have to get through an interim period managing three configurations.

SIA will also complete in 2018 a transition to a single configuration for the 777-300ER fleet with all aircraft in 264-seat four class configuration. SIA currently still operates a small number of 278-seat three class 777-300ERs, which has a larger first class and smaller business class than the newer 264-seat configuration and does not have premium economy.

Overall SIA is significantly reducing the number of configurations in its fleet, resulting in improved efficiencies and making it easier to swap aircraft. SIA's regional fleet is expected to transition over the next few years from six configurations currently to just two.

SIA pursues product improvements and simplification

SIA will also reduce the number of cabin products over the next few years, providing a more consistent passenger experience. SIA will likely transition to one product across its regional fleet while maintaining two products across its long haul fleet - with one products for the A380 and A350-900ULR and another product for the 777-300ER and A350-900s (non-ULR).

The current A380 product was first installed 10 years ago when SIA took its first A380 (which was recently returned) and will have been on the 14 aircraft being retrofitted for eight to 10 years (depending on the individual aircraft) when the new generation seats are installed. These aircraft are overdue for a retrofit as the interiors are starting to look tired.

The business class seat now on the A380 debuted on the 777-300ER in late 2006, or a year prior to delivery of the first A380. The current Suites product debuted with the delivery of the first A380 in late 2007.

SIA introduced new generation of long haul cabin products in 2013 for economy, business and first. However, these products were never installed on the A380 and represented only slight improvements over the products introduced in late 2006.

See related report: Singapore Airlines new cabin products represent baby steps but are important to premium strategy

The products introduced in 2013 were initially installed in eight new 777-300ERs and subsequently retrofitted in SIA's original 19 777-300ERs, which previously had the same economy and business class seat as the A380. The economy and business class seats that were introduced in 2013 also has been used on all of SIA's A350-900s delivered to date.

New A380 product will not be used for the 777-300ER fleet

There is no need or intention for now to install the latest generation long haul products on the 777-300ER fleet as this product is still relatively new - and is still being installed by SIA on some aircraft. The 777-300ER fleet will eventually be replaced by the 777-9X, which will be delivered starting early next decade. SIA's oldest 777-300ER will be 15 years old in 2021 and its youngest 777-300ER will reach 15 years old in 2030.

SIA typically looks to resell its owned aircraft when they are approximately 15 years old - in some cases a few years earlier and in some cases a few years later. SIA owns most of its fleet; the initial five A380s and all of its A330s, which were always viewed as interim aircraft, are exceptions.

However, SIA will likely keep its owned A380s for more than 15 years due to the lack of resale options. SIA could end up operating the 14 aircraft that were initially delivered in 2008 to 2012 for approximately 20 years, enabling SIA to fully write down the fleet and investment in new product without needing to find a second-hand buyer.

New products for the A380 was a necessary step for SIA

The A380 is still SIA's flagship and will remain the flagship for some time. The new cabin products on the A380 fleet reinforce SIA's premium position and enable the airline to continue offering among the best premium products in the industry despite intensifying competition.

However, the products are also practical and efficient, enabling SIA to make better use of space at a time profits are increasingly coming under pressure. SIA's new business class bed is slightly shorter (78in versus 79in) and the seat narrower (25in width versus 28in width) than the decade-old business class product currently installed on the A380. The seat pitch also has been reduced slightly from 51in to 50in. SIA is banking that passengers will appreciate the better design and not notice the slight changes in pitch, width or length (many SIA passengers found the current seat too wide).

With the new A380, SIA is also offering for the first time the option of a double bed in business class. The new SIA A380 has six business class seats which can be converted into three couple seats, improving the experience for passengers travelling together. The new business class seat on the A380 also has graduated away from the flip down design, a feature in the current A380 as well as the 777-300ER and A350, making it easier for passengers to convert the seat to a bed by simply pressing a button.

In economy class ergonomics and cushions have been improved and a wider seat-back monitor installed. A personalised in-flight entertainment system has been introduced across all classes. There are no changes to the A380 premium economy seat as this seat was introduced only two years but the product is improving with the dedicated lavatories and separate aerobridge.

Given today's highly competitive industry, SIA has to no choice but to continue to invest and innovate its cabin products. Increasing the density of its A380 fleet is also a necessary step as it will reduce unit costs at a time yields continue to come under pressure.