Singapore Airlines prepares to grow beyond recovery
While the Asia-Pacific airline industry is still catching up with the other regions in terms of international recovery, Singapore Airlines (SIA) remains ahead of the pack.
The airline's recent earnings report underlined the fact that the SIA Group's capacity is essentially back to pre-COVID levels, and will likely surpass those levels on a consistent basis this year.
Like many other airlines, SIA has achieved record profits for its fiscal 2023 - which extends through Mar-2024 - although the gains were strongest in the first half of the year.
Even during the pandemic period, SIA was adamant that it wanted to come out of the COVID-19 crisis in a stronger position than its rivals so it could take advantage of new opportunities.
It has certainly done that, and the group is addressing the market with refinements to its model. This includes a growing role for its Scoot LCC subsidiary, which is even branching into regional jets.
The SIA operation has a somewhat different look compared to before the pandemic, as the SilkAir subsidiary with its narrowbody services has been merged into the mainline airline.
Some markets have also taken longer to recover, most notably mainland China, but the airline is reporting significant improvement, even there.
SIA has been in the headlines for very unfortunate reasons recently, due to injuries caused by severe turbulence on a 21-May-2023 flight. But as this update illustrates, the airline is in a strong situation overall relative to its peers.
- Singapore Airlines’ mainline capacity is at 111% of 2019 levels, thanks to SilkAir merger.
- SIA Group capacity – including other subsidiaries – is less than 2% below pre-pandemic levels.
- The group is ahead of both the Asia-Pacific and Southeast Asia recovery rates.
- SIA has nearly restored all of its China routes, although capacity is only at 85%.
- Net fleet growth is expected due to widebody and narrowbody deliveries this year.
Mainline capacity has soared, while group capacity is only fractionally short of full recovery
The chart below shows that the mainline SIA operation is exceeding 2019 capacity levels, and has been doing so since Oct-2023.
It was running at 111% of 2019 capacity for the week of 27-May-2024.
However, the big caveat is that this includes the SilkAir flying that SIA absorbed, so it's not an apples-to-apples comparison.
The 2021 and 2022 years have been excluded from the chart to better highlight the recent trends.
Singapore Airlines: mainline capacity, as measured in weekly seats (excluding 2021 and 2022)
Despite adding much of SilkAir's narrowbody network, the chart below shows that the majority of SIA's mainline seats are still on routes greater than six hours.
Singapore Airlines: seats by flight duration, for the week of 27-May-2024
Examining the group capacity numbers - which include those of Scoot and SilkAir (while it existed) - gives a more accurate picture of SIA's long term trend lines.
The group's capacity has been sitting a fraction below the 2019 level through the first half of 2024. For the week of 27-May-2023, the difference was less than 2%.
The rate of growth slowed in 2024 as the airline moved closer to full restoration.
SIA Group: capacity, as measured in weekly seats 2019-2024 (excluding 2021 and 2022)
The Asia-Pacific average recovery rate is rising closer toward SIA's level - but there is still a clear gap
In comparison, overall Asia-Pacific international capacity has still not fully recovered, although it is getting much closer to that point.
The chart below shows that Asia-Pacific capacity is at 91.2% of 2019 levels. So while the SIA Group is still ahead of the Asia-Pacific average, the difference is shrinking here too.
Asia-Pacific: capacity, as measured in weekly seats, 2019-2024
The overall region's capacity recovery is actually slightly stronger than that of the Southeast Asia sub-region. For the week of 27-May-2024, Southeast Asian weekly seats were at 89.1% of 2019 levels, CAPA - Centre for Aviation and OAG data shows.
SIA Group is making progress towards full recovery of China capacity
Of course, different markets are recovering at different rates for the SIA group. Mainland China is one important market that has been slower to rebound since the COVID pandemic.
The SIA Group's capacity to mainland China has reached nearly 85% of 2019 levels, according to data from CAPA - Centre for Aviation and OAG.
In 2019 the group's China capacity was divided between Scoot with 45%, SIA with 39% and SilkAir with 16%.
For the week of 27-May-2024, the split is 50.5% for SIA and 49.5% for Scoot.
The SIA Group has reported strong traffic on flights into China, although sales for outbound travel from China are still recovering.
The airline said that it had seen "a significant uptick" in passenger load factors on its mainland China routes in recent months. SIA is also progressively restoring more capacity to China.
One factor contributing to the improvement is the introduction of a 30-day visa-free initiative in Feb-2024, covering Singaporean and Chinese passport holders.
The SIA Group is serving 23 destinations in mainland China, versus 25 before the pandemic. SIA has flights to seven Chinese destinations, and Scoot 17 (Guangzhou is served by both).
SIA Group has had challenges securing regulatory approvals on some Chinese routes, including those to Chengdu, Xiamen and Chongqing. It now has the approvals it needs, although some have expiry dates that will have to be extended.
Fleet additions are fulfilling replacement and growth needs
On the fleet side, deliveries are expected to outnumber lease returns and retirements this year, resulting in net growth in the widebody and narrowbody fleets.
SIA had 142 passenger aircraft in its fleet as of 31-Mar-2024, and Scoot had 51.
SIA is due to add eight aircraft and phase out three by 31-Mar-2025, lifting its total to 147. Scoot is due to add eight and phase out four by then, for a total of 55.
The SIA Group has a strong order book that caters for narrowbody and widebody replacement as well as growth. It has been continuing its fleet upgrade efforts since the pandemic.
But as with other airlines, confirmed and potential delivery delays have been a headache. For example: SIA was due to begin receiving its Boeing 777-9s last year, but the target has been shifted to 2025, and a further slip would not be a surprise.
The airline said it has the flexibility to keep some 777-300ERs longer than planned, to mitigate the effect of the 777-9 delay.
SIA came out of the pandemic period strongly, and pre-COVID advantages have also re-emerged
The SIA Group certainly had a head start on other airlines in the region in terms of pandemic recovery, partly due to the efforts of the Singapore government to reopen traffic flows.
Now many other Asian airlines are catching up and moving closer to 2019 capacity levels.
So SIA's advantages will be more to do with its robust financial position, efficient management, strong hub, and well designed fleet plan.
If that sounds familiar, these were also the advantages it enjoyed before COVID-19.
The airline group is now focusing mainly on year-on-year comparisons, rather than measuring against pre-COVID levels.
This makes sense, as it has essentially reached full recovery, and will now be looking to go beyond 2019 numbers.
While the 2023 profit was impressive, there are no guarantees that further profit will occur this year. Financial headwinds are increasing, and the airline's management has cited yield pressure and increasing competitive capacity as factors to watch.