Singapore Airlines sees flyers swap champagne for cheap seats

By Bloomberg News , May 18 2017
Singapore Airlines sees flyers swap champagne for cheap seats

Singapore Airlines – first in the world to put a double bed, mattress and duvet on a commercial plane – posted a surprise loss at its marquee brand for the first time in three years. Its two budget carriers reported a profit.

Intense competition from Emirates, Qatar Airways and Etihad that offer services such as a personal butler and shower on board aircraft has crushed profits at Singapore Airlines and its Hong Kong-based rival Cathay Pacific as the two Asian airlines conduct a strategic review of their business.

To fight back, Singapore Airlines  CEO Goh Choon Phong is boosting borrowings to fund a record $53 billion order for new planes.

"Evidently, the pressure of the Middle Eastern carriers and the lack of a domestic market is impacting, similar to Cathay,' Joshua Crabb, head of Asian equities at a unit of Old Mutual, said from Hong Kong. Crabb said he doesn’t own Singapore Air stock.

The Singapore Airlines group – which includes Singapore Airlines, regional airline SilkAir and budget carriers Scoot and Tigerair – announced a surprise net loss of S$138.3 million (A$133.5 million) in the three months ended March, compared with a median forecast for a profit for S$54.3 million in a Bloomberg survey of six analysts.

The company took a previously-announced provision of S$132 million in the quarter relating to its cargo unit.

Hero brand Singapore Airlines had an operating loss of S$41 million in the quarter while Budget Aviation Holdings - which operates low-fare carriers Scoot and Tiger – recorded a profit of S$22 million at the operating level, according to a statement the carrier issued to the Singapore stock exchange.

The loss at the main airline is the first since the fourth quarter of fiscal year 2014, according to company filings.

“A dedicated transformation office is conducting a wide-ranging review, encompassing network and fleet, product and service, and organisational structure and processes, to better position the group for long-term sustainable growth across its portfolio of full-service and budget airline operations,” the airline said in the statement.

Cathay Pacific has embarked on a three-year revamp to cut costs after reporting in March its first loss in eight years. Cathay has set a target to save 30 percent in employee costs at its Hong Kong head office as part of the biggest revamp in two decades.

Passenger yield at Singapore Airlines – the money earned from carrying a passenger for one kilometer – fell to 10.1 Singapore cents, hovering around the lowest level in six years.

Singapore Airlines was the only Asian airline to fly the Concorde and the first in the world to fly the Airbus A380 superjumbo.

When the aircraft entered service in 2007, the plane featured suites created by French luxury-yacht designer Jean-Jacques Coste and cushions from fashion house Givenchy.

In 2015, Singapore Airlines started offering champagne to passengers who flew its premium economy seats.

“Business travel demand has not been very strong and this impacts Singapore Airlines parent airline, which derives around 45 percent of its passenger revenue from the first and business class cabin,” said Corrine Png, Singapore-based CEO of Crucial Perspective, a research firm focused on Asian transport equities. Long-haul routes are facing overcapacity and there’s pressure on yields, she said.

Singapore Airlines also announced a total dividend for the fiscal year of 20 Singapore cents per share, compared with 45 Singapore cents last year.

Zac
Zac

Virgin Australia - Velocity Rewards

23 May 2014

Total posts 128

Well... the reason I don't fly them as much anymore is the food and drinks in business class have been cut too much... make of that what you will.

The tides are turning. With a widening gap between premium seats and discounted fares to fight LCC's the value equation prevails. Business class fares are fare too high despite the product upgrades. I was happy paying $2.5k to $3.5k to fly to Asia return but not $4k to $5k plus compared to  $800 or less. It's the fundamentals of economics in reality. 

Qantas - Qantas Frequent Flyer

08 Dec 2014

Total posts 43

Well clearly, if the airline is making a loss, the fares are too low.


I find it frustrating how many people expect to have a business class product but for a cheap price.  You can't have both.  This is why airlines end up cutting back on quality and services.  Its just not sustainable with airfares so cheap at the moment.

31 Mar 2016

Total posts 644

@Ozshanel:

"if the airline is making a loss, the fares are too low."
Or alternatively, fares are too high for enough buyers in current mkt environment(i.e. presented with a far larger range of product+fare combos fm various vendors than a decade ago) to accept leaving too many empty seats(or filled mostly by FFP redemptions) which still cost a bundle to provide & fly.

"frustrating how many people expect to have a business class product but for a cheap price."
But this fundamental conflict has always existed throughout airline industry history:  Pax want to buy the most expensive product @ the lowest possible fare vs Airline want to charge the highest possible fare @ the lowest possible production cost.

The real diff today vs decades ago is that there wasn't many sellers with substantially diff product+price combo variations in the past.  There are now.

"This is why airlines end up cutting back on quality and services."
Before, the only way for airlines to win the most profit was to chase the top spec product(i.e. To win, retailers hv to copy Marks & Spencer).  Now, airlines can also win the most profit by chasing the lowest cost product(i.e. To win, retailers can also copy Walmart).

"Its just not sustainable with airfares so cheap at the moment."
May be for some but clearly not for all vendors.  If fare level is truly unsustainable, Scoot would hv seen a loss just like SQ.  At the minimum and in general, it hints Scoot is providing a product+fare combo which gained more mkt acceptance than SQ.

And I don't buy the argument that SQ face tougher competition than Scoot.  The blood bath in short-mid haul mkt is just as bad as in longhaul.

31 Mar 2016

Total posts 644

@Meridiengroup:"..happy paying $2.5k to $3.5k to fly to Asia return but not $4k to $5k plus compared to  $800 or less."
For vast majority of Y pax, the choices are really simple on how to spend $4k:
a) Pay $4k to enjoy the best possible 12-14hrs flight experience  once every 2yrs to visit Asia or
b) Pay $800 to endure the worst 12-14hrs flight experience ever in exchange for twice a yr vacation in Asia and pocket the surplus $800 or splurge on a night in a Hitlon suite somewhere in S.E.Asia.

Almost all of my friends will choose b)......may be they are weird or enjoy being tortured by LCCs......
Thanks for the feedback. I agree with the trade off. But, 8 trips p.a. to HKG and SIN and LLC option gets a bit tiring. Generally QF flex Y ticket is around $1100 return and I can get upgrade. If it is a special for less than $3k, then I book J class. But not too many sub $3k deals any more.

I set myself a budget for each trip and work within that as best I can. Being self-employed means that it is tax deductable cost so I do take that into consideration also.

And, my friends think like your friends.

31 Mar 2016

Total posts 644

1st CX, now SQ.  Both top tier premium brands in Asia suffer the same fate re losses despite fuel prices remaining @ historic low level throughout.


The mkt reality is that their long time mkt positioning strategy of being the best in product+services but charge a fat fare premium over competitors(especially LCCs) does not work any more while the reverse seems to be working as demonstrated by Scoot's profitability(despite this outfit is under 5yrs old and some folks complain about their seat space/comfort) vs SQ's loss(despite product+service superiority often raved about by commentators) within the same airline group.

At least SQ group recognized this emerging trend long ago(Their stake in Tiger was a start) and can hedge their bets on Scoot for their future.  In contrast, CX continue to rule out joining the LCC game(Not even minor share holding in a LCC) and prefer to stick their head in the sand and let HK Express @ home swallowing more of CX's lunches.....

Cathay Pacific - The Marco Polo Club

01 Jun 2016

Total posts 14

To be honest, it seems like CX's base game plan is better than SQ's. If they didn't make that massive mistake of fuel hedging (which is only a big mistake in hindsight...), CX would be making record profits right now. Unfortunately, it seems that fuel prices will rise continually before the contract ends. SQ, in the mean time, hasn't really done much fuel hedging, so this loss is directly related to how their system works. Maybe SQ should completely revamp like CX. 

About the LCC thing, HKG currently has 2 runways, SIN has 3. It's pretty much a waste to operate LCC narrowbody aircraft with the limited slots. Slots are really expensive, HK Express can only afford it because they're backed by HNA. I may be wrong about this but as far as I'm aware Hong Kong Airlines isn't making a profit right now. Let's see how CX conducts their turnaround; despite being a CX loyalist I hope both CX and SQ get their act together and **** those subsidized Middle Eastern aholes.

Cathay Pacific - The Marco Polo Club

01 Jun 2016

Total posts 14

Correction: not record profits, but they would have a profit of 8 billion HKD, a solid profit which is higher than the profit in 2011-2015 (actual record profit of 14 billion was in 2010).

SIN has 2 runways but they are building a 3rd

AJW
AJW

16 Nov 2011

Total posts 578

Half right. They DID have 3. 20L/02R was closed a while back to allow for the new terminal and replacement runways to be built. Believe was used for GA and military and not commercial.

31 Mar 2016

Total posts 644

@boeingmannn:

"CX's base game plan is better than SQ's."
Pls kindly share in what aspects specifically.  Frankly, I'm not challenging U but just want to see what I've missed.

"Maybe SQ should completely revamp like CX."
What exactly has been revamping @ CX?  May be I'm a bit behind in following CX corp development but the only specific I hv read recently was about future Y cabin product revamp.  So SQ should increase Y cabin density fm 9 to 10 abreast on 77W as CX hv already planned to do and SQ so far has been resisting?  Pretty sure many here, already pissed by the lagging J std on some SQ routes to AU, will object to that....

"It's pretty much a waste to operate LCC narrowbody aircraft with the limited slots."
Sorry, I'm not quite clear on the logic behind your statement.

If U claim fm a productivity perspective(i.e. seat count generated per slot widebody vs narrowdy), aren't FSC narrowbody ops in HKG, such as those by CX's buddy KA, just as wasteful?...actually worse than LCC due to lower seat density.  If yes, HKG should also banish/restrict heaps of of mainland Chinese FSCs which rely heavily on narrowbody to serve HKG(e.g. all 8x daily by MU on the HKG-PVG trunk are flown exclusively by 321).  Most importantly, why target only HK Express when KA's 320 family fleet size is 15% larger?

If U claim fm a Rev$ potential per slot perspective(i.e. LCC's avg fare being far lower than FSC), U are essentially saying carriers charging higher fare should hv higher priority for HKG's limited slot than those charging lower fares.  Indirectly, it's the same as promoting hi-end consumers(i.e. those who can afford higher fare) should be entitled to more access to HKG's limited slots than low-end consumers.  That's a social-econ question about access to costly but still public infrastructure and I'm deeply uncertain if the majority of HKG  travelers/taxpayers will agree to your slot distribution approach.

"Slots are really expensive."
They are..especially when a flight using a slot is going out/coming in mostly empty.  And historically, lower fares(even for an uncomfortable seat) tend to do a better job @ filling seats than higher fares(even for an ultra-cushy seat)....

In any case, HKG slots are not traded like @ LHR and no carrier owns HKG slot.  Like many Asian hubs, they're allocated by local authority and subject to periodic re-allocation review based on a complex utilization performance formula.

"HK Express can only afford it because they're backed by HNA."
Partially true in terms of being able to actually use their fast growing slot portfolio but I doubt HNA group financial backing is the sole reason because:
a) HNA Group invested in HK Express fm 2006 and hv always received backing ever since.
b) HK Express slot portfolio size @ HKG hv not changed much 2006-2013.
c) HK Express transitioned+rebranded into a LCC in 2013.
d) HK Express slot portfolio @ HKG started to grow rapidly ever since.

It's hard not to conclude that something drastic in mkt demand happened @ HK Express from 2013 which has been sustaining the rapid rise of their HKG slots.  It sure can't be just HNA fm 2013 suddenly willing to burn far more cash @ HK Express so that they can fly more empty flights out of HKG...

"I may be wrong about this but as far as I'm aware Hong Kong Airlines isn't making a profit right now."
Actually, I believe U're right.  In fact, I predict HK Airlines won't turn a profit till after 2020 @ the earliest.  Majority of their fleet is a relic fm a previously failed longhaul grand venture(including 380 @ a point) and unsuited to most of their current network.

"hope both CX and SQ get their act together and **** those subsidized Middle Eastern aholes."
Both already face tough AND subsidy-free LCC competitors in short-haul mkts.  Soon they will see the same in longhaul(e.g. Norwegian in LGW-SIN)

Cathay Pacific - The Marco Polo Club

01 Jun 2016

Total posts 14

Why is the title of this article "Singapore Airlines sees flyers swap champagne for cheap seats"? Quite misleading the article has nothing to do with this.

Air New Zealand - Airpoints

10 Aug 2015

Total posts 79

People flying Scoot instead of SQ

31 Mar 2016

Total posts 644

@kwikiwings:

Exactly.  Article title is just a metaphor for how the balance of mkt demand has shifted within SQ group as reflected by the relative financial results across brands...

Title is not misleading at all and IMHO, quite neat.

Qantas

19 Apr 2012

Total posts 961

In 2015, Singapore Airlines started offering champagne to passengers who flew its premium economy seats

. Not sure what the point of this statement is, QF has been doing that for years and I think CX did years ago when I flew PE with them.  Also not sure what the Concorde statement is about. It was shared with BA and lasted only a handful of flights - a bit of a stretch!! 

Qantas - Qantas Frequent Flyer

19 Aug 2011

Total posts 161

"Singapore Airlines is the only Asian airline to fly the Concorde"


"Is"? Even ignoring that, why is it relevant?

undertheradar Banned
undertheradar Banned

28 Oct 2011

Total posts 662

This happens on a regular basis, on various sites/media. Readers can't see the REAL NEWS/STORY because of all the 'fluff'/CRAP!!. This is how social/media 'operates', so we the readers just gotta sift through the 'fluff', to uncover the REAL NEWS! LOL.

Singapore Airlines - KrisFlyer

31 Jan 2013

Total posts 26

I've been a long term SQ flyer so I see the problem as being multi-factorial. It is not just competition from other carriers, but also the lack of evolution on SQ's part. Sure they were innovative with the Suite in 2007, but they really haven't change much since then. Whether on board or not. Even their flagship lounge in T3 has been serving the same food for 10 years. No barista, no a la carte. Chicken wings anyone?

Also I think SQ doesn't really reward loyalty unless you are a super top tier flyer. I'm talking Solitaire or F, not even just regular PPS or J. 
Service standards are good generally (depends on the crew of course), but as are their competitors.
There is also a lack in flexibility with some of their pricing for example the premium they charge on a one way ticket. Also my biggest gripe, the price of the J ticket from ADL to SIN considering the disparity of the hard product between ADL and the eastern states. 
Disappoint your long term flyers enough and they start looking elsewhere.

QF

04 Oct 2012

Total posts 2

I must admit I haven't flown SQ for some years. Their treatment of Australian routes as regional is mainly to blame.

The A330's they fly to Brisbane on most flights are terrible in Business Class, angled lie flat seats and 2-2-2 configuration is simply not acceptable in 2017 and the 777-200's are not much better in most cases (still 2-2-2 except the odd 200ER , particularly when even QF give you an excellent full flat seat. I know they are gradually introducing A350's on some Australian routes but very slowly.

They are living on their old reputation for service and quality food and wine. They will not get my custom back until they offer competitive comfort for a similar price.

20 May 2015

Total posts 5

It would be interesting to know what percentage of SQ pax revenue is derived from routes in and out of Australia.  Might give a hint on how they treat the Oz market

Qantas - Qantas Frequent Flyer

14 Feb 2017

Total posts 25

The reality is that there are a whole lot more airlines now generally offering comparable hard product in premium cabins at a lower price point. Also the influx of LCC's mean that the trade-off to fly Economy in SIA vs an LCC is much more tolerable with most casual flyers now considering the huge price difference between the airlines in some instances even double. Would be interesting to see what strategic direction they take from here on out to right the ship.. Not sure if ordering $53bil of new planes is necessarily the answer.


Virgin Australia - Velocity Rewards

06 Sep 2012

Total posts 216

Their main issue is consistency. You pay a premium for Y or J and you end up in their old unfurnished Boeing 777-200s and B777-300s. Many airlines have upgraded their hard product and are competitive. SQ are better off getting rid of the old aircraft ASAP and getting the new aircraft in the popular routes. That being said, it's good to see that they're being proactive in undertaking a review early whilst they're still making some profit, unlike other airlines who only react after achieving substantial loss.

QFF

19 Sep 2013

Total posts 162

For me it's simply the cost of their J fares. The ME airlines seem to always come in far cheaper.

Singapore Airlines - The PPS Club

20 Apr 2015

Total posts 25

Living in Singapore, I have seen a significant drop in Singapore expats in the past 2 years and a reduction in the perks that used to be associated with expat packages (e.g. no more business class flights home a couple of times a year). In addition, companies are no longer willing to fork out for SQ for short/medium regional flights at such a significant premium over the competition. I'm sure this has negatively effected SQ's performance.

 A few things SQ has to do to regain my business:

  1. Sign up Silkair to Star Alliance
  2. Get rid of their ridiculous Silver Kris lounge policy at SIN
  3. Improve their lounge offerings - Complete redesign required
  4. Get rid of PPS $ and expand PPS status attainment methods to allow a more equitable attainment of top status.

If they are making a loss, then its clear their current policy of cost-savings alone is not enough. A re-think of how they segment the market and cultivate each segment is required. Their former big spenders are going elsewhere. Its time to grow the pool of big spenders along less elitist lines.

Singapore Airlines - KrisFlyer

31 Jan 2013

Total posts 26

Completely agree, especially on the PPS status. It is overly onerous and you get no life time accruals or benefits. I used to be a regular PPS member but dropped my travel in the last few years so I've been trailing just a bit short of the threshold.

Which lounge policy are you referring to @TheRealBabushka?

Policy of not allowing Star Alliance Gold to use the main lounge (Silver Kris) and instead shepherding Star Gold pax flying Y&P to the Gold Lounge that does not even have showers. For a hub airport that focuses on transiting pax, that's just dumb.

Singapore Airlines - KrisFlyer

12 Apr 2017

Total posts 64

I think @TheRealBabushka means the Gold lounge policy. For Gold status members flying economy, the Gold lounges are quite underwhelming!

Singapore PPS club

22 Aug 2015

Total posts 4

I agree Babushka.
I'm sitting in the SQ lounge at Changi writing this. Despite having PPS status for years, and on flying on a J ticket, here I am in the business lounge as my PPS status won't get me into F.
I don't spend 50K /year on F or J travel so will never get solitaire PPS.
So what does PPS status get you if you (especially if you are already booked in J?  Not much.
No access to F lounges anywhere.
No preferential access to reward seats (as Qantas does).

The on board service is usually excellent but with the exception of Qantas in my experience it's no longer clearly better than most flying to Europe.
Combine that with no limousine transfers, average food on board and, (apart from their champange offering) a really poor wine list in J, it's perhaps no surprise that people are looking elsewhere.
I fly them because PPS qualification accrues on $ spent, so I can collect VA status and points but still stay PPS.
But they really need to start looking after their premium customers a lot better if they want to keep business.




QF

02 Sep 2013

Total posts 7

Having flown business class on Singapore and Silk Air this year I thought both were sub standard compared to CX and QF. SQ business class seats are horrible now and Silk served cold food and then offered me a worthless voucher as compensation. Guess why they made a loss.


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