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.