SINGAPORE — Singapore Airlines (SIA), South-east Asia’s biggest carrier, said it has started a wide-ranging review of its business to better position the group for long-term sustainable growth after reporting a surprise fourth-quarter loss.
A dedicated transformation office is conducting the review, aimed at reshaping the business “that continues to deliver high-quality products and services, though with a significantly improved cost base and higher levels of efficiency”, it said in a statement Thursday (May 18).
SIA is following in the footsteps of the other marquee Asian carrier Cathay Pacific Airways, which has embarked on a three-year revamp to cut costs after reporting its first floss in eight years. SIA, which is under pressure from regional discount carriers and Middle-Eastern rivals, said in February that 2017 will be a challenging year as passenger and cargo yields — a key measure of profitability — remain under stress.
“Similar to Cathay, evidently, the pressure from competition and the lack of a domestic market” are hurting SIA, said Mr Joshua Crabb, head of Asian equities at a unit of Old Mutual Plc.
Shares of SIA — the only Asian airline to have flown the Concorde and the first in the world to fly the A380 superjumbo — have risen 11 per cent this year, lagging behind the 15 per cent gains for the Bloomberg Asia Pacific Airlines Index.
Net loss in the quarter through March was S$138.3 million, the first since the same period in 2012, compared with an estimate for a profit of S$54.3 million in a Bloomberg survey of analysts. The company took a provision of S$132 million in the period for competition-related matters.
SIA was among many carriers to face penalties by the European Commission, which said the companies ran a global scheme affecting cargo services in the continent by coordinating their actions on surcharges for fuel and security without discounts over six years.
Passenger yield, or the money earned by flying a person for one kilometre, declined 4.7 per cent to 10.1 Singapore cents in the period. The main airline reported an operating loss of S$41 million, while total revenue fell 2.7 per cent, fuelled by the passenger yield erosion, it said in the statement.
“It would be interesting to see how Singapore Air Group’s transformation plans compare with Cathay’s,” said Ms Corrine Png, chief executive officer at Crucial Perspective Pte in Singapore.
Hong Kong-based Cathay Pacific has set a target to save 30 per cent in employee costs at its head office as part of the biggest revamp in two decades, which would include job cuts and other organisation changes. The company hasn’t yet revealed details, but an official at Air China, which owns 30 per cent of the carrier, said in March that Cathay will cut more than HK$4 billion (S$716 million) in costs over three years.
In a bid to boost shareholder returns, SIA has stepped up debt sales as it goes on a record plane-buying spree. Earlier this year, the carrier ordered 39 long-range aircraft from Boeing Co in a deal worth US$13.8 billion (S$19.2 billion). BLOOMBERG