Singapore Airlines, Cathay Pacific Feeling Pinch

 - June 27, 2017, 9:00 AM
A Singapore Airlines Airbus A350-900 takes off from Manchester, England. (Photo: Flickr: Creative Commons (BY-SA) by Riik@mctr)

Asia’s two leading airlines continue to watch their yields and market share erode as competition across numerous fronts, including China, Middle East carriers and budget airlines, apply pressure. Cargo has also suffered from overcapacity and mixed results.

Hong Kong’s Cathay Pacific has reported a $73.8 million loss for 2016 and announced it will lay off 600 staff from its headquarters, prompting it to pressure frontline service crew to “deliver greater efficiencies and productivity.” The retrenchment marks the biggest such exercise since 1998, following the Asian financial crisis.

Singapore Airlines, meanwhile, reported a net loss of $99.4 million in the fourth quarter. Although the group turned a profit of $360 million, that number represented a 55.2 percent decline year-over-year. During its early years SIA introduced several innovations to the airline industry and has become a premium airline. Ten years ago, it became the first operator of the Airbus A380 but now plans to let go of four of its aging superjumbos, instead opting to take delivery of 10 Airbus A350s and two new A380s this financial year.

Unlike other flag carriers, SIA has diversified its operations and created Scoot and Tigerair to capture low-cost market share. The two budget carriers, known collectively as Budget Aviation Holdings, saw growth of 12.8 percent last year.

SIA has also announced that it will reintegrate wholly owned SIA Cargo into the SIA Group to “improve efficiency through greater synergy.” The freighter arm lost $50 million last year, but has turned a $3 million profit this year.

The airline has admitted that “intense competition continues to exert pressure on yields,” as the low-cost carrier market thrives in Southeast Asia. Other flag-carriers in the region have also worked to stiffen competition. Indonesia’s Garuda and Thai Airways, for example, have undergone a series of fleet modernization moves along with new route and passenger services introductions. Middle Eastern carrier Emirates has entered the lucrative UK-Australia ‘Kangaroo Route,’ from which Singapore, including Changi International Airport and Singapore Airlines, has reaped benefits for many years.

Similarly in East Asia, China’s “Big Three”—China Southern, China Eastern and Air China—all have provided more direct flights between China and international destinations such as North America and Europe. A slowdown in the Chinese economy also has reduced passenger travel from the mainland.

Analysts expect competition from such airlines to grow as they introduce more new aircraft platforms such as the Boeing 787 and the A350 in an effort to open new routes, increase capacity and provide new products for passengers.

Cathay Pacific continues to see 2017 as challenging, and while it begins to introduce new routes this year, its hopes lay with new aircraft such as the A350 to increase productivity and reduce costs over time.