May 20, 2017 12:15 am JST

Singapore Airlines is ready to make 'radical' changes to survive

Newly-formed transformation office will look for new revenue streams

MAYUKO TANI, Nikkei staff writer

Singapore Airlines Chief Executive Goh Choon Phong

SINGAPORE -- The storm of structural changes in the airline industry, brought about by the rise of budget airlines and powerful emerging carriers from the Middle East and China, has prompted Singapore Airlines to embark on a comprehensive review of its business.

Its "transformation office," set up a few weeks ago, will "fundamentally review our network, products and deployment of our aircraft," Chief Executive Goh Choon Phong said at a press conference on Friday. Six full time staff members have been appointed to the new department.

The details are still being worked out, but Goh stressed that the move is not only about cost cuts but also about generating new revenue streams and improving business processes. Asked if the airline will seek to acquire new businesses, Goh said, "I will not rule out anything."

The review includes an organizational restructuring. Although Goh did not touch on potential job cuts, he mentioned the possibility of "retraining and redeployment" for some staff.

"We will leave no stone unturned," Goh stressed, describing his determination to pursue an exhaustive review. "Some of [the changes] could be radical. So be it. If it is the right thing to do, we will do it."

On Thursday, the group reported a net loss of 138.3 million Singapore dollars ($99 million) for the quarter ended March, the first quarterly loss since the same period in 2012. The price of tickets was weighed down by intense competition, while fuel costs rose due to the higher oil price. The group's main full-service carrier booked its first quarterly operating loss since the March quarter in 2014.

The prevalence of low-cost carriers in the region and aggressive capacity growth by cash-rich competitors from the Middle East and China caused a chronic excess of capacity in the skies in which Singapore Airlines flies. Discounted fares have become the norm among budget and premium airlines alike.

Passenger yield, a measure of the average fare paid by a passenger to fly a kilometer, has fallen significantly. Singapore Airlines' yield in March this year was 12% lower than that of two years ago.

The cheap price of oil, which should be a positive factor for airlines in terms of cost savings, has turned out to be a double-edged sword. "The sharp drop in yield for the last two years can be partly attributed to the sharp drop in the oil price, which has given room [for airlines] to price more aggressively," Executive Vice President Mak Swee Wah said. With the oil price picking up recently, there are early signs of yields bottoming out, Mak said. Stiff competition, however, looks like it is here to stay.

In the past six years, Singapore Airlines has begun a number of strategic initiatives, including full integration of its low-cost subsidiaries, and the establishment of new businesses, such as a joint venture airline company in India and a pilot training center. The transformation that the company is embarking on is aimed at bringing out the full potential of these initiatives, Goh explained.

The company also announced on Friday that it will re-integrate cargo company SIA Cargo as a division of Singapore Airlines, to achieve better synergies.

Asia300

Singapore Airlines Ltd.

Singapore

Market(Ticker): SES(C6L)
Sector:
Industry:
Transportation
Airlines
Market cap(USD): 9,032.56M
Shares: 1,199.85M

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