Singapore Air faces challenge to retain front-end customers

Bloomberg

Singapore Airlines Ltd. is fighting to prevent travellers from switching to Emirates Airline, which is offering luxuries like on-board shower, while budget carriers are chipping away at the coach class. The result: The lowest yield from passengers in six years.
Yields, or the revenue earned from a passenger for flying a kilometer, was 10.6 Singapore cents in the year ended March, dropping from 11.2 cents a year earlier. That damped full-year net income to only S$804 million ($585 million).
Shares of Southeast Asia’s biggest airline fell the most in almost five years as the carrier faces increasing challenges to retain front-end customers amid the expansion of Middle East airlines. Low-fare airlines are also putting pressure on short-haul routes. To fight back, Chief Executive Officer Goh Choon Phong, 52, has ordered more than $10 billion of new aircraft and formed alliances from Australia to India as Asia is poised to become the world’s biggest travel market in two decades.
“They’re being squeezed in many different fronts,” said Shukor Yusof, founder of aviation consultant Endau Analytics in Malaysia. “The market dynamics have changed forever for Singapore Air.”
The stock declined 5.4 percent this week, the biggest drop since August 2011. That erased this year’s gains and the stock has now lost 1.8 percent in 2016.
The flag carrier of the city state has reported fourth-quarter profit that lagged behind analyst estimates as losses from fuel-hedging countered gains from carrying more passengers during the Lunar New Year holiday season.
Net income jumped more than fivefold to S$224.7 million in the quarter ended in March, the carrier said in a statement to the Singapore stock exchange after trading hours on Thursday. Analysts estimated Singapore Air to report a profit of S$249.2 million. Sales at S$3.71 billion also missed estimates.
“Across the industry, yields are under pressure,” Goh said at a briefing in Singapore. “We see some weakness going forward. Oil price is volatile and competition continues.”
Singapore Air has had no choice but to discount “heavily,” sacrificing yields to fill more seats amid the rising competition, said Malayan Banking Bhd. analyst Mohshin Aziz.
Singapore Air has been looking to build alliances abroad as part of a multi-hub strategy. It partnered with India’s Tata Group to start Vistara in January 2015 and owns about 23 percent of Virgin Australia Holdings Ltd. The company’s Scoot unit also teamed up with Nok Airlines Pcl of Thailand to set up NokScoot.
Singapore Air started flying its two Airbus Group SE 253-seat A350 aircraft to Amsterdam from May 9. The carrier will receive the ultra-long-range version of the plane in 2018 for services to New York, which will become the world’s longest non-stop flight.