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Struggling Singapore Airlines fights back to boost growth

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Struggling Singapore Airlines fights back to boost growth Empty Struggling Singapore Airlines fights back to boost growth

Post by hlk Thu 16 May 2013, 14:01

SINGAPORE: Singapore Airlines Ltd
, caught between the rapid emergence of Gulf carriers and low cost
Asian rivals, is attempting a big strategy overhaul to revive growth,
pushing into the low-cost segment and expanding its regional network.
State-backed
Emirates Airline, Etihad Airways and Qatar Airways are stitching deals,
while Gulf states race to become regional hubs linking the Asia-Pacific
region and Europe.
SIA's promotional fares on its mainstay
long-haul routes have helped it boost traffic, but yields are under
pressure. Premium class travel, which makes up about 40 percent of
revenue, has been hit by cutbacks in corporate budgets.
"They
have competitors who have strong financial backing and are also forming
alliances, so it's getting to be a much tougher space," said Kristy
Fong, investment manager at Aberdeen Asset Management, which holds about
a 4 percent stake in SIA.
"So the question is whether they can really keep that premium, which is sliding. I don't think it's an easy one."
Under Chief Executive Goh Choon Phong,
who took charge in January 2011, SIA is relying on a multi-brand
strategy and stepping up its exposure to the budget airlines segment.
With
a market value of $11 billion, Asia's second biggest airline
desperately needs growth. Profit slumped nearly 70 percent in the year
to March 2012, while revenue edged up, highlighting the severe pressure
on margins.
Emirates and Qatar are fiercely challenging the
company, controlled by Singaporean state investor Temasek, for the title
of top luxury carrier as they invest millions in upgrading lounges and
enhancing services.
Singapore's best known brand also faces stiffer competition from Southeast Asian rivals such as Malaysian Airline System Bhd
and Garuda Indonesia (Persero) Tbk PT, which are introducing newer
aircraft and adding more connections in an attempt to win back some of
their nationals who have previously flown via SIA and Singapore.
On
Thursday, SIA - also known by its code SQ - is expected to report a 22
percent rise in net profit to S$409.6 million ($330 million) for the
year ending March, according to an average of Thomson Reuters StarMine SmartEstimates. SmartEstimates places emphasis on timely forecasts by top-rated analysts.
The
airline has been cutting costs. It said in January it would release all
76 pilots who were employed on fixed-term contracts. These foreign
pilots would be let go by the end of June. SIA employs around 2,300
pilots. It did not provide financial details of the cuts.
"SQ is
giving its competition a very easy way to get experienced pilots," said
one SIA pilot whose contract was cancelled this year, speaking on
condition of anonymity because his contract was confidential.
Analysts
are looking beyond quarterly numbers for strategic changes. JPMorgan
said SIA had net cash of S$3.8 billion as of December and could
potentially announce a special dividend.
Some of that cash will
help pay for new aircraft including the Airbus A350s and additional
Boeing 777-300ERs, plus Boeing 737s for its regional carrier Silkair.
Fong
said though SIA has been able to manage costs better than its
competitors and had a strong balance sheet, it needed to come up with a
clearer strategy.
Over the past year, SIA agreed to sell a 49 percent stake in Virgin Atlantic Airways Ltd, started a new budget airline Scoot, expanded capacity at Silkair, and is potentially increasing its stake in affiliate Tiger Airways Holdings Ltd.
NEW ALLIANCES?
Still, SIA needs to do much more, some analysts said.
"What
could they do better? Maybe, if they could find a way to get into China
more aggressively?" said Andrew Orchard, Hong Kong-based analyst at
brokerage CIMB. "Would they want to do a bilateral partnership with a
Middle Eastern carrier, take out some capacity that way?"
Orchard
said SIA should consider quitting Star Alliance and joining the rival
SkyTeam network as it could potentially work more closely with Chinese
airlines and other partners.
SIA is doubling its stake in Virgin Australia Holdings Ltd to 19.9 percent. This comes months after struggling Qantas Airways Ltd
and Emirates struck a five-year alliance, which includes switching the
Qantas' hub to Dubai from Singapore for European flights.
SIA's
moves to buy into Chinese and Indian carriers many years ago have not
borne fruit. Goh has said the airline needs to increase exposure to
these high-potential markets, but rivals have a head start.
Last month, Etihad agreed to buy a 24 percent stake in Jet Airways Ltd, India's largest carrier, while AirAsia has struck a deal with the Tata group to start a local airline.
SIA's
shares, trading at their highest level in 1-1/2 years, have gained more
than 6 percent so far this year as analysts upgrade earnings estimates
due to lower fuel costs.
AirAsia's cut-rate pricing on Southeast Asian routes and the emergence of new rivals such as the Lion Air group has hit SIA.
"Corporate
travel in Asia has weakened but leisure travel is booming. That is
helping to drive numbers but these are lower-spending travellers," said Fred Seow, vice president of marketing at Asiatravel.com, which operates several hotel and flight booking websites.
hlk
hlk
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