Will Singapore Airlines be forced to cut back on luxury services and amenities?
SINGAPORE AIRLINES have been struggling after a 70 percent slump in profits, and 2017 is projected to be challenging for the carrier.
In November, the airline said in a statement: “The prospects for most major economies remain ‘tepid’, while the passenger airline business continued to be impacted by geopolitical uncertainty and weak global economic conditions.”
The decline in income is the first quarterly drop for the airline in two years, and comes amid competitive pricing from rival airlines and the rise of low-cost carriers in south Asia.
Plus, giant Middle Eastern airlines have quite comfortably secured the business travel market by way of premium amenities and services such as in-flight showers, as well as frequent price slashes.
In this tough climate, Singapore Airlines is scrambling to make its brand relevant to a restless market, and this could come in the form of low-cost carriers.
Presently, Singapore Airlines Limited owns locally run budget airline Scoot, Indian domestic airline Vistara, and NokScoot, a low-cost Thai airline that the company runs in a joint venture with Nok Airlines.
According to a Bloomberg report, Singapore’s national carrier is working hard to diversify with budget airlines under its corporate banner. Alongside their current portfolio of budget airlines, a new Airbus A350 variant scheduled to hit markets in 2018 will enable the brand to explore new options.
Chief executive officer Goh Choon Phong told the publication that Singapore’s portfolio of carriers offers “a lot more nimbleness and flexibility in addressing the needs of the markets”.
He added, “It’s not going to be business as usual. These are structural changes; these are changes that are not going to go away.”
A recent announcement of OPEC’s production cuts leading to rising fuel prices could also have a long-term impact on full-service, long-haul airlines.
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A report on Fortune said that this could force large carriers like Singapore Airlines and Cathay Pacific to “nix the giveaways that have long been integral to their service”.
Guests could have to get used to reduced entertainment, food, and alcohol options, as well as expect to be incurred charges for services like baggage check-in and in-flight meals.
Mathieu De Marchi, a Bangkok-based aviation consultant at Landrum & Brown told Bloomberg: “More full-service airlines in Asia-Pacific might consider [charging for extra amenities and services].”
Full-service American airlines such as Delta often adopt this model to good effect, and have recorded profitable years since 2010.
De Marchi added, “Making money out of so-called ancillary services emerged among traditional US carriers following the global financial crisis, when their losses ballooned.”
The International Air Transport Association said that north American airlines are likely to generate an operating profit margin of 15 percent compared to the eight percent for Asia-Pacific airlines.
It’s not just Singapore Airlines struggling in these trying times. Cathay Pacific – Asia’s biggest international airline – is also conducting a “critical review” of its business after a 82 percent drop in the first six months of the year.
If Middle Eastern airlines and budget Asian airlines continue to seize a large chunk of the market, it will be interesting to observe the relevance of more “traditional” full-service airlines in the coming months.