The regional aviation industry had an eventful two decades, as budget airlines upended the very concept of flying. With SIA at the core, The Edge Singapore looks at how the industry has adapted over the years

Singapore’s aviation industry has come a long way since The Edge Singapore began publication in March 2002. Over the years, it has grown into an aviation hub and a key layover destination to many cities in Asia Pacific. This growth has only been achieved through the collective efforts of the aviation ecosystem.

Notably, national flag carrier Singapore Airlines (SIA) has on numerous times been voted as among the best airlines in the world. Changi Airport is one of the busiest airfields in the world, facilitating one of the highest air passenger traffic and cargo volumes. Its shopping mall — the $1.7 billion, 10-storey complex known as Jewel — has made Changi Airport a must-see tourist destination, if only for its 40m indoor waterfall.

Of course, Singapore is a key destination for the maintenance, repair and overhaul of aircraft with the joint ventures of MNCs such as General Electric, Pratt & Whitney, Rolls-Royce and others here.

But these achievements did not come without their challenges. At the turn of the new millennium, the Singapore aviation industry had to face the fallout from two devastating acts of terrorism, namely the New York September 11 attacks in 2001 and the Bali bombings the following year. The outbreak of the Severe Acute Respiratory Syndrome (SARS) across Asia in 2003 only made things worse.

mute
At the same time, the regional aviation industry experienced an upheaval from the entry of the low-cost, no-frills airline model made popular by Irish airline Ryanair Holdings in Europe. From Malaysia, Thailand and the Philippines to India and Australia, low-cost carriers (LCCs) of all shapes and sizes had taken to the skies.

In response, SIA launched a jointly owned LCC known as Tiger Airways. The latter was mildly successful, though it eventually folded into Scoot, a long-haul budget carrier of SIA. The airline also had another subsidiary full-service carrier known as SilkAir, which was eventually absorbed into the parent airline.

Now, Singapore’s aviation industry — and the rest of the world — is facing its worst crisis: The Covid-19 pandemic. As countries continue to keep their borders shut to curb the spread of the coronavirus, international air travel has remained subdued. Many airlines and aviation-related companies went bust and employees lost their jobs as a result.

But air travel is expected to rebound ahead, albeit gradually. The International Air Transport Association (IATA) has taken the nascent recovery thus far as a sign that people remain eager to travel in the short and long-term.

“I am always optimistic about aviation. We are in the deepest and gravest crisis in our history. But the rapidly growing vaccinated population and advancements in testing will return the freedom to fly in the months ahead. And when that happens, people are going to want to travel,” Willie Walsh, director general of IATA, said in a May 26 statement.

In issue 1,000, The Edge Singapore takes a lookback at its coverage of some of the key events that has made Singapore’s aviation sector as it is today.

The ‘no-frills’ war

In 2001, a heavily indebted AirAsia was acquired by former Time Warner executive Tony Fernandes and Kamarudin Meranun for just RM1. The pair quickly turned around the LCC and aggressively launched new routes to key cities across Southeast Asia.

Under the slogan “Now everyone can fly”, AirAsia became an instant hit among budget conscious travellers. After all, not every traveller requires the frills in getting from one destination to the other, especially on short-haul flights.

Given its proximity to Singapore, it came as no surprise that Malaysia’s AirAsia was perceived as a threat to SIA given the latter’s status as a full-service carrier. The competition was no longer from new flag-carriers or brands, but a new kind of airline with a business model that is miles apart from SIA’s. SilkAir was also threatened since it flew regional routes that were considered short-haul flights.

Interestingly, SIA’s then outgoing CEO Cheong Choong Kong poured cold water on the theory that LCCs might pose a short- or medium-term threat. He believed it would be difficult for lowcost carriers to succeed in highly regulated markets of Asia. Still, “someone could be foolhardy enough to try”, he said.

Rick Clements, then vice-president of public affairs at SIA, told The Edge Singapore in Issue 49 (Feb 10, 2003): “The situation in Southeast Asia is quite different from Europe, where nofrills carriers compete not only with airlines, but also with trains. There are fewer routes in this region where no-frills carriers could successfully operate.”

But as AirAsia continued to grow aggressively and carved out more market share, SIA could no longer ignore the LCC segment. As the old saying goes: If you can’t beat ‘em, join ‘em.

In late 2003, SIA launched budget airline Tiger Airways in partnership with Temasek Holdings, Indigo Partners and Irelandia Investments, which backed Ryanair. SIA owned a 49% stake in Tiger Airways. SIA CEO Chew Choon Seng was seen at the launch to have shunned the corporate suit in favour of a Malayan Airways T-shirt with a tiger head.

Fernandes, who had everything to lose or gain from Tiger Airways’ success, could not resist a friendly jibe. “I am delighted to see that AirAsia at least made one contribution to the Singapore scene: We have managed to change [Chew’s] attire,” said Fernandes in Issue 93 (Dec 15, 2003).

“He now wears a T-shirt. I hope he’ll take to wearing caps like I do. I have got a few spare caps lying around and I’d be happy to send him some,” he added.

Fernandes believed the arrival of Tiger was good news for him. It confirmed that the no-frills model was working and is probably here to stay. It also meant that governments and travellers will help create an environment that would spark an explosive growth in no-frills, short-haul travel in Asia. With China and India becoming the main engines driving intra-Asian travel, low-cost flights seem to be just the right conduit.

Over the next few years, Tiger grew and helped SIA stave off competition from AirAsia. In 2005, the LCC tripled its network to nine destinations, including Chiangmai, Macau and the Philippines, in six months. Tiger also successfully secured the air rights to fly into Vietnam’s major airports — Ho Chi Minh City and Hanoi — that year. Jetstar Asia Airways, the Qantas-owned LCC, only had landing rights for the Hanoi route.

Singapore’s Air Traffic Rights Committee awarded Tiger with two more flight frequencies to Ho Chi Minh. Tiger also tripled its small fleet of planes to 12 from four.

Airline restructuring

In the wake of the Global Financial Crisis, however, SIA performed poorly. The airline said its revenue dipped 19% in 4Q2009 (it has a March year-end) to $3.32 billion, pushing it into an operating loss of $28 million, compared with an operating profit of $468 million a year in 4Q2008.

Part of the reason for the poor showing was SIA’s $543 million loss on fuel hedges, including $112 million lost when it terminated several hedging contracts before their due date. In addition, the number of passengers carried from January to March dropped 18% from a year earlier.

In conjunction with the poor results, SIA softened the blow to its shareholders by proposing to distribute shares in its then 81%-owned subsidiary SATS to them for free. Under the plan, investors in SIA received 730 SATS shares for every 1,000 shares they held in the airline.

The divestment had indeed been a long time coming. Former Prime Minister Lee Kuan Yew first voiced the idea in 2004 that SIA must hive off non-core assets like SIA Engineering and SATS “sooner rather than later”. In 2006, he reiterated his view after he stepped in to prevent a standoff between the pilots’ union and SIA management over wage cuts and layoffs during the difficult SARS-hit year of 2003.

Although SATS was eventually cut loose, SIA kept SIA Engineering under its wings as a separately-listed subsidiary. “We have reviewed the engineering position and come to the conclusion that [SIA Engineering] is strategically more important to us in terms of being critical to the operating integrity [and] reliability of our flying operations,” Chew said in Issue 370 (May 18, 2009).

Tiger Airways had also been struggling, failing to be a winner despite its early success. The LCC incurred losses 2011 and 2012, following a grounding of operations in Australia, and had fallen far behind its LCC peers in expanding into the region.

AirAsia, for instance, had set up associate airlines in Indonesia, Thailand, the Philippines and Japan. The group had also launched a long-haul affiliate, AirAsia X, that started flights to China and India. Meanwhile, Jetstar had been successful in linking Singapore to Australia and the rest of Southeast Asia, and had also set up associate airlines in Japan and Hong Kong.

In 2012, SIA launched its fully owned LCC called Scoot. The new LCC will provide “an additional engine of growth” for the group, SIA said in issue 536. SIA added that budget airlines had helped stimulate demand for travel.

Still, things had not gone smoothly. Scoot was initially billed as a medium-to-long-haul carrier that would tap demand for cheap long-haul routes from Asia. Its CEO Campbell Wilson later said plans for long-haul flights had been put on hold, given the economic uncertainties in Europe and the high fuel costs.

Scoot had then flown only to Bangkok and cities in Australia. These were trunk routes already served well by SIA as well as other successful LCCs and several full-service airlines.

At the same time, SIA appeared to be preparing to give SilkAir a bigger role in its strategy. Besides its massive aircraft order, it had also appointed a new CEO. Marvin Tan, who came to head SilkAir in October 2010, returned to SIA to make way for Leslie Thng, then SIA’s vice-president for network planning.

Meanwhile, Tiger Airways’ fortunes had continued to slide. In 2017, Tiger Airways — which was listed in 2010 — was taken private by SIA. This came after SIA held more than 90% of the issued shares in Tiger Airways after the airline made an offer to minority shareholders. Later that year, Tiger Airways shed its signature black-andorange stripes to join Scoot under a single brand and operating licence. It marked the end of a turbulent journey for Tigerair and its shareholders.

SilkAir had also come to an end. Last year, the distinctive livery of SIA began adorning the fleet of single-aisle aircraft owned by SilkAir. The plan to merge SIA and SilkAir was announced without much fanfare in mid-2018, a day after the release of the company’s results for the financial year ended March 31, 2018. As part of the merger, over $100 million was invested to upgrade SilkAir’s cabins with lie-flat seats in business class, as well as seat-back inflight entertainment systems in both the economy- and business-class cabins.

More than just an airport

While SIA and its subsidiary airlines had evolved tremendously over the last two decades, Changi Airport had also seen a remarkable transformation. In 2002, the airport only had two terminals. Six years later, it expanded to include Terminal 3, significantly increasing the airport’s annual passenger capacity. Changi Airport added its fourth terminal in 2017, replacing the former Singapore Changi Airport Budget Terminal.

Perhaps the highlight of Changi Airport, thus far, is its former 1980s-era open air car park in front of Terminal 1, which had been transformed into a glowing dome of delights. Changi Airport officially opened Jewel for business in 2019.

Indeed, the superlatives are plenty to describe Jewel. It boasts the world’s tallest indoor waterfall; the Sky Nets, which is the world’s first indoor attraction on such a scale; a mirror maze that is the first of its kind to be built indoors and a world-class retail space.

The architect, Moshe Safdie, spoke about having rejected “obvious ideas” in favour of a “great paradise and mystical garden” that would fit the concept of an airport as “a place of serenity and repose”.

According to officials in Issue 878 (April 22, 2019), the objective was about making Changi Airport more than an airport, to capitalise on the rapid growth of air travel in the region and capture “tourist mindshare”.

With its various stores and attractions, Jewel will serve to attract passengers who, according to Changi Airport Group, are spending more transiting through an airport.

On the face of it, there were immediate economic benefits from Jewel like an uptick in tourist arrivals and receipts, particularly from neighbouring markets. Additionally, the development had “added a lot more value to the plot of land”, said Irvin Seah, DBS Group Research economist. “It’s a very good utilisation of the limited space we have.”

Jewel has certainly been an iconic structure that identifies the airport, and Singapore. Yet, it is very much a tried-and-tested formula for attractions here: Big, beautiful and garden-like. But like any other attraction, Jewel’s novelty could soon wear off.

It may have little impact on Singapore’s development as an air hub for the long run. For one, Jewel is on the landside of the airport, meaning transiting travellers would have to choose to exit immigration to enjoy the facilities.

The changing dynamics of air travel are also working against Singapore’s keeping a grip on its status as a regional air hub: Aircraft are being made to fly farther and longer, and countries in the region, growing at a much faster rate than Singapore, are stepping up the development of their own airports.

The Covid effect

With the Covid-19 pandemic, the entire aviation industry is facing turbulence like never before.

Before midnight on March 26 last year, SIA, facing unprecedented stress from the pandemic, announced its plan to tap shareholders to raise $15 billion so that it can stay aloft. This was undertaken successfully through a rights issuance of $5.3 billion in new shares and $9.7 billion from a 10-year mandatory convertible bonds (MCB).

SIA’s largest shareholder, Temasek, which owns more than 55% of the airline, voted in favour of the resolutions and procure a subscription for its full entitlement and the remaining balance of both issues.

In addition, SIA had arranged a $4 billion bridge loan facility with fellow Temasek-linked company, DBS Bank, which went towards the airline’s near-term liquidity requirements.

“This is an exceptional time for the SIA Group. Since the onset of the Covid-19 outbreak, passenger demand has fallen precipitously amid an unprecedented closure of borders worldwide. We moved quickly to cut capacity and implement cost-cutting measures,” said SIA chairman Peter Seah in Issue 926 (March 30, 2020).

This Temasek-led rescue of SIA had been disclosed earlier on March 26 last year, when Deputy Prime Minister Heng Swee Keat announced the supplementary package worth $48.4 billion to help deal with the pandemic. During his speech when the market was still trading, Heng said that SIA — with the backing of Temasek, which owns more than 55% of the airline — will be undertaking a “corporate action”.

The full financial brunt of Covid-19 was only felt on SIA’s books this year. On May 19, SIA released its worst ever full year results for FY2021 ended March. It recorded its largest full-year net loss of $4.27 billion. This was the airline’s second full-year loss since its FY2020 net loss of $212 million, when Covid-19 erupted into a worldwide pandemic in the first quarter of last year.

SIA’s latest net loss was due to several reasons. For one, the airline’s total revenue plunged 76.1% y-o-y to $3.82 billion from $15.98 billion. This came on the back of a near total collapse in passenger traffic, owing to border closures aimed at halting successive waves of Covid-19 infections.

SIA’s mark-to-market losses on ineffective fuel hedges totalling $497 million were another reason. Several non-cash impairment charges were also to be blamed, which amounted to $1.73 billion. SIA also registered an impairment of goodwill of $170 million and impairment charges on base maintenance assets from SIA Engineering.

Meanwhile, the construction of Changi Airport’s Terminal 5 has been delayed. This was announced in June last year by the then Transport Minister Khaw Boon Wan. The decision was made owing to the uncertainty arising from the ongoing pandemic.

“Under normal circumstances, if not for Covid-19, we would have to start calling for a major civil engineering tender quite soon. But we have decided to take a pause for two years,” Khaw reportedly said.

“Let us complete this study of the future of aviation and it is not just the two years because we need to see how the development of the pandemic globally will be like. It will affect T5 and in terms of timing, minimum we will push it back by two years,” he added.