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Luxury is in, and so is SIA

The Edge Singapore
The Edge Singapore • 4 min read
Luxury is in, and so is SIA
(Nov 13): Singapore Airlines, the erstwhile standard-bearer for top-rate transcontinental flights, is doubling down on its investment in its premium cabin product. On Nov 2, to great fanfare, the airline launched a new Airbus A380 cabin interior. And, at
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(Nov 13): Singapore Airlines, the erstwhile standard-bearer for top-rate transcontinental flights, is doubling down on its investment in its premium cabin product. On Nov 2, to great fanfare, the airline launched a new Airbus A380 cabin interior. And, at a briefing on Nov 8, SIA CEO Goh Choon Phong said there will soon be a launch of fresh cabin products on its new and incoming Airbus A350 and Boeing 787 aircraft.

SIA has remained steadfast in its commitment to premium long-haul travel, even as its peers and critics advocated tapping the trend for budget travel. To be sure, it did not shy away from the low-cost-carrier challenge either. It started Scoot and eventually acquired Tiger Airways, both of which now come under a budget aviation subsidiary.

Scoot had surprised many by performing well — breaking even and contributing strongly to operating profit within five years of starting operations. With its budget subsidiary, SIA has been able to calibrate its network better to suit demand dynamics. For instance, Scoot has taken over SilkAir’s flights from Singapore to Kuching, Malaysia, and Palembang, Indonesia. SilkAir, meanwhile, has taken over Scoot’s flights to Yangon.

But even as it continues to grow its budget operations, taking in new aircraft and increasing the number of routes, SIA has been clear about its commitment to premium travel — and the level of investment that involves.

The new batch of A380s, 19 in total, will be configured with four classes — with Premium Economy added into the mix. There will be six first-class suites, which look just like plush hotel suites. Each includes a leather armchair, a full-length wardrobe with a mirror, a credenza and a vanity counter in the toilet. Its business class cabin, with 78 seats, now offers cabin bag stowage under the seat as well as dividers that span the full length of the two seats in the centre block for more privacy.

The luxurious retrofits, at a hefty US$850 million ($1.15 billion), come on the back of customer feedback, according to Goh. Importantly, “the introduction of our all-new cabin products is intended to ensure we retain our product leadership position”, he says.

Other airlines have equally, or perhaps even more, lavish cabin products. Emirates offers spa showers. Etihad Airways has “Apartments” and “Residences”, complete with Savoy-trained butlers and three separate private areas, including a living room, on board the A380, presumably the only airframe in the market able to accommodate such largesse.

Such competition underscores the demand for such amenities. As one former airline chief explains, budget carriers help grow the total market for air travel. But these new travellers actually aspire to fly premium, which keeps demand for full-service carriers in play.

Whatever the case, SIA’s latest set of financial results appears to bear out its conviction. For 1HFY2018 ended Sept 30, the parent airline reported a nearly 50% increase in operating earnings to $411 million. The decline in its passenger yields, down for the ninth quarter running, seems to have tapered off — although the company’s officials say the pressure on profitability is not abating.

At the group level, SIA reported total earnings of $425 million — 32% higher than the year before. This increase was due in part to a lower share of losses from associated companies. As a group, passenger flown revenue rose nearly 3% on increased traffic. SIA expects to pay shareholders an interim dividend of 10 cents a share, up from last year’s nine cents.

These results have had a considerable effect on SIA’s stock, which hit a 52-week high on Nov 8 and again on Nov 9, rising as high as $10.93. Will there be more catalysts ahead?

The group is undergoing a three-year transformation programme, although Goh says a number of improvements had already been underway even before the programme was announced in May. He has declined to give details, but reiterates that it is not about cost-cutting or streamlining the group’s various business units. “To the extent that the group has its own business model, we should not do anything to compromise that business model.”

In the current environment, that may be a good plan.

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