Singapore Airlines Braces itself for the Tough Road Ahead
Tuesday, December 23, 2008: Singapore Airlines (SIA) is bracing itself for a tough 2009, which may force the carrier to consider cutting pay or even jobs.
Despite the fact that oil prices have been hitting four-year lows in recent sessions, passenger numbers have continued to nosedive and airlines worldwide are feeling the sting.
2008 has been a tumultuous year for airlines, although the year began with sky rocketing fuel prices, passenger demand was also buoyant, so carriers were flying steady.
Then in September when the financial crash devastated the global economy, the outlook turned ugly and SIA began to brace itself for the tough road ahead in 2009.
Stephen Forshaw, vice-president, Public Affairs, SIA, said: "It will be difficult. Let´s not make any mistakes about that."
SIA has weathered the dire economic climate better than most of its peers and it has managed to remain profitable. The airline has warned however, that should it move into the red next year, pay cuts may kick in.
Mr Forshaw continued: "If we move into periods of loss-making, there are certain triggers within our respective collective agreements with our unions that will dictate certain pay cuts or cuts to the variable components of staff salaries.
"As we´ve said before, senior management will lead on that. If there is surplus staff, we will do our best to manage the staff in terms of leave or no pay leave before we get to retrenchments. Retrenchments for us is always a last option.
"Our hope is that we have enough steps in place that will help the organisation to ease its cost burden without having to move to retrenchments."
SIA is no stranger to managing crises, however analysts have predicted that the next few months will present the airline with one of its toughest challenges to date.
Shukor Yusof, aviation analyst, Standard & Poor´s, said: "With their business largely dependent on the two continents facing the greatest test in this downturn - North America and Europe - I think they will feel the pressure to reduce capacity and to re-align their business model."
SIA has already begun to trim its network and may cut the number of flights on high-frequency routes. But it also plans to stimulate demand by having more promotions in the year ahead.
SIA will also look for new routes that are opening up, such as Riyadh which has recently been added because of growing demand from the Middle East and Kuwait which will be added in March.
Analysts said airlines will have to manage a fine balancing game in 2009. They will have to make substantial price reductions to encourage people to travel, however, they must ensure that price are not slashed to such an extent that already suffering yields are adversely affected.
Areas such as the airlines business class flights to the US have seen a dip in numbers and SIA said it may tweak the frequencies. However, it added that the long-term prognosis for those flights remains positive.
For SIA, since those aircrafts are all paid for, it is a sunk cost for them.
Mr Forshaw said: "The challenge for us in the next few months, in the financial sense, will be the impact of the changing currency - particularly the value of the US dollar where a substantial amount of our expenditure is incurred, for example, fuel and aircraft purchases.
"But against that, we have seen an easing in jet fuel prices. So I hope that will mean one can offset the other."
For now, SIA remains confident of taking deliveries of all the planes it has ordered, including the new A330 which is set to join the fleet in March.
The airline will also proceed with plans to unveil a new business class for the A330, which will fly regional routes.