Singapore Airlines (SIA), flush with US$16 billion (S$21.6 billion) raised owing to Temasek Holdings since the start of the COVID-19 outbreak, is dominating its Southeast Asian rivals as they reduce and restructure. The crisis challenged the existence of hub carriers with no home markets, such as SIA, Cathay Pacific Airways in Hong Kong, and Emirates in Dubai. Prime Minister Lee Hsien Loong stated last year that the government would “make every effort” to guarantee that SIA survived the pandemic.
Temasek Holdings, the government’s investment arm, was the majority shareholder in one of the world’s largest airline rescue packages. As a result, SIA has enough cash to operate for at least two more years without layoffs, and it is modernizing its fleet to save fuel, minimize maintenance costs, and achieve environmental targets, while rival airlines are laying off planes. “The crisis demonstrates the necessity of having a cash-rich state investor as its principal backer,” said a banker who requested anonymity because he was not authorized to speak with the media. READ: Scoot CEO: IATA’s prediction for global air travel recovery by 2023 is “around the appropriate timeframe” Rivals like Thai Airways and Garuda Indonesia, which have received little government help, are envious of SIA’s financial reserves. Many of SIA’s competitors are reducing their fleets to the point that they risk weakening their hubs and sending more connecting traffic to Singapore.
“Essentially, what these airlines are attempting to do is keep their debtors at bay,” said Subhas Menon, director general of the Association of Asia Pacific Airlines.
Meanwhile, SIA is expanding its fleet and reinforcing Scoot, its low-cost carrier. Leisure travel has spearheaded a rebound in Europe and North America; if this holds true in Asia, cheap carriers will be critical for airlines. SIA is under less immediate pressure to downsize after culling older planes and laying off 20% of its workforce last year. In May, CEO Goh Choon Phong described last year’s employment reduction as a “very painful process” and stated that no further layoffs were planned. However, researchers estimate that widespread travel in Asia will take 12 to 18 months to restart.
“They can go two or three years without making any money,” said Peter Harbison, chairman emeritus of the CAPA Centre for Aviation. “But there comes a point when you ask yourself, ‘Is it really worth it?’ ‘Shouldn’t you be taking bolder steps?'” Temasek received less than 9% of the rights issued in SIA’s recent S$6.2 billion convertible bond issuance, indicating that the state investor is more patient than others in earning profits. Commentary: Southeast Asia runs the risk of slipping behind other regions in terms of aviation and tourist recovery. FLEET OF THE FUTURE After negotiating agreements with manufacturers Airbus and Boeing, SIA deferred S$4 billion in new plane spending for three years. Despite low demand, it is spending S$3.7 billion on new aircraft and adding at least 19 planes to its fleet this year, including 13 wide-bodies, due to big pre-crisis orders. In contrast, Lufthansa, Germany’s largest airline, has a capital spending budget of around €1.5 billion (US$1.77 billion) for 2021, despite earning roughly four times as much income before the pandemic. The financial cushioning provided by SIA makes it more difficult to refuse contracts with manufacturers and lessors. Temasek is a firm believer in fleet modernization. READ: Singapore Airlines has halted development on a timetable for the Singapore-Australia travel bubble: Report ADVANTAGE ON THE BUDGET Scoot has been using some of SIA’s capital to enhance staff training and invest in new software that helps it calculate more profitable rates for connecting flights, with travel in a holding pattern and rivals distracted by financial concerns. Scoot CEO Campbell Wilson said, “There has been a lot of investment, which is obviously aimed toward a future recovery.” “I’m hoping that those investments will pay off over time.” Thai Airways lost substantial market share to low-cost rivals in the decade leading up to the epidemic, contributing to years of losses, and has failed to create a new low-cost strategy as part of a US$12.9 billion debt restructuring. Garuda Indonesia, Malaysia Airlines, and Philippine Airlines are all in comparable situations, having undertaken or are about to execute substantial restructurings. They had been losing money for years before to the outbreak. “It’s likely that by shedding their liabilities, they’ll generate some disgruntled people who were owed money but never received it,” Wilson predicted. “Only time will tell how much that constrains them in the future.”/n
