One year after the global economy went into a tailspin, taking with it the airline business, the global carriers appear to be levelling out from their steep dive.
True, business is nowhere near where it was a year ago, but demand for air travel is slowly picking up. There is no doubt that the industry will recover.
But the good old days may be over for top-tier carriers like Singapore Airlines (SIA) which made hay by living off the front-end of the cabin,earning as much as 40 per cent of their revenues from first- and business-class customers.
The last 12 months have been rough for SIA and others like it.
Many travellers have downgraded from business to cattle class, and from premium to cheaper carriers.
Investment bankers – planeloads of them used to fill SIA’s Airbus 345 aircraft on its non-stop flights to Los Angeles and New York – are out of work or have taken hefty cuts in pay and perks.
Companies have slashed travel budgets and trimmed costs, for example, by extending the number of flying hours required to enjoy a business- class seat, or moving to an economy class-only policy.
The competition is also catching up.
Whereas low-cost carriers like AirAsia, Jetstar Asia and Tiger Airways once drew mostly budget travellers, they now see briefcase-toting folk in shirt and tie.
This trend prompted American Express to add AirAsia to its list of partner carriers – its first such tie-up with a low-cost carrier. Flyers can now use their Amex card to pay for AirAsia flights.
Mr Peter Kapoor, Amex’s regional vice-president of merchant services, said recently: “Within our customer base, there are corporations that find budget carriers relevant, given the current economic recession and the recent opening up of more shuttle flights between Singapore and Malaysia.”
Aviation analyst Shukor Yusof of Standard & Poor’s Equity Research believes that even when the storm passes, it would be foolhardy to think people will go back to the way things were.
Companies that have changed their travel policies see the benefits to the bottom line, and travellers who have “gone low-cost” find it is not so bad after all.
Mr Shukor said: “The business landscape has changed considerably; I don’t see things ever being the same again.”
Jetstar Asia seems to think so too and is thinking about going long-haul, thus joining Malaysia-based AirAsia X which took to the skies two years ago. The latter currently flies between Kuala Lumpur and destinations in Australia, China, India, South Korea, Japan, the Middle East and Europe
Even the experts who are more optimistic about premium airlines’ prospects, like Mr Berthold Trenkel, Asia-Pacific president of travel management company Carlson Wagonlit Travel, expect that it will take three years at least before things rebound to pre- crisis levels.
Going forward, the challenge for SIA is not just to fill seats. There will always be a market for top-end carriers and nobody really expects them to fall from the sky.
The bigger challenge is to attract travellers who will pay the premium fares that the airline charges.
In its latest report on the health of the premium air travel market, the International Air Transport Association (Iata) said that in June, first- and business-class ticket sales fell by 21.3 per cent compared to the same month last year.
The good news is that the fall was less steep than the 23.6 per cent drop in May.
However, the better results were achieved at the expense of much lower yields as airlines sought to boost cash flow by making more cheaper seats available.
Iata’s data shows that revenues from this segment are about 40 per cent lower, year-on-year.
Mr Trenkel, who flew SIA to Paris recently, paid about $5,500 for his return business-class ticket, more than $1,000 cheaper than the fare a year ago.
While views differ on the long-term impact of the current crisis on high-end carriers, experts agree that airlines will have to work very hard to recover their lost business – traffic and yield-wise.
At the operational level, efforts are ongoing at SIA to cut costs and better manage the business.
The airline has introduced a slew of measures, from voluntary leave to compulsory no-pay leave, shorter working months and pay cuts, to deal with the downturn.
To better match demand with capacity, it also plans to ground 16 aircraft in the current financial year, which ends on March 31 next year.
SIA will also defer delivery schedules for its last eight Airbus A380 superjumbos, by up to a year.
The airline, which already has nine of the double-decker giants flying, will collect another two before the end of next March, as planned.
But over and above all these moves, SIA needs to think long and hard about whether its business model and strategies are sustainable in the long term.
Post-crisis, will there still be a market for the all-business-class flights to the United States, for example?
Will people pay $20,000 to fly to London in a private suite on the A380, given that a first-class ticket on another equally high-class carrier costs about half that amount?
Instead of putting all its eggs in the premium basket, the airline could focus more on Tiger Airways – which it owns 49 per cent of – to cash in on the growing low-cost travel market.
Ditto for its regional arm SilkAir. In the financial year just ended, Tiger and SilkAir contributed only about $40 million of SIA Group’s total operating profit of $904 million.
SIA could also do more to engage loyal customers and keep them happy. Whether this is by making it easier for people to redeem their miles – which some say is becoming increasingly troublesome with SIA – or embracing new media like Facebook and Twitter, the airline cannot afford to take customer loyalty for granted.
Industry analysts say the situation is dire. SIA, which lost $307 million in the April-June quarter, could be looking at a full-year loss this financial year. If that were to happen, it will be the first since the company went public in 1984.
As the world starts to recover from the economic meltdown and countries claw their way out of the recession, the real challenge has only just begun for SIA. The aim is not just to fly, but to soar.
http://www.relax.com.sg/relax/news/251972/Good_old_days_may_be_over_for_SIA.html
On a personal note, my company have increased the minimum number of hours for Business Class flights. The good news is, no signs of moving to budget yet. I do hope that doesn't happen
