In a move that showed it is still a believer in the economics and viability of the premium segment despite recent trends indicating otherwise, Singapore Airlines (SIA) has announced more perks and privileges for its most valuable customers, the PPS-card carrying passengers.
SIA said the changes were made in response to feedback from PPS members – those who have spent at least SGD250,000 (about USD179,000) – over five consecutive years. Premium (business and first) passengers generate around 45% to 50% of SIA’s passenger revenue.
Read the full release here.
Our view remains that premium air travel demand is anemic at best. And legacy carriers such as SIA and Cathay Pacific, both heavily dependent on business class, are in denial. This over-reliance on the J Class segment and inability to accept reality will ultimately do them in.
The reality is the legacy carrier model is under intense pressure. Yields from business class have shrunk every year post-9/11, and especially since the Lehman debacle of 2008. SIA posted a net loss of SGD138.3 million in its 4Q (Jan-Mar 2017) but registered an annual net profit of SGD360.4 million (USD257 million).
Now compare that to Ryanair’s latest earnings: almost EUR1.32 billion (USD1.47 billion) net profit. It flew 120 million passengers in its last financial year and charged customers an average of just EUR41, 13% less than the previous year! This year the airline said it is expecting an 8% rise in profits, to EUR1.45 billion.
Nobody disagrees that business air travel is still relevant and a key part of many airlines. It’s just that it isn’t as lucrative as what it was before. Consumers, including corporate travellers, are more price-sensitive and companies are looking at airlines that provide value for money.
Does SIA give value for money on the front-end of its aircraft? The short answer, in our view, is no. Take a look below at the fares SIA is charging for a return trip to London, and compare that with those being offered by Qatar Airways. It’s a no-brainer, really.
If SIA and Cathay continue to build their strategies around business class, they will get hurt, if they haven’t already. You go too far and too aggressively after high-yielding traffic, you will feel the pain.
In a sign that it’s feeling the pain and strain, for the past year or two SIA has been offering discounts (yes, you read that right) for its business seats – something the carrier had very rarely done, if ever.
The dynamics of the industry have changed. Forever. Many passengers are quite happy to fly 3-4 hours, or even 6, on economy if the price is right. And many low-cost carriers are getting them right. Now that SIA has shown that it can cut its J class fares, who in their right mind would pay the old fares?
We’ve had many queries on what SIA and Cathay should do, apart from just creating a Transformation Office or cutting management jobs. They can hope and pray that the good old days will return or they can radically change.
To its credit SIA is changing but not enough, and the change has come a tad too late. The airline is being reactive, not proactive. Our point is: why didn’t they do anything 4-5 years ago when the signs already pointed to a permanent decline in premium?
On a separate note, SilkAir is starting 3x weekly non-stop flights to Hiroshima (HIJ) in October 2017. SilkAir is SIA’s regional airline, not low-cost but catering to high-end leisure travellers. It will fly the B737-800 and looks like this will be SilkAir’s longest route.
Can the sector make money? Possible but not easy. The three major mainland Chinese carriers all fly into HIJ as do Korea’s Asiana and Taiwan’s China Airlines. HIJ has no direct expressway connection; neither does it have a railway station, but then again SilkAir’s passengers are typically those who have a bit of cash to burn…