Singapore Airlines to absorb regional wing

Singapore

Airlines plans to absorb its underperforming regional arm SilkAir after 2020 when a programme to upgrade cabins at a cost of more than S$100 million (US$74.5 million) gets underway.

The move comes as Singapore Airlines undertakes a three-year transformation programme designed to cut costs and boost revenue amid competition from Chinese and Middle Eastern rivals and low-cost carriers.

Singapore Airlines topped market expectations by reporting on Thursday a 148% rise in full-year net profit to the highest level since 2011, as passenger and cargo revenue rose and the transformation programme produced early results.

The carrier, a benchmark for Asia’s premium airlines, made S$893 million (US$665.6 million) in the year ended March, up from S$360 million a year earlier and 28% higher than the S$697 million average forecast from 14 analysts polled by Thomson Reuters I/B/E/S.

But SilkAir was a weak spot, reporting a full-year operating profit of S$43 million for the 12 months ended March 31, down 57% from a year earlier.

Average fare prices at SilkAir have been falling as it competes against lower-cost rivals such as AirAsia Group Bhd on short flights to destinations like Kuala Lumpur and Bali.

“That is not to say there is no place for SilkAir,” Singapore Airlines CEO Goh Choon Phong told media and analysts at a postresults briefing on Friday. “In fact there is still a lot of demand for SilkAir type of service specifically on the bigger destinations, bigger cities in Southeast Asia.”

“More than 60% of SilkAir’s traffic connects through the Singapore hub,’’ chief financial officer Stephen Barnes said after the briefing, including to Europe and North America where the Singapore Airlines brand is better known.

The cabin upgrade will include the installation of seatback in-flight entertainment in all seats and lie-flat seats in business class on SilkAir’s all-narrowbody fleet.

Through the upgrade, Singapore Airlines seeks to close a gap with rival Cathay Pacific Airways, whose regional arm, Cathay Dragon, operates jets with cabins more similar to its parent than the wider gulf between Singapore Airlines and SilkAir products.

“The product gap between SilkAir and Singapore Airlines has become too wide,” CAPA Centre for Aviation chief analyst Brendan Sobie said.