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Despite stalled growth in China, Brazil and Russia, a wave of newly middle-class travelers from the BRICs and beyond will start visiting international destinations in the coming decades — dwarfing the numbers we’ve seen thus far.
Singapore Airlines Ltd. Chief Executive officer Goh Choon Phong watched budget airlines in neighboring Indonesia and Malaysia order some 800 aircraft in the 2 1/2 years he has been at the helm.
With the third-highest cash reserves among airlines globally, Goh responded last week with a record $17 billion purchase. Singapore Air, including its affiliates, now has $46 billion of aircraft orders with Airbus SAS and Boeing Co.
The airline needs more planes as Malaysia-based AirAsia Bhd. and Indonesia’s PT Lion Mentari Airlines wean away budget travelers as Asia’s economic growth spurs travel. With competition to lure bankers in the city-state increasing from Middle East carriers, Goh has revamped his first-and business- class offerings, undeterred by a 31 percent drop in stock price during his tenure and Wall Street’s downsizing.
“Goh is taking the right step forward,” said Timothy Ross, head of Asia-Pacific transport at Credit Suisse AG in Singapore. “They need to look at what they do well, and that is medium- to long-haul premium passenger travel. These orders play to that strength.”
Singapore Air on May 30 announced orders for 30 of the Boeing 787-10X variant, 30 Airbus A350-900s, and an option for 20 more that it may choose to convert to a larger A350-1000 variant, according to a statement. It’s the first order for the stretched version of Boeing’s Dreamliner.
“These new aircraft will provide opportunities to grow and renew our fleet and enhance our network,” Goh, 49, said in the statement. “They demonstrate our commitment to the Singapore hub and our confidence in the future for premium full-service travel.”
The carrier had $4.08 billion of cash and near cash as of end March, according to data compiled by Bloomberg. That lagged behind Air France-KLM Group and Ryanair Holdings Plc.
Singapore Air’s deal comes after AirAsia, the region’s biggest low-fare carrier, and Lion Air ordered hundreds of single-aisle aircraft targeting budget-conscious flyers across Asia. In March, Lion Air agreed with Airbus to buy 234 planes worth $24 billion, building on a 230-plane, $22.4 billion order it gave Boeing less than two years back.
In 2011, AirAsia ordered 200 Airbus A320neo aircraft valued at $18 billion. In December, the carrier placed an order for 100 additional A320s.
Low-fare airlines control 30 percent of seat capacity at Singapore, compared with almost zero a decade ago, according to the website of CAPA Centre for Aviation, which advises airlines.
Competition is increasing for Singapore Air in the business-class and first-class segments as well with Sydney- based Qantas Airways Ltd. and Dubai-based Emirates forming an alliance. Emirates, the world’s biggest airline by international traffic, said in January it’s studying “ways and means” to accommodate an order for 30 more A380s.
“It’s not getting any easier,” said CAPA’s Singapore- based analyst Brendan Sobie. “Singapore Air recognizes it needs to continue to invest in upgrading its product, and they have the cash to respond.”
Excluding last week’s orders, Singapore Air already had an order book comprising 5 A380-800s, 13 A330-300s, eight 777- 300ERs and 40 A350-900s, according to the airline. Its unit SilkAir has an order for 54 Boeing 737s and is awaiting delivery of one Airbus A320. Scoot, the long-haul budget airline owned by carrier, has an additional 20 787-900s on order.
“We don’t compete by having the most aircraft on order with manufacturers,” Singapore Air spokesman Nicholas Ionides said in an e-mail. “We compete by providing the highest quality products and services over an extensive network.”
Goh took charge in January 2011 from Chew Choon Seng, as the global airline industry confronted the world’s worst recession in six decades. Since then, he has restructured the carrier, known for its iconic “Singapore Girl” advertising campaigns.
He sold the carrier’s 49 percent stake in Virgin Atlantic Airways Ltd. to Delta Airlines Inc. for $360 million in December and took a bet on Australia by buying a stake in Virgin Australia Holdings Ltd. Singapore Air began Scoot’s flights in June last year and subscribed in March to a fund-raising plan of short-haul budget airline Tiger Airways Holdings Ltd., in which it’s the largest shareholder.
Singapore Air shares fell 1.1 percent to S$10.62 as of 10:20 a.m. in the city, the lowest level since April 15. Qantas declined 37 percent and Hong Kong-based Cathay Pacific Airways Ltd. lost 31 percent in that period. Budget airline AirAsia’s shares rose 29 percent during the same time.
“Competition with budget airlines has been a problem for the past five years,” said K. Ajith, an analyst at UOB-Kay Hian Holdings Ltd. in Singapore. “Singapore Air is addressing the problem with Scoot, which is profitable.”
Goh, who holds three bachelor degrees from Massachusetts Institute of Technology, joined the company as a cadet administrative officer in 1990. He has also held several senior vice president positions in divisions including technology and finance. He ran the airline’s cargo unit for four years and was the chairman of SilkAir.
Singapore Air will end the world’s longest non-stop services to New York’s Newark in the fourth quarter of this year because of rising fuel costs and slower demand for intercontinental trips. The airline has added capacity to the U.S. through Europe, according to Goh.
With assistance from Jonathan Burgos and Kenneth Koo in Singapore. Editors: Anand Krishnamoorthy, Vipin V. Nair. To contact the reporter on this story: Kyunghee Park in Singapore at email@example.com. To contact the editor responsible for this story: Anand Krishnamoorthy at firstname.lastname@example.org.