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Singapore Airlines CEO Goh Choon Phong said he envies American Airlines CEO Doug Parker for the scale and potential for profitability that U.S. carriers have from a large domestic market. Parker, the chief of the U.S.’s largest carrier, once famously said the era of airlines reporting losses is over.
In its most recent quarter, Singapore Airlines reported profit margins lower than analysts expected and lower than the company had previously reported. Much of this is explained by the region in which Singapore operates. Unlike Parker, Goh said his company has no domestic market to provide a valuable feed of passengers to its long-haul routes.
Additionally, the landscape has changed in the last 10 years, as Persian Gulf carriers have aggressively added routes throughout Southeast Asia. Passengers traveling from Europe and North America to Southeast Asia have more options than they did in years past.
Speaking at the inaugural Skift Forum Asia in Singapore on Monday, Goh said he is confident that the company is headed in the right direction. The group is taking steps to keep so-called CASK (costs per airline seat kilometer) down by, among other measures, hedging against fuel price volatility and managing fleet leases.
Tough Competition, Fragmented Market
Singapore’s portfolio strategy, as Goh termed it, aims to compete for price-sensitive leisure travelers on short-haul routes with its subsidiary Scoot, and premium passengers on medium- and long-haul routes with the mainline Singapore Airlines. Southeast Asia is a difficult market for airlines to return the same kinds of profits as U.S. carriers do. The market here is fragmented, and Singapore faces stiff competition from low-cost carriers. In Southeast Asia, low-cost carriers have 50 percent of the market, the highest percentage in the world, Goh noted.
“Southeast Asia is a challenging market, there are not many profitable airlines,“ Goh described a simple 2/2 chart that lays out the airline’s strategy toward meeting the needs of every passenger across long, medium, and short-haul flights.
When challenged on the recent decision to sunset SilkAir, Goh said that as other regional operators are taking hold, the time was right for the airline to simplify operations in the region and consolidate their offerings. Goh expressed a desire to keep the new model pure, with Scoot focused on the true low-cost carrier model, allowing SIA to provide premium classes and luxury classes.
The mainline Singapore Airlines will focus on long and medium-haul routes, while Scoot will focus on short-haul routes. Candidly, Goh said, SilkAir may not have been the most efficient way to address short- and medium-haul. SilkAir will be folded into the mainline by next year.
Goh said the Airbus A380 superjumbo had been a success for the airline in high-density routes and its most recent reconfiguration has been working well. The carrier’s fleet of A380s has remained static, however, with no new orders in the pipeline. Singapore Airlines was a launch customer for the aircraft, but it never embraced the superjumbo as enthusiastically as Emirates did. He declined to comment on why the A380 was not successful for Airbus.
Goh was candid on Boeing 737 Max issues. “It’s not good news for the industry that the Max is having these issues. Boeing has to get through it and address the concerns of all the regulatory authorities in every market the plane operates,” he said.
Singapore has six Max aircraft grounded now, and more than 30 on order. However, the airline has a solid solution to cover for the impact on capacity. “We plan our fleet to build in flexibility, and that they have aircraft leases that they can extend, to increase capacity and replace what they lose out on,” he said.
Editor’s Note: Singapore Airlines was an official sponsor of Skift Forum Asia.