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SIA to merge SilkAir into flagship carrier; CEO cites connectivity within plane fleet

2018-05-17T235057Z_479703666_RC18AD436C70_RTRMADP_3_SINGAPORE-AIR-SILKAIR.JPG
Singapore Airlines (SIA) is merging its regional brand, SilkAir, into the flagship carrier under a multi-year initiative, it said on Friday before the stock market opened, adding that it will be pumping in more than S$100 million to upgrade SilkAir's fleet.

MERGING SilkAir into Singapore Airlines (SIA) will improve connectivity across the combined fleet's wide- and narrow-body planes, Singapore Airlines management said on Friday.

Led by chief SIA chief executive Goh Choon Phong, SIA management made those comments at the national carrier's results briefing shortly after SIA announced a multi-year plan to absorb SilkAir, its regional wing, into the flagship brand. SIA also announced before the stock market opened that it will pump in more than S$100 million to upgrade SilkAir's fleet.

The aircraft cabin upgrades are expected to start in 2020 and will equip SilkAir with new lie-flat seats in the business class section and seat-back in-flight entertainment systems in both the business and economy class sections. 

Mr Goh said that the introduction of more space efficient lie-flat beds by seat manufacturers will allow the offering of that premium product on Silkair's narrow body fleet without compromising the number of seats.

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He added that SilkAir was still seeing "healthy" demand for business class seats in the region.  

The merger, which will take place only after a sufficient number of aircraft have been fitted with the new cabin products, continues SIA's brand consolidation and will leave the company with just two carrier brands - SIA itself and Scoot. Scoot and Tigerair had earlier merged in 2017.

In South-east Asia, a high penetration of low cost carriers is making the operating environment challenging, especially since SilkAir prices itself more along the lines of a full-service carrier, said SIA. On routes where competition is rife, SilkAir's yields may come under pressure.

However, Mr Goh said: "There's still a lot of demand for a SilkAir type of service, especially on the bigger destinations in South-east Asia. SilkAir continues to have sizeable traffic on the (more) established routes."

As the regional wing is merged into SIA, the group said it will continue to match routes to the right vehicle. For instance, it previously transferred Palembang to budget arm Scoot, which can compete more effectively with the region's LCCs.

In the past year, SilkAir's functions such as finance and revenue management have started to be integrated into the group. SIA's management added that there are plans to transfer over other areas where there are synergies over the course of next year, but the merger itself will only take place later. 

In response to questions at the briefing on whether there might be redundancies, Mr Goh said: "It is not a consolidation exercise. With the combined entity, it should offer more opportunities for our staff to grow and take on different responsibilities. To the extent there will be overlaps, affected staff will be given opportunities to look at redeployment and retraining."

SilkAir staff will take on the same terms and conditions of SIA staff when they join the parent airline, he said.

SIA said it expects to grow its operating fleet size to 117 for SIA by March 31 next year, compared with 107 as of end-March this year; increase SilkAir's fleet size by one to 33, and Scoot by eight to 48. The size of the operating cargo fleet is expected to remain the same.

This translates to projected capacity growth, in available seat kilometres, of 5 per cent for SIA, 9 per cent for SilkAir and 17 per cent for Scoot for FY2018/2019 compared to the previous financial year.

Group capital expenditure on aircraft is expected to remain fairly stable, at S$5.7 billion for FY2018/2019, S$5.9 billion for FY2019/2020 and S$5.8 billion for FY2020/2021, said SIA.

Its latest financial results, released on Thursday, showed that the carrier chalked up a net profit of S$181.8 million for the fourth quarter ended March 31 as stronger passenger and cargo revenues acted as tailwinds, reversing from a loss of S$138.3 million a year ago.

At the operating level, all its business units were profitable in Q4. The parent airline swung into the black with an operating profit of S$137 million, versus a loss of S$41 million a year ago, buttressed by higher revenue. 

Meanwhile, SilkAir saw its operating profit slump from S$27 million to S$3 million owing to higher operating costs such as fuel, handling charges as well as landing and parking costs. Its yields also contracted by 11.4 per cent.

SilkAir operates a fleet of 11 Airbus A320-family aircraft and 22 Boeing 737-800 and 737 MAX 8 aircraft. It is currently transitioning to an all-737 fleet, and serves 49 destinations in 16 countries. It launched in 1989 as Tradewinds the Airline and was focused on holiday destinations in Southeast Asia. It was renamed SilkAir in 1992. 

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