The Business Times

SIA cuts non-stop all-business NY flights

High, volatile fuel prices challenging for such operations

Published Sun, Oct 27, 2013 · 10:00 PM
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[SINGAPORE] Singapore Airlines's (SIA) decision to phase out the world's longest direct commercial flight next month - its non-stop all-Business Class service from Singapore to Newark Liberty International Airport in New Jersey - could see it losing market share in the competitive US-South-east Asia segment. But it may not be all bad news where the bottom line is concerned, especially as the airline aggressively grows its network in the buoyant Asia-Pacific market.

In 2004, SIA first started operating the near-19 hour service to New York, which covers over 15,300km, using the long-range, four-engine Airbus A340-500 aircraft. After initially starting out with a mix of business and premium economy seats, it later converted the flight to an all-Business Class configuration with 100 seats.

SIA also used to operate the world's second-longest flight, an all-Business Class direct service between Singapore and Los Angeles, which saw its last flight take off earlier this month on Oct 20. The last direct Singapore-Newark flight departs on Nov 23.

Airbus is due to acquire SIA's five A340s as part of a deal inked last year where the airline ordered more A380s and A350s.

"Retiring our A340-500s and removing them from service is in line with Singapore Airlines' long-standing policy of maintaining a young and modern fleet," said an SIA spokesman, adding that high and volatile fuel prices posed challenges for ultra-long haul operations.

The airline, which bumped up services to Houston from five times weekly to daily between May and August this year, continues to explore other avenues to enhance its US services.

"Following the financial crisis, the world has changed. Demand for air travel has also changed," said UOB Kay Hian's aviation analyst K Ajith.

Such long-range flights are "nearly impossible" to operate profitably at current fuel prices, Brendan Sobie, chief analyst for CAPA - Centre for Aviation, wrote in a recent report. The ultra-long range flight is fuel-intensive and with just 100 seats - even premium seats - the yields may not justify the operating costs. According to the International Air Transport Association (Iata), the average fuel bill for this year is hovering at US$124.50 per barrel.

While SIA still operates flights to these two cities through its existing one-stop flights to LA (via Tokyo) and New York (via Frankfurt) - for which prices are typically lower than the non-stop services - it tacks on extra time for a flight aimed at the corporate sector. For instance, the airline's existing service to New York's John F Kennedy International Airport (via Frankfurt) means some four hours of additional flight time compared to its direct service to Newark.

SIA will also now be competing head-on with a number of other carriers that also offer a one-stop service. These include Cathay Pacific, Emirates, British Airways (BA) and Delta Air Lines, each flying via their own individual hubs and sometimes with lower fare offerings.

To open up more premium seats, SIA had said previously that it would swop its 471-seat A380 with 60 Business Class seats, currently deployed on the two routes, with its 409-seater A380 offering 86 Business Class seats.

Still, there is bound to be a spillover to other carriers.

Mr Sobie expects that SIA will likely lose "at least half" of the passengers that were travelling on its non-stop US flights, given that there are 12 other carriers offering one-stop services from Singapore to LA and 20 other airlines that do so to New York. He estimates that suspending the non-stop flights to LA and Newark will cause SIA's total capacity in the US market to drop by about 16 per cent to 22,000 seats weekly, which means it will also slide down the ranks from the fifth largest Asian carrier operating to the US to the ninth. SIA's number of premium seats in the market, however, will drop by a sharper 26 per cent.

Delta, which has overhauled its business class product for its trans-Pacific routes, has made no secret of its intentions to grow its market share when SIA suspends its non-stop services to the US.

For BA, all this opens up a huge opportunity to snag a bigger piece of the Singapore-New York route pie, said Robert Williams, regional general manager (South-east Asia). The airline operates two flights a day from Singapore to London, and then 12 flights a day onto New York as well as three times a day to LA out of London. At London's Heathrow Airport, BA's flights operate out of Terminal 5, which means seamless connectivity without having to switch terminals, as well as access to its lounges.

With Singapore, London and New York being key financial hubs, passengers also have the flexibility of stopping in London for meetings, Mr Williams pointed out, adding that premium fares compared to SIA are at "similar levels, if not just a bit under". BA's business class fare to New York goes at around $10,370.

The Middle Eastern carriers are also likely to benefit, using their hubs in Dubai, Abu Dhabi and Doha for onward connections to the US.

While Mr Ajith acknowledged that there could be some migration to other airlines, he doesn't expect the suspension of these direct services to have a significant impact on SIA's financial performance.

"Collectively, it will probably be better for SIA," he said, adding that the airline would have kept it if it was profitable. "SIA would have probably seen that the loads on the (NY) route were less than optimal and chose to cut the flights."

Meanwhile, SIA has been growing its capacity within the Asia-Pacific, especially in countries such as Indonesia and India, the latter being a market where it is now setting up a full service carrier with India's Tata.

"The decision to cut the non-stop flights to the US will see it lose a share of the US-South-east Asia market. But then, this is no longer a strategically critical market for SIA. And it is a market that has become very competitive," Mr Sobie pointed out, stressing that SIA might do better to focus on growing in markets closer to home.

Shares in SIA closed at $10.48 on Friday, up three cents.

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