Headwinds in Asia

Recent media reports indicate that Asia's venerable carriers, Singapore Airlines (SIA)and Cathay Pacific Airways (CX) are facing serious headwinds, which are forcing both global operators to take a closer look at their respective company structures and business models.
The duo, which neither has a big domestic customer base to rely on, suffers some common problems.

SIA plans to reintegrate its cargo daughter
SIA plans to reintegrate its cargo daughter

One is the spectacular growth of direct flights by Chinese carriers to a wide range of international destinations, as well as the continuing competition from Middle East carriers, although the latter also seem to be suffering from a financial downturn.
And then there are the low-cost carriers in the region with their aggressive pricing policies and capacity growth, which has caused a chronic excess capacity in major parts of the networks of the two carriers.
Finally, although less significant, there is the price of fuel, which has been fluctuating and is currently down, but which continues to have a major impact on the profitability of both carriers.

Poor financial results
SIA last month reported a first quarterly net loss in five years (S$138m-US$100m) in its fourth quarter from January to March, compared to a S$225 million net profit in the same period last year. Cathay in March reported its first annual loss HK$575m (US$74m) in eight years, compared to a HK$6 billion profit in 2015.
Although SIA Cargo reported a S$3m operating profit for the 12 months to April 2017, compared with a $50m loss the year before, it was largely blamed for the parent group’s drop in net profit after the carrier paid S$132m to settle a legal case surrounding syndicated price fixing. 

SIA reintegrates its Cargo daughter
Despite reducing its dedicated freighter fleet to just seven this year and an improved cargo outlook, the Singapore flag carrier has nevertheless decided to re-integrate its subsidiary SIA Cargo by the first half of 2018. As the cargo division it will continue to manage the belly-hold space of passenger aircraft space for SIA, SilkAir and Scoot.
Although not officially announced yet, analysts expect Cathay to follow a similar course with CX Cargo becoming a division within the airline.
Citing changing customer habits and a “challenging business environment”, CX last month announced it would be cutting 600 of 3.000 head office jobs with no department spared except for frontline staff such as pilots and cabin crew.
Among other announced changes, the airline’s cargo unit will be restructured with job losses in cargo and other departments to be unveiled later.
CX said with the job cuts it seeks to save HK$4 billion over coming three years and return to profitability. However, recent press reports say that CX will cut another 200 jobs, a claim which has been denied by the airline.

Nol van Fenema

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