Cathay Pacific

Singapore Airlines plans US$850 million fleet upgrade, despite drop in profits

Airline posted a 9 per cent drop in profits in its last financial year, but is looking to upgrade its current fleet of aircraft

PUBLISHED : Thursday, 02 November, 2017, 7:03pm
UPDATED : Thursday, 02 November, 2017, 7:45pm

After posting a significant drop in profit last year, Singapore Airlines says it plans to invest US$850 million (HK$6.6 billion) in its aeroplanes and services, contrary to the across-the-board cost-cutting strategy of its arch-rival Cathay Pacific Airways.

In its last financial year, Singapore Airlines posted a 9 per cent drop in profits, due to weakening demand for full-service long-haul travel amid competition from low-cost and Middle Eastern carriers.

But rather than cut services and costs to improve profits, which was the route employed by Hong Kong’s flagship carrier, it planned to invest US$850 million in upgrading its 18-strong A380 fleet.

“From our perspective, there is still demand for full-service and premium service, and we want to be able to demonstrate that we can offer a premium product,” Singapore Airlines chief executive officer Goh Choon Phong said. “Hence, all these investments are to make sure that we continue to have product and service leadership.”

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After Cathay Pacific reported a HK$2.05 billion loss for the first half of this year, it began a three-year belt-tightening strategy to save HK$4 billion by changing its investment in new planes, cutting hundreds of staff and restructuring pilot contracts.

While Singapore Airlines’ strategy could create the perception among customers that it was remaining fresh and investing in service and quality, cost cutting could give the opposite impression.

“Cutting costs too much during an industry downturn could dampen staff morale and compromise the level of services, leaving passengers feeling short-changed,” Corrine Png, CEO of independent transport research firm Crucial Perspective, said.

Png added that Singapore Airlines had a better strategy in dealing with competition from low-cost carriers by having its own called Scoot. In the event of a significant downturn in the premium air travel market, the company could earn revenue from its budget brand until the market picks up.

At a product unveiling in Singapore on Thursday, the city state’s national carrier planned to retrofit its entire fleet of 18 super jumbo Airbus A380 planes – five of which were set to be received from the European aeroplane manufacturer – with redesigned private cabins, new seats for all cabin classes, upgraded in-flight entertainment and amenities.

The project is expected to be completed within four years.

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“Cathay now looks like it will be leapfrogged by SIA in the premium stakes, so it may have to look at other ways it can attract important customer travellers to stay with it,” Ellis Taylor, Asia finance editor at aviation news portal FlightGlobal, said.

This may be through offering competitive business and first-class fares, operating a wider network, and linking with other partner carriers such as Air China and American Airlines, he added.

Cathay Pacific has been contacted for comment.

Singapore Airlines offers seven flights to Hong Kong daily, making the city one of the company’s most important routes. An A380 serves one of those daily flights.

A source for the airline said one of five new super jumbo aeroplanes would serve the Singapore-to-Hong Kong route early next year.

The first super jumbo plane to receive the upgrade will enter into service by December for the Singapore to Sydney route.