Talk about how a particular airline can benefit from a global pandemic that has crippled air travel, forcing carriers to swallow huge losses, downsize fleets and staff, in hopes of avoiding bankruptcy may seem paradoxical, even ridiculous, in the situation.
Yet we should heed Warren Buffett’s advice when he recommended “to be fearful when others are greedy and greedy when others are afraid”.
Today, the world of aviation is indeed in the grip of fear and only one company has the confidence to become “greedy” and position itself to make the most of the recovery that is coming: Singapore Airlines ( SIA).
Pressure makes diamonds
The global airline industry has experienced massive and uninterrupted growth over the past decades – not even the 2008/09 financial crisis was able to reduce it.
In the 15 years before the pandemic, the number of passengers more than doubled to more than 4.5 billion, compared to just under two billion in 2004.
However, the problem with growing markets is that the right conditions attract a lot of players as everyone wants a slice of the ever growing pie. But as in all areas of life, only a few can truly excel.
This leads to overinvestment and mismanagement, especially on the part of companies that are not necessarily well suited to be in the business in the first place. But because the industry continues to grow, it’s easy to justify both borrowing and, in many cases, government spending, using taxpayer dollars.
As a result, many airlines, especially domestic carriers that rely on government support, tend to underperform and operate at a loss, even as the industry is growing.
Therefore, crises, no matter how painful, are often also necessary to prove who is best suited to survive and eliminate the weak. COVID-19 has created such an opportunity.
All of a sudden, businesses that have been generously kept afloat by public money for years simply cannot be saved in their current form.
The down payment would be far too large, especially in the face of the billions of dollars needed to prevent entire economies from collapsing. In this situation, having a flagship airline becomes the last of your concerns.
Unlike its regional counterparts, especially Thai Airways, Malaysia Airlines, Indonesian Garuda or even the Hong Kong Cathay, SIA has not only been one of the world’s best carriers, but also profitable international carriers.
Despite pressure from premium Persian Gulf airlines (funded by unlimited oil funds) and many budget airlines like AirAsia, the company has maintained its own profits for years.
Today it hurts too; But years of effective operations and the current support of the Singapore government and Temasek Holdings are helping it capitalize on the COVID-19 disaster that is crushing everyone.
A whopping US $ 16 billion (S $ 21.63 billion) that it has raised so far with help from Temasek not only allows it to continue operating (even at a loss) until the pandemic recedes, but is also used to make investments, while everyone is just hoping to survive.
Of course, Temasek herself is not only interested in the survival of the airlines, but also their rebound and growth which will increase returns for its shareholders in the years to come.
What does not kill you makes you stronger
Unlike most other carriers, the 20 percent workforce cuts were the only bitter pill the company had to swallow last year.
No further cuts are expected, as the company expands and modernizes its fleet to improve its energy efficiency, preparing it for the inevitable rebound in activity that is about to occur in the years to come.
Old planes are retired earlier and new orders are taken. SilkAir has been integrated into SIA, while Scoot has just presented its new machines delivered by Airbus.
What is a painful time for SIA, is almost a death blow to its immediate rivals.
Thai Airways, Malaysia Airlines, and Garuda Indonesia have all made deals with creditors on restructuring and cutbacks to ensure some form of survival in the future.
Garuda is expected to cut its fleet in half by the end of 2022. Thai Airways plans to cut from 103 to 86 planes by 2025, while cutting employment by more than 50%.
Meanwhile, Malaysia Airlines is looking to pull all of its flagship A380s, potentially in search of deeper cuts, as the airline suffered badly long before the pandemic.
With struggling competitors, shrinking their fleets and laying off workers, SIA is taking pole position to make the most of the resumption of air traffic after the gloomy COVID-19 winter.
When passengers are ready to fly back on the plane, SIA will have more and better planes, both in the premium segment and with its economy carrier Scoot. It will boast of having lighter, more modern and more efficient operations than any other airline in the region.
This will not only increase its position, revenue, profit and market share, but will also contribute to Singapore’s growing importance as an air hub for Southeast Asia, as well as as a link between Europe and the Antipodes.
Changi Airport is also using COVID-19 downtime to speed up the renovation of Terminal 2, while working on the massive Terminal 5, which is expected to bring the airport’s capacity north to 130 million passengers per year once it opened in the 2030s (albeit with some delay due to uncertainties caused by the pandemic at this time).
With a stronger domestic airline, better fleet, more connections, Changi Airport will gain new advantages and strengthen its position as the dominant air transport hub in Southeast Asia.
However, the timing of the recovery remains uncertain. It may take a few years before all restrictions are lifted and we resume our normal operations.
However, the situation is not only doomed to return to normal over time, but also to improve afterwards.
The money spent to keep the SIA in its best shape now should pay off when the revival occurs. Since this is not an undue burden on taxpayers or public investor Temasek, it is probably one of the best investments that can be made right now.
Featured Image Credit: Asianaviation.com
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