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Sunday, 6 November 2016

How long more can SIA ......?

After the results were released for Q2 and the declaration of 0.09c interim dividend per share, the share price at the close on last Friday plunged to S$9.95c (-0.16c). 
Even with a huge drop in fuel prices (USD 47 per barrel), the profits were not that good. 
The blame is now shifted from staff cost,competition and high fuel prices to "geopolitical uncertainty and weak global economic conditions".
I remember the company's top executives telling the staff how precious SIA shares were. One even told us the shares would be our "family's heirloom" when SIA is listed on the Stock Exchange. There was an air of excitement when finally SIA shares made it debut on the Singapore Stock Exchange in 1985.
As far as I can recall in all these 30 years, SIA shares had reached a high of S$19+ but just for a while.
With all the odds against the carrier, I wonder how long more can SIA carry on as a profitable airline?
Comments anyone?


Mike Lim said...

Dear Mr. Luke,

I believe the reason behind SIA's declining profit is multifactorial.

1. Although fuel price is low, all airline havw been hedging their fuel, hence, SIA bought tonnes of fuel at a high price. Until SIA finish using that fuel reserve, it will be considered as losing money from its previous fuel hedging.

2. Although there is a rise in air travelers, most of these do not need to fly luxuriously. Hence, there is no urgent need to fly with SIA's business/first class. SIA do acknowledge this and the newer planes are no longer fitted with first class suites. Refurbished planes will also remove the first class sections.

3. As stated, most travelers are not interested with full service flights. Honestly, there is no difference flying with a LCC unless if you are flying business. You can have the meal option even if you are flying with LCC which makes it the same as flying economy with a full service airline like SIA but with substantially cheaper price. Hence, the staunch competition from regional LCC is affecting the business too. In the Asian region, there are two extremely successful and large LCC, i.e. Airasia and Lion Air. Even with other full service airlines, SIA's fees are still much higher although the service is equal to theirs or at times lower (Emirates, Etihad, Qatar have been reported to have much better First Class/Business service compared to SIA, although prices are lower).

4. Business model of SIA might not be the best one. As I've stated in your previous post, SIA Group has an extremely clear distinction in the services it carries. Hence, it has four entities - SIA, Silkair, Scoot & Tigerair. In the long run, it seems counter-productive and SIA Group has streamlined it merging Tigerair into Scoot. Honestly, Tigerair is an airline with years of poor performance and failed joint ventures. The Tigerair Taiwan is also currently losing tonnes of money and China Airlines has stated poor management as the reason. Even with SIA, Silkair and Scoot only, there will still be problems in the management of these three entities in the long run due to internal competition/conflict of interest. The problem with such business model has been previously discussed by aviation analyst.

5. Geographical competitiveness is lacking. Although SG is historically known as the center of the world with all sea trading going through the Malacca Straits and using SG as the main port. This is not true with aviation. Unlike Middle East which ferries travelers between the East and West hemisphere, SG's main pax are between Northern & Southern hemisphere. And we know there are only Australia and NZ in the South which limits SIA's pax pool. There is no reason for East Asia (China, Taiwan, Japan, Korea) travelers to stop by SG before heading to Europe for example. They can fly directly. Therefore, SIA is losing out in pax population.

6. Poor staff retention. With SIA spending $100M/annum on staff training per year, and CC average retention year at 10 years, it is obvious that most CC hired are not really passionate about their career. Blogs/Forums of past CC clearly shows that many are frustrated with the work although with high pay and low academic qualification requirements. Most of them are frustrated with the variable schedule and the work load of handling demanding pax and getting their hands dirty. In general, SIA and its contracted recruiters are not choosing people who are willing to stay with the organization for a longer period, reducing training cost. SIA in general hires 800-1000 CC per year to replace those resigning and retiring. According to outsourced recruiters, SIA is said to be hiring about 1600 CC for 2016. To date, they are still a bit short.

In general, SIA needs a better business model to fully capitalize its strength of having three entities (SIA, Silkair, Scoot) within its group. If not, SIA will in the long run be losing out in competition with other major airlines in Europe and Middle East.

Have a nice weekend.

Best wishes,

Anonymous said...

A few months ago, I remembered vividly there were a few who were acting like stock guru and rubbing their hands in glee when their SIA stocks went from $10.50 to $11.10 and proclaimed its the start of the bull run again. Another even said he had insider news SIA will pay 4 months bonus woh. These people please dont hide, come out now!

Anonymous said...

sell now.... SIA intrinsic value is only $6... trust me sia will fall together with cathay to $6

Anonymous said...

I bought at $15+ after listening to those 'gurus' in thelis blog that it will chiong to $20+ after A380 is launched. If sell now, all my savings will be halved.

Anonymous said...


Care bear said...

Not very long! Everyone wants to save given the slow economy so unless the company is paying,most will fly low cost.SG economy is maxed out too.People are saving more than they're spending.

Some full service airlines will do well with 'smart' trade agreements like our next door neighbour's PM signing many trade deals with China which includes MAS flying to new destinations in China.The key takeaway being Jack Ma of Ali Baba now advising the government next door on digital economy.

As for us, it looks a little more bleak because traditionally we've relied on banking and oil and gas and the economy is changing because of globalisation and technological developments. The absence of strategic alliances and us alienating China also doesn't help our economic prospects.Even Duterte can see sense.

Let's hope for the best for SQ.Just focus on providing quality service to ensure people keep flying with SQ. We cannot control external events that impact our economy and ultimately SQ but we can make internal changes at SQ to adapt to the changing economy and trends in aviation.

Anonymous said...

So depressing to hear this. We are agree, support local industries, as against foreign,the US Prez, She is a lady, more flights into Scotland via EEC, She wants a break. And outlandish but ahead of its time, Fortress Sin need to be the 51st State, if you know what I mean. Act like one, still not fully intergrated. Unlimited flights to all point in US, using UULR aircraft. Got to invent one if still not on drawing board. Passport check in Changi, and flights full to US. Ha Ha.

Anonymous said...

Outdo Duterte,Najib,think out of the box. United State of A. Asia based 51ST State, Asian point of entry to Mainland. Syd-LA-Syd consider a domestic route.Stop squabbling about food,work conditions. US exchange to Sin is the one to one. Shortage of Space after Amazon seeks warehouse.US trade round the clock to Sin. Safest spot in Asia for US.No passport check after immigration for local born here. For out? Make it happen before 2050.

Anonymous said...

Nice analysis.

Anonymous said...

The recent announcement of the merger of Tiger and Scoot into one entity is a timely move. This should put an end to the many complaints on confusion. Certainly looks like budget carriers are here to stay.

Anonymous said...

Budget airline deserve pennynstock price

Anonymous said...

Singapore Air shops for world's longest jet.From CNN today. While Clinton on the way in and Trump cries foul,while the UULR and below cabin galley and longer cabin steals the Carpet under EK ?Thus the magic carpet will be full of holes and consign to story book of 1000 and 1 night ?Will Scootiger ,claws back the LCC paxs and into the new aircraft in 2018 and usher them to higher comfort and below galleys ?Will we continue to patronise our national carrier till it's footing is on firmer ground. I think the future is going to be good !

Anonymous said...

Future is good?We see how coz the prognosis from Tre cybernuts is NOT good.
For budget,my money is still on Air Asia but for non budget,I think
SQ just needs some tweaking then can challenge their bigger rivals.
Fingers crossed.