Saturday, December 20, 2008
SIA may be forced to cut pay, jobs in 2009 as a last resort
SINGAPORE: Singapore Airlines (SIA) is bracing itself for a bumpier ride in 2009. Oil prices have been hitting four-year lows in recent sessions, but carriers worldwide have been hit by declining passenger numbers.
SIA has already been re-looking its routes and services. But the carrier said it may be forced to consider cutting pay or even jobs.
The year started off on a high for airlines. While fuel prices skyrocketed, passenger demand was also buoyant, so carriers were flying steady.
But with the financial crash in September, the outlook took an ugly turn and SIA is preparing itself for a tough 2009, at least in the first half.
Stephen Forshaw, vice-president, Public Affairs, SIA, said: "It will be difficult. Let's not make any mistakes about that."
SIA has survived the stormy weather better than most of its peers and is still profitable. But the carrier said should it move into the red next year, pay cuts may kick in.
Mr Forshaw continued: "If we move into periods of loss-making, there are certain triggers within our respective collective agreements with our unions that will dictate certain pay cuts or cuts to the variable components of staff salaries.
"As we've said before, senior management will lead on that. If there is surplus staff, we will do our best to manage the staff in terms of leave or no pay leave before we get to retrenchments. Retrenchments for us is always a last option.
"Our hope is that we have enough steps in place that will help the organisation to ease its cost burden without having to move to retrenchments."
SIA is no stranger to managing crises, but analysts said the carrier is facing a very tough challenge.
Shukor Yusof, aviation analyst, Standard & Poor's, said: "With their business largely dependent on the two continents facing the greatest test in this downturn - North America and Europe - I think they will feel the pressure to reduce capacity and to re-align their business model."
SIA has already started to trim its network and may cut the number of flights on high-frequency routes. But it also plans to stimulate demand by having more promotions next year.
It will also look for new routes that are opening up. It has just added Riyadh to the radar because of growing demand from the Middle East. Kuwait will be added later in March.
Analysts said carriers will have to manage a fine balancing game next year. They will have to make price reductions substantive enough to encourage people to travel, but not so low that already suffering yields are adversely affected.
Areas like their business class flights to the US have seen a dip in numbers and SIA said it may tweak the frequencies. However, it added that the long-term prognosis for those flights remains good.
For SIA, since those aircrafts are all paid for, it is a sunk cost for them.
Mr Forshaw said: "The challenge for us in the next few months, in the financial sense, will be the impact of the changing currency - particularly the value of the US dollar where a substantial amount of our expenditure is incurred, for example, fuel and aircraft purchases.
"But against that, we have seen an easing in jet fuel prices. So I hope that will mean one can offset the other."
For now, SIA remains confident of taking deliveries of all the planes it has ordered, with the new A330 joining the fleet in March. The airline will also proceed with plans to unveil a new business class for the A330, which will fly regional routes. - CNA/vm