SINGAPORE (May 17): “That’s not what we’re looking at,” Singapore Airlines’ chief executive officer Goh Choon Pong laughs, when asked about the possibility of merging SIA with Malaysia Airlines.
The idea of a merger had been mooted recently by a Maybank analyst.
But speaking at SIA’s FY18 results briefing on Friday, Goh dismissed the suggestion. “We’re concentrating on our transformation plan,” he adds.
Goh’s remarks portended a session full of questions over the grounding of SIA’s Boeing 737 Max aircraft, and its continuing issues with the Rolls Royce Trent 1000 engines.
The group saw its full-year earnings slide 47.5% to $683 million for FY18, from $1.3 billion a year ago, on the back of lower operating profit and higher non-operating costs.
See: SIA posts 28% fall in 4Q earnings to $203 mil on weaker operating performance, SilkAir’s restructuring
Questions around the 737 Max aircraft groundings were met with a familiar refrain – that SIA “does not disclose terms of commercial agreements,” or that the airline “has to wait and see” how the grounding affects its plans to integrated SilkAir and increase capacity.
SIA, though, is planning ahead – with the assumption that the planned delivery of nine 737 Max aircraft for this year will not happen.
To mitigate the capacity shortfall, SIA will lease more planes, and extend leases on planes the airline is already operating.
Also, SIA has to moderate its capacity plans to just 6% across the group.
The grounding of the 737 Max has impacted the transfer of SilkAir’s 737 NGs aircraft to Scoot, which will have to be retained. To fill the capacity for Scoot, Airbus A320 aircraft will likely be leased.
“We are looking at 10 to 12 aircraft to replace the 10 to 14 aircraft that was supposed to be transferred to Scoot over the next two years. We also looking to extend leases of aircraft already with us in the region of four to six aircraft, both narrow and wide body,” says Stephen Barnes, chief financial officer, SIA.
This also marks the start of the final year of a three-year transformation journey that SIA has undertaken.
Goh notes that progress has been made from the process of streamlining their brands: from four to three, and eventually to just two.
“It is also about making our product and service offerings even friendlier for customers. Take, for example, the refund process that used to take four to five days. But now through automation, not only has it cut down the manual handling of refunds by more than 80%, [it has] also reduced the latency of refunds to almost instantaneous,” says Goh.
Goh highlights that data analytics and data tools have been leveraged to automate process to gain efficiency, translating into a 7% productivity gain. There has also been a focus on upskilling workers in this journey.
“70% of ground staff has gone through some digital training,” Goh says. “This year, we expect to complete the training to 100% of our staff.”
The CEO adds that SIA’s transformation has yielded good results in raising revenue capability and also in making sure that SIA maintains good management of costs.
“The gap between the RASK (revenue per available seat kilometre) and CASK (cost per available seat kilometre), which is the profitability gap, has been narrowing. But since the transformation, that gap has been widening, meaning that RASK is on the uptrend and CASK is on the downtrend,” Goh adds.
