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SINGAPORE: For almost five decades, Singapore Airlines (SIA) has earned a reputation as one of the world’s best airlines, flying to 66 destinations around the world with a fleet of more than 130 aircraft.
But it has been a devastating year for Singapore’s flag carrier due to COVID-19. Like so many other airlines, it became the latest to announce mass layoffs on Thursday (Sept. 10), with analysts expecting more job cuts in the future.
Singapore Airlines Group said it is cutting about 4,300 positions on its three airlines: SIA, SilkAir and Scoot. But after taking into account the hiring freeze, natural churn and voluntary departure plans, the potential number of affected employees would drop to around 2,400 in Singapore and abroad.
This is the biggest expense reduction exercise. It comes 17 years after SIA laid off hundreds of employees during the SARS crisis of 2003, when the airline suffered operating losses for the first time in its history.
READ: Singapore Airlines Group to cut around 4,300 positions as COVID-19 hits aviation industry
Job cuts are inevitable, said aviation analyst Shukor Yusof, warning that the coronavirus outbreak may lead to more staff cuts at SIA.
“Unfortunately, I expect more job losses as I don’t see SIA being able to keep employees when its market has contracted considerably and will likely shrink further in the coming months and years,” said the founder of Endau Analytics.
Professor Jochen Wirtz, vice dean for graduate studies at the National University of Singapore Business School, described payroll as a “high cost item” for the airline.
Payroll and fuel costs can account for about 60 percent of airline expenses, he said.
“If you can reduce them, you will save a lot of money,” added Professor Wirtz, co-author of two books on SIA.
SIA would have to “reevaluate its workforce to prepare for life after COVID-19,” Shukor said.
“We have yet to see the bottom line in the aviation industry. Next year will probably bring unspeakable damage to many airlines. “
READ: Comment: Singapore Airlines’ outlook has gone from bad to worse
Mr. Shukor noted that the layoffs would help SIA “shed excess fat.”
“It helps financially, every penny counts in this business, but it won’t be enough to save the airline from further losses,” he said.
SMALLER AIRCRAFT, CUTTING FLEET SIZE
A good start to saving costs would be to review unprofitable sectors and reduce fleet size, analysts said.
In announcing the layoffs on Thursday, SIA Group had said its airlines will operate a smaller fleet for a reduced network in the coming years, noting that it is “in an even more vulnerable position” compared to other airlines as it does not have a National Network. market that will be the first to see a recovery.
SIA experienced a “catastrophic” 99.5 percent decline in passenger transport in the first quarter of this financial year, CEO Goh Choon Phong said in a message to employees.
It added that the SIA Group currently operates only 8 percent of its capacity compared to pre-pandemic levels, and expects it to be less than 50 percent by the end of the financial year.
Mr. Shukor suggested that a reduction in the SIA fleet could start with the carriers’ Airbus A380 jets, which he described as “uneconomic.”
The airline has 19 A380s, all currently on the ground, and each aircraft can carry between 379 and 471 passengers.
Professor Wirtz hopes that SIA will bet on smaller aircraft in the future. “Now you need smaller planes, more flexibility,” he said.
In addition, SIA would have to rethink its business model of serving business travelers, he added.
“My guess is that Scoot will grow much faster, simply because the tourism market will recover faster than business travel,” he said, adding that SIA could consider attracting the upper segment of leisure travelers.
ABUSED BUT VERY INTACT
In March, SIA announced that it planned to raise up to S $ 15 billion to overcome the coronavirus crisis.
Commenting on reports last month that SIA had spent $ 4.4 billion of the $ 8.8 billion it had raised at the time, Shukor said this showed how capital intensive the airline industry is.
Much more money will likely be needed in the next one or two years to support the national airline, he said.
While the amount made headlines, independent aviation analyst Brendan Sobie noted that much of the spending was on one-time costs to the airline.
“It does not mean that they will run out of money in a few more months. They have much more than that, ”said the founder of the consulting firm Sobie Aviation.
READ: Safely reviving Singapore air hub is the Ministry of Transport’s ‘top and immediate priority’
He noted that SIA has the option to raise another S $ 6.2 billion through mandatory convertible bonds.
“They have the flexibility to raise more next year if they need more,” he said.
While SIA doesn’t have a domestic market to rely on, the war chest it has raised so far puts it in a good position to weather the storm, Sobie said.
“They have raised more money than anyone else in Asia, so not only do they have enough to weather the recession, but they are relatively better off compared to almost all of their peers because they have raised more,” he added.
No airline will emerge unscathed from the current crisis, said Endau Analytics’ Shukor.
“Airlines that are better capitalized, well managed, and with a clear strategy beyond 2025 will benefit the most,” he said.
“It will take time for the industry to recalibrate and stabilize. SIA remains one of the best airlines and will emerge from the pandemic hit but largely intact. “
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