SIA’s S$1.16b makeover for A380 jets a ‘worthwhile’ investment: Analysts

SIA’s S$1.16b makeover for A380 jets a ‘worthwhile’ investment: Analysts

SIA business class (3)
Singapore Airlines unveiled new cabin offerings for its A380 jets on Thursday (Nov 2), including a double bed feature for its business class seats. (Photo: Tang See Kit)

SINGAPORE: Despite the hefty price tag of US$850 million (S$1.16 billion), the move by Singapore Airlines (SIA) to overhaul its Airbus A380 jets is a “necessary” and “worthwhile” step to take amid cut-throat competition that has eroded its profits, analysts told Channel NewsAsia.

The national carrier on Thursday (Nov 2) announced a facelift for all cabins on board its double-decker superjumbos, with the first and business classes getting the biggest revamp.

The refreshed cabin products will be fitted on the five new A380s that SIA has on order with Airbus, while the rest of its fleet will be retrofitted from now until 2020.

With most of its A380 jets in service for 10 years, the cabin overhaul is an essential move for SIA to stay competitive, especially in the premium segment, which is its bread and butter, said Ms Corrine Png, founder of Singapore-based research firm Crucial Perspective.

“SIA was the industry leader in 2007 but its existing products are looking quite tired now. This is a defensive move in a way, but necessary since the rest of the industry is catching up,” she said, referring to deep-pocketed Middle Eastern carriers.

Etihad Airways, for instance, has a three-room suite that comes with a private living room, separate shower room and butler service. Qatar Airways spruced up its business class seats with a double bed feature earlier this year, while Emirates will unveil a new first class cabin for its Boeing 777-300ER aircraft later this month.

“The Gulf carriers can and have replicated a lot of the products and services that a premium carrier like SIA can do, alongside fares that are more competitive. So there’s a need for SIA to launch another state-of-the-art product to garner interest,” Ms Png added.

When asked about competition, SIA CEO Goh Choon Phong said that the company does not compare itself with its rivals but he described the latest cabin overhaul as an “industry leading product” that will make the airline “more competitive”.

Analysts that Channel NewsAsia spoke to generally agreed.

Associate Professor Nitin Pangarkar from NUS Business School described SIA’s A380 revamp as “a good product with some interesting differentiators”.

He highlighted the double beds in both the first class and business class. Also, while the number of first-class suites have been halved to six, each suite received a boost in terms of space and comfort levels.

“It is important to be careful to offer features that customers value highly and not just more features … From my perspective, I think they also correctly omitted some lower-value adding features such as showers,” said Mr Pangarkar, who is the academic director of MBA programmes at the Department of Strategy and Policy.

Fewer first-class suites and the use of lightweight materials for the business-class seats have also helped with the better use of space, enabling SIA to bump up the total number of seats on each A380 by as much as 24 per cent.

The new A380 is configured with 471 seats across four classes: including six first-class suites and 78 business class seats on the upper deck, as well as 44 premium economy class seats and 343 economy class seats on the lower deck. Previous configurations of the double-decker suberjumbos carried 441 and 379 passengers.

SIA cabin
The new suites on SIA's Airbus A380 superjumbos are designed to feel like a bedroom. (Photo: Screengrab from SIA video)

Industry experts said this should augur well for the airline’s passenger load factors and yields.

“SIA wants to increase density because that’s the way to generate more revenue to make the A380 operation profitable,” said Mr Brendan Sobie, chief analyst at think-tank Centre for Aviation.

Given that the first-class suites are a “very niche product” and are usually “half full” on most flights, it is “sensible” for SIA to “cut the capacity and try to get as much revenue by taking the space and using it in a better way".

Mr Sobie added: “The investment should be worthwhile and will be able to improve the profitability and revenue from the A380s.”

Echoing similar sentiment, Ms Png added that the newer and lighter seats also help with fuel efficiency, which eventually translates into a boost for passenger unit cost and overall profitability.

In addition, the buzz surrounding the new cabin products will also entice passengers to travel on SIA’s new A380s.

“Whenever there are new product launches, SIA tends to enjoy an increase in load factor. When SIA launched the Airbus A380 in 2007, it attracted bookings and translated into a higher load factor even though the A380 is a bigger plane and it’s more difficult to fill,” Ms Png explained.

“With the hype now, I think the investment will be worthwhile. Based on our estimates, SIA just has to increase its fares by 6 per cent to more than cover the investment for these planes,” she told Channel NewsAsia.

SIA CEO Goh Choon Phong at the A380 launch
Chief executive officer of Singapore Airlines, Mr Goh Choon Phong, at the A380 product launch. (Photo: Tang See Kit)

SIA is set to release quarterly results next week. The airline reported a net profit of S$235.1 million for the first quarter ended June, a rebound from a loss of S$138.3 million previous quarter.

Last month, it said it would pursue a three-year plan of wide-ranging initiatives aimed at helping it reclaim market leadership. This comes on the back of the set-up of a dedicated transformation office in May to review its strategy.

Nonetheless, SIA is still ramping up its fleet and other product revamps remain underway.

Last week, it signed a previously announced deal with Boeing to purchase 39 aircraft at US$13.8 billion. Research and development projects are ongoing for its 787-10 Dreamliner airplane, which it expects to take delivery in the first half of 2018.

Source: CNA/sk