SINGAPORE: Over almost five decades, Singapore Airlines (SIA) gained a reputation as one of the world’s best carriers, flying to 66 destinations worldwide 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 massive layoffs on Thursday (Sep 10), with analysts expecting more job cuts ahead.
Singapore Airlines Group said it is cutting about 4,300 positions across its three airlines – SIA, SilkAir and Scoot. But after taking into account a recruitment freeze, natural attrition and voluntary departure schemes, the potential number of employees affected would be reduced to around 2,400 in Singapore and overseas.
This is the largest retrenchment exercise. It comes 17 years after SIA laid off hundreds of employees during the 2003 SARS crisis when the airline suffered operating losses for the first time in its history.
The job cuts are inevitable, said aviation analyst Shukor Yusof, warning that the coronavirus outbreak may lead to further retrenchments at SIA.
“I expect more job losses, unfortunately, as I don’t see SIA able to sustain employees when its market has shrunk considerably, and will likely shrink even further in the coming months and years,” said the founder of Endau Analytics.
Professor Jochen Wirtz, the vice dean of graduate studies at the National University of Singapore Business School, described payroll as a “big cost item” for the airline.
Payroll and fuel costs can account for about 60 per cent of expenses for airlines, he said.
“If you can push those down, you save a lot of money,” added Prof Wirtz, the co-author of two books on SIA.
SIA would have to “reevaluate its workforce to prepare for life after COVID-19”, said Mr Shukor.
“We are yet to see the bottom in the aviation industry. Next year will likely bring unspeakable damage to many airlines.”
Mr Shukor noted that the layoffs would help SIA “remove excess fat”.
“It does help financially - every cent counts in this business - but won’t suffice to save the airline from further losses,” he said.
SMALLER PLANES, CUTTING FLEET SIZE
A good start to saving costs would be to review unprofitable sectors and reduce fleet size, said analysts.
Announcing the layoffs on Thursday, SIA Group had said that 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 domestic market that will be the first to see a recovery.
SIA saw a “catastrophic” 99.5 per cent decline in passenger carriage in the first quarter of this financial year, said CEO Goh Choon Phong in a message to employees.
He added that SIA Group currently operates only 8 per cent of its capacity compared to pre-pandemic levels, and expects it to be at less than 50 per cent at the end of the financial year.
Mr Shukor suggested that a reduction of SIA’s fleet could start with the carriers’ Airbus A380 planes, which he described as “uneconomical”.
The airline has 19 A380s, all currently grounded, with each plane able to carry between 379 and 471 passengers.
Prof Wirtz expects SIA to go for smaller planes moving forward. “Now you need smaller aircraft, more flexibility,” he said.
In addition, SIA would have to rethink its business model of catering to business travellers, he added.
“My guess is that Scoot will grow a lot faster, simply because the tourism market will recover faster than business travel,” he said, adding that SIA could consider appealing to the higher end of leisure travellers.
BATTERED BUT LARGELY INTACT
In March, SIA announced that it planned to raise up to S$15 billion to ride out the coronavirus crisis.
Commenting on reports last month that SIA had spent S$4.4 billion of the S$8.8 billion it had raised at the time, Mr Shukor said this showed how capital-intensive the airline industry is.
A lot more money will likely be needed in the next one or two years to support the national carrier, he said.
While the amount was headline-grabbing, independent aviation analyst Brendan Sobie noted that much of the expenditure was on one-off costs for the airline.
“It does not mean that they're going to run out of money in another few months. They have a lot more than that,” said the founder of consultancy Sobie Aviation.
He pointed out that SIA has the option of raising 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 does not have a domestic market to rely on, the war chest it has raised so far puts it in a good position to ride out the storm, said Mr Sobie.
“They have raised more money than anybody else in Asia, so not only do they have enough to withstand the downturn, they're in a relatively better position compared to almost all their peers because they have raised more,” he added.
No airline will come out of the current crisis unscathed, said Endau Analytics’ Mr Shukor.
“Airlines that are best capitalised, well managed and with a clear strategy beyond 2025 will benefit most,” he said.
“It will take a while for the industry to recalibrate and stabilise. SIA remains one of the best airlines and will emerge from the pandemic battered but largely intact.”