SINGAPORE: Singapore Airlines’ (SIA) resumption of daily non-stop services to its main US destinations reflects a strategic rather than commercial decision in line with an overall desire to steadily increase capacity at Changi Airport despite little or no improvement in demand.
SIA last month upgraded its non-stop New York, Los Angeles and San Francisco routes to daily, resulting in 21 weekly non-stop flights to the US.
This represents only a 32 per cent reduction compared to the 31 weekly non-stop flights to the US prior to the pandemic, including 10 to Los Angeles, 10 to San Francisco, seven to New York and four to Seattle.
SIA’s decision to bring back more than two-thirds of its ultra long-haul flights was a surprise given the bleak demand situation, which continues to drive an over 97 per cent drop in passenger traffic at Changi, and the fact regional travel is expected to recover before intercontinental travel.
DEMAND REMAINS LOW
The very fast ramp-up from only three weekly flights to the US – a schedule SIA maintained from the end of March 2020 until early November 2020 – was particularly surprising.
The three flights to Los Angeles that were maintained throughout the crisis were hardly full, averaging a load factor of less than 15 per cent over the seven months even though they were the only SIA service to the US.
SIA resumed flights to New York in early November 2020 and San Francisco in mid-December 2020 with three weekly flights initially on each route.
Both New York and San Francisco were upgraded to daily on Jan 18 along with Los Angeles, which was initially upgraded from three to five weekly flights in December.
The first New York flight left Singapore on Nov 9 with only four passengers. The load factor has not been much better since.
For the month of November, SIA’s average load factor on US flights was only 11.3 per cent compared to 83.3 per cent the year prior.
SIA’s US load factor was a slightly higher 13.5 per cent in December followed by 13.8 per cent in January 2021.
It is likely the average load factor will drop again in February and March given the recent increase in capacity and new travel restrictions in the US.
LESS CARGO TO THE US
SIA’s load factor on long-haul flights to Europe was even lower in January, slipping to only 9.5 per cent, impacted by new travel restrictions imposed after the emergence of the new UK strain.
However, the average Europe load factor was higher than the average US load factor in the six prior months, from July to December 2020.
Europe flights have been generating significantly more revenues than US flights – even with the recent drop in passenger traffic – as Europe flights carry significantly more cargo.
For the US flights, there is limited cargo capacity as the flights are very long and therefore require more fuel that essentially comes at the expense of additional cargo.
During normal times, when passenger cabins are full or nearly full, none of SIA’s flights from the US are able to carry much cargo other than bags due to the need to carry more fuel for ultra long-haul operations.
With the current environment of nearly empty passenger cabins some cargo can be carried, essentially equivalent to the weight of the passengers that would normally be on these flights, but not nearly as much as what can be carried on other flights.
ONE-STOP BETTER THAN NON-STOP FOR CARGO
To maximise cargo payload SIA would be better off operating one-stop flights to the US, which it had to Houston, Los Angeles, New York and San Francisco prior to the pandemic.
Operating ultra long-haul flights for limited cargo and very few passengers is hardly efficient given the huge amount of fuel required for 16 to 19-hour sectors.
US non-stop flights are strategically important for both SIA and Singapore overall as they provide important economic links to major financial centres and help connect Changi with the rest of the world.
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However, supporting 21 weekly US flights at this early juncture, when the recovery phase has not yet begun, seems excessive.
SIA’s operation to Europe is also being supported for strategic reasons but this not as excessive given that SIA’s Europe capacity is only about 40 per cent of pre-pandemic levels and the larger cargo volumes that can be carried, including European-manufactured COVID-19 vaccines.
SIA is currently operating 44 weekly passenger flights to 10 destinations in Europe, which has always been a much bigger market for SIA than North America.
SIA Group’s overall capacity, as measured by available seat kilometres (ASKs), was down 79.6 per cent last month.
The group plans to continue adding more flights – despite very weak demand that has deteriorated further since the beginning of the year – and reach 25 per cent of pre-pandemic capacity by April.
As it continues to add capacity over the next few months, SIA aims to reduce its monthly cash burn from about S$250 million to about S$200 million.
While this seems hard to achieve in the current environment, it is plausible – even if load factors continue to drop – because of government support.
LOWER THAN AVERAGE
SIA Group’s system-wide passenger load factor was only 11.3 per cent in January, compared to 84.5 per cent in January 2020.
The group’s load factor has dropped seven consecutive months as the capacity it has added has exceeded demand.
While all airlines have been operating international flights at previously unimaginable low load factors – with strong cargo in the belly helping offset some of the costs – the SIA Group’s load factor has been particularly low.
In December, the average international load factor was 29.2 per cent for the Asia Pacific airline sector and 47 per cent for the global industry while SIA Group’s load factor was 13.7 per cent.
The global figure is from the International Air Transport Association (IATA) while the Asia Pacific figure is from the Association of Asia Pacific Airlines (AAPA), which reports aggregate data based on 40 airlines based in the region.
The higher global figure reflects that some regions such as the Middle East have partially reopened while in Asia Pacific virtually all borders have remained closed.
The much lower load factor for SIA compared to the Asia Pacific average partially reflects a strategic decision by SIA to add back capacity at a faster rate than most peers.
SIA Group’s ASKs have increased every month since April 2020 and tripled from July 2020 to January 2021.
It may be time to temporarily trim back, particularly the US flights, rather than continue the planned capacity expansion.
Eventually international travel will finally start to recover but it will likely be several months.
In the meantime fewer flights can be operated and plans for increasing capacity can be delayed until second half of this year while not compromising the long-term strategic position of SIA and the Changi hub.
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Brendan Sobie is the founder of Singapore-based independent aviation consulting and analysis firm Sobie Aviation. He was previously chief analyst for CAPA - Centre for Aviation.