Changi Airport, Singapore Airlines confront Covid: The struggle is real

singapore airlines SQ

In well-run and business-friendly, sunny Singapore there are a handful of things that are sacrosanct – among those are Singapore Changi Airport and the nation’s other source of immense pride, Singapore Airlines. But for these and pretty much everything else that the country and indeed the world, holds dear, Covid-19 pays no heed.

In its wake, both airport and airline – as is the case across the globe – have been left literally gasping for air. But, it is one thing for the airport, quite another for the airline.

As demand for cargo capacity surges, the absence of SIA’s substantial wide-body passenger fleet dampens its ability to respond. And then, for the SIA Group as a whole, there is that nagging issue of fuel hedging. But more on that later.

In its March statistics released today, Changi Airport notes airfreight throughput dropped by 19.1 per cent to 149,000 tonnes for the month of March as the Covid-19 crisis ramped up around the world. In fact, cargo was actually somewhat ‘lucky’.

Passenger movements on the other hand, tanked. Like most airports around the world, Changi saw passenger numbers fall off the proverbial cliff. Down 70.7 per cent compared to the same period last year to 1.65 million passenger movements.

And with the passenger market plummet, belly hold cargo capacity was dragged down with it, impacting both import and export flows and indeed, as this scenario was repeated the world over, global supply chains started sporting bruises, black and blue.

The Ides of March

By the end of the month, the situation changed drastically for the worse. In last seven days of the month passenger movements at Changi were 98 per cent lower than they were a year ago with flight movements similarly declining sharply, by 87 per cent year-on-year. Again, mirroring virtually every aviation market in the world.

Changi’s plummeting numbers are a very visible reflection of what is happening to the island state’s home carrier, Singapore Airlines (SIA), which unlike some carriers around the world that still may have a muted domestic network to partially lean on, SIA has zero domestic market.

It is a situation not dissimilar to Cathay Pacific in Hong Kong, which does have a ‘domestic’ market of sorts, in the form of mainland China. But that has clearly evaporated.

The reduction in passenger operations has, however, significantly reduced overall cargo capacity. As a result, SIA has also been selectively deploying passenger aircraft on cargo-only flights to meet the demand from global supply chains.” – Singapore Airlines

In March 2020, the SIA Group’s airlines (Singapore Airlines, SilkAir and Scoot) recorded a 60.4 per cent decline in passenger carriage. By the end of March SIA announced a 96 per cent cut in SIA and SilkAir’s combined capacity, while Scoot had also suspended 98 per cent of its network.

To put the point more visibly, out of the SIA Group’s fleet of approximately 200 aircraft, only about 10 were in operation to serve a limited passenger network.

Cargo fares better

Cargo has fared better because of the dire need for global supply chains to keep operating. For the month of March the SIA Group’s cargo load factor (CLF) actually improved 5.7 percentage points, but it is only a small consolation in reality. The rise in CLF came about solely as a result of a bellyhold capacity contraction of 34.7 per cent which outpaced the 28.8 per cent decline in cargo traffic (measured in freight tonne-kilometres).

In reviewing the fourth quarter of the financial year 2019-20, the historically successful SIA Group was faced with what it says is the “greatest challenge in its history” due to the global Covid-19 outbreak. Since February 2020, the Group has progressively announced flight cuts across its network as it adjusted capacity to match falling demand for air travel.

Market conditions deteriorated exponentially through March as the Covid-19 outbreak progressively spread across Europe, North America and beyond, and as border controls and travel restrictions became widespread across the globe.

The ultimate blow came on 24 March when the Singapore government – doing what many countries were also scrambling to do in order to slow the global spread of the devastating virus – barred all short-term visitors from entering and transiting through Changi Airport. This immediately forced further significant rationalisation of capacity.

The carrier notes that going forward the Group may need to extend capacity cuts if border controls and travel restrictions remain in place and travel demand continues to be low. Operating this limited schedule “will have a severe impact on the Group’s financial performance,” the typically profitable carrier ominously notes.

On the cargo front, SIA says, “demand has held up and our freighter aircraft operate as planned,” bolstered by a world in desperate need of medical supplies – almost entirely from China – equipment, spare parts and basic commodities as plainly simple, yet crucial, as food.

“The reduction in passenger operations has, however, significantly reduced overall cargo capacity,” the carrier highlights. “As a result, SIA has also been selectively deploying passenger aircraft on cargo-only flights to meet the demand from global supply chains.”

The carrier also notes that while capacity cuts and other cost management measures have helped to reduce expenditure, many costs are unavoidable regardless of the number of flights mounted. In short, this means that despite any and all measures it takes – including the surging demand for cargo uplift – the contraction in passenger revenue simply cannot be offset.

Hedging bites back

And as if all of this is not bad enough, the ultimate ‘kick in the teeth’ comes about – somewhat ironically – as a result of plunging fuel prices, inextricably linked to the dwindling capacity. The scale of the flight cuts means that the SIA Group is now in a significantly over-hedged position with respect to fuel consumption.

Like many carriers around the globe, Singapore Airlines hedges the price it pays for fuel, something it does exceedingly well… in normal times. But these, now surplus, hedges will need to be marked to market as at 31 March 2020, a date on which the price of Brent crude was close to its 10-year low. The resulting price gap is now expected to generate further substantial losses for the carrier, when it can least stomach them.

In ‘shareholder speak’, the airline group states: “Overall, the global Covid-19 outbreak is expected to have a material impact on the SIA Group’s financial performance in the fourth quarter of the financial year 2019-20.” Surely a significant understatement.

New maindeck customers for Changi

As for Changi Airport, a couple of small twinkles of positive light have come in the form of new freighter services, as the air cargo world struggles to re-jig itself to cope with the erratic and often irascible demands now placed on it by a world in crisis.

These new carrier customers include Kalitta Air, which launched a 4x weekly freighter service to Changi Airport (SIN) on 2 April, connecting to Anchorage (ANC), Cincinnati (LUK), Hong Kong (HKG), Los Angeles (LAX) and Sydney (SYD).

And on 12 April, China’s Sichuan Airlines commenced new freighter operations at Changi with a weekly freighter service connecting Singapore to Chongqinq (CKG) and Nantong (NTG).

One thing is for sure, the commercial airline business – whether passenger or cargo – will never be quite the same when all is done and dusted in the coronavirus pandemic.

Summary
Changi Airport, Singapore Airlines confront Covid: The struggle is real
Article Name
Changi Airport, Singapore Airlines confront Covid: The struggle is real
Description
In well-run and business-friendly, sunny Singapore there are a handful of things that are sacrosanct – among those are Changi Airport and the nation's other source of immense pride, Singapore Airlines.
Author
AsiaCargoBuzz.com
AsiaCargoBuzz.com
http://asiacargobuzz.com/wp-content/uploads/2017/04/NEW-LOGO1.png
ECS Group

Be the first to comment

Leave a Reply