Premium airlines in Asia are rethinking their strategies and slashing costs as high fuel prices, global economic uncertainty and pressure from the Middle East and budget carriers squeeze profits.
Singapore Airlines (SIA) reported on Wednesday that its net profit for the financial year tumbled 69 percent to S$336 million (US$268 million), weighed down by a rare loss in the fourth quarter.
It was only SIA’s third quarterly loss in its 40-year history of uninterrupted full-year profit.
SIA’s Asian rival, Cathay Pacific of Hong Kong, has warned shareholders that its first-half results, due in August, are “expected to be disappointing” on the heels of a 61 percent net profit fall last year.
Both carriers are looking for more opportunities in Asia, the world’s fast-growing aviation market, as long-haul operations take a hit from the European debt crisis and the patchy US recovery.
Australian carrier Qantas is also attempting to refocus on Asia to revitalize its international business.
“This is not just a Cathay Pacific problem,” chief executive John Slosar said in a statement, “It is clearly an industry-wide issue, and continued high fuel prices in particular are hitting airlines hard across the globe.”
SIA’s performance is regarded as an indicator of industry trends and its reliance on business and first-class passengers to generate high margins is now being questioned.
Premium carriers such as SIA and Cathay are among the most affected by the economy because of their heavy reliance on top-paying passengers, analysts said.
Some analysts say SIA has not been not been quick enough to seize opportunities at the lower end of the market.
“While SIA’s current slump is more a result of tough economic conditions and external factors, they are also now paying the price for standing still,” the Sydney-based Centre for Aviation consultancy said in a report.
Air travelers have a wider range of choices and are more conscious of price, said Shukor Yusof, an aviation analyst in Singapore with Standard & Poor’s Equities Research.
Last year, one in four of the 46.5 million passengers who passed through Singapore’s Changi Airport traveled on a low-cost airline, compared to one in five in 2010, the airport operator said.
SIA is also being challenged by Middle Eastern carriers such as Etihad, Qatar Airways and Emirates, which have expanded their fleets and improved cabin services to compete with the famous “Singapore Girl” flight attendants.
“They now offer services that are at par or better than SIA and at lower ticket prices,” he said, noting that SIA fares are around 20 percent higher.
Cathay said its cost-cutting includes reducing flights on some routes to Europe and the US while expanding its profitable Asian network through sister firm Dragonair.
It will deploy more fuel-efficient aircraft, speed up the retirement of older Boeing 747-400 planes, freeze hiring of ground staff and offer voluntary unpaid leave for cabin crew from June.
SIA has retired the Boeing 747-400 and is pushing through with orders for new more fuel-efficient Airbus and Boeing planes.
The Association of Asia Pacific Airlines (AAPA) said the aggregate net profit of members based in the region tumbled 47 percent last year to US$4.8 billion due to high oil prices and soft cargo demand.
Fuel accounted for 34 percent of total costs, up from 30 percent the year before, AAPA said.