Singapore Airlines (SQ) is one of the most respected airlines in the world. Bangalore Aviation was honoured to have an exclusive one-on-one with Mr. G.M. Toh, the airline’s head in India.
Q. Please give us an overview of the trends you’ve seen in the Indian market over the past 6 months? What do you see in the next 6 months? 12 months? 24 months?
The air travel as a whole is dependent on the world economy. While a lot of air travel is essential, there is a high component of discretionary travel as well, and when there is a slow down, both corporations and individuals cut back on air travel. So yes, there has been an impact on Singapore Airlines.
In India, travel was good till end last year. The Indian domestic market was recording double digit growth. The growth slowed down by the start of the fiscal to single digits, and in the last few months we are seeing a contraction. It is a shocking slowdown, especially considering the Indian economy is growing at 5%~5.5% and normally air travel growth is 2x the economic growth. Clearly there are some other factors at play. This is purely my personal view, it is possible that the current economic growth is being driven by rural India where air travel is not significant. The increases in air fares could also be a factor, but I feel there is a softening of demand.
On Singapore Airlines itself, we are a listed company so we are not allowed to disclose information that is not already published and available to public. At a macro level, if you see the last published resulted for the fiscal year ended March 2012, our performance has been impacted considerably, especially in the last fiscal quarter i.e. January to March 2012. In the quarter one of fiscal 2013 i.e. April to June, 2012, the results were better than expected, but the overall results are not as good. While we are still reporting profits, margins are slim and not at previous levels.
Our growth has moderated. Long haul flights are very challenging for us, given the high fuel prices. We have had to cut back on longer haul flights like Houston, but growth this year is focussed on Asia. We have added services to China, Indonesia, a little bit to Australia, and to India.
At Mumbai, we are growing from 14 services a week from Mumbai to 21 from November, a 50% growth. At Hyderabad we are increasing Silkair services from a daily, to nine a week. We have announced new SilkAir services to Vishakhapatanam (Vizag). In total we will grow from about 79~80 fights a week in July 2011, to 93, a growth of 14 flights, which is good considering these depressed times. 50% of this growth has been in Mumbai were we have traffic rights. As you know our traffic rights to the top five cities of India are very constrained, so we add where we can.
Q. A lot of growth is on SilkAir (MI) rather than Singapore Airlines. Is this growth, a brand driven exercise, or an aircraft driven one, considering Singapore Airlines has only wide body aircraft, while SilkAir has only narrow body (A320 family) aircraft?
It is a little complicated. By and large it is aircraft driven. A lot of the newer destinations like Vizag and Coimbatore, cannot handle larger aircraft. There are also factors like traffic rights. We are unable to expand to the larger Indian cities due to constrained traffic rights. The newer destinations are smaller cities and we operate narrow bodies due to traffic capacities and economic reasons.
Q. How do the forward bookings for Indian travel look given the economic slowdown here and continuing economic woes in the rest of the world?
There is no doubt there is a softening of demand across domestic and international travel, but due to our added services and destination we are overall okay compared to last year, but I am sorry I cannot give specifics.
Q. How is competition from the MEB3 (Middle East Big 3 Three – Emirates, Qatar, Etihad) affecting Singapore Airlines, especially on the India to US routes?
We do not compete too much with MEB3. Their main markets from India are the middle east, Africa, Europe and to a lesser extent the United States. To the US east coast, frankly, they [MEB3] compete with the European carriers. To the west coast, which is a far smaller market than the east coast, from the south and east of India we compete well. From the west and north, the routing does not favour us as much. We operate two flights a day each to San Francisco and Los Angeles. Most of our traffic from India is to the east i.e. Asia and Australia / New Zealand, and there the MEB3 routing does not afford them to compete with us.
Q. Singapore Airlines currently operates its 777-300ER with the 1-2-1 ultra-premium business class product on the red-eye flights from Delhi and Mumbai, but does not on its remaining Indian sectors, especially Bangalore. Please give us insight as to why this is?
There are two factors. The 777-300ER is space intensive cabin, specifically meant for long distance flights. Our business class is an ultra-wide 1-2-1, 4 abreast configuration compared to the 2-2-2, 6 abreast of our competitors. Even our economy we have a nine abreast economy cabin, while some of the big middle east carriers are flying ten across. [Editor’s note: Emirates and Etihad, and now Jet Airways have this 10 abreast ultra-narrow configuration].
So our 777-300ER has only 276 seats compared to 330~340 seats of our competitor. We have put in fewer seats recognising that long haul flights require more comfort for our passengers. Mumbai and New Delhi are like Shanghai and Beijing in China. One is the commercial capital, one is the national capital, and in recognition of the commercial importance of these markets, we limit operations of the 777-300ERs to these cities, both in India and China.
The second factor. You will observe world-wide airlines are cutting back on the traditional three class aircraft of First, Business and Economy. First class is a very limited product and very few routes can remuneratively sustain First class, on a regular basis. You will observe we offer a First class only to Mumbai and Delhi in India, Shanghai and Beijing in China, Sydney and Melbourne in Australia, Auckland in New Zealand, and Tokyo in Japan.
In response to your question, why not Bangalore. Bangalore has good corporate demand and good business class traffic, but it does not have a sustainable First class demand. Across the world for markets similar to Bangalore, most carriers, including Singapore Airlines operate a two class aircraft. So we do not operate our 777-300ER which has a First class cabin due to market matching.
Q. How does the financial performance look on the secondary Indian routes by Silkair to airports like Coimbatore, Kochi, and Trivandrum ?
It is no secret that Singapore Airlines and Silkair are aggressively cutting back non-performing routes. We left Amritsar in 2009 for example. Coming to these secondary routes, we started Trivandrum (Thiruvananthapuram) in 1991, Kochi in 2001, Coimbatore in 2007, and the fact that we are still operating these routes, suggest they are doing okay. Two factors work for us. First is the immigration to Singapore and Malaysia from southern states of India, especially Tamil Nadu and Kerala, which leads to a natural demand for the family driven traffic, and the needs of travelers from these cities to connect to the world which we provide from our Singapore hub. [Editor’s note: Singapore Airlines is a handful of carriers belonging to the “six continents club” i.e. offering flights to all six populated continents of the world].
Q. How are the LCCs like AirAsia, IndiGo and Tiger Airways competing with you in India? We have seen a lot of churn with AirAsia withdrawing from many stations?
Devesh, you are very knowledgeable about the industry, and you know Singapore is the epicentre of low cost carriers in Asia. These are purely my own thinking. There are two reasons why low cost carriers have done so well at Singapore.
First, we have a very liberal, business friendly attitude and policies in Singapore. JetStar Asia is very big in Singapore, and even though it is 51% owned by a Singapore business house, it is effectively run by Qantas who owns 49%. So, from about 2003, when LCCs started operating in Singapore, their traffic share has gone from single digits to over 26% today on a base of about 45 million passengers annually.
Secondly, Singapore is a strong yielding market. Our strong economy and strong currency, it allows LCCs to price lower than full service carriers, but yet make their operations viable.
India is a challenging market for anyone, but especially for low cost carriers. Indian LCCs who dominate the domestic market, now enjoy operational efficiencies which makes it very hard for foreign low cost carriers to compete against them. Another aspect to consider is that India is a low yielding market compared to many destinations in the Gulf or ASEAN region. So foreign LCCs choose to deploy capacities to higher yielding markets, especially in these tough times.
Q. How much scope for expansion does Singapore Airlines see for more Indian service, whether that be capacity/frequency increases, or new routes?
Traffic rights still remain the constraining factor. If we get additional rights, I leave it to your educated guess to where we would like to expand. [Editor’s note: It would be New Delhi, Bangalore, Chennai]. Last year, in Chennai, we were forced to reduce our SilkAir services in favour of Tiger Airways. So we are facing a further dilution of traffic rights.
Q. Given that Tiger Airways is making a resurgence in India, as a knowledgeable industry professional, what are your thoughts about Scoot in India?
If you see Scoot is expanding in to those countries where we have open skies or very liberal third and fourth freedom rights. Australia, China, Thailand, Taiwan and Japan. I think Scoot is focussed on economic returns and since they have modified their 777-200’s to 400+ seats, they are only looking at high volume routes. There are some cities in India which are high volume enough to sustain Scoot, but traffic rights are the constraint.
Q. Is there a scenario wherein Singapore Airlines would operate the A380 to India, and is it already allowed to?
We have ordered 19 A380’s all of which have been delivered. They are deployed on long distance, high volume, high yielding routes. London Heathrow is THE airport the A380 was built for. As present we have no plans for bringing the A380 in India. If you observe, we operate the A380 to Hong Kong which is 3.5 hours, but then we operate seven flights a day one of which is the A380. I am not sure any destination in India will justify it, at least for now. For the future, I look forward to India growing and generating these levels of traffic.
Q. What has been the effect of the wing rib cracks on the A380?
When this matter showed up, there was some initial juggling of the schedules and I think the initial issues have been settled, but I am not an expert on this matter.
Q. Can you share any insight into the business/leisure breakdown of Singapore Airlines proper’s Indian operation (i.e how much of the traffic is business traffic and how much is leisure) ?
We do have a good mix of both, but I cannot share more information than that.
Q. Can you share what percentage of Singapore Airlines’ Indian traffic is origin and destination (O and D) and what percentage is connecting onwards through Singapore (6th freedom)?
Devesh you are already well informed. But for those who want greater detail, I recommend your readers see the CAG report. If you see the top ten airlines, most of them are in the 70%~80% range [connecting vs. O and D]. Lufthansa was around 87%. Clearly these airlines are carrying Indian passengers to the world not to their countries. Singapore Airlines was one of the lowest with a very healthy mix of about 50% passengers flying to Singapore and 50% going beyond. Which is not surprising considering the historical ethnic links and the over 300,000 Indian permanent residents in Singapore, and 900,000 visitors from India in Singapore. Unfortunately we get clubbed with the other airlines and our traffic rights are constrained.
Q. What does SQ/MI look forward to, from the Indian government, in terms of aviation policy? What in your opinion should be some initiatives the Indian government must take in the civil aviation sector? Comments on Indian airports, charges, facilities? What does SQ/MI look to from airports in the future? In current stations? In future stations?
To be fair to the airport operators, they moved from the old airports terminals to these spanking new facilities. This costs a lot of money, and we recognise someone has to pay for it. Our issue is how the payment burden is structured. To have such a huge increase, implemented all in one go, and in some cases, almost retrospectively, is not the way business should be done. As an example, at Delhi, just the passenger fee increases represents a double-digit percentage increase in total fare outgo by the passenger. Even the increases on landing and parking charges for us is over seven digits and we operate only two flights a day. It is not fair.
As a comparison, Singapore Changi airport, after many many years, is increasing the passenger fee by S$6. This is effective April 1, 2013, and this increase was announced two months ago, giving the airlines a lead time of over six months, and is valid only on tickets sold after November 1, 2012. Indian airports need to do fare increases in an orderly, planned and gradual manner, giving all the stake-holders time to adjust and to enable passengers to make their ticket purchases with their eyes wide open on the total costs. The suddenness and quantum of the increase is having its impact on marginal airlines.
I have been in India now for 22 months and I have seen 17 airports. I must admit, I am very impressed by some of the new airport terminals coming up. For example Chandigarh, Amritsar, or Vizag. We recognise there is a cost to be paid for these new terminals, what industry needs is for the power that is, to recognise that we all want better facilities, but we all need to find better ways of managing costs and distributing them in a fair and equitable manner.
One fundamental issue that has come up from the Delhi airport saga, is that, while PPP [Public Private Partnership] is good, but if you have AAI taking such a large chunk of the revenue collected, as its share, makes the job very challenging for the operator, and is a key reason why charges have gone up by some much.
Thank you Mr. Toh. Its been a pleasure.