SINGAPORE: The resumption by Singapore Airlines (SIA) of daily non-stop services to its main US destinations reflects a strategic decision rather than a commercial one in line with a global desire to regularly increase the capacity of Changi airport despite little or no improvement in demand.
Last month, SIA upgraded its nonstop routes to New York, Los Angeles and San Francisco to daily routes, resulting in 21 weekly nonstop flights to the United States.
This is only a 32% reduction from the 31 weekly non-stop flights to the United States before the pandemic, including 10 to Los Angeles, 10 to San Francisco, 7 to New York and 4 to Seattle.
SIA’s decision to bring back more than two-thirds of its ultra-long-haul flights came as a surprise given the grim demand situation, which continues to lead to a more than 97% drop in passenger traffic at Changi, and does. that regional travel should pick up before intercontinental travel.
DEMAND REMAINS LOW
Particularly surprising was the very rapid ramp-up of just three weekly flights to the United States – an SIA schedule maintained from late March 2020 to early November 2020 – was particularly surprising.
The three flights to Los Angeles that were maintained throughout the crisis were barely full, with an average load factor of less than 15 percent over the seven months, when they were the only SIA service to United States.
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.
New York and San Francisco were both upgraded on January 18, as was Los Angeles, which was first upgraded from three to five weekly flights in December.
New York’s first flight left Singapore on November 9 with just four passengers. The load factor hasn’t been much better since.
For the month of November, the average load factor of SIA on American flights was only 11.3%, compared to 83.3% the previous year.
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SIA’s U.S. load factor was slightly higher by 13.5% in December, followed by 13.8% in January 2021.
The average load factor is likely to decline again in February and March, given the recent increase in capacity and new travel restrictions in the United States.
LESS CARGO IN THE UNITED STATES
SIA’s load factor on long-haul flights to Europe was even lower in January, falling to just 9.5%, impacted by new travel restrictions imposed after the emergence of the new British strain.
However, the average load factor in Europe was higher than the average load factor in the United States over the previous six months, from July to December 2020.
European flights have generated significantly more revenue than US flights – even with the recent decline in passenger traffic – because European flights carry significantly more cargo.
For American flights, the cargo capacity is limited because the flights are very long and therefore require more fuel, which is done primarily at the expense of additional cargo.
Normally, when passenger cabins are full or nearly full, none of SIA’s flights from the United States can carry much non-bag cargo due to the need to carry more fuel for ultra operations. long-haul.
With the current environment of nearly empty passenger cabins, some cargo can be carried, essentially equal to the weight of passengers who would normally be on these flights, but not as much as what can be carried on other flights.
ONLY BETTER THAN THE NON-STOP FOR THE CARGO
To maximize cargo payload, SIA would do better to operate single-stop flights to the United States, which it had in Houston, Los Angeles, New York and San Francisco before the pandemic.
Operating ultra-long-haul flights with limited cargo and very few passengers is hardly efficient given the enormous amount of fuel required for the 4-7pm sectors.
US nonstop flights are strategically important to SIA and Singapore in general, as they provide important economic links to major financial centers and help connect Changi with the rest of the world.
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However, supporting 21 US weekly flights at this early stage, when the recovery phase has not yet started, seems excessive.
The operation of SIA in Europe is also supported for strategic reasons, but this is not as excessive given that the capacity of SIA in Europe is only around 40% of the pre-pandemic levels and the larger cargo volumes which can be transported, including COVID-19 vaccines made in Europe. .
SIA currently operates 44 weekly passenger flights to 10 destinations in Europe, which has historically been a much larger market for SIA than North America.
SIA Group’s overall capacity, measured by available seat kilometers (ASK), fell 79.6% last month.
The group plans to continue adding more flights – despite very weak demand which has deteriorated further since the start of the year – and to reach 25% of its pre-pandemic capacity by April.
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As it continues to increase its capacity over the next few months, SIA aims to reduce its monthly cash consumption from around S $ 250 million to around S $ 200 million.
While this seems difficult to achieve in the current environment, it is plausible – even as load factors continue to decline – because of government support.
LESS THAN AVERAGE
SIA Group’s system-wide passenger load factor was only 11.3% in January, compared to 84.5% in January 2020.
The group’s load factor has fallen for seven consecutive months as the capacity it has added has exceeded demand.
While all airlines operate international flights at previously unimaginable low load factors – with heavy cargo in the belly helping to 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% for the Asia-Pacific airline sector and 47% for the global industry, while the load factor of the SIA group was 13.7%.
The overall figure is from the International Air Transport Association (IATA), while the Asia-Pacific figure is from the Asia-Pacific Airlines Association (AAPA), which presents aggregate data based on 40 airlines. based in the region.
The higher overall figure reflects the fact 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 region average, in part reflects a strategic decision by SIA to add capacity faster than most peers.
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The ASKs of the SIA group have increased every month since April 2020 and tripled from July 2020 to January 2021.
It may be time to temporarily cut back, especially US flights, rather than continue the planned capacity expansion.
Eventually, international travel will finally start to pick up, but that will likely take several months.
In the meantime, fewer flights can be operated and plans to increase capacity can be delayed until the second half of this year without compromising the long-term strategic position of SIA and the Changi hub.
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Brendan Sobie is the founder of the independent aviation consulting and analysis firm Sobie Aviation, based in Singapore. He was previously chief analyst for CAPA – Center for Aviation.