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Struggling Singapore Airlines fights back

Struggling Singapore Airlines caught in the middle

Asia's second biggest airline desperately needs growth...

May 16, 2013 10:59 by

Singapore Airlines Ltd , caught between the rapid emergence of Gulf carriers and low cost Asian rivals, is attempting a big strategy overhaul to revive growth, pushing into the low-cost segment and expanding its regional network.

State-backed Emirates Airline, Etihad Airways and Qatar Airways are stitching deals, while Gulf states race to become regional hubs linking the Asia-Pacific region and Europe.

SIA’s promotional fares on its mainstay long-haul routes have helped it boost traffic, but yields are under pressure. Premium class travel, which makes up about 40 percent of revenue, has been hit by cutbacks in corporate budgets.

“They have competitors who have strong financial backing and are also forming alliances, so it’s getting to be a much tougher space,” said Kristy Fong, investment manager at Aberdeen Asset Management, which holds about a 4 percent stake in SIA.

“So the question is whether they can really keep that premium, which is sliding. I don’t think it’s an easy one.”

Under Chief Executive Goh Choon Phong, who took charge in January 2011, SIA is relying on a multi-brand strategy and stepping up its exposure to the budget airlines segment.

With a market value of $11 billion, Asia’s second biggest airline desperately needs growth. Profit slumped nearly 70 percent in the year to March 2012, while revenue edged up, highlighting the severe pressure on margins.

Emirates and Qatar are fiercely challenging the company, controlled by Singaporean state investor Temasek, for the title of top luxury carrier as they invest millions in upgrading lounges and enhancing services.

Singapore’s best known brand also faces stiffer competition from Southeast Asian rivals such as Malaysian Airline System Bhd and Garuda Indonesia (Persero) Tbk PT, which are introducing newer aircraft and adding more connections in an attempt to win back some of their nationals who have previously flown via SIA andSingapore.

On Thursday, SIA – also known by its code SQ – is expected to report a 22 percent rise in net profit to S$409.6 million ($330 million) for the year ending March, according to an average of Thomson Reuters StarMine SmartEstimates. SmartEstimates places emphasis on timely forecasts by top-rated analysts.

The airline has been cutting costs. It said in January it would release all 76 pilots who were employed on fixed-term contracts. These foreign pilots would be let go by the end of June. SIA employs around 2,300 pilots. It did not provide financial details of the cuts.

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