When you function an plane whose wheels are over overseas territory inside 14 seconds of leaving your property airport, your survival is prone to rely upon open and unfettered entry to international markets.
Alas, that’s the destiny of Singapore Airways (SIA).
The Covid-19 pandemic has been an ideal storm for an airline so extremely depending on open borders and demand for air journey.
With borders closed, nations going into lockdowns and travellers hunkered down at dwelling, the airline group’s passenger carriage has plunged by 99.5 per cent.
The SIA group carried simply 38,000 passengers within the three months to June 30, in contrast with 9.four million a yr earlier.
Though its cargo aspect noticed an enchancment on account of robust demand for motion of private protecting gear, prescription drugs and contemporary meals, income declined by $3.25 billion or 79 per cent yr on yr to $851 million through the quarter.
That led to an unprecedented lack of $1.1 billion for its first quarter, in contrast with a revenue of $111 million a yr earlier. A lot for the monetary numbers.
The excellent news is that the April-June quarter is prone to have been its worst. However the unhealthy information is that issues are unlikely to enhance considerably any time quickly – at the very least not till a dependable vaccine is discovered and broadly deployed.
The Worldwide Air Transport Affiliation – citing poor virus containment around the globe, depressed enterprise journey and lack of client confidence – doesn’t anticipate air journey to return to pre-Covid-19 ranges any time earlier than 2024.
Within the meantime, it initiatives international airways will collectively lose round US$84.Three billion (S$115.5 billion) this yr and an additional US$15.eight billion subsequent yr.
The SIA group – comprising SIA, SilkAir and Scoot – has round 220 planes, 3,273 pilots and 10,932 cabin crew.
The full variety of workers on the SIA group is about 28,000.
Pre-pandemic, SIA’s planes flew to 136 locations. Through the peak of the pandemic in April, these planes flew to 15 locations, largely to repatriate returning Singaporeans.
At present, nearly 150 of its planes are parked at Changi Airport and Alice Springs in Australia. Virtually 80 per cent of its pilots and cabin crew are grounded. The airline now flies to simply 39 locations.
By October, even after a slight restoration, it is going to function at simply eight per cent of passenger capability.
The corporate has managed to make it this far this yr due to the Authorities’s beneficiant wage help scheme and an enormous fund-raiser it carried out just lately.
The SIA group has raised $11 billion through rights points and secured loans.
It has additionally tied up further credit score traces, and may increase an additional $6.2 billion in necessary convertible bonds by July subsequent yr.
That is the most important quantity raised by any Asian service group.
This cash serves two functions.
First, it offers much-needed liquidity to get by the money burn throughout a time when income has largely dried up.
Second, it allows SIA to be in a powerful sufficient place to be among the many leaders when the trade finally recovers.
Failing on these two fronts means failing its shareholders who stumped up the cash for its rights concern and its workers, who’re sacrificing a lot to assist the corporate get by this disaster.
On the workers aspect, the corporate has introduced vital wage cuts, supplied no-pay depart, organized non permanent redeployment to different industries and rolled out early retirement for pilots and cabin crew.
About 6,000 of its workers are nonetheless on no-pay depart, with 1,700 redeployed in exterior organisations.
Sobie Aviation analyst Brendan Sobie calculates that the corporate has obtained round $40 million a month from the Authorities’s Jobs Help Scheme. The Authorities has simply introduced an extension of a 50 per cent wage help for the aviation sector till end-March subsequent yr.
However the brutal reality is, given the medium-term prognosis for the trade, this will not be sufficient.
World aviation is unlikely to recuperate to earlier ranges for the following three years. Even when a vaccine is discovered, it is going to take time to be deployed in lots of markets.
In the meantime, some journey habits might have modified, particularly on the company entrance the place expertise has proven that a good portion of enterprise journey might be minimize down.
Sure, “journey bubbles” and particular “inexperienced lanes” will develop and develop. However will they develop quick sufficient to allow SIA to maintain the dimensions of assets that it has in place proper now? Unlikely.
The underside line is that SIA must rescale too.
Not scale down as a premium service however, relatively,”right-size” for a market it is going to face for the following few years.
As Mr Sobie factors out, SIA must be a lot smaller than it’s now, including: “It must fly smaller plane, on a smaller community, with a smaller fleet.”
Certainly, a big variety of older and larger planes just like the A-380 and B-777 must be mothballed.
The leased A-330s are already returning to Airbus, whereas the older B777-200s are being retired.
Its fleet must comprise the extra environment friendly and newer planes just like the B-787 and A-350, whereas additionally taking within the narrow-body B-737s from SilkAir subsequent yr when the regional service is merged into the dad or mum airline.
As for employees, even after all of the measures now in place, there will probably be surplus manpower if the market doesn’t return to pre-Covid-19 ranges quickly. And the market is unlikely to revert to pre-2020 ranges any time quickly.
In the meantime, the Authorities’s wage help scheme will wind down this month.
The Changi Air Hub employs 190,000 folks and accounts for five per cent of Singapore’s gross home product. And SIA accounts for half of Changi’s site visitors.
Being so essential to Singapore’s economic system, it’s no shock that the Authorities has thrown a lot help behind each.
Cutting down is a really troublesome proposition with grave penalties for SIA if not accomplished correctly.
Reduce an excessive amount of and the service will probably be at risk of shedding its international premium branding. This can be a multiple-award-winning and world-beating airline recognized for its newest and best planes, splendidly appointed cabins and one of the best pilots and crew on the earth.
Do not do something, and the group will probably be in dire monetary straits by 2023.
However SIA has to face stark new realities.
A brand new actuality the place utilisation of capability may stay properly beneath 50 per cent for the following three years.
A brand new actuality the place prices must be managed towards new market situations.
A brand new actuality the place premium journey – which accounts for 40 per cent of earnings – might not come again any time earlier than 2024 and, when it does, it won’t be as massive because it was earlier than.
A brand new actuality the place airways should defend their funds simply to outlive.
A brand new actuality the place being operationally nimble and versatile will separate winners from losers.
There isn’t any playbook for this.
This black swan occasion forces painful and unprecedented selections on the airline trade.
SIA’s day of reckoning is drawing nearer. Laborious selections must be made, sooner relatively than later.