A tale of three airlines in a rough year: SIA, Cathay and Qantas

It has not been a good year for Singapore Airlines (SIA), Cathay Pacific Airways and Qantas – these three airlines that are the closest rivals in the Asia/Pacific region. What they do usually make headline aviation news, whether in shaping up the competition or feeding the gossip mill, and the airlines themselves most probably are keeping a close watch of one another’s moves.

It is a year that they share the common woe of falling profits, with Qantas being the worst hit, reporting deepening losses for its international operations. In May, Singapore Airlines reported profits plunging 60% with a fourth-quarter loss for fiscal year FY2011. Cathay very quickly followed with the warning that its first half for 2012 “will be disappointing due to the triple whammy of soaring fuel costs, continuing soft demand in our cargo business and worsening yields on the passenger side.” Qantas had already in February reported a 52% plunge in first half profits for FY2011/12, with chief executive Alan Joyce renewing a call for change because of “highly competitive markets and tough global economy in which we operate.”

As anticipated, Cathay in August reported first half loss for 2012 of HK$935 million (US$121 million) (“Gleam of hope for Cathay Pacific in stormy skies“, 13th Aug, 12). At the same time Qantas posted net group loss of A$244 million (US$254 million) for the year ending June 30, while its international operations suffered a greater loss of A$450 million. Going forward, Joyce reiterated that “our biggest challenge is Qantas International”. Earlier in May, the Australian flag carrier had announced a split of the airline operations into autonomous international and domestic units. SIA followed in October with reports of its group profit for first half of FY2012 dipping 30% to S$168 million (US$137 million), and a worse FY2012 second-quarter performance, the profit falling by a higher margin of 54%.

So what’s new? Both SIA and Cathay are not expecting the immediate future to be substantially kinder. The reality of the global economy aside, the greater danger lies in the resignation that it is a given. All three airlines have effectively softened the impact of anticipated poor performance; the news is passé when everyone’s boat is rocking in the same rough waters. What is needed to rough up any assumed resignation is for one of them to break the expectation barrier with better performance news.

Image Courtesy of Brett A Williamson

Will it be Qantas first to the finishing line with that ray of hope, having dished out probably the year’s most impacting development when it announced in September a partnership with Emirates Airline that would shift the hub for its Europe-bound flights from Singapore to Dubai, providing access to a wider network of destinations in Europe, Africa and the Middle East (“Qantas/Emirates partnership to reshape competitive landscape“, 10th Sep, 12)?

That could have been the trigger for SIA’s acquisition of  a 10% equity interest in Virgin Australia – Qantas’ arch-rival – which is already 10% owned by Abu Dhabi-based Etihad Airways – Emirates’ competitor – so soon after an earlier commercial arrangement that would have the two airlines co-operate in seamless transfers and shared use of airport lounges. At the same time, SIA announced its sale of a 60% stake in Tiger Australia to Virgin – a move more expected than one of surprise, as an opportunity for SIA to start shaking off a troubling investment and for Virgin to strengthen its Australian competition. SIA certainly feels challenged, when once it used to be driving the competition, but now reacting to it. It should be interesting to see how the game plays out (“Virgin Australia’s acquisition spree strengthens foundation for growth“, 12th Nov, 12).

The year has seen Qantas, more than SIA and Cathay, going through a rough patch of bad publicity, largely the result of the aftermath of industrial disputes in the previous year, incidents of poor services such as the inordinately long delay out of Dallas-Fort Worth because of a spat between the operating pilots, and, of course, the poor bottom-line numbers.

But if there is one person in the field that appears to enjoy media attention and understand the importance of the recall factor in consistently keeping his outfit in the news – good or bad – it is Qantas chief executive Alan Joyce. For most part of the year, Joyce has been reiterating the promise in a corporate restructure that would turn the loss-afflicted airline around. The ends may be less important than the means in getting there.

SIA by comparison appears to be more muted in the past year. Its biggest news for the year is probably the launch of a new budget subsidiary for the medium-to-long haul – Scoot Airlines, which inaugurated services to Sydney in July. But its late entry in the budget market does not generate the pioneer excitement of earlier start-ups, even by comparison to sibling Tiger Airways’ introduction in 2005. It is unfortunate that Tiger has been a basket of woes in the passing year, following its fallout with the Australian authorities over safety concerns, but even more unfortunate is the lack of positive spins to sweeten the bitter aftertaste.

Then again, one might ask what has Qantas to lose for the unsavoury state that it has found itself, when it needs to continually seize every opportunity to repair its image.

By comparison too, Cathay plays a safe hand by balancing poorer performance reports with consistent news about product upgrades. Cathay chief John Slosar capitalised on the Hong Kong-based airline’s award by Skytrax as the world’s best for business class when announcing the 2013 upgrade of its regional business class product. This is where the competition is regaining new life. SIA which is ranked third as the overall world’s best airline in the same Skytrax 2012 survey – after Qatar Airways and Asiana Airlines – has also earlier announced an impending upgrade of its business class. And so has Qantas. In spite of the sluggish global economy, it looks like the race for the premium market is heating up. While Slosar may be talking only about Cathay when he said the aim was to ensure “our customers keep coming back,” that pretty much summed up the crux of the competition.

For good public relations measure, Cathay may have earnt brownie points for banning the carriage of shark fins, thus deserving the year’s responsible community award if there were one.

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