SIA and SilkAir merge finance operations amid challenges

A Silkair (right) and a Singapore Airlines (left) plane parked at Changi Airport.
A Silkair (right) and a Singapore Airlines (left) plane parked at Changi Airport.PHOTO: ST FILE

Move may pave way for further consolidation of both carriers' functions to beat competition

Singapore Airlines (SIA) and its regional arm, SilkAir, have merged part of their finance operations, as part of an ongoing transformation to stave off competition in the industry.

This will likely pave the way for further consolidation of more of both carriers' functions, say analysts, amid industry rumours that a full merger between the two may even be on the cards in the longer term.

Spokesman Nicholas Ionides told The Straits Times that the merging of finance functions is part of an ongoing programme to identify synergies across the SIA Group.

Last month, the group's budget arms, Scoot and Tigerair, became one entity under the Scoot brand. It took more than a year for the merger to be completed.

When asked if this was the eventual plan for SIA and SilkAir, Mr Ionides said: "At present, we continue to see benefits in retaining separate operations and separate branding for SIA and SilkAir."

He stressed that there is no parallel between the recent developments at SilkAir and SIA, and the Scoot-Tigerair merger.

As yields and profits come under pressure, with increasing competition in the premium sector from rivals such as the Middle Eastern carriers and Australia's Qantas, as well as in the low-cost segment, SIA chief executive Goh Choon Phong has said repeatedly that he is prepared to do what it takes to ensure the group's long-term viability.

In a recent interview with the International Air Transport Association, he said: "We have been carrying out a comprehensive review that leaves no stone unturned, cutting across all divisions of the company.

"We are examining every aspect of our operations to see how we can do things differently, in network and fleet, products and services, and organisation structure, for example."

The focus is on identifying new revenue-generation sources for the group and improving processes to make the airline more efficient, said Mr Goh.

Measures taken over the past few years - for example, expanding the group's presence in the low-cost sector - are starting to pay off.

In the three months to June 30, SIA reported an operating profit of $281 million, 45.6 per cent higher than the figure in the same period last year.

Bringing SilkAir into SIA's fold would make business sense for the group, said Temasek Polytechnic aviation management and services senior lecturer Gary Ho.

"SilkAir as a brand has not had much traction and retiring the brand may actually be a good thing for SIA. The airline can then focus on two distinct brands - SIA in the premium segment and Scoot focusing on the budget market - which are very different and offer very different products and services. This increased clarity will be good for the group," he said.

"I have often heard passengers complaining that they bought an SIA ticket but received a SilkAir product, which is not on a par. This (a merger) will allow SIA to serve many more markets with a consistent product."

A version of this article appeared in the print edition of The Straits Times on August 29, 2017, with the headline 'SIA, SilkAir merge finance operations amid challenges'. Print Edition | Subscribe