News analysis

SIA's aircraft purchases mark key chapter in drive to renew fleet

Singapore Airlines (SIA) has confirmed its biggest aircraft buy in more than four years - a US$13.8 billion ($19 billion ) deal for 20 Boeing 777-9 and 19 787-10 planes.

The intention to purchase was first announced by SIA in February, and the commitment sealed in Monday's signing in Washington, witnessed by Prime Minister Lee Hsien Loong and US President Donald Trump.

It is a significant development for the airline, which has faced some turbulent times in recent years, and marks another key chapter in its fleet expansion and renewal.

Intense competition from other airlines, including the Middle Eastern carriers and Cathay Pacific, has put pressure on profits, which have been dropping.

For the recent April to June quarter, year-on-year profits dipped 8.6 per cent to $235 million. This is about half what SIA was making 10 years ago, but an improvement from the quarter just before, when the airline reported its first three-month loss in five years.

Despite the slowdown that began about a decade ago, following the end-2008 global financial crisis, SIA management has said repeatedly that the airline will continue to invest and innovate. This includes operating new-generation planes that use up to a quarter less fuel, translating into huge savings, given that oil accounts for about a third of the airline's total costs.

The strategy has allowed SIA, with pockets deep enough to support an aggressive aircraft renewal programme, to grow again after a period of stagnation. The first big step was in 2015, when SIA's budget offshoot Scoot flew its first B-787 Dreamliner. Today, the airline operates an all-Dreamliner fleet.

In March the following year, when SIA received its first A-350-900, chief executive Goh Choon Phong declared the aircraft a "game changer" for the airline - a new workhorse that would allow SIA to open new routes and operate existing services more efficiently.

Today, SIA flies its 18 A-350s to 14 cities. This includes flying non-stop to San Francisco, a service that marks SIA's return to the non-stop Singapore-US market, which it had to pull out of in 2013 due to high operating costs and weak demand.

Next year, the airline will mark another significant milestone with the relaunch of its Singapore-Los Angeles and Singapore-New York flights, which will be made possible with the A-350-900ULR aircraft.

Earlier this month, the group's regional arm SilkAir welcomed the arrival of the first of its 37 new B-737 Max 8 aircraft - planes the airline says will give it more route options.

With Monday's commitment, SIA now has an outstanding order for about 140 Boeing and Airbus planes - more than its total current fleet of just over 110 aircraft.

As the new planes join the fleet, SIA will unveil brand-new in-flight cabin products, including seats, next week. These will feature first on the airline's new A-380, which is expected before the year end.

SIA's investments are well timed, with the International Air Transport Association forecasting that air passenger traffic could almost double by 2036 to 7.8 billion. The Asia-Pacific region will account for more than half the new passengers over the next two decades.

The challenge is for SIA to ensure the investments and enhancements translate into profits in the long run.

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A version of this article appeared in the print edition of The Straits Times on October 25, 2017, with the headline 'SIA's aircraft purchases mark key chapter in drive to renew fleet'. Print Edition | Subscribe