News analysis

Coronavirus: SIA must move fast when recovery comes

With strong govt support, the national carrier and S'pore air hub can be poised to soar again

The message is loud and clear. Singapore will not let its national carrier go into a nosedive amid the worst crisis the air travel industry has ever seen.

By the end of May, most airlines will be bankrupt, warned the Centre for Aviation. Singapore Airlines (SIA) will not be on that list.

"Through the Government's support for the aviation sector and, if necessary, more direct support measures, we will make sure that SIA is able to come through this in good shape," said Deputy Prime Minister and Finance Minister Heng Swee Keat in Parliament on Thursday when he unveiled a $48.4 billion package to support businesses, workers and families battered by the coronavirus pandemic.

This is not just about SIA. At stake is the viability of the air hub. Mr Heng stressed: "A diminished SIA will undermine our air hub's ability to recover from the crisis."

This will in turn have grave consequences for the economy, given that the air hub supports critical sectors such as tourism, manufacturing and logistics. Strong air links also help Singapore-based companies access opportunities overseas and make the Republic an attractive place for foreign firms looking to operate in Asia.

Last year, the SIA Group, comprising the parent carrier, regional arm SilkAir, budget carrier Scoot and SIA Cargo, accounted for more than half of Changi Airport's passenger traffic and cargo volumes.

The group's extensive network - with SIA and SilkAir flying to 94 destinations in 34 countries pre-coronavirus - also attracts foreign carriers which fly here so that they can tap its connectivity to the rest of the region.

Like other Singapore-based airlines and aviation businesses, SIA will receive wage support and other help such as rental rebates for lounges and offices at Changi. Free aircraft parking has also been extended from the end of July to the end of October, as part of the latest help measures.

On top of that, SIA has been thrown a $15 billion lifeline, backed by Temasek which owns 55 per cent of the carrier. The plan is to issue new shares to current shareholders and mandatory convertible bonds. Temasek has pledged to take up shares and bonds that are not subscribed to.

In the meantime, SIA has also arranged for a $4 billion bridge loan facility with DBS Bank.

The liquidity is critical for the Singapore carrier which has slashed 96 per cent of its capacity and grounded 138 out of 147 SIA and SilkAir planes. Before the cuts, the SIA Group operated over 250 flights a day from Changi Airport.

The SIA Group's extensive network - with Singapore Airlines and SilkAir flying to 94 destinations in 34 countries pre-coronavirus - attracts foreign carriers which fly to Singapore so that they can tap the group's connectivity to the rest of the region. ST PHOTO: LIM YAOHUI

There is much uncertainty over how long the crisis will last but when recovery comes, SIA must be ready to pounce so that the air hub can recover quickly. Their fates have never been so intertwined.

Industry veterans would remember well that in 2003 - at the height of industrial tensions between SIA and its unions amid the severe acute respiratory syndrome (Sars) crisis - founding Prime Minister Lee Kuan Yew made it very clear that if the choice was between the national carrier and air hub, he would pick the latter.

A lot has changed since then that has brought the two closer. The boom in demand for air travel in the last 10 to 12 years intensified competition among existing airlines and led to the creation of new ones, especially in the budget space.

Airports around the region expanded to increase handling capacity, posing a challenge for Changi Airport and the Singapore air hub. New planes that could fly farther were threatening the viability of stopover hubs like Changi.

Mr Abbas Ismail, course chair of the diploma in aviation management at Temasek Polytechnic, said: "Singapore now had many more hubs to compete with as passengers had more airline choices."

As the industry evolved, the symbiotic relationship between airports and their home carriers strengthened.

Mr Abbas said: "If you look at hubs around the world, they are either supported by a strong local airline (Dubai, Doha, Singapore) or a very attractive city where there is strong demand for travel (Bangkok, London, New York)."

As Singapore's economy continued to grow, so did SIA's national role, he said.

"Singapore cannot depend on a foreign carrier to meet the country's aviation needs. Our economy depends on the free flow of passengers travelling to and from Singapore and we cannot be held ransom by the whims and fancies of a foreign carrier," he added.

It is against this backdrop that one can appreciate why it is so important for Singapore that the national carrier remains steady.

Professor Guido Gianasso, an aviation expert from Nanyang Technological University's Nanyang Business School, said: "Compared with many other airlines, SIA has one important strength: having the Government, trade unions and all Singapore actors united and determined to save it. This is certainly not the case for many airlines in Europe or the US."

SIA is by no means out of the woods and staff who are facing pay cuts must be prepared for tough times to continue for a while.

They can, however, take comfort, knowing that unlike many other airlines that could very well go bust, theirs is here to stay.

Covid-19 will pass and, when it does, it will offer new opportunities to those who survive. There will be industry consolidation; many of the weakest airlines will disappear.

Critical financial support that puts SIA in a very strong position during a very challenging time could potentially enable the group to pursue acquisition opportunities that arise from this crisis, said independent aviation analyst Brendan Sobie.

SIA must wait for the day to come and when it does, move quickly to take advantage of the economic recovery. With strong government backing, there is no reason why Singapore's national carrier cannot fly high again.

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A version of this article appeared in the print edition of The Straits Times on March 28, 2020, with the headline Coronavirus: SIA must move fast when recovery comes. Subscribe