SilkAir to get $100m upgrade to pave way for merger with SIA

The merger will mean the demise of the SilkAir brand and livery which was founded in 1992. SilkAir's profitability had weakened significantly in the January to March quarter, noted one analyst.
The merger will mean the demise of the SilkAir brand and livery which was founded in 1992. SilkAir's profitability had weakened significantly in the January to March quarter, noted one analyst.PHOTO: REUTERS

Facelift will close gap with parent carrier as merger ensures consistency across network

SilkAir, the regional arm of Sin-gapore Airlines (SIA), will undergo a $100 million makeover to make it good enough for a merger with its parent.

This should put an end to a pet peeve of SilkAir customers that while they pay SIA fares, they get a product that is not as good.

SilkAir will invest in new seats and in-flight entertainment systems across all classes to close the gap.

One in two SilkAir customers is a traveller who connects from or to SIA.

The merger of the two carriers, which is expected to take a few years to finalise, is unlikely to impact fares, which will continue to be pegged to demand and supply, analysts said.

It will, however, mean the demise of the SilkAir brand and livery which was founded in 1992.

The Straits Times had first reported on a possible merger between the two carriers in August last year, when part of SilkAir's finance operations were merged with SIA's.

The official announcement of the merger comes as SIA completes the first year of its three-year transformation plan.

Results are already showing, SIA's chief executive officer Goh Choon Phong told journalists at a briefing yesterday, a day after the airline announced that profits for the year to end-March surged by almost 150 per cent year-on-year to $893 million.

"Today's announcement is a significant development to provide more growth opportunities and prepare the group for an even stronger future," he said.

The SIA-SilkAir merger will ensure closer product and service consistency across the SIA group's full-service network.

While there continues to be a demand for "SilkAir-type services, especially to bigger regional cities", Mr Goh acknowledged that the short-haul regional market is extremely competitive, with budget carriers accounting for more than half of the total capacity within South-east Asia.

This makes it challenging for SilkAir, he added.

The merger makes sense, analysts said.

Ms Corrine Png, chief executive officer of Crucial Perspective, a Singapore-based transportation research firm, pointed out that SilkAir's profitability had weakened significantly in the January to March quarter.

"SilkAir is in no-man's land; it has a high cost structure and yet, its product and service is inferior to SIA's mainline business," she said.

With the planned upgrades - the retrofitting works are expected to start in 2020 - all business class travellers will have seats that convert into flat beds.

Seat-back in-flight entertainment systems will also be in-stalled in both business and economy class.

On how the changes will impact SilkAir's 1,600 staff, Mr Goh stressed that this is not an exercise about manpower.

"We are not looking at making anybody redundant," he said, and added: "In fact, with the inte-gration and the growth, there should be more opportunities for our staff to go into different roles and grow. Where there are (job) overlaps, we will look at how to redeploy staff and also how to provide re-training."

The impending SIA-SilkAir merger follows a similar exercise between the group's budget carriers.

In July last year, Tigerair was folded into Scoot to drive commercial and operational synergies between the two airlines.

A version of this article appeared in the print edition of The Straits Times on May 19, 2018, with the headline 'SilkAir to get $100m upgrade to pave way for merger with SIA'. Print Edition | Subscribe