SIA aims to be a great way to fly non-stop to US

Two years after canning its non-stop flights from Singapore to Los Angeles and New York when profits dived, Singapore Airlines (SIA) has decided to try it again.

In 2018, it will resume 19-hour flights to New York and 14-hour trips to Los Angeles, and possibly add one or two more cities. It is a smart and necessary move.

New ultra long-haul jets are more fuel-efficient than the four-engine Airbus 340-500s the airline flew before. Now, it will be the A-350-900ULR, which SIA will be the first to fly. The airline has ordered seven of these planes. Today, jet fuel prices are much lower at about US$60 (S$84) a barrel - half what it was in 2013 when SIA axed its non-stop US services.

Together, these make ultra long-haul flights much more efficient.

Back in 2004, when SIA first launched the ultra-long flights, it offered passengers premium economy and business class tickets. When business demand proved strong, the airline reconfigured its planes with only business class seats. This proved a disaster when the 2008 financial crisis hit, as that market segment effectively dried up. Then fuel prices soared.

SIA has not shared its product plans for the new Airbus planes but a mixed layout would be a wise move. As UOB Kay Hian analyst K. Ajith noted: "The world has changed since 2008. Whether or not we will see a meaningful pickup - in the finance, as well as oil and gas sectors - in the next five years remains to be seen.

"The airline should, and will no doubt, exercise prudence with a portfolio of products instead of a single-class aircraft," he said.

Added Mr Mark Clarkson, Asia-Pacific business development director at industry consultancy OAG: "I don't see it working if it's purely a business-only offering."

SIA must get it right this time.

Its exit from the non-stop Singapore-US market in 2013 gave others an opportunity to move in to fill the gap.

The SIA Group as a whole has managed to chalk up growth in an increasingly competitive market, but this is mainly driven by regional arm SilkAir and its low-cost airline offshoots Scoot and Tigerair. As for premium carrier Singapore Airlines, the flagship label, its expansion has lagged behind that of rivals in the Middle East and North-east Asia.

To some extent, SIA is a victim of the geographical disadvantage of its home base. Key competitors like Dubai-based Emirates and Cathay Pacific in Hong Kong, for example, are better placed to serve the North American market than South-east Asian carriers.

After pulling out from the non-stop Singapore-US market, SIA now offers one-stop daily flights to Los Angeles, New York and Houston and flies twice a day to San Francisco.

Adding more one-stop flights from Singapore to the US is difficult as SIA is unlikely to get the approvals it needs from governments in the intermediate countries. Giving the green light would ultimately have an impact on the competitiveness of their own national carriers.

In the meantime, rivals continue to add capacity, including to and from Singapore, to capture the bound-for-US market here.

Truth is, SIA will never be able to match its rivals in capacity but it also cannot afford to sit idle waiting for competitors to swoop in on its home turf.

The demand for Singapore-US flights is growing strongly.

Between 2010 and last year, total passenger traffic between the two markets grew by an average of 4 per cent a year. In the 12 months to end-August, year-on-year growth jumped to 8.6 per cent, to nearly 700,000 passenger movements.

There is a larger, more strategic reason behind the decision to resume the non-stop services.

With a small domestic market, SIA's strength, and indeed the future of the Singapore air hub, lies not just in growing point-to-point traffic. The more critical need is to expand connecting traffic to cement Changi Airport's status as a key transit hub for regional and global travellers.

This is why relaunching the route is worth the risk - even if its profitability is uncertain.

Said the Sydney-based Centre for Aviation: "There can be no prediction for fuel prices in 2018 when the A350-900ULR is due to enter service with SIA, or the cost of fuel during that aircraft's lifetime."

Hedging will presumably offer SIA some cost certainty, but with airlines typically locking in only part of their future fuel requirements at pre-agreed prices, it still leaves the carrier exposed in a highly volatile market.

Currency fluctuations, when fuel is bought in US dollars, can also cause havoc.

But for SIA, making money on each route is less important than ensuring that overall operations are viable.

So a customer being flown from Jakarta to Singapore at a loss to the airline, for example, is still valuable if there is money to be made on the next leg of his journey, or on future trips.

The bigger picture, however, is that resurrecting the non-stop US services is important for strategic value and branding.

Sydney-based consultancy Centre for Aviation said: "This will always outweigh any (probably only marginal) profit, if any. SIA's original non-stop US flights on the A340-500s were never meant to be profit blockbusters, but nor was it expected they would rack up such high losses at the end."

While fuel and other factors are outside its control, SIA's top brass no doubt deliberated long and hard before deciding on resurrecting non-stop flights to the US.

It is a necessary, good move, given a growing Singapore-US market and unrelenting rivals.

There is another feather SIA wants to put in its cap: the title it lost, of operating the world's longest commercial flight .

It is now held by Qantas for its 17-hour Dallas-Sydney service. Emirates will grab the title when it launches a 17½-hour flight between Dubai and Panama next February. Once launched in 2018, SIA will grab back that title with its 19-hour non-stop flight to New York.

This article was first published on November 3, 2015.
Get a copy of The Straits Times or go to straitstimes.com for more stories.