In FM 2014, Scoot operated six aircrafts. Furthermore, the group offers its cargo operations through Singapore Airlines Cargo (ASIA Cargo). ASIA Cargo operates to destinations around the world with a fleet of 8747-400 freighters. In PAYOFF, it operated nine Boeing 747-400 freighters, including two owned and seven leased. Thus, the group’s multi- brand positioning enables it to offer tailored services based on the unique needs of customers, thus enhancing the its scale of operations and operating margins. Well-spread geographic base
The operations of Singapore Airlines are geographically well-diversified. The group operates in East Asia, South West Pacific, Europe, the Americas, West Asia, and Africa. Silkier provides premium short to medium haul air transport for locations across Asia. Additionally, Scoot operates medium-to-long-haul, low-cost flights between Singapore and Australia, China and others regions. Singapore Airlines’ revenue bases are spread out evenly across various geographies which allow the group to derive maximum benefit.
For instance, East Asia, the group’s largest geographical market, accounted for 37% of the total revenues in PAYOFF. Furthermore, South West Pacific accounted for 10. 7% of the total revenues in the same period. In addition, Europe, the Americas and West Asia and Africa accounted for 10. 5%, 5. 3%, and 2. 9% respectively. Thus, the group’s well diversified geographic network enables it to gain access to key markets as well as expand its customer base in emerging markets.
Singapore Airlines maintains a robust fleet of 106 aircraft. The average age of its fleet stands at seven years, as of February 2015, making it one of the youngest and most fuel efficient airliner fleet in the world. The group’s fleet includes 30 AWAY-300 aircrafts; 19 AWAY-800 aircrafts; 26 Boeing 777-200 aircrafts including four 777-RARER, nine retrofitted 777-RARER, three 777-200, and 10 retrofitted 777-200; and 31 Boeing 777-300 aircrafts including 24 777-RARER and seven retrofitted 777-300.
The advantages in having a young fleet are that passengers prefer new jets equipped with the latest facilities, as well as younger fleet offers greater engineering efficiency and demand lower maintenance costs. The low age of fleet allows Singapore Airlines to operate each of its jets for longer duration than its rivals, so it needs fewer of them Han a carrier trying to serve the same routes with older planes. Thus, the young and efficient fleet allows Singapore Airlines to fly more miles and derive higher profitability than its rivals in the market place.
Singapore Airlines’ aircraft have been constantly plagued by multiple technical problems over the years. For instance, in May 2014, a Singapore Airlines Airbus AWAY-800, from Singapore to Hong Kong (China) with 263 passengers, was flying out of Singapore when the crew received a cargo door warning. The plane was landed safely and another replacement flight was Sent out. Similarly, page 5 n April 2014, a Singapore Airlines Airbus AWAY-800, from Singapore to London Heathers departed with delay following maintenance works on two engines (Torrent 970) at the gate.
The flight subsequently returned to Singapore due to the failure of two engine bleed air systems and resulting air conditioning problems. The aircraft landed overweight after departure and rolled out without further incident, eight main gear tires deflated as result of the landing. Similarly in February 2014, a Singapore Airlines Airbus AWAY-300 from Singapore to Achaean, India, was flying out of Singapore runway when the feet hand main gear door did not close after retracting the gear. The crew stopped the climb at 8000 feet and returned to Singapore about 30 minutes after departure.
Thus, such technical glitches due to poor maintenance of aircrafts may lead to serious accidents which may cost heavy financial damage to the airline along with causing loss Of reputation Of the group. The global tourism industry is booming which could boost the demand for the group’s services. According to the World Tourism Organization (UNTO), the number of international tourists (overnight visitors) reached 1 , 1 38 million in 014, 51 million more than in 2013. With an increase of 4. 7%, this is the fifth consecutive year of above average growth since the 2009 economic crisis.
Geographically, the Americas and Asia Pacific regions registered 7% and 5%, growth in tourist arrivals, respectively. In addition, Europe and Middle East each grew at a modest rate of 4%. Moreover, the UNTO forecasts international tourism to grow by 3% to 4% in 2015. In terms of region, Asia and the Pacific is expected to grow by (4% to 5%), the Americas by (4% to 5%), followed by Europe with (3% to 4%). In addition, the decline in the global oil ricers is expected to further lower transport costs and boost economic growth by lifting purchasing power and private demand in oil importing economies.
Singapore Airlines offers single city and multi-city vacations, adventure tours, and customized vacations in several destinations, including Singapore, Bali, Bangkok, Tokyo, Malaysia, Korea, India, and Hong Kong. Thus, the growing global tourism coupled with the group’s large presence in the world would enable it to boost its revenues and margins. Strong outlook for the global air freight sector The global air freight sector recovered in 2014 after a period of declines in 01 2 and 2013. The sector is expected to slowly increase in value and volume terms over the next five years.
According to Marketing (a unit of Informal), the global air freight sector generated total revenues of $125,479. 9 million in 2014, representing a compound annual growth rate (CARR) of 1. 2% be;en 201 0 and 2014. Furthermore, the performance of the sector is forecast to accelerate, with an anticipated CARR of 2. 1 % for the 2014-19 periods, which is expected to drive the sector to a value of $139,546. 9 million by the end of 201 9. Page 6 The group’s Singapore Airlines Cargo (ASIA Cargo) business is engaged in air argon transportation and related activities.
ASIA Cargo operates to destinations around the world with a fleet of nine 8747-400 freighters. Thus, the strong outlook for the global air freight market would provide incremental growth opportunities to enhance its revenues and market share. Global MR. market poised for rapid growth The global aircraft maintenance, repair, and overhaul (MR.) market is expected to grow at a rapid pace. According to an industry estimates, the commercial aircraft MR. market is estimated to grow by 43. 1 % annually to reach a value of $84. Billion by 2022 as compared to $59. 2 billion in 2013. Meanwhile, the military MR. market is expected to grow by 3% annually to register a value of $62. 5 billion by 2022 from $60. 7 billion in 2013. Meanwhile the business aviation MR. market is expected to grow at a rate of 3. 9% annually to $15. 4 billion in 2022 as compared to $10. 8 billion in 2013. The group is well positioned to exploit the growing MR. market. The group’s subsidiary, ASIA Engineering Company (CEASE), is one of the leading players in the MR. industry.
Globally, Case’s line maintenance network covers 34 airports in seven countries, handling 650 flights daily round-the-clock for more than 80 airlines worldwide. Cases first-mover advantage in the aircraft technology and its collaborations with leading original equipment manufacturers (MEMO) enabled it to establish a One-stop engineering center in Singapore, offering comprehensive maintenance services. Thus, the growing MR. market provides incremental growth opportunities for the group to enhance its revenues and market share in the market.
Intense competition and price discounting pressurize the operating margins The airline industry is highly competitive. The principal competitive factors in the airline industry are fares, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, code-sharing relationships, capacity, in-flight entertainment systems, and frequent flyer programs. Airline profits are sensitive to even slight changes in average fare levels and passenger demand.
Singapore Airlines faces direct competition from other airlines on its routes, as well as from indirect flights, charter services, and from other modes of transport. Some of its competitors are Air New Zealand, Catchy Pacific Airways, British Arrivals, Delta Air Lines, All Nippon Airways, Korean Air, Flyby Group, Urinary, Santa, United Airlines, Virgin Atlantic, and China Airlines, among others. In addition, price competition between airlines through price discounting, fare matching increased capacity, targeted sale promotions, and frequent flyer travel initiatives, may further squeeze margins.
A relatively small change in pricing or in passenger traffic could have a disproportionate effect on an airline’s operating and financial results. Therefore, intense competition could pressurize the operating margins Of the group. Stringent regulatory constraints page 7 As an airline operator, the group undertakes operations based on the tabulations of statutory regulations relating to airline operations. Singapore Airlines is required to conduct passenger operations and cargo operations on international routes in accordance with the stipulations of international agreements.
These stipulations include treaties, bilateral agreements, and the decisions of the International Air Transport Association (IA T A). A violation of specific laws and regulations by the group could result in the imposition of fines and penalties. The group is also subject to numerous statutory environmental protection regulations with regard to issues such as aircraft missions of greenhouse gases, use of environmentally polluting substances and their disposal, and energy usage at major offices.
Singapore Airlines shoulders a considerable cost burden in order to adhere to such statutory regulations. If the current regulations are strengthened or if new regulations, such as environmental taxes, are introduced, the group has to incur additional costs, which would impact its operating margins. Growing airline safety concerns may impact passenger traffic volume The growing security concerns in the wake of major airline accidents in the recent past may impact passenger traffic volumes. Airlines are frequently faced with the threat of accidents and turbulence’s during long-haul journeys.