With Chinese Travel Booming, Why are Premium Asian Airlines Preparing for Layoffs?

Singapore Airlines is considering layoffs after a disappointing fourth quarter according to CEO Goh Choon Phong. Goh, who made the announcement in a press briefing on June 6, did not indicate how many jobs the firm intended to cut. Analysts had previously predicted that fuel prices and a strong dollar would likely decrease the profits of premium Asian airlines back in February.

In total, the airline reported a net loss of S$138 million (US$99.8 million) from January to March of this year, in sharp contrast with a net profit of S$225 million (US$163 million) during the same period in 2016. This is Singapore Airlines’ first quarterly loss in five years.

The airline cited rising fuel costs, a stronger US dollar, and falling passenger flow revenue, despite increases in overall traffic, as the cause of lower profits. Goh Choon Phong indicated that the airline would be undergoing substantial restructuring in order to stay competitive and turn a net profit in the future.

Singapore Airlines is not the only premium airline struggling in the region. Last month, Cathay Pacific announced it would lay off 600 employees from its head office. This figure included 190 management positions and 400 non-management positions. Cathay cited a competitive business market in its layoff announcement.

Unlike Singapore Airlines, Cathay and its subsidiaries have been losing money quarter over quarter for several years. Last year, it reported a net loss of HK$3 billion (US$384 million). Budget regional airline rivals are cutting into the Asia revenue of both airlines, while Middle Eastern competitors impacted their long-haul ticket sales. Revenue from cargo shipping is also under stress from rivals.

Aside from layoffs, it is unclear how Singapore Airlines intends to restructure their business. Cathay, Hong Kong flagship airline, has already made significant steps in doubling down on its strengths, namely premium services. It announced yesterday that it plans to expand its partnership with German airline, Lufthansa. The two companies have already partnered in cargo services and to a lesser extent in passenger services. By expanding their collaboration, Lufthansa hopes to gain more access to the Chinese market and increase cooperation with Cathay stakeholder Air China, which has a 30 percent share.

It is possible that Cathay’s expanded partnership with Lufthansa, as well as the restructuring of Cathay and Singapore Airlines, will help turn the tide against falling profits. With rising fuel prices and a surging US dollar appearing to be long-term trends, in the short-term, it is unlikely that either airline will see a rebound.

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Transportation, Travel