Published February 17, 2009

SIA to slash capacity, talks with unions to cut costs

Action needed fast to improve chances of avoiding layoffs

By VEN SREENIVASAN

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(SINGAPORE) Faced with the worst operating environment in years, Singapore Airlines (SIA) will slash capacity 11 per cent and has started talking to unions about cutting staff costs.

The airline said yesterday it will decommission 17 aircraft from its fleet of 104 this financial year. This is a big increase from the four planes it planned to remove from service - one B747-400 for conversion to a freighter and three B777-200s to be returned to lessors on completion of lease contracts.

This is the first time SIA has decommissioned aircraft since the downturn brought on by Sars in 2003-2004.

CEO Chew Choon Seng said yesterday SIA is responding to a 'sharp and swift' drop in business. 'Given the falls of over 20 per cent that we have seen recently in air cargo, and the tradition of demand for air travel closely following trends on the cargo side, we have to face the reality that 2009 is going to be a very difficult year,' he said.

'SIA does not have a domestic operation to soften the blow from the slump in international air traffic. We have to act decisively to address the situation. We have determined the capacity to be operated that will enable the airline to remain viable in a shrinking market. But the removal of surplus capacity will result in redundant resources and will draw sacrifices from every one of us in the company.'

Mr Chew alluded to the possibility of lay-offs if business does not improve.

'We have already taken action such as expanding and stepping up training and retraining programmes, and we will contemplate retrenchment only as a last resort, but we do not have the luxury of time and we need to agree and act on some measures quickly so that we can push back the point of retrenchment as far as possible and improve our chances of avoiding it altogether,' he said.

SIA has already met three key unions - the SIA Staff Union, Airline Pilots' Association and Airline Executive Union. Details are being worked out on measures to accelerate the clearance of leave entitlements, voluntary leave without pay, voluntary early retirement and shorter work months.

Separately, SIA said yesterday its January passenger load factor fell 6.4 percentage points to 74.1 per cent as passenger numbers fell 10.4 per cent year on year to 1.4 million.

The cargo load factor fell 4.4 percentage points to 54.2 per cent as cargo traffic measured in freight tonne kilometres fell 14.4 per cent.

The latest capacity cuts come after SIA started winding back capacity in the past three months in response to sharp falls in passenger numbers and freight.

Overall capacity increased 6 per cent in the nine months to end-December, but during the October-December quarter this was reduced to one per cent. And during the current fourth quarter, it is likely to be slashed 3 per cent as some services have been consolidated and other routes cut, the latest being Vancouver.

Last week, SIA announced a 43 per cent drop in its Q3 profit to $337.2 million, from $590 million a year earlier. The drop was on a 2.8 per cent fall in top-line revenue to $4.16 billion, from $4.28 billion previously.

For the nine months to end-December, SIA posted net profit of $1.02 billion, down from $1.52 billion previously.

The International Air Transport Association expects global passenger traffic to shrink 3 per cent this year - the first drop since 2001. It projects airline losses to total US$2.5 billion, putting many industry jobs at risk.