These are turbulent times for Singapore Airlines (SIA) and Cathay Pacific.
There was time when both airlines had a surprising amount of Asia’s skies to themselves.
No longer. Passengers now often bypass Hong Kong and Singapore entirely, opting to put their cash and well-being in the hands of one of the big-three Arabian Gulf airlines, Emirates, Qatar Airways and Etihad Airways.
A key challenge facing both SIA and Cathay is how to stand out from the crowd. Emirates, Etihad and Qatar Airways offer a level of premium service at the pointy end of the aircraft which is beyond comparison, at least in the world of commercial jets. Airtime is little different for passengers flying the “Kangaroo route” from the West to Australia via the Middle East or Asia.
Cost, too, has become a great leveller. Barring special offers, most big, long-haul carriers have virtually identical pricing structures.
Ask regular travellers whom they fly long-haul with, and you get a different answer each time. During a long wait at Dubai International Airport in late March, I asked a group of Australians changing flights to Europe why they chose Emirates. All were grey-haired and well off, and were flying the route for the umpteenth time. Price, some said. Good brand, suggested others. Another said she had stopped off in Dubai to see friends and do some shopping.
I was in Singapore a week later, where I posed the same question to another group of Australians en route to London. Four said they liked Emirates, but had snagged a good price with Singapore Airlines. Another said he was flying from Sydney to Europe in October with Cathay. Again, it was all about price.
This presents Cathay and Singapore with an immense headache. How can you grow your brand when passengers perceive it as no better, or worse, than the best of the rest? How can you promise investors you will expand sales and boost profits when the price point is defined by the industry, not by you?
Even worse, business travellers, a key industry segment that accounts for 12 per cent of passengers but, typically, around a quarter of profits, are more likely to shop around for a good deal. During a stopover in Hong Kong on the same trip, I asked a clean-cut young man at Cathay’s first-class check-in desk how much business had been lost to the Gulf carriers. “Quite a lot,” he said. “You have to work here every day to see the change, but it’s there.”
Then there is China, and the supercharged ambitions of its own triumvirate of leading carriers. Air China, China Eastern and China Southern operate interchangeably out of four of the world’s fastest-growing aviation hubs, in Beijing, Shanghai, Guangzhou and Shenzhen, all of which are expanding capacity and the quality of their earthbound and airborne services.
“Chinese carriers are still smaller than their Gulf peers, but in the context of Asian routes, they are the biggest near-term threat to Cathay Pacific and Singapore Airlines,” says Eric Lin, an aviation analyst at UBS in Hong Kong. An open-skies deal struck by China and Australia allows planes to fly point-to-point from, say, Sydney to Shanghai, again sidestepping Singapore and Hong Kong.
Perhaps the greatest threat to Cathay, and thus perhaps to Hong Kong’s stature as a global aviation hub, is likely to come from Guangzhou, a vast city in the heart of the Pearl River delta. It is not hard to imagine passengers on the Kangaroo route transiting through the southern Chinese city in future. K Ajith, an aviation analyst at UOB Kay Hian, points to the ambitions of Guangzhou-based China Southern, which “wants more of the market for leisure travellers flying Australia-Europe. In the longer term, it wants to snare more business travellers”.
During a routine chat with analysts last November, after posting a sharp fall in quarterly profits, the Singapore Airlines chief executive Goh Choon Phong was asked which airlines – those backed by the Chinese state or Middle East governments – worried him most. “I would say [the threat from] both are challenging,” he replied.
To be sure, Chinese carriers do suffer from a lack of brand recognition. Flying with the likes of China Eastern or Air China is rarely a true pleasure. The London-Sydney route takes 27 hours via Shanghai Pudong, an airport that is often bedevilled by delays and congestion.
But Beijing’s biggest airlines are likely to get there in the end. As with Cathay and Singapore, they are keen to secure a larger share of the highly profitable long-haul routes linking Asia and North America. Cathay and Singapore face additional pressure from a trio of resurgent US carriers. United Airlines, Delta Air Lines and American Airlines – which recently paid US$200m to buy a small stake in China Southern, the country’s biggest carrier – have spent the past decade slashing costs and sprucing up their fleets, and investors have begun to take note.
“All the major US airlines are making big investments in their Pacific routes,” Jim Corridore, a New York-based analyst at CFRA Research, tells The National. So should Cathay and Singapore be worried?
“Yes, absolutely,” he says. “They are now where the US carriers were 10 to 15 years ago, and rather than rationalising and slashing costs or going through bankruptcy proceedings, they are willing to battle it out to the death and, in the process, they are cutting their own throats.”
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