SINGAPORE – Singapore’s aviation industry icons, Singapore Airlines (SIA) and Changi Airport Group (CAG), are weathering an unprecedented crisis caused by Covid-19. And it’s unclear if and when the companies, both synonymous with the city-state’s role as a transit hub, will regain their past heights.

The national carrier secured one of the biggest state rescue packages in the global airline industry in March and has thus far raised S$11 billion (US$8 billion) in funds since the start of the 2020-21 financial year through secured financing, loans, and a rights issue backed by state investment company Temasek Holdings, its majority shareholder.

“Without the recent major capitalization exercise, there would not be an SIA today,” said Transport Minister Ong Ye Kung in an address to Parliament on October 6. While analysts see the airline as being better-positioned to ride out the turbulence given the amount of finance it now has at hand, further losses and downsizing appear inevitable.

In September, SIA announced the largest retrenchment in its history with 4,300 positions, or around 20% of its staff, affected. A subsequent agreement between the flag carrier and its pilot union saw some 400 jobs saved in exchange for pilots taking salary cuts of between 10% to 60%. Foreigners have so far been among the first to be let go.

Jeremy Leong, a 21-year-old from Malaysia, was among those retrenched last month after working as an SIA flight steward for two years. “It was definitely a big shock for many of us. I always had my fingers crossed the situation would get better. SIA was honestly my dream, I had planned to grow a career out of it and climb the ranks,” he said.

“It was all going so well.”

The record job cuts came in response to SIA’s first-ever full-year net loss. With almost all of its aircraft idle due to global Covid-19 related travel restrictions, SIA recorded a loss of S$212 million ($156 million) in the year ending in March, a sharp reversal from the S$683 million ($456 million) net profit it earned in the previous financial year.

When Singapore’s “circuit breaker” movement restrictions were in place from April to June to reduce transmission of Covid-19, SIA saw a 99.5% decline in passenger carriage rates, causing group revenues to plunge by S$3.2 billion ($2.3 billion), or 79.3%, to S$851 million ($626 million).

The flag carrier has said that it expects to post a material operating loss for the first quarter of fiscal year 2020-21, though it has yet to issue projections on when it expects to resume a flight schedule that would enable a return to profitability and growth.

A traveler walks past Singapore Airlines’ signage at Changi Airport in Singapore in a pre-pandemic file photo. Photo: Agencies

Prior to the pandemic, SIA had an unbroken profitability streak of 48 years, a reflection of the carrier’s long-time status as one of the most recognizable brands in global aviation. It also faced growing competition from its rivals and emerging flag carriers from the Middle East and elsewhere aiming to offer premium services at lower fare prices.

Though the SIA Group currently operates at only 8% of its capacity compared to pre-pandemic levels, analysts generally agree that Singapore’s flag carrier will ultimately weather the pandemic’s storm and take its place in a more consolidated global aviation industry where less competitive carriers remain grounded.

“The silver lining is in SIA’s liquidity position, which is more positively skewed than virtually every other global carrier. With S$11 billion raised through secured financing, SIA likely has sufficient cash reserves to operate for another year,” said Liam Hunt, a financial writer and analyst at SophisticatedInvestor.com.

“SIA can, and likely will, improve their liquidity position by issuing more rights and selling mandatory convertible bonds (MCBs) in the coming year. Although SIA’s future depends on the resumption of global air travel in the coming years, there’s little doubt that the airline will remain heavily downscaled in the meantime,” he added.

Global travel restrictions have more broadly shaken Singapore’s status as an aviation hub. Changi Airport is reportedly now serving just 1.5% of its usual passenger volume and 17% of usual flights. Once the seventh busiest airport in the world, this year it has fallen to 58th in terms of passenger traffic.

CAG reported a 36% drop in net profit, to S$435 million ($319 million), in its full-year results that ended in March, just as Singapore’s more severe travel curbs entered into force. The group has warned of a “daunting period” ahead and says it expects the pandemic to “materially and adversely” impact its operating results for this financial year.

The company has imposed salary cuts of as much as 30% for management and staff and suspended operations in two of its terminals in May. Construction of a massive fifth terminal – which will be about the size of the airport’s four terminals put together – has been halted for at least two years with the facility now expected to open after 2030.

Transport Minister Ong, in a ministerial statement detailing the government’s strategies for rebooting the aviation sector, this week pledged support for SIA and CAG and described the revival of Singapore’s aviation hub as a “top national priority” that requires the city-state to begin a step-by-step re-opening of its borders to inbound travelers.  

Testing for Covid-19 is “the key to unlock air travel,” said Ong as he announced plans to set up a dedicated coronavirus testing laboratory at Changi Airport to support an aviation recovery. “The emerging international practice is to get tested before travel, not different from us going through security, having our bags checked, before we board a plane,” he said.

Singapore Transport Minister Ong Ye Kung at a parliamentary session. Image: Facebook

Singapore is now pursuing reciprocal green lane arrangements for essential business and official travel with various countries.

Ong also announced plans to negotiate air travel bubbles with countries and regions recognized as having “comprehensive public health surveillance systems” with a quota-based regime regulating the number of travelers.

That may or may not work to restore Singapore’s travel hub status. Harrison Cheng, associate director with consulting firm Control Risks, said that “the general lack of multilateral cooperation in building green lanes” has worked against the reopening of international borders. “Most arrangements are bilaterally negotiated and there are no strong signs that this is going to change,” he said.

“The severe economic damage sustained by Covid-19 has also unsurprisingly worked against consumer willingness to spend. So even if international borders are reopened, the cost of flight tickets could be highly prohibitive, which would then also affect airlines’ commercial viability in maintaining routes,” added Cheng.

Analysts say SIA’s recovery will be in lockstep with the eventual return of commercial aviation demand in Southeast Asia. The International Air Transport Association (IATA) estimates that global passenger traffic is expected to rise by 62% in 2021, but a full recovery to pre-pandemic levels won’t occur until at least 2024.

Short-haul regional air traffic is expected to recover by 2022 or 2023, according to the aviation trade body. That could see SIA shift toward the use of smaller aircraft with fewer overall flights in the years ahead, say analysts, a shift from its pre-pandemic focus on long-haul flights and courting business and premium travelers to maintain profitability.   

Scoot, a wholly-owned subsidiary under the SIA Group, targets budget travel and is expected to leverage the projected strength of short-haul segments in the coming years. The SIA Group comprises its main SIA carrier, considered a bellwether for premium travel in Asia, along with SilkAir, a short-to-medium haul regional carrier.

SIA’s situation is complicated by the fact that it has no domestic network and is wholly dependent on international demand at a time when there is no clear indication when countries around the world will reopen. As such, the flag carrier expects to operate less than 50% of its normal capacity by the end of the 2020-21 financial year.

“It is more likely that the end of the tunnel will come into view if there are growing signs of a successful vaccine being made available sometime in 2021, which would work positively in terms of encouraging countries to build travel bridges again for tourism without risking public health,” said Cheng.

Apart from Covid-19 contraction risks, weak consumer confidence and constrained corporate travel budgets amid the current global downturn make for a grim air travel prognosis, say analysts. IATA suggests that the rising prevalence of video conferencing as a substitute for in-person meetings could lead to a sustained drop in corporate travel.

A man looks on as a Singapore Airlines plane approaches for landing at Changi International Airport in Singapore, August 23, 2020. Photo: AFP/Roslan Rahman

“If this drags on too long, we will get used to working in a virtual fashion and then the chances of business travel returning to the normal volume will get slimmer and slimmer. SIA will have to exist as a much smaller version of itself if that happens,” said Nitin Pangarkar, associate professor of National University of Singapore (NUS) Business School.

“It’s critical for SIA that those habits of virtual working don’t get so entrenched that business travel doesn’t recur. For SIA to do well, the premium traffic has to come back. If the premium traffic doesn’t come back, they have a huge problem. Their bread and butter are the long-haul flights,” he added.

Flag carriers that received financial support at the start of the pandemic will look for ways to strengthen their balance sheets going forward. In SIA’s case, it can raise an additional S$6.2 billion ($4.5 billion) through convertible bonds underwritten by Temasek up to July 2021.

SIA is also exploring more novel ways to shore up revenue. After nixing a proposal for scenic “flights to nowhere” that would take off and land in the same airport on environmental grounds, SIA unveiled plans to serve food to diners aboard an Airbus A380 parked at Changi Airport.

But absent the beginnings of a more robust aviation industry recovery, analysts foresee more retrenchments in the months ahead.

“I wouldn’t rule out more layoffs because every day that this continues, you’re seeing the airlines, not just SIA but all airlines, just burning through cash,” said Greg Waldron, Asia managing editor for industry publication FlightGlobal. “Even though SIA has raised a significant amount of money, it still has costs.

The airline recently nixed a proposal to arrange flights to nowhere. Image: Facebook

“It has to pay its lessors, is has to pay the airports. It has to pay its employees, and with revenue so weak, it is very challenging,” he told Asia Times. “SIA’s ace card is that it is seen as being an important element in the overall Singapore aerospace story. This will serve it in good stead in terms of further support if it’s necessary.”

Given the strategic emphasis Singapore places on SIA, which is consistently ranked among the world’s best airlines and viewed as integral to maintaining the city-state’s position as an Asian travel and business hub, the government is likely to include measures to support the aviation sector when it unveils its next budget in February 2021, observers say.

Leong, meanwhile, is on the hunt for a new job in Singapore after being laid off from SIA in September. He continues to hold out hope of returning to a career in aviation when the sector rebounds. “I eagerly await and look forward to the day the skies are open again and the metal birds can stretch their wings once more,” he said.