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Distressed SIA tells analysts: Mayday, mayday, mayday!

 

You’re more upbeat than we are, says management.

Singapore Airlines’ management slapped analysts with an uncomfortable dose of reality at its recently-concluded post-Q1 results analyst briefing.

According to Mohshin Aziz, Associate Director of Equity Markets (Research) at Maybank Investment Bank, SIA’s management warned that analysts are “more optimistic than the company is” when it comes to the flag carrier’s future prospects.

“Our main takeaway from the briefing is that SIA’s future is grim if it doesn’t change the way it do business. The days of Singapore and SIA being the long-haul hub for the ASEAN region is over,” Aziz said.

In particular, he highlighted that SIA’s long-haul routes have been almost consistently loss-making since FY09 as its competitors have refined their strategy and successfully established themselves into SIA’s markets.

“Regional peers have upped their game and encroached into SIA’s markets whilst the middle-eastern carriers continues to drink up SIA’s milkshake. Long-haul flights are in structural decline, short and medium haul is where the money is,” he noted.

Although SIA’s management remains focused on its premium business, Aziz believes that the flag carrier’s growth strategy is at odds with the increasingly budget-centric profile of Southeast Asian passengers. 

"Long-haul flights are in structural decline, short and medium haul is where the money is. SIA’s future is to become a smaller airline than what it is today, can you foresee the management making such step?" Aziz asked.

“We firmly believe that SIA’s management team is among the best there is. But they can’t expect to go against the tide and hope to make it. SIA has to downsize its long-haul operations and cut the loss-making sectors. It should focus on regional and medium haul routes which have proven to be more stable and robust. The reality is SIA is simply oversized at the moment,” he noted. 



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