SIA

SIA: CEO Goh Choon Phong interviews with the Business Times. Says any pessimism about SIA’s future is grossly exaggerated if not misplaced. Maintains there is no basis to “write off” SIA, as the group will be nimble to adjust to new competition. Rejects the notion that SIA has lost its premium pricing power, as the airline will maintain its premium branding via innovative products and service quality. Though in terms of pricing, the airline will be flexible where it needs to be. A host of factors have driven SIA to post its first quarterly loss of $38m in more than two years. The carrier has been buffeted by soaring fuel costs, increasing competition from the Middle Eastern premium carriers on long-haul routes and low-cost carriers (LCC) on regional routes, and a dive in cargo and passenger volumes on European and American routes. The bright spark was SilkAir, which accounted for $105m of group operating profit of $286 m. This has prompted SIA to refocus on its Asian markets using SilkAir as the bulwark against further downside and re-emphasising its Singapore hub. Mr Goh says that SilkAir would expand its capacity at a faster pace of 23% this year compared with SIA's 3% as it capitalises on fast-growing markets of Asia and the Pacific. Dismissing suggestions that the focus on SilkAir indicates that the group is losing its premium standing, Mr Goh says, “we‘re not scaling down SIA to grow SilkAir. We are growing SilkAir to strengthen SIA”, as he intends to use SIA’s aircraft in combination with SilkAir’s to adjust capacity to cities around Asia. SIA is also eyeing a tie-up between its upcoming long-haul budget carrier Scoot and Tiger Air. Notes, Tiger is operating in a high-growth segment which is expanding at a rate of 20%; believes Tiger and Scoot are complementary, and should work together. Says, a strategic partnership could allow both LCCs a bigger slice of the regional short- haul and long-haul budget travel market. However, Mr Goh was quick to add that SIA would not dictate to Tiger what it should do. Nor will SIA raise its stake in Tiger - at least not for now. The industry’s biggest challenge now remains high fuel prices, with risks magnified in a weak traffic environment. SIA maintains it doesn’t engage in fancy hedging activity to try to beat the mkt, but does not write off the possibility of hedging against crude itself, if the need arises. For the current year, SIA is hedging a quarter of its needs at US$126/ bbl. Looking ahead, Mr Goh sees the SIA group remaining a dominant and profitable player - in both the premium and budget segments of the air travel market - riding the growth of the Asian markets and serving the world. The stock trades at 24x fwd P/E, 1x P/B.