If you can’t beat ‘em: Strategic partnerships will help SIA mitigate competition, analysts say

Gulf carriers are spicing things up for SIA.

A densely crowded airspace intensified by Gulf carriers will give Singapore’s plenty of headaches, but strategic alliances may be just what the doctor ordered for the airline.

According to a report from OCBC, competition will be a lot tighter in the near future, as gulf carriers will be able to offer lower fares for a longer period of time, especially on Asia-Europe routes. This will result in a persistent low yield environment for the airline industry.

However, the report said forming strategic partnerships with other airlines, like the one Singapore Airlines (SIA) had recently with Lufthansa, will help quell competition on its key routes.

The report added that other measures could also be employed to beat competition, including offering higher-yielding products such as premium economy class to counter declining yields; buying fuel efficient A350s for parent airline and B787s for Scoot to lower its unit costs to improve operating margins; and unlocking synergies to capture interlining traffic between Scoot and Tigerair.

“Before these efforts start to bear fruits, we expect pressures on yields to weigh on SIA’s performance in the near term,” OCBC said.