Singapore Airlines costs higher than rivals

SIA is now costlier to run than Cathay Pacific and others.

HSBC Global Research have benchmarked the Asian airlines by estimating passenger airline unit costs and comparing these to average flight lengths. It found out that Asian carriers still have relatively low unit costs compared with European and US rivals. However, the cost advantages of the Asian airlines have narrowed in the last seven years.

Among Asian airlines bencharked, Singapore Airlines appeared to have suffered the most.

Here's from HSBC:

In 2004, most the Asian airlines had substantial cost advantages. Singapore Airlines was probably the World’s lowest cost premium airline and had unit costs lower than rivals such as Cathay Pacific and Emirates. Thai, MAS, the PRC and Taiwanese carriers all had unit costs substantially below the industry average.

By 2011, SIA had slipped behind Cathay Pacific and Emirates in terms of unit costs relative to flight length. Network cuts at MAS have caused costs to rocket, and the PRC and Taiwanese airlines have had their cost advantages erode. The relative winners in Asia have been Cathay Pacific and Jet Airways and in the Middle East, Emirates.

The primary culprit for the divergence in cost performance has been currency appreciation versus the US dollar. We estimate that for non-dollar currency regimes, local currency costs make up 20-50% of operating costs and these costs have risen in US dollar terms as currencies in Asia appreciated.

In addition, the low cost base a decade ago created by weak Asian currencies masked process inefficiencies and poor product decisions that are now being exposed by cost inflation.

Most the international routes to and from Asia and within the region are highly competitive and ticket prices are set by the lowest cost provider.

Therefore airlines facing cost inflation are suffering as margins erode. The impact on the airlines is not uniform. For now, airlines focused on domestic or highly regulated short-haul routes in Asia, where cost differences between competitors are limited, are protected.

However, ASEAN carriers in particular, which fly the highly competitive Asia-Europe routes, are under substantial pressure.