Snakes on a plane: Turbulent times for Singapore’s airlines as competition heats up

A dogfight with gulf carriers is imminent.

As the city-state’s airlines struggle to soar with passenger yield headwinds, Gulf carriers are determined to make the flight even more turbulent for Singapore’s airlines.

According to a report by OCBC, the Gulf carriers are expanding capacity on Singapore Airlines; key routes to Europe, while the Lion Group is expanding capacity within the Asia region.

“We believe competition will most likely increase further for SIA Group,” OCBC said.

Meanwhile, the struggle is typified by Singapore’s flag-carrier itself, which missed expectations for all three quarters of CY15, as earnings were marred by 1) weak cargo operations, 2) declining contributions from its aircraft maintenance, repair and overhaul (MRO) business, 3) eroding passenger and cargo yields, and 4) higher operating costs from retrofitting for premium economy.

“Tiger Airways (Tigerair) remained unprofitable, although core net loss has been narrowing with its turnaround plan making progress,” OCBC added.

Meanwhile, overcapacity is also a concern for Tigerair and its low cost peers, still expanding based on orders placed for new aircraft.

“Nevertheless, we think lower jet fuel will help boost earnings ahead but likely limited by the conservative hedging policy of SIA Group,” OCBC said.