Comment: Yes, we actually need SIA to survive as our national airline

Soft truths to keep Singapore from stalling.

Mothership | October 04, 2020, 02:48 PM

COMMENTARY: We need Singapore Airlines (SIA) to survive because of its importance to the development of Changi Airport as a global air hub.

In his essay "Revisited: The importance of Singapore Airlines", Faizal Yahya argues that the airline still needs to survive because of one key reason: the importance of its existence to Changi Airport's development.

  • SIA has a multiplier effect on Changi Airport which in turn has its own multiplier effect for various industries in Singapore.
  • As such, SIA must integrate digitalisation within its services, and transforming its business model among other things, to survive.
  • The airline should also expand its cargo services and cooperate with other airlines.

Faizal Yahya is a senior research fellow at the Institute of Policy Studies at the Lee Kuan Yew School of Public Policy in the National University of Singapore.

By Faizal Yahya

Singapore Airlines is vital for Changi Airport and its development

Much has been written about the need for Singapore Airlines (SIA) to survive. But at the very core lies one key reason – the importance of the airline to Changi Airport and its development as a global air hub.

A vibrant air hub is vital not only for the aviation industry but related industries as well, such as supply chain and logistics, transport, tourism, hospitality, retail and F&B.

According to the International Air Transport Association (IATA), the air transport sector in Singapore directly employs 119,000 people and indirectly supports 78,000 jobs from its suppliers. As part of the multiplier effect, the spending of wages from aviation sector employees contributed to a further 26,000 jobs. In addition, the flow of foreign tourists’ spending at the air hub supports another 152,000 jobs.

In 2019, the airport served 68.3 million passengers, handled more than two million metric tonnes of air freight, and managed 382,000 aircraft movements. Foreign airlines use Changi for the connectivity that SIA affords to various destinations.

Prior to Covid-19, the SIA Group accounted for 55.1 per cent of total seats departing from Changi, (SIA--34.6 per cent, Scoot – 12.9 per cent, and SilkAir – 7.7 per cent). Singapore depends on SIA retaining its core capabilities and financial viability.

In terms of employment alone, the role of the SIA Group is prominent. As of March 2020, the group, including SIA Engineering, employed more than 28,000 staff. More importantly, SIA is a key component of Changi Airport's development as a global air hub.

Digitalisation is an opportunity for SIA amidst the Covid-19 pandemic

Covid-19 has accelerated disruption in the aviation sector.

However, there are opportunities amidst challenges. These include ramping up digitalisation, adopting innovative measures and forging new strategic partnerships.

SIA is increasing automation, digitalisation, greater data exchange and analytics to enhance safety, efficiency and the comfort of passengers.

For example, in the Maintenance Repair and Overhaul (MRO) aviation sector, the Internet of Things (IoT), cyber-physical systems, cloud computing and other technological assets will revolutionise Singapore’s capabilities as a leading MRO provider that accounts for 25 per cent of Asia’s MRO revenue and 10 per cent of global output.

There are more than 130 companies in the MRO sector, both local and foreign, such as SIA Engineering Company (SIA Group), ST Aerospace, Messier Services Asia and Honeywell Aerospace. Other multinational companies (MNCs) such as Rolls Royce, Airbus and General Electric, perform related activities to strengthen Singapore’s position as an air hub.

The multiplier effect, in terms of employment, R&D and inflow of foreign investments within and related to other sectors, is important for the growth of the aviation sector.

It is projected that the Asia Pacific region will dominate the MRO market and become the world’s largest spender in aircraft maintenance by 2037 because the region provides the fastest growth market for the global aviation industry.

SIA must also transform its business model

Elsewhere in the industry, innovative measures are being established, such as rapid Covid-19 antigen-based test kits, contactless services and increased hygiene standards deployed at Changi Airport. These measures help to restore travellers’ confidence.

SIA will have to transform its business model to survive.

Taking delivery of new planes will have to be delayed if possible. Indeed, SIA may have to rethink its strategy of keeping its aircraft fleet one of the youngest in the world till international air travel recovers.

The company must factor in also the possibility of a fall in demand for premium air travel because of people working from home.

These measures would be needed at least till 2024, when the recovery in international air travel should be complete.

Cooperating with other airlines and expanding its cargo services

In addition, as part of the global supply chain and logistics network, SIA Cargo can fulfil niche but growing demands, especially for pharmaceutical and healthcare shipments.

SIA Cargo has launched its THRUCOOL service. This service manages the transport of high-value, time-sensitive and temperature-controlled cargo with speed and reliability.

SIA was the first airline in the Asia–Pacific region to be CEIV Pharma-certified in 2017 and re-certified in January 2020. The certification recognises its capabilities in handling pharmaceutical products.

In March 2020, SIA Cargo expanded its network with the addition of the Copenhagen, Osaka and Stockholm stations.

Developing Changi Airport’s status as an international connection for traffic is key to SIA’s business model. Strategic partnerships among airlines will be a part of the consolidation of the aviation sector.

SIA has already mooted more cooperation with Malaysia Airlines and All Nippon Airways. Given the close proximity of Singapore and Malaysia, cooperation could include joint ventures and expanded code-sharing on other routes.

One of the key strengths of SIA is the unified approach taken by key stakeholders towards its recovery. Trade unions, the Government and aviation-related industries are moving in the same direction to ensure that SIA survives the pandemic with its core capabilities intact.

The SIA Group needs to preserve its financial clout, strategic management expertise, skills, industry expertise and knowledge to recover swiftly after Covid-19.

Singapore’s ambition to be a global air hub will not succeed without SIA and its symbiotic relationship with Changi Airport.

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