Singapore Airlines' passenger numbers fall in February

Singapore Airlines (SIA) carried fewer passengers in February amid a decline in capacity.

SIA’s passenger load factor fell 1.6 percentage points on-year to 75.2 per cent in February, the airline said in a news release on Monday (Mar 16). SIA's systemwide passenger carriage fell 3.5 per cent on-year, with a 1.3 per cent reduction in capacity.

The greatest drop in passenger demand was for routes plying the Americas and Europe. These fell 7.4 percentage points and 5.4 percentage points respectively, said the airline.

“The competitive landscape continues to be challenging,” said SIA. “Singapore Airlines will remain nimble to redeploy capacity to better match market demand and promotional activities will continue in relevant markets.”

SILKAIR PASSENGER NUMBERS IMPROVE
However, SilkAir’s passenger numbers went up in February, with a 1.2 percentage-point increase on-year in passenger load factor, to 72.7 per cent.

SilkAir carried 10.3 per cent more passengers in February, while there was a 12 per cent on-year increase in capacity.

The overall cargo load factor went up by 5.2 percentage points to 63.3 per cent. Cargo traffic went up 17.1 per cent, while overall capacity rose 7.6 per cent. The load factor went up for all route regions as the capacity changes were closely matched with demand, said SIA.

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No takeover plans for Tigerair, but SIA eyes more integration

Singapore Airlines (SIA) is not considering a full takeover bid for Tiger Airways (Tigerair), but it will focus on helping its loss-making associate recover through stronger network cooperation, following SIA’s recent move to increase its stake in the low-cost carrier, says SIA chief executive Goh Choon Phong.

Speaking at SIA’s latest results briefing yesterday, Mr Goh added that Tigerair remains an integral part of the group’s growth plans and has been making progress in consolidating its business.

Tigerair reported a net loss of S$182.4 million for its fiscal second quarter on Oct 17. With its other units such as SilkAir and SIA Engineering also suffering weaker growth, SIA’s net profit for the quarter ended September declined 43.5 per cent on-year to S$91 million.

Mr Goh said: “We intend to increase our stakes (in Tigerair) to a controlling interest, because we believe that SIA, with its scale and connectivity distribution, can benefit Tigerair beyond its alliance with Scoot.”

“A takeover offer for Tigerair is, however, not under consideration. Our focus now is to see in what manner we can help Tigerair back to financial health.”

SIA’s application to increase its stake in Tigerair to around 55 per cent from 40 per cent was submitted to the Competition Commission of Singapore (CCS) for approval last month.

In August, CCS gave the green light for Tigerair and SIA’s low-cost long-haul subsidiary Scoot to form an alliance.

Despite its persistent financial losses, Tigerair remains integral to SIA’s plan to expand its network portfolio via further integration of routes and flights between SIA, its regional wing SilkAir, Scoot and Tigerair.

“These are the four components that will allow us to extend market reach and tap traffic in all segments ... In the case of Tigerair and Scoot, the connecting traffic is less than 5 per cent now — there’s a huge potential we can tap here,” Mr Goh said.

Adding that Tigerair is not a lost cause, he said it is repositioning itself for the future, such as shedding unprofitable overseas joint ventures and taking steps to curb overcapacity.

Mr Brendan Sobie, chief analyst at the Centre for Asia Pacific Aviation, said the worst is likely over for Tigerair and that SIA’s plans for Tigerair will lead to mutual benefits.

“With a controlling stake, SIA can now ensure Tigerair is more aligned with its portfolio strategies,” he said.

But he added that a turnaround is not guaranteed for Tigerair.

“The LCC (low-cost carrier) market remains very competitive and, given its disastrous results in the past two years, any improvement will have to be drastic to be meaningful,” he said.

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Why SIA is keen to heal wounded Tiger

Singapore Airlines (SIA) has pledged $140 million to rescue Tigerair, yet again.

The additional funding will increase SIA's stake in the loss-making budget carrier from 40 per cent now to as high as 71 per cent.

The commitment follows a cash call by Tigerair two weeks ago, after it announced a $182.4 million loss in the three months to the end of September.

For the 12 months to the end of March, Tigerair recorded its biggest annual loss of $223 million.

To replenish its kitty, the airline is offering shareholders more stock at a discounted price.

In a show of support, SIA has said it will take up its entitlement and subscribe for any shares not taken up. Before that, it will also convert Tigerair convertible securities it currently holds into new shares.

This is not the first time SIA has come to Tigerair's rescue. Since 2011, it has doled out at least $100 million in two earlier fund-raising exercises, and seemingly gained nothing.

"It's putting good money into a bad business," said UOB Kay Hian's K. Ajith.

Tigerair has scaled back its operations significantly in the last few months by closing down subsidiaries in Indonesia and the Philippines. Its 40 per cent stake in Tigerair Australia will be sold to Virgin Australia for A$1 (S$1.13).

Bruised and battered, Tigerair is not expected to return to the black until after 2016 at the earliest.

So why is SIA wasting its time and money? Why not just let the Tiger tail fall from the sky?

Because despite current challenges, experts believe that the demand for short-haul low-cost flights in Asia will continue to grow strongly in the coming years.

Without Tigerair, SIA has no presence in this market, leaving it defenceless against rivals like AirAsia, Jetstar and Lion Air.

With the likes of Emirates and Cathay Pacific putting intense pressure on its premium long-haul business, SIA also believes it must diversify and enter new market segments to continue to fly high.

In short, SIA has no choice but to keep Tigerair alive, even if it means effectively taking control of the carrier.

This was never the plan.

In December 2003 when SIA's then chief executive officer Chew Choon Seng announced plans to launch Tiger Airways, he made it clear that SIA would not be in the captain's seat.

Many previous attempts by full-service carriers to run budget airlines had failed, he said. "The low-cost model requires completely different methods and procedures, marketing approaches and skills, and it is hard to be both premium full service and low cost, no frills at the same time. Hence our decision to have it as a 49 per cent-owned associate company rather than a majority-owned subsidiary."

For as long as Tigerair managed its affairs well, SIA did not intervene.

But the shocking grounding of Tiger Airways Australia in July 2011 by the Australian civil aviation authority over safety concerns led to a management overhaul and the entry of an SIA divisional vice-president, Mr Chin Yau Seng, as Tiger's new head.

Industry veteran J. Y. Pillay, widely credited with turning SIA into a global leader, joined as non-executive chairman the same month, although he was approached by Tiger's board even before the kerfuffle in Australia.

Mr Chin stayed for a year before passing the helm to shipping veteran Koay Peng Yen, who served for about two years.

After he left in May, yet another SIA senior executive, Mr Lee Lik Hsin, took over as group chief executive officer.

Like many other low-cost carriers, Tigerair has been hit by regional overcapacity - airlines adding more seats than demand can soak up - which has pushed fares and takings down.

But unlike Malaysia's AirAsia and Indonesia's Lion Air which operate out of huge domestic markets that have cushioned some of the impact of overcapacity on international routes, Tigerair and, by the same token, Singapore's Jetstar Asia, do not have a similar advantage.

Tigerair also made mistakes along the way, with its management "clearly bordering on being clueless", said Associate Professor Terence Fan of the Singapore Management University.

With higher costs than rivals like AirAsia, for example, Tigerair should have stayed away from well-established low-cost territories and opted instead for newly emerging markets like Taiwan and Japan, where competition is less intense and yields higher, he said.

Lessons learnt, the current plan is to downsize, focus on the Singapore operations and turn losses into profits, with SIA's money and expertise.

The past few years were painful but the business restructuring in the last few months, and SIA preparing to take on a bigger stake and role in the running of the airline, could be just what Tigerair needs.

For one thing, it would pave the way for the short-haul budget carrier to work more closely with SIA's wholly-owned long-haul budget arm, Scoot, which they have not been able to do effectively thus far.

This was in fact the plan when SIA launched Scoot in June 2012, as part of its portfolio strategy of having a presence in all the key business segments.

SIA's chief executive officer, Mr Goh Choon Phong, speaking at the group's annual results briefing in May, said: "Tiger and Scoot make natural partners in connectivity. One with narrowbody aircraft servicing largely the region. And the other with the ability to go medium, and potentially in the future perhaps long haul, and operating widebodies, and for them to connect with each other."

Scoot working with Tigerair allows SIA to be present "in virtually all the different segments of the travel industry", Mr Goh said.

"And what needs to be done, as we have done for SIA and SilkAir, is closer integration," he added.

A plan is being worked out and details will be unveiled soon, insiders say.

As long as Tigerair has a place in SIA's overall business strategy, it will have the backing of the premium carrier, said Mr Shukor Yusof of aviation consultancy Endau Analytics.

Never mind that the carrier's "raison d'etre is in doubt, given its weak foundation, limited growth potential and inability to compete effectively", he added.

With Asean moving towards open skies, it is also in SIA's interest to keep Tigerair alive, analysts say.

The goal, by the end of next year, is for the 10 member nations to remove all restrictions on flights from their countries.

When this happens, and as airports in the region continue to invest in infrastructure to boost their handling capacity, carriers like Tigerair will be able to fly as and where they choose within the region.

Today, air services are bound by government-to-government deals and countries are sometimes reluctant to open their skies fully to airlines from neighbouring states for fear that their own carriers will not be able to compete with foreign airlines.

The Tiger is badly wounded but with a clear recovery plan and enough money and expertise to execute it, there is no reason why it cannot roar back in time to cash in on the region's aviation liberalisation and other future opportunities.

SIA will leave no stone unturned to see that this happens.

Mr Shukor said: "SIA has deep pockets and, loss of money aside, it's loss of face and loss of influence in a critical part of the business that they are probably most concerned with."

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SIA filled higher proportion of seats in July

National carrier Singapore Airlines (SIA) filled a higher proportion of its seats last month as it carried more passengers and capacity declined, the airline said on Friday (Aug 15).

SIA said its passenger load factor rose to 81.7 per cent in July, from 80.8 per cent a year ago. The number of passengers carried increased by 1.6 per cent year-on-year to 1.6 million.

Its capacity, as measured in seats per kilometres, fell 1 per cent in July from a year ago. The Singapore flag carrier's passenger load factor improved across all regions except for the Americas. Regional unit SilkAir also saw a rise in passenger load factor to 70.5 per cent from 70.1 per cent a year ago.

SIA said the higher passenger traffic was part due to the Hari Raya holidays taking place in July this year, unlike in 2013 when the holiday period fell in August.

Looking ahead, SIA said the operating environment remains challenging. "Capacity will be adjusted accordingly to better match market demand and promotional activities shall continue in markets that require additional support," it said.

SIA's overall load factor, which takes into consideration cargo carried relative to capacity, was also higher last month, hitting 69.8 per cent compared with 69 per cent in the same month last year.

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SIA Q1 profit falls 71.3%, flags weak outlook

Singapore Airlines, Asia’s second-largest carrier by market value, reported a 71.3 per cent fall in its fiscal first-quarter net profit, as intense competition for passengers and cargo squeezed yields and its share of profits from associated companies dropped, mainly because of losses at Tiger Airways.

“Looking at the competition and what is coming in terms of capacity, we think that the next 1-2 years will continue to exert pressure on yields. We will have to manage our costs better, including fuel costs, in order to stay competitive,” SIA chairman Stephen Lee said on the sidelines of the company’s shareholders’ meeting today (July 30).

Five analysts have a “sell” rating on SIA, six rate it as a “buy” and 10 have a “hold” recommendation.

Battling intense competition from Gulf airlines and discount carriers, SIA Chief Executive Goh Choon Phong is pushing Singapore’s flag carrier into new markets including India, while increasing the group’s exposure to the low-cost segment through Tiger and its fully-owned subsidiary Scoot.

An overcapacity in the global air freight market is also hitting SIA, whose cargo unit still reported an operating loss.

Net income in the three months ended June was S$34.8 million, compared with S$121.8 million a year earlier, SIA said. Sales dropped 4.1 per cent to S$3.68 billion.

SIA, facing increased competition from budget airlines and Middle East carriers such as Emirates that are expanding into Asia, took a loss of S$18.9 million from associated companies, mainly from Tiger, in the quarter, compared with a loss of S$2.9 million a year earlier, according to the statement.

Tiger, which is 40 per cent owned by SIA, earlier this month reported a loss of S$65.2 million in the quarter ended in June, widening from a S$32.8 million loss a year earlier. The budget carrier plans to put more focus on growing its overseas business and ground eight planes to help revive the business after losing money for three straight quarters.

Travel demand to Thailand has eased since the May imposition of martial law while the two crashes involving Malaysian Airlines planes threaten to slow visitor arrivals to the Southeast Asian region.

“This sector has got far, far too much outside its own ability to control,” said Mr Credit Suisse analyst Timothy Ross. “There’s going to be weaknesses in Southeast Asia, where we’ve seen Thailand impact travel demand. The ongoing difficulties that Malaysian Airlines is having probably rubbed off a little bit for travel demand in the region.”

Operating profit dropped 52 per cent in the first quarter as growing competition hurt ticket prices. The airline’s passenger yield, or the money earned from carrying travellers one kilometre, fell to 10.9 Singapore cents from 11.1 cents a year earlier, while cargo yield rose to 33 cents from 32.7 cents.

Cost of fuel, the airline’s biggest expense, fell 4.7 per cent to S$1.37 billion.

The airline gained S$20.4 million from fuel hedging in the quarter, compared with a loss of S$42.8 million, it said.

Passengers carried by SIA rose 1.7 per cent to 4.65 million in the quarter and the carrier filled 77.7 per cent of available seats. It packed 278.5 million kilograms of cargo, 0.4 per cent more than a year ago, and filled 62.4 per cent of space.

“Aggressive fares and capacity injections from competitors will continue to place pressure on yields,” SIA cautioned. “The outlook for the air transportation industry has become more challenging with continuing uncertain global economic climate, geo-political concerns in the region and elevated fuel prices,” SIA added.

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SilkAir to hold flight simulator event to mark delivery of new Boeing 737 jet

SilkAir is giving up to 150 aviation buffs an opportunity to fly a Boeing 737-800 simulator, to mark the delivery of its first new B-737 jet.

The 25-hour flight simulator event will track the actual delivery route from Boeing's Renton factory in Seattle, in the United States, to Changi Airport.

It will take place overnight from Feb 7 to 8 at Flight Experience Singapore at the Singapore Flyer. SilkAir which has ordered 54 of the aircraft will collect eight this year.

The first will start flying to Kuala Lumpur, Penang, Phuket and Medan from Feb 20.

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Free wireless inflight entertainment for SilkAir passengers

The growing competition in the skies has prompted airlines to raise their service offerings to attract passengers.

In a latest move, SilkAir has started a wireless inflight entertainment system trial on one of its Airbus A-320 aircraft.

The system allows passengers to stream movies, TV programmes and music directly onto their personal devices while on a flight.

They can then access the content through their laptops, tablets and smartphones.

And this service will be free to customers.

SilkAir, a subsidiary of Singapore Airlines, has partnered Panasonic Avionics Corporation for the trial.

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Haze update: SilkAir flight turned back from Pekanbaru due to poor visibility

A SilkAir flight had to return to Singapore on Monday morning, due to the worsening haze condition in Pekanbaru.

The SilkAir flight, MI 252, had arrived at Syarif Kasim II airport in the provincial capital of Riau province at about 8am.

Airport duty manager, Mr Baiquni, told The Straits Times that the flight was unable to land due to low visibility at the airport.

"The haze was thick and the pilot had to circle around the airport to find a way to land the plane.

"His first attempt to land from the west failed. He tried again to land from the north, but again, he couldn't do so. The pilot then decided to return to Singapore," he said.

Mr Baiquni added: "Visibility was only 300 metres this morning. Planes need a visibility level of at least 2,000 metres to touch down or take off."

A total of 11 flights were affected between 8am and 11am today. An AirAsia flight flying in from Bandung had to be diverted to Kuala Lumpur, while a Lion Air flight from Jakarta was diverted to Medan. The rest of the eight flights were delayed either at Syarif Kasim II airport or from their place of origin.

Normal operations resumed at the airport after 11am, when the sky cleared up.

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Haze wrecking havoc in the region, with visuals severely affected and flights are embroiled into the matter. The forests in Sumatra are still burning and the haze situation is not showing any signs of let up. With the wind direction now blowing towards Malaysia, it will affect bigger airports like KLIA. Changi Airport handled the situation pretty well, let's hope the haze will clear up soon. Pray for rain in Sumatra.

SIA passenger load factor falls in May

Singapore Airlines' (SIA) passenger load factor fell 1.2 percentage points on-year to 74.6 per cent in May.

In a statement issued Monday, the airline said load factors eased across all regions, with Europe and the South West Pacific regions registering the highest declines.

In the face of a challenging operating environment, SIA said its efforts to boost loads are expected to exert pressure yields.

Meanwhile, SilkAir carried 5.9 per cent more passengers per kilometre despite a 17.2 per cent growth in capacity.

This led to a fall in its passenger load factor by 7.0 percentage points on-year, from 73.2 per cent to 66.2 per cent.

Overall cargo traffic was 5.1 per cent lower on-year, while capacity decreased by 3.8 per cent.

The carrier cited weak traffic against capacity changes as the main cause for the decline.

The only exceptions were Europe, where the change in load factor was positive, and South West Pacific, where traffic and capacity changes were on par year-on-year. 

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Languishing around with load factor dropping, it seems that every A380 flight to and from Europe isn't making enough money as it seems.

SIA seeks to boost earnings amid global economic slowdown

Singapore Airlines' more than US$17 billion deal is one of the company's biggest orders yet.

Southeast Asia's biggest carrier has been finding ways to boost earnings as profit margins continue to be squeezed by the slowdown in the global economy.

Analysts say SIA could still find other ways to increase its passenger yields, such as revamping SilkAir and partnering up with other Asian airlines.

Singapore Airlines is beefing up its fleet with newer planes.

It is also pumping money back into its core segment - the business class.

It will roll out an upgraded version of "next-generation' cabins come September 2013.

Leithen Francis, editor of Aviation Week, said: "The decision to introduce a new business class offering will definitely perk up interest in the market place and encourage people to fly business class on SIA."

SIA also signed a contract to overhaul its entire customer experience this month.

SIA signed a contract with Accenture for the development of a new IT system to enable the airline to deliver an enhanced travel experience that focuses on meeting more of its customers' travel needs. Implementation is scheduled for the second half of 2014.

All this is done in an attempt to reverse dwindling fortunes as the airline industry suffers due to falling global demand.

SIA's cargo business have already taken a hit and the airline had already grounded two of its cargo planes to cut costs.

Asia Pacific cargo freight continues to weaken as well, falling 0.4 per cent in April compared to a year ago.

It is an indication of tougher times ahead for the aviation industry, and a sign of the weakening global demand.

Just last quarter, the company reported a S$44.2 million loss in the three months ended March 31.

Shukor Yusof, aviation analyst at Standard & Poor's, said: "It has not performed as well as many have expected it to be because of uncertainty in key markets in Europe, North America and sluggishness in those economies. Also, because its premium sector which is dependent on the profitability of SIA has been under pressure."

Premium class travel makes up about 40 per cent of SIA's revenue and that has been hit by companies cutting down on travel budgets.

SIA did report pretty disappointing results in the last financial year but analysts say that's due mainly to the global economic situation that has affected other legacy carriers as well.

But if SIA were to revamp SilkAir to capture more business traffic in Southeast Asia, that could have positive impact on its bottomline.

Leithen Francis added: "SilkAir seems to be very much positioned as a leisure carrier but I think you're going to see SilkAir make more of a concerted effort to really win over and cater to business travellers. There is definitely going to be a growing demand for business traffic on short-haul routes within Asia and that's the market SilkAir caters to."

To tap into China's vast travel market, SIA recently signed a code-share agreement with Shenzhen Airlines.

Shashank Nigam, CEO of Simpliflying, said: "It really depends on what partnerships they strike. That's going to be key for SIA because they're not going on their own mettle. The fleet size will remain the same at 101 planes this year. So it's really about striking partnerships in India, China and even the Middle East carriers, like what Emirates has done with Qantas."

Analysts say they expect SIA's passenger numbers for the next financial year (FY14/15) to grow by about 4 per cent to 5 per cent.

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Cargo not doing well, premium class seats not doing well. It seems SilkAir shall be SIA's trump card. As long as USA's and EU's economies remain in the doldrums, it will be tough for the airline to bounce back.

SIA passenger load factor rises in Dec 2012

Singapore Airlines' (SIA) passenger load factor (PLF), or the average occupancy per aircraft, rose 2.6 percentage points year-on-year to 82.2 per cent in December 2012.

The number of people flying Singapore Airlines (SIA) was also up 6.0 per cent over the same time in 2012, bringing the number of passengers to 1.6 million.

In a statement on Tuesday, SIA said operating numbers jumped because of a strong holiday travel season. Long haul routes to the Americas and Europe led year-on-year gains with 3.4 per cent and 3.9 per cent respectively.

The airline also said it carried 6.1 per cent more passengers per kilometre, which outpaced the 2.8 per cent growth in capacity, measured in available seat kilometres.

Meanwhile, SilkAir carried 11.1 per cent more passengers per kilometre on-year, but lagged behind a 19.8 per cent jump in its growth capacity. This dragged SilkAir's passenger load factor down 6.0 percentage points to 77.1 per cent.

Overall cargo traffic (measured in freight-tonne-kilometres) was also down 8.0 per cent from the same time last year, while cargo capacity tumbled 9.0 per cent. The company said this caused the cargo load factor (CLF) to edge up by 0.8 percentage point.

With the exception of East Asia and the Americas, load factors were higher for all route regions.

CLF for the East Asia route region dipped 3.3 percentage points as demand failed to match capacity increases. The South West Pacific saw the biggest increase in CLF, bumping up 6.5 percentage points due to movement of seasonal perishables.

Still, things have been bumpy for the airline, which is often considered a bellwether for the entire service airline industry, as it implements a slew of cost cutting measures. Earlier this month, SIA asked its captains to volunteer for unpaid leave.

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Good thing that there are still a lot of people taking SIA flights, bad thing is that this increase in load doesn't really translate into profits due to the high costs of operating the flights, mainly fuel, coupling with price promotions to compete with other airlines.

Once the fuel costs come down, SIA should be doing ok, and the pilots can come for work again.

Boeing, SilkAir Finalize Order for 54 737s

Boeing and SilkAir have finalized an order for 54 Next-Generation 737s and 737 MAX 8s worth $4.9 billion at list prices. With this agreement, the 737 MAX has accumulated 969 orders to date.

SilkAir's order for 23 737-800s and 31 737 MAX 8s is the largest order in the airline's history and begins a fleet transition to Boeing airplanes.

"The capability of the 737s will enable us to spread our wings to even more destinations and increase capacity on existing routes," said SilkAir Chief Executive Leslie Thng.

The Next-Generation 737 and 737 MAX can fly farther than competing airplanes, enabling airlines to open new routes.

"As air travel in the Asia Pacific region continues to grow, we're proud to support SilkAir as it plans to fly more passengers and serve more cities," said Dinesh Keskar, senior vice president of Asia Pacific and India Sales, Boeing Commercial Airplanes. "Passengers will soon experience not only SilkAir's award-winning service, but the comfort of the 737 Boeing Sky Interior."

Both the Next-Generation 737 and 737 MAX feature the Boeing Sky Interior, which highlights new modern sculpted sidewalls and window reveals, LED lighting that enhances the sense of spaciousness and larger pivoting overhead stowage bins.

The 737 MAX is a new-engine variant of the world's best-selling airplane and builds on the strengths of today's Next-Generation 737. The 737 MAX incorporates the latest-technology CFM International LEAP-1B engines to deliver the highest efficiency, reliability and passenger comfort in the single-aisle market. Airlines operating the 737 MAX will see a 13 percent fuel-use improvement over today's most fuel-efficient single-aisle airplanes and an 8 percent operating cost per seat advantage over tomorrow's competition.

The SilkAir order brings the net year-to-date total for 737s ordered in 2012 to 1,031 airplanes. This is the first time in the single-aisle jetliner's history that it has logged more than 1,000 orders in a single year. The 737 also broke its own record for net orders this past October when it topped the 2007 record of 846 orders.

SilkAir is a full-service airline and the regional wing of Singapore Airlines. It currently flies to 42 destinations across 12 countries.

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After SilkAir's intent to switch fully to B737 few months back, this piece of news confirmed that they are indeed ditching the A320 for the newer, more efficient and better ranged Boeing. Boeing must have given the airline a pretty attractive discount package to convince them to totally switch over to 737.

Having such a massive order and fleet renewal is not easy for the airline. Cabin crew, pilots, engineers, simulators etc etc will have to be retrained in order for them to have the necessary knowledge to fly the new model.

Maybe it is also a way for SilkAir to distinguish itself from the many low cost carriers operating in Singapore with all of them utilising the A320. I would love to have a try on the B737 when it arrives as I've never sat in one before.

SIA shares fall as airline posts poor profits

SINGAPORE - Shares in Singapore Airlines fell sharply following the announcement of a steep decline in profit and after Chief Executive Officer Goh Choon Phong said he expected the second half of the financial year to be "very challenging", slowed down by the dual headwinds of high fuel prices and the economic situation in key markets.

Shares ended 1 per cent down on Monday at S$10.47, after falling earlier in the session to a four-month low of S$10.40, as the market gave its first reaction to Friday's announcement of a 54-per-cent drop in second quarter net profit on higher losses in the cargo business.

Although the result was not unexpected, the company's downbeat outlook for the second half gave investors an incentive to sell.

Speaking at a briefing on Monday morning, Mr Goh reiterated that there was little relief on the immediate horizon.

"We can expect that going forward the economy will continue to be very challenging or perhaps even more challenging than it is now, and we don't see any reprieve in terms of improvement especially from economies such as Europe," he said.

Still, despite the gloomy outlook, the airline thinks its strategy of developing both the premium and no-frills components of its business leaves it in the best possible position to weather the turbulence.

On the premium front, SilkAir is expanding and working more closely with SIA on fleet and route planning. This has resulted in a 25-per-cent increase in cross-selling between the two full-service wings of the airline, Mr Goh announced.

Meanwhile, at the budget end, Scoot is also expanding while working more closely with low-cost partner Tiger Airways to stimulate new traffic and tap new markets.

As a result of this dual-pronged approach, "SIA is able to participate in the growth of virtually any of the segments of the airline business. At different points in time, different segments of the airline portfolio grow at a different rate and are affected in a different manner," said Mr Goh.

Analysts, though, are sceptical about the impact of such measures on SIA's bottom line.

"Although SIA has attempted to stave off competition from the low-cost carriers and the Middle Eastern airlines via the development of SilkAir and the broadening of its alliance network, we think these actions will not have an immediate impact on profitability. As such, we see further near-term challenges," said CIMB Research. - David Bottomley

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Investors are not very optimistic about SIA's future and started dumping the stocks, and they are not to be blamed for it. It's tough times ahead for SIA, but all is not lost. 

The main fleet may not be performing well, but as a group, they should do much better considering Scoot, SilkAir and Tiger Airways have got great potential in the days ahead. One very good example is Qantas posting poor results but its Jetstar Group did exceptionally well and is able to minimise the impact of profit loss in 2011.

Perhaps low cost is the way to go now.