Gordon Tipene singapore SIA 7800009
© Gordon Tipene

Singapore Airlines is re-integrating subsidiary SIA Cargo, following a significant turnaround in the cargo carrier’s performance, to take advantage of the economies of scale of being part of larger corporation.

Singapore Airlines chief executive Goh Choo Phong explained: “Re-integrating SIA Cargo as a division within Singapore Airlines makes sense from a business standpoint. It will improve efficiency and offer greater flexibility for staff deployment by maximising synergies with the larger SIA business.”

The re-integration process is expected to be completed in the first half of 2018, with SIA Cargo becoming, simply, the ‘cargo division’.

Mr Choo Phong denied it meant the company was less interested in freight, however.

“Cargo remains an important part of our business, and we are committed to operating dedicated freighter aircraft for specialised cargo and to provide feed to the SIA network,” he said.

The decision to re-integrate follows a marked reversal in fortunes for SIA Cargo – last week its announced a $3m operating profit for the 12 months to April 2017, compared with a $50m loss the year before.

This came despite a 10.7% slide in yields, which in turn led to plummeting revenues – down $87m – but demand for freight carriage (5.9%) far outpaced the 3.8% growth in capacity.

This combined with lower fuel costs, which were down $142m, which propelled SIA Cargo back into the black after several years of losses.

However, SIA Cargo was largely blamed for the parent group’s 55.2% drop in net profit ($360m) after the carrier paid $132m to settle a legal case surrounding syndicated price fixing.

And despite a marginal 0.9% year-on-year increase in fourth-quarter revenues, SIA Cargo reported an operating loss of $5m for the final period of its 2016-2017 financial year.

However, that represented a considerable achievement over the previous year’s $40m fourth-quarter operating loss, as its cargo load factor was boosted by 2.3% to 63.6%.

The final quarter also saw it pull another of its 747-400 freighters from service, reducing its dedicated freighter fleet to just seven – though this is expected to be leased back.

When SIA Cargo was originally spun off in 2001, it was looking to grow its freighter fleet to 17 aircraft but it failed to overcome the past eight years of market weakness in airfreight.

“Since 2001 the airfreight market has since seen structural change and SIA Cargo’s freighter fleet has been ‘right-sized’ in recent years to the current seven aircraft,” said the carrier.

“The proportion of revenue from passenger aircraft bellyhold capacity has increased significantly, and SIA Cargo’s overall capacity still grew 4-5% in each of the past two financial years.”

The carrier added that it expects cargo capacity to grow 3% over 2017/2018, during which time it expects the re-integration process to have little impact on the group’s financial performance.

“SIA Cargo will continue to pursue charter opportunities and deploy capacity to match demand,” it added.

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