Singapore’s Aviation Sector to move into high gear in 2005

Singapore’s aviation sector will move into high gear in 2005 to accommodate challenges inherent with the region’s burgeoning low-cost carrier market and the prospect of greater competition for air services for a share of the associated traffic growth, says the Centre for Asia Pacific in its Outlook 2005 report, released today.

The report bases its expectations for Singapore on a combination of:

* aggressive liberalisation focused on growth-oriented markets such as India and China and ASEAN countries;
* infrastructure development;
* a strategic push for LCC and transcontinental nonstop services;

According to the Centre, this “will ensure that Singapore will continue to benefit from the recovery cycle”.

“It has a head start as an LCC base over rivals Bangkok and Kuala Lumpur, given a receptive operating environment and Changi’s commitment to provide dedicated airport facilities – although Malaysia is moving quickly to adopt new strategies

“This, together with a robust growth in import-export trade, will characterise Singapore’s development as an aviation centre in the next 12 months. While the changing market structure and emergence of LCCs poses some threats to Singapore Airlines, efforts to rein in costs, expand premium long-haul services and compete in the regional budget market through Tiger Airways should considerably strengthen SIA’s position.”

Highlights of 2004 and the year ahead

* Singapore’s economy expanded by 8.1% for the full year in 2004, including 5.4% growth in the fourth quarter. The Ministry of Trade has warned however that growth has begun to slow, due to weakness in the important manufacturing sector. GDP growth is expected to moderate in 2005 to 4.0-4.5%;

* Singapore Tourism Board (STB) exceeded its target for 2004 in December when Singapore recorded its 8 millionth visitor. The strong results have been attributed to aggressive marketing campaigns and competitive airfares;

* As competition between hub airports intensifies, Singapore’s Changi Airport is positioning to capitalise on its rapid development as a low-cost gateway and the expansion of services to China, India and other high demand markets. The airport, operated by the Civil Aviation Authority of Singapore (CAAS), has recovered from the sharp setback related to SARS and set a course for strong growth in 2005 in both passenger and freight volumes;

* In 2004, Changi Airport surpassed its previous record throughput, achieved in 2002, by handling more than 30 million passengers. Cargo volume is down around 2-3% on 2002 and 2003 levels;

* Changi is moving to accommodate expected growth. The SGD250 million expansion of Terminal Two is scheduled for completion in 2005, and work is due to begin on a SGD250 million extension to Terminal One. The SGD1.8 billion Terminal Three is scheduled to open in 2008 (two years later than initially planned) and will have capacity for 20 million passengers per year; 

* The other major development planned by CAAS involves the construction of a new terminal for low-cost carriers by early 2006, as part of an agreement signed with Tiger Airways;

* Singapore Airlines is focused on growth and lowering its cost base. Its performance improved markedly in the first two quarters of the current year to 30 September 2004, with operating earnings of SGD307 million and SGD331 million, already not far short of the return for the entire 2003-04 year.

* SIA projects capacity for the 2004-05 fiscal year will be 18.5% higher than the previous year. The group’s regional subsidiary, SilkAir, also intends to lift capacity, by 10-15% annually, with the addition of six more A320 family aircraft by 2008;

* The airline is rebuilding its fleet with plans to secure up to 31 B777-300ERs, including firm orders for 18 of the aircraft, for delivery between 2006 and 2010, plus options to purchase 13 more B777-300ERs;

* SIA carried over 14 million passengers in the first ten months of 2004, up 22.8% year-on-year, but up just 3.2% on the same period in 2002. Capacity growth has been limited to 17% in 2004, or up around 6% on the same period in 2002;

* The LCC market is extremely crowded, with Thai AirAsia, Valuair and Qantas’ 40%-owned offshoot, Jetstar Asia, all operating into and out of Singapore.

The report states that “Singapore has been at the epicentre of the region’s aviation policy change and new airline entry in 2004”.

“Its role as the fulcrum for low-cost carrier development in Southeast Asia, and a dynamic growth centre for aviation services, will gather momentum in 2005. Four low cost carriers (LCC) (three of them locally-based) have entered the market in the past 12 months.”

Full-service operations into and out of Singapore are also growing, driven by liberalisation moves, including the recent “open skies” agreement with the United Arab Emirates and Sri Lanka, and a further expansion of Singapore Airlines’ network and commercial relationships within and outside of the Star Alliance. In late December, Singapore, Thailand and Brunei signed a Multilateral Agreement on the Liberalisation of Passenger Services.

“This trend should accelerate in the next 12 months as links to China and India increase, and additional bilateral and multilateral alliances are forged, including a possible “open skies” pact with Australia, possibly as early as mid-February,” the report adds.

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