Ah, remember those days… fond old memories like the first Gulf war, the Asian financial crisis and the SARS epidemic? If ever there was crisis in the airline industry, Singapore Airlines was one airline you could count on to emerge unscathed, or to at worst quickly bounce back.
That reputation is gone. Singapore and the ASEAN region are much wealthier places today than they were in decades past. Surrounding regions like northeast Asia and the Indian subcontinent have also become much richer. Asian air traffic has grown dramatically with help from deregulation. But Singapore Airlines is a much less profitable airline today than it was in say, the 1990s, when over the decade, its average annual operating margin was 11%, earning solid profits even as neighboring Asian economies imploded near the turn of the millennium. The 2000s were less lucrative—its average annual margin fell to 6%. Still, Singapore Airlines muscled out a modest profit after the 9/11 attacks and during the SARS scare, while other airlines were reeling. Not long after, in 2007, it enjoyed one of its best years ever. Not until the massive global financial crisis of 2009 did the airline record its first loss in recent memory.
Sure enough, it quickly bounced back with a solid profit in 2010. Then, however, deeper problems set in. Since 2010, its average annual operating margin has been less than 3%, never quite losing money in any given fiscal year but coming close in 2011. Does this descent into mediocrity stem from the sort of cost bloat that carriers can develop over time? Not really— Singapore Airlines maintains a rather competitive non-fuel cost base, with weak labor unions and favorable government policies, including low taxation and airport fees.
Fuel costs are another matter, and four straight years of $90- plus oil was particularly hard on a carrier so dependent on longhaul flying. The first half of the 2010s were also shaped by bad fuel hedges, weak cargo markets, an ill-fated investment in Virgin Australia, a devastating tsunami in Japan, Middle Eastern revolutions, repeated terror attacks and a weak global economy.
The most important reason for the recent troubles of Singapore Airlines, however, is a structural change in its competitive landscape. For much of its life, Singapore Airlines was like a battleship in a sea of shipwrecks, with immature state-owned Chinese…
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