Singapore Airlines Ltd. (SIA) receives its 19th Airbus SAS A380 today, leaving the biggest buyer of jumbo jets with none on order for the first time in 30 years.
The handover for the 409-seat aircraft in Toulouse, France, comes as the airline builds future growth around smaller long-haul planes amid falling passenger numbers and competition from Gulf carriers. The company is also boosting its focus on regional routes with unit SilkAir ordering 54 Boeing Co. (BA:US) 737 planes because of rising Asian travel.
“Singapore Air probably won’t be spending so much on long-haul now,” said Rigan Wong, an analyst at Citigroup Inc. in Hong Kong. “It doesn’t make sense in terms of the economic growth story.”
The carrier has bought 112 A380s and Boeing Co. 747s since 1972 as it developed a global network alongside a government push to turn the city-state into a hub linking Europe, Asia and Australia. The strategy has faltered over the past few years as Middle Eastern cities led by Dubai lure business with similar plans. Dubai-owned Emirates, which today announced a partnership with Qantas Airways Ltd. (QAN), has become the world’s largest international airline as it works through orders for 90 A380s.
“Singapore Airlines was one of the major successes and sources of pride in Singapore’s economic development,” said Garry Rodan, a professor specializing in the city-state’s economic history at Murdoch University in Perth, Australia. Emirates now has a similar role as a “state-linked company that’s trying to exploit its particular location” between Asia and Europe, he said.
Emirates, which first flew in 1985, will gain access to more destinations and a bigger Australian sales network through the tie-up with Qantas. The Australian carrier will be able to offer a wider range of one-stop flights to Europe as it shifts its hub for the continent to Dubai from Singapore.
Singapore Air fell as much as 0.4 percent to S$10.47 in Singapore trading and changed hands at S$10.50 at 12:15 p.m. The stock has risen 3.4 percent this year, compared with the Straits Times Index’s 13 percent gain.
Competition from Gulf carriers and the Euro-zone debt crisis have caused passenger numbers at Singapore Air’s main unit to drop 10 percent since 2008 to 17 million last year. By contrast, SilkAir’s passengers have jumped 66 percent in the same period to 3 million as growth in China, India and Southeast Asia spurs regional travel.
SilkAir, whose shortest route is a 40-minute hop to Kuala Lumpur, announced its largest aircraft purchase on Aug. 3 with the Boeing deal valued at $4.9 billion at list prices. The unit has 21 planes at present.
Singapore Air’s main unit, which flies to cities including London, New York and Sydney, only has wide-body aircraft in its fleet. The airline has 13 747 freighters and retired its last passenger 747 in April. Japan Airlines Co., the biggest buyer of 747s, retired its last jumbo jet last year. Tokyo-based JAL hasn’t ordered the four-engine A380 or Boeing’s new 747-8.
Singapore Air has firm orders for 20 Airbus (EAD) A350s, 20 Boeing 787s, 15 A330s, and eight 777s, all of which are long-haul twin-aisle planes seating less than 400 passengers. The carrier also has options for 20 A350s, 20 787s and six A380s.
The airline is offering internet connectivity to passengers on 14 aircraft starting today, it said in a statement. The service will be extended to all of Singapore Air’s A380-800, A340-500 and 777-300ER planes over the next two years.
“We take a long-term approach with our fleet planning and regularly invest in the latest aircraft technology,” spokesman Nicholas Ionides said by e-mail. The carrier hasn’t decided to order more A380s yet, he said.
Airbus is talking to the airline about the outstanding A380 options, John Leahy, its chief operating officer, said this week. He declined to comment on when they might be exercised.
Singapore Air has had a consistent stream of 747s or A380s on order since a nine-month period ended December 1981, based on its 2000 annual report and data on Boeing’s website. Prior to that, there had always been deliveries pending since the carrier ordered its first jumbo in 1972, the data show.
The airline first ordered A380s in 2000. It became the first carrier to operate the plane in October 2007 after a two-year delay caused by production holdups. The airline has so far shunned the Boeing 747-8, which was certified last year.
Singapore Air’s first 11 A380s had 471 seats while the remaining eight, including the jet being delivered today, have 409, Ionides said.
The Singapore Air A380 will be the 15th delivered by Toulouse-based Airbus this year and 82nd overall. The planemaker has won a total of 257 orders for the aircraft. This year, it has won four orders from Russia’s Transaero Airlines valued at about $1.58 billion. It may be a “stretch” to hit a target of 30 orders this year, Airbus’s Leahy said in July.
“The market for large aircraft has been slow,” he said this week in London.
Long-term demographic factors will continue to benefit the biggest aircraft, according to Airbus. The number of mega-cities with more than 10,000 daily long-haul passengers will grow from 42 to 92 in the next two decades, representing more than 95 percent of global long-haul traffic. That move will benefit larger aircraft capable of taking advantage of limited landing slots, the planemaker said.
Still, Airbus only expects airlines to order 1,710 very large aircraft over 20 years, compared with 6,970 smaller twin-aisle planes. Boeing predicts even less demand with a market for 790 larger units.
“There are some growth opportunities, but it is primarily a replacement market from our perspective,” Randy Tinseth, vice president for marketing at Boeing’s commercial unit, said yesterday in Beijing. “There are really just a handful of customers around the world that can make it work.”
The greater demand for twin-engine planes, such as the 787s and Airbus A350, reflects the fact that they now have ranges comparable with four-engine A380s and 747s, said Darin Lee, a Boston-based senior vice president at FTI Consulting Inc. (FCN:US)’s Compass Lexecon consultancy. These aircraft are also less risky options because they use less fuel, are cheaper to run and require fewer passengers to break even, he said.
“Carriers have found that it’s better to err on the side of smaller aircraft they can fill up at better yields,” he said. “Ultra-large aircraft will probably have a smaller, albeit still significant, role in Singapore’s fleet in future.”
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