Some really grim news this morning, as Singapore Airlines has announced that it will be cutting 96% of its scheduled capacity till end-April 2020 and grounding 138 out of 147 aircraft. This comes after Scoot suspended most of its network until late April, grounding 47 out of 49 aircraft.
What does this mean?
Today’s announcement basically means that the SIA Group will be operating a skeleton crew for the foreseeable future, and as the company itself acknowledges, it’s unclear when normal services can be resumed.
It was only a week ago that SIA announced a 50% capacity cut until end-April, so it’s staggering to think how much has changed in such a short period of time. That’s the new normal for now though, with more and more countries closing borders by the day. It doesn’t help that Singapore itself is now closed to visitors and transit passengers, which means both point-to-point and connecting traffic is gone.
So what now for Singapore Airlines? Ideally, you’d think they could use the time to bring forward aircraft maintenance, especially the 4-6 weeks ‘D’ checks (although there’s little point frontloading them when they’re not yet due). They might also consider accelerating the cabin retrofits for the SilkAir fleet and the Singapore Airlines A380s. However, all this burns cash- a precious commodity at the moment.
Singapore Airlines has already unveiled plans to booster its financial position by asking staff to take no-pay leave, and cutting management salaries. In addition to this, the airline will also draw on its existing credit lines for immediate cash flow requirements, and enter into discussions with Boeing and Airbus to defer upcoming aircraft deliveries.
As far as I’m aware, these are the outstanding aircraft orders for the SIA group:
|B737 MAX 8||37||6||31|
I have no idea how much money this represents (aircraft list prices are notoriously different from the actual transacted prices), but it’s clear that deferring some of these deliveries would help preserve vital cash, plus avoid the situation of brand new aircraft sitting around doing nothing.
Other potential ways of raising capital may include sales and leasebacks of aircraft or new bond issuances, but given the current climate it’s tricky to see who would be in the market for that sort of thing.
It’s no exaggeration to say that the current Covid-19 outbreak has affected Singapore Airlines worse than 9/11 and SARS, and today’s development is going to have far reaching repercussions down its supply chain.
For the record, there’s little doubt in my mind that Singapore Airlines will survive this. It’s too much of a national icon to fail, and there’s even been speculation of a bailout in the near future.
So I wouldn’t lose too much sleep (although I imagine a lot of people at Airline House will) over things like your KrisFlyer miles or any outstanding tickets you have with the airline. It’s a hairy situation, but they’ll pull through.