We recently attended the 2019 Singapore Airlines Ltd (SIA) AGM held on 29 July 2019. 

Key highlights:

1. SIA’s 3-year transformation programme

• Fleet renewal and inclusion of new destinations with the new aircraft, for instance, the A350 new flight from Singapore to New York
• SIA has been able to expand its network with low-cost carriers such as Scoot and SilkAir. Of the 28 destination points in China, half are operated by Scoot and viable only through the LCC model
• Look for new revenue models, for instance, run Krishop using an omnichannel model and utilise more e-commerce
• Consolidate existing four brands into two brands (SIA, Scoot)
• Digitise more processes and solve problems with digital technology
• Others: launch more personalised products, new pricing model, better predictive maintenance needs, better-planned routes for pilots

2. Boeing Max

• SIA has six such planes. SIA will continue maintenance on these planes and not fly the,m
• Boeing is still looking to certify the plane in the U.S. For SIA to use these planes, need certification only in Singapore but destination countries.
• SIA will pursue all legal avenues as it has suffered revenue loss. The alternatives for other planes are limited to only Boeing and Airbus, and their order-books are full.
• An option for SIA is to lease more plane or slow down the retirement of old planes.

3. Fuel

• SIA has a five-year fuel hedge
• There is no commercially viable sustainable jet fuel.  Only used in demonstrative flights.
• Only new planes with a more fuel-efficient engine and using a composite material body can fuel be saved. Some new planes can garner 20-30% fuel efficiency

4. Competitive

• SIA does not have domestic travel business which tends to be captive and lucrative.
• US carriers are the most profitable now because consolidation ad they earn better yields
• SIA is important to Changi and accounts for 50% of their passenger load

5. India

• Vistara is an opportunity to access the domestic India passenger to fly internationally.

Commentary #

Still a very challenging industry and no sustainable competitive advantage. Any advantage in fuel from new planes is only temporary. SIA share price has not moved for the past 20 years.

Competition is intense and profitability is dependent on the vagaries of fuel prices.

# Phillip Securities Research does not have any recommendation on Singapore Airlines.