Singapore Airlines’ departure a sign of turmoil in Asia

February 24, 2009
Singapore Democrats

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Joanne Lee-Young
Canwest News Service

Aficionados are reeling from news that Singapore Airlines is axing its 20-year-old service to Vancouver.

“We just got an e-mail that they are cancelling their flight. We never guessed it could happen,” said Ravinder Gaba, a Vancouver-based travel agent who specializes in South Asia.

“I have talked to other agents and no one saw it coming. They have been here for so long. And it is a surprise, because it is a big name.”

By that, Gaba means that the airline has long described itself as the world’s heftiest by market cap; analysts have oft-lauded it as the best run and most profitable; and industry reviewers have consistently voted it No. 1 in many surveys.

But, of course, the mighty are stumbling all around the world and this example, in particular, gives B.C. consumers a front-seat view of the turmoil in Asia’s hardest-hit economies.

While China, India and Japan have hogged most recession-in-Asia headlines, this is a rare line into Singapore and Korea.

Even before the global credit crisis, Singapore was running out of steam, according to economist Yuwa Hedrick-Wong, who is based there. “Its so-called non-oil domestic exports plunged in early 2008, largely due to its badly managed currency policy. The Singapore dollar stayed too high for too long, sapping the competitiveness of its electronic exports, and when overseas demand collapsed, the entire sector that was weak to begin with got wiped out.

“On top of it all, Temasek, the state-owned investment fund, has lost about $50 billion US in the last three years,” said Hedrick-Wong in an e-mail.

Until recently, it was “run by the prime minister’s wife, who is now being replaced by [Chip Goodyear] the former CEO of Australian mining company BHP. So, no stone is [being] left unturned to improve profitability of all the state owned businesses, Singapore Airlines included.”

The Vancouver cut is “very sad news for me personally, as I am a frequent user of that connection,” said Hedrick-Wong. He will switch over to Cathay Pacific Airways and travel via its home base in Hong Kong. Others plan to do the same when making travel plans to India, said Gaba.

There are definitely a number of other options via airlines that go through Taipei and even Frankfurt, “but Singapore used to be our gateway to Southeast Asia and South Asia,” the same way Hong Kong serves mainland China, said Gaba. “It won’t be the case anymore.”

The Singapore-Vancouver flight picked up as much as 40 per cent of its passengers each way on a stopover in Seoul, Korea, according to Andrew Budiman, Vancouver-based vice-president Canada at Singapore Airlines.

Unfortunately, this is another Asian market that has been particularly hard hit, according to The Economist. It recently specifically singled out both Singapore and Korea in a roundup of the region’s worst woes, saying that “in the fourth quarter of 2008, real GDP fell by an annualized rate of 21 per cent in South Korea and 17 per cent in Singapore.”

It pointed out that: “South Korea is an exception to the rule of Asian prudence. Its households’ debt amounts to 150 per cent of disposable income, even higher than in America. The banking system, which borrowed heavily abroad to finance a surge in domestic lending, has also been badly hit by the global credit crunch, making it harder for firms to finance investment.”

Now, following the Vancouver announcement, Singapore Airlines said last week that it plans to cut capacity even further by 11 per cent from the preceding 12 months. So far, it hasn’t said exactly which other destinations will go or be reduced.

There is a global slowdown, but the outlook definitely seems more dire for Asia-Pacific airlines. So far, at least, international passenger numbers have dropped more steeply for Asia-Pacific carriers than their counterparts.

For December 2008, Asia-Pacific airlines recorded a 9.7-per-cent decline in traffic compared to just 2.7 per cent for European and 4.3 per cent for North American airlines. Asia Pacific carriers account for 45 per cent of the world’s cargo traffic and again, they led declines here, though more modestly. Singapore Airlines said its own cargo numbers have dropped over 20 per cent.

At Cathay Pacific Airways, which expects to pick up some incremental traffic from Singapore Airlines’ leaving Vancouver, spokeswoman Jennifer Pearson said: “You never like to see it happen. The market conditions are difficult. There is no question of this [because of] the worldwide economy we are facing at the minute.

“We have seen a softening in our business in first class travel, but the economy class is holding up quite well. We have less flights than last year. We had three flights a day; we now have two. We are very competitive right now.

“That is the name of the game.”

http://www.canada.com/business/fp/Singapore+Airlines+departure+sign+turmoil+Asia/1319802/story.html