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Staff cuts are coming for Singapore Airlines with calendar Q2 “almost certain” to be a money-loser. This won’t be a first for the carrier, but it’s definitely rare. Since going public in 1985, SINGF has only had one quarterly loss until now. It took the SARS epidemic to put this company into the red for three months, back in 2003. According to four of the five analysts polled, there was little the company could do to avert the situation.
In a respectable move, the staff cuts are following that of the executive team, which has had 10% to 20% sliced from its salaries. An operating loss of $50 million or more for Q2 will cause staff paychecks to fall by at least 2.5%. SINGF is on the hook to cut 25% of the “monthly variable component” (MVC) that’s included in staff salaries if the airline’s loss pierces the $50 million threshold. MVC disappears in its entirety if the loss passes the $200 million mark. Currently, MVC accounts for only 10% of employees’ total compensation.
Employees have already been chipping in to reduce the airline’s costs. Pilots, for example, have sacrificed 65% of a day’s pay every month, and employees in general are working shorter weeks.
But, this hasn’t been enough.
Last month, SINGF cut capacity by 14.4%, but it could only fill 75.7% of seats – down from 80% in June 2008. Passenger traffic fell by 19.2%. First class and business passenger purchases are even more worrisome, as they account for almost 50% of the airline’s revenues. To fill planes, the company has also been cutting prices, exacerbating the revenue hit.
So, do you give up on Singapore Airlines on this news? Probably not. The carrier will struggle for a while, particularly given its reliance on up-market clients, but if it can push through the travel slump, its track record suggests the company will be able to pull it together. Of the past 90+ quarters, this is only the second to slip from the black … to call that history enviable is an understatement.