Singapore Airlines faces squeeze<\/p>\n
SINGAPORE (AFP): Singapore Airlines Ltd. (SIA) is facing a
\nfinancial squeeze from rising costs and intensifying competition
\nbut can still make S$1 billion (US$700 million) in profits a
\nyear, a top official said.<\/p>\n
Deputy Chairman Cheong Choong Kong said in an in-house company
\npublication made available to news agencies yesterday that SIA
\nwould further cut costs and explore new business areas, including
\ninvestments in new airlines overseas.<\/p>\n
He said SIA's cargo division, currently hit by soft demand,
\ncould be spun off as an independent subsidiary within two or
\nthree years after it becomes profitable, and did not rule out the
\npossibility that existing subsidiaries like Silk Air could be
\nlisted separately from SIA.<\/p>\n
SIA, the world's most profitable airline, posted group net
\nprofits of S$1.025 billion in the financial year ending March
\n1996, on revenues of S$6.89 billion. Core airline operations
\naccounted for 74 percent of profits.<\/p>\n
SIA joined other international airlines in raising fares by
\nthree percent last month due to escalating fuel costs.<\/p>\n
Cheong said the strong Singapore dollar -- worth around 1.4 to
\nthe U.S. dollar -- lowers aircraft and fuel costs but depresses
\nprofits by lowering the value of remitted earnings. Eighty
\npercent of SIA revenues are in foreign currencies.<\/p>\n
Higher rents and higher wages have also put financial pressure
\non the group, which employs more than 26,000 people, even as
\nSingapore's status as a connecting hub is under threat, Cheong
\nsaid.<\/p>\n
\"As the aviation world deregulates, and as airlines expand in
\nthe way that we ourselves have been doing, it will become
\nincreasingly difficult to persuade people to fly from A to B via
\nthe Singapore hub,\" Cheong said.<\/p>\n
\"The net result of all these difficult problems is narrowing
\nprofit margins. We can still continue to make around one billion
\ndollars profit a year, but as our investments and shareholders'
\nfunds increase, the rate of return will continue to decline,\" he
\nsaid.<\/p>\n
Cheong said SIA would meet the challenges by improving
\nproductivity through increased automation, reducing the need for
\nforeign labor, and transferring some operations overseas.<\/p>\n
Revenue accounting is already being done in Beijing while
\ncomputer software development has been shifted to Madras, India,
\nwhile some aircraft maintenance work has started in Xiamen,
\nChina, Cheong noted.<\/p>\n
\"A major solution lies in starting airlines-related joint
\nventures overseas, where the costs are lower and the growth rates
\nhigher because growth is from a lower base, all of which means
\nhigher rates of return for the group,\" he said.<\/p>\n
SIA is negotiating for a joint-venture domestic airline in
\nIndia with the Tata group.<\/p>\n
\"Such interest need not be confined to that country,\" Cheong
\nsaid, but he said such investments were risky and could take time
\nto be profitable.<\/p>\n
\"The risk is high and there can be delicate, politically
\nsensitive issues. We may not see returns in the first few years.
\nSome ventures may even fail. But there is no other way -- nothing
\nventured, nothing gained,\" he said.<\/p>\n
In cargo, SIA would take \"the long term view\" and continue
\nexpanding its capacity despite the current soft market resulting
\nfrom the economic slowdown in Singapore and other major markets,
\nhe said.<\/p>\n
Cheong said SIA would stick to its core business and ruled out
\na major foray into the hotel business despite its 20 percent
\nstake in the newly opened Ritz Carlton hotel in Singapore and two
\nsmall hotels in Indonesia.<\/p>\n
\"For the foreseeable future, we will stay with the business we
\nknow,\" he said.<\/p>",
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