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Would CX + SQ Make Money With US-type Competition  
User currently offlineSuperhub From Hong Kong, joined Jan 2006, 478 posts, RR: 0
Posted (8 years 4 months 4 weeks 9 hours ago) and read 3442 times:

Most of us agree that CX and SQ are the most profitable airlines in the world, and also the best-managed ones. On the other hand, aviation in Hong Kong and in Singapore is not as competitive as the US.

For example, take CX which bases itself in HKG. Effectively, CX is the dominant carrier in HKG with KA the second. However, the amount of competition between the two is limited. CX and KA only battle each other in certain trunk routes like HKG-PEK.

And even though there are some low-cost carriers around, they are not really challenging CX effecitvely for two reasons:

1) Many of the routes that low-cost carriers fly, for example HK Express, do not matter that much to CX or KA.

2) Some low cost airlines which fly to Macau or Shenzhen do not offer a real alternative to HKG simply because travelling to Macau and Shenzhen takes far too long plus there is also the issue of passport controls when HK people go into Macau or Shenzhen - contrast this with how OAK and SJC are real alternatives to SFO.

However, things are changing in Hong Kong. More low-cost carriers have sprung up at HKG, and it's about to see Oasis Air which will offer low-cost long-haul flights on some of CX's most profitable markets like HKG-LON. Furthermore, it is likely that HKG will liberalise the aviation market further with more competition between CX and KA nowadays.

Infrastructures will be in place to make it easier for HK people to travel to Shenzhen or Macau. For example, the smart ID cards which is being phased in HK will ultimately allow every HK people to go through the border as if they are going through subway (underground) turnstiles...it will only take 10-20 seconds to pass the border. Furthermore, a bridge linking Zhuhai, Macau and HK will shorten the time of travel between HK and Macau, and even Guangzhou.

I am quite sure that when all the infrastructure is in place, and when HK further liberalise air travel, CX will face very cut-throat competition (if we assume CX and KA will not merge). Will CX thrive in such environment? Or will they suffer like many US airlines do in America? How will merging CX and KA change the situation?

I do not know much about SQ and Singapore. All I know is that a lot of low cost airlines have set up operations there. Your thoughts on SQ will also be helpful.

27 replies: All unread, showing first 25:
 
User currently offlineSingapore_Air From United Kingdom, joined Nov 2000, 13739 posts, RR: 19
Reply 1, posted (8 years 4 months 4 weeks 9 hours ago) and read 3432 times:

A brief post as I'm meant to be revising.

Singapore Airlines Limited faces a lot of competition. A cynical view would probalby state that on most of its routes, there is not the kind of excess capacity that can be seen in the US domestic market.

On the traditional trunk route of Europe to South East Asia and Australasia the competition is intense. One can see this from yield analysis which indicates that the LONSYD route commands yields up to 27% lower than that of the less competetive (to put it mildly) SYDLAX route.

The onset of Emirates Airlines is a disturbing thought for all involved. The have built up a powerful European point to hub to point route network which has increased competition, particularly the leisure market.

At home, Singapore Airlines (I think) has been strongly pushing (if not pioneered) the concept of 2-to-go and 4-to-go cheapo fares to combat the LCCs. It seems that these fares are only valid on certain flights with lower load factors (e.g.: the new SQ876 to TPE, certain BKK flight numbers, the new SQ814 to CAN), can only be booked on the internet (to reduce the admin cost of such pax presumably) and have a restrictive minimum stay period and seem to have to be booked as relatively short notice. Load factors for the Asia region for SIA have been rising year on year recently which could show such a strategy to be paying off (in terms of loads. In terms of yields - if you don't work for SIA it's probably hard to tell but that doesn't mean we can't speculate).

Umm what else... Can't remember!



Anyone can fly, only the best Soar.
User currently offlineMutu From United Kingdom, joined Mar 2006, 536 posts, RR: 0
Reply 2, posted (8 years 4 months 4 weeks 9 hours ago) and read 3419 times:

I think I disagree with everything you suggest!! CX domestic market is a very small geographical mass so pretty well its entire network is competing against another flag carrier plus local competition. Asia is pretty good at the open skies stuff as well so 5th freedom rights are available to a number of major carriers
Similarly Singapore Air has competition from all the majors, huge kangaroo competition via its own back yard (imagine LAX as a stop off for europes carriers for RTW or westbound asia flights if this were logical, and you would be able to fly just about every asian, european and american long haul carrier from LAX to asia!!!)
Where they do well is on wages, which relative to some US/european carriers are a bit cheaper (actually not CX flight crew, a british legacy thing from Swire Group)
Finally i DO believe BA is in fact CURRENTLY (2005 financials) the worlds most profitable airline but march 2006 season onwards...who knows


User currently offlineZvezda From Lithuania, joined Aug 2004, 10511 posts, RR: 64
Reply 3, posted (8 years 4 months 4 weeks 9 hours ago) and read 3398 times:

Both CX and SQ face heavy international competition on nearly every route they fly.

User currently offlineSuperhub From Hong Kong, joined Jan 2006, 478 posts, RR: 0
Reply 4, posted (8 years 4 months 4 weeks 8 hours ago) and read 3364 times:

So most people agree that CX and SQ face heavy competition, from 5th freedom right and otherwise.

So with a lot of competition, why can CX and SQ still charge high prices and still have a loyal customer base, and make profit? Why can they still offer a premium service, even in Economy Class? People say that the US love cheap fares. I am sure the Chinese, whether from HK or the mainland, love cheap fares too - especially true in China where GDP per capita is far below the US.

Is there something US airlines can learn from CX and SQ? If a US airline offer the same premium service like CX and SQ, at a higher price, will people in the US fly that airline? If not, then why would the Chinese (especially HK people) like to fly a premium airline?

Quoting Mutu (Reply 2):
Finally i DO believe BA is in fact CURRENTLY (2005 financials) the worlds most profitable airline but march 2006 season onwards...who knows

Yes. I was going to mention BA as an example. The only thing which stopped me from it was the fact that they did not make a profit a few years back, apparently because low-cost carriers took a slice of the pie.

[Edited 2006-03-29 22:55:50]

User currently offlineSingapore_Air From United Kingdom, joined Nov 2000, 13739 posts, RR: 19
Reply 5, posted (8 years 4 months 4 weeks 8 hours ago) and read 3329 times:

Quoting Superhub (Reply 4):
Why can... SQ still charge high prices and still have a loyal customer base, and make profit?

Debatable, but Singapore Airlines Limited has / is trying to aim for (in Economy) for those who are price-concious (and tries to use yield management to draw these people out earlier etc...) but also those who want a comfortable trip, good food and excellent inflight service that even other airlines talk about. Then there's the probably very very small premium for the SIA brand and reputation.

In J and F - well that doesn't really need explanation.

Quoting Superhub (Reply 4):
Is there something US airlines can learn

Probably but either their unions won't allow it, their labo(u)r laws won't allow or some other reason that isn't purely neo-classical economically rational. Pity!



Anyone can fly, only the best Soar.
User currently offlineZvezda From Lithuania, joined Aug 2004, 10511 posts, RR: 64
Reply 6, posted (8 years 4 months 4 weeks 8 hours ago) and read 3321 times:

Quoting Singapore_Air (Reply 5):

Probably but either their unions won't allow it, their labo(u)r laws won't allow or some other reason that isn't purely neo-classical economically rational. Pity!

 checkmark  Exactly!


User currently offlineFlyingHippo From United States of America, joined Aug 2005, 684 posts, RR: 1
Reply 7, posted (8 years 4 months 4 weeks 8 hours ago) and read 3302 times:

Quoting Superhub (Reply 4):
Is there something US airlines can learn from CX and SQ?

Sure! get rid of the unions, only have FAs that is younger than 35.
US companies are prohibited from doing a lot of things that SQ, EK, JL, CX does.


User currently offlineSuperhub From Hong Kong, joined Jan 2006, 478 posts, RR: 0
Reply 8, posted (8 years 4 months 4 weeks 7 hours ago) and read 3281 times:

Quoting FlyingHippo (Reply 7):

Sure! get rid of the unions, only have FAs that is younger than 35.

Just out of curiosity, is this what B6 is effectively doing? I believe their crews are not in any unions, and many of the FAs are quite young.


User currently offlineMax999 From United States of America, joined Dec 2005, 1036 posts, RR: 0
Reply 9, posted (8 years 4 months 4 weeks 7 hours ago) and read 3281 times:

Quoting FlyingHippo (Reply 7):

Sure! get rid of the unions, only have FAs that is younger than 35.
US companies are prohibited from doing a lot of things that SQ, EK, JL, CX does.

CX is heavily unionized...from the pilots to the flight attendants. They have taken a number of industrial actions in the past.



All the things I really like to do are either immoral, illegal, or fattening.
User currently offlineHB88 From United Kingdom, joined Sep 2005, 816 posts, RR: 31
Reply 10, posted (8 years 4 months 4 weeks 7 hours ago) and read 3270 times:

Quoting Superhub (Reply 4):
Quoting Mutu (Reply 2):
Finally i DO believe BA is in fact CURRENTLY (2005 financials) the worlds most profitable airline but march 2006 season onwards...who knows

Yes. I was going to mention BA as an example. The only thing which stopped me from it was the fact that they did not make a profit a few years back, apparently because low-cost carriers took a slice of the pie.

I'm not sure if this is true or not, but I do recall reading recently that if BA had to take its pension deficit into account, it would actually be bankrupt.


User currently offlineSingapore_Air From United Kingdom, joined Nov 2000, 13739 posts, RR: 19
Reply 11, posted (8 years 4 months 4 weeks 7 hours ago) and read 3249 times:

Quoting FlyingHippo (Reply 7):
Sure! get rid of the unions, only have FAs that is younger than 35.

I think that's a slight exaggeration one has to admit! My point wasn't to get rid of the unions - far from it. Unions do have a place. However, unions have to make a judgement. From what it seems they have a choice of adapting to the (unfortunately) harsh reality of change to increase their competetiveness, or not. Yes, a reduction in workforce and increased productivity is needed but employees, in many industries, don't like that as it encroaches on their job security, wages etc..., which in all honesty is fair enough and completely understandable. However, by being rigid, the company / airline will not be able to compete effectively so the unions must choose between sacrificing their employees and benefits for the good of the company, or not. I think this is a more valid point for debate in another thread, which is better than "sure! get rid of the unions"

Quoting FlyingHippo (Reply 7):
US companies are prohibited from doing a lot of things that SQ, EK, JL, CX does.

OK, then if the airlines want it then they should lobby for a change in the law to enhance their flexibility with regards to hiring and firing.

Quoting HB88 (Reply 10):
I'm not sure if this is true or not, but I do recall reading recently that if BA had to take its pension deficit into account, it would actually be bankrupt.

If I am correct, I think you are referring to the institute a few months ago who suggested that BA should go into bankcruptcy, sort of the pension deficit once and for all (because for some reason it is easier to do it in bankcruptcy) and relaunch. BA management immediately slammed the professor(?) for making such a statement and said that they would never enter bankcruptcy under such a pretense!



Anyone can fly, only the best Soar.
User currently offlineBroocy From , joined Dec 1969, posts, RR:
Reply 12, posted (8 years 4 months 4 weeks 7 hours ago) and read 3207 times:

Quoting FlyingHippo (Reply 7):
Sure! get rid of the unions, only have FAs that is younger than 35.
US companies are prohibited from doing a lot of things that SQ, EK, JL, CX does.

There is far more to an airline cost structure than flight attendants! Both airliens have a focus on customer service that gives them a competitive advantage. SQ in particular has pioneered many services that have changed the way the customer experiences the industry- a choice of meals in economy, free drinks and cuttign edge IFE and communications. Also contrary to popular belief, I have seen mature women working the cabins on both these carriers, on CX they can be uniformed cabin managers and on SQ they are out of uniform crew checkers. There are options for long term careers for their female cabin crew.

CX and SQ face heavy competition on the routes they fly, just because it is not the US type competition does not diminish the challenges they faced and over come. Both CX and SQ over the decades have faced off challenges of rising fuel prices, terrorism in important markets and even SARS at their home bases. SARS proportionately reduced travel demand far, far more than 9/11's effect in the USA. The fact these airlines have survived these crises and consistently produced profits shows that they have well thought out management teams and proactive workers. I believe they could make profits in the US environment.

[Edited 2006-03-30 00:44:58]

[Edited 2006-03-30 00:46:03]

User currently offlineAirbazar From United States of America, joined Sep 2003, 8287 posts, RR: 10
Reply 13, posted (8 years 4 months 4 weeks 6 hours ago) and read 3193 times:

Quoting Superhub (Thread starter):
Most of us agree that CX and SQ are the most profitable airlines in the world, and also the best-managed ones. On the other hand, aviation in Hong Kong and in Singapore is not as competitive as the US.

I disagree. SQ and CX face tremendous competition on almost every route they fly which is more competition than any US legacy carrier.

Quoting Superhub (Thread starter):
For example, take CX which bases itself in HKG. Effectively, CX is the dominant carrier in HKG with KA the second. However, the amount of competition between the two is limited. CX and KA only battle each other in certain trunk routes like HKG-PEK

Ok, so what competiton does AA have at DFW, or US at PHL, or DL at ATL, or CO at EWR? Are you kidding me?

So to answer your question: Yes, CX and SQ would make a LOT more money with US type competition  Smile


User currently offlineSuperhub From Hong Kong, joined Jan 2006, 478 posts, RR: 0
Reply 14, posted (8 years 4 months 4 weeks 6 hours ago) and read 3159 times:

Quoting Airbazar (Reply 13):

So to answer your question: Yes, CX and SQ would make a LOT more money with US type competition

That's good to know. I am a CX fan so I hope they succeed.

Quoting Broocy (Reply 12):
SQ in particular has pioneered many services that have changed the way the customer experiences the industry- a choice of meals in economy, free drinks and cuttign edge IFE and communications.



Quoting Singapore_Air (Reply 5):
Debatable, but Singapore Airlines Limited has / is trying to aim for (in Economy) for those who are price-concious (and tries to use yield management to draw these people out earlier etc...) but also those who want a comfortable trip, good food and excellent inflight service that even other airlines talk about. Then there's the probably very very small premium for the SIA brand and reputation.

But then, if the formula for success is excellent inflight service, why are US airlines doing the opposite? I am just very curious. A lot of people say US airlines have to cut inflight service because people just care about cheap fares. But that is not really working in the US either. So why not follow what CX and SQ are doing? I know US labour laws are tighter than those in HK, but HKG's landing fees are expensive.


User currently offlineSingapore_Air From United Kingdom, joined Nov 2000, 13739 posts, RR: 19
Reply 15, posted (8 years 4 months 4 weeks 6 hours ago) and read 3140 times:

Quoting Superhub (Reply 14):
But then, if the formula for success is excellent inflight service, why are US airlines doing the opposite? I am just very curious

Brief post as I am about to sleep.

Off the top of my head - I can't really pinpoint the answer. Firstly they have their own structural problems to deal with. Their employees are inflexible and they have a relatively high cost base. Excellent inflight service requires excellent training. While Singapore Airlines puts stewards and stewardesses through a four month training course, I can probably guess with relative accuracy that the time is significantly less at most airlines. During these four months, the "batches" go through a rigorous safety training but also service delivery with can range from serving meals, deportment and having someone pick out whether your face has a warm or cool colour palette. One could assume that at U.S. airlines, for entry cabin crew anyway, most of the time is spent on safety. That is fine. However, it is not fair to expect stellar service across their cabin crew if that is the case.

This is not to say the U.S. airlines cannot do it. United Air Lines has shown with arguable success that it's P.S. (UnitedPS) transcontinental JFK-SFO/LAX service with enhanced premium seating and catering attracts pax.

However, there are more basic things to deal with rather than the nicer points in life such as inflight service.



Anyone can fly, only the best Soar.
User currently offlineMalpensaSFO From , joined Dec 1969, posts, RR:
Reply 16, posted (8 years 4 months 4 weeks 5 hours ago) and read 3113 times:

Quoting Superhub (Thread starter):
Oasis Air which will offer low-cost long-haul flights on some of CX's most profitable markets like HKG-LON

Not to mention the widely talked about HKG-OAK; Which will go head to head with SQ, CX, UA to SFO.

Quoting Airbazar (Reply 13):
US at PHL, or DL at ATL, or CO at EWR

US at PHL : WN

DL at ATL : FL

CO at EWR : B6/AA


User currently offlineUSAIRWAYS321 From United States of America, joined Jul 2001, 1847 posts, RR: 9
Reply 17, posted (8 years 4 months 4 weeks 5 hours ago) and read 3113 times:

Why bother having this discussion? They don't operate in a US-style market now, and never will. It doesn't matter if they'd be profitable with that form of competition; they don't have to be!

User currently offlineSuperhub From Hong Kong, joined Jan 2006, 478 posts, RR: 0
Reply 18, posted (8 years 4 months 3 weeks 6 days 22 hours ago) and read 3006 times:

Quoting USAIRWAYS321 (Reply 17):
They don't operate in a US-style market now, and never will. It doesn't matter if they'd be profitable with that form of competition; they don't have to be!

Because one day, China's aviation market will become like the US as more people demand air travel, and as the market develops. I am talking about 20-30 years from now. There will be a lot more Chinese airlines flying around than today.

Also by 2049, all flights from HK to China will be deemed domestic flights. By that time, CX will probably have significant domestic operations and will probably have another hub in another Chinese city (in addition to the one in HKG). They will behave more like a US carrier in terms of operation...the question is, will they behave like a US carrier in terms of service and profitability.


User currently offlineJacobin777 From United States of America, joined Sep 2004, 14968 posts, RR: 60
Reply 19, posted (8 years 4 months 3 weeks 6 days 22 hours ago) and read 2987 times:

Quoting Singapore_Air (Reply 1):
On the traditional trunk route of Europe to South East Asia and Australasia the competition is intense. One can see this from yield analysis which indicates that the LONSYD route commands yields up to 27% lower than that of the less competetive (to put it mildly) SYDLAX route.

The onset of Emirates Airlines is a disturbing thought for all involved. The have built up a powerful European point to hub to point route network which has increased competition, particularly the leisure market.

which is going to get a lot worse, given that many of the A380 purchasers such as SQ, VS, QF, MH, QR, Etihad, and especially EK plan on flying the big bird on the Kangaroo Route......its going to kill yields.....



"Up the Irons!"
User currently offlineUnited Airline From Hong Kong, joined Jan 2001, 9168 posts, RR: 15
Reply 20, posted (8 years 4 months 3 weeks 6 days 21 hours ago) and read 2955 times:

Quoting Superhub (Reply 14):
I know US labour laws are tighter than those in HK, but HKG's landing fees are expensive.

Yes

Quoting Superhub (Reply 18):
Also by 2049, all flights from HK to China will be deemed domestic flights

I doubt it. They haven't said anything about turning flights between Hong kong and China into domestic flights so we are not sure yet. But Hong Kong will always be one country two system. The socio-economic way of living will remain unchange for 50 years (not sure about 50 years later but I suppose it will remain unchange).


User currently offlineUnited Airline From Hong Kong, joined Jan 2001, 9168 posts, RR: 15
Reply 21, posted (8 years 4 months 3 weeks 6 days 21 hours ago) and read 2945 times:

Quoting Mutu (Reply 2):
Finally i DO believe BA is in fact CURRENTLY (2005 financials) the worlds most profitable airline but march 2006 season onwards...who knows

In terms of gross profit yes. Net profit no. It was SQ.


User currently offlineSuperhub From Hong Kong, joined Jan 2006, 478 posts, RR: 0
Reply 22, posted (8 years 4 months 3 weeks 6 days 21 hours ago) and read 2935 times:

Quoting United Airline (Reply 20):
But Hong Kong will always be one country two system. The socio-economic way of living will remain unchange for 50 years (not sure about 50 years later but I suppose it will remain unchange).

Actually the Basic Law only guarantees one-country two-systems for 50 years from 1997, which means that on July 1st 2047 (not 2049 as I mentioned before), Hong Kong will be properly governed by Beijing. There will be no border between HK and China, so all flights to China will be domestic.

[Edited 2006-03-30 10:08:23]

User currently offlineCarpethead From Japan, joined Aug 2004, 2953 posts, RR: 3
Reply 23, posted (8 years 4 months 3 weeks 6 days 20 hours ago) and read 2902 times:

SQ & CX face competition but most of the airlines involved charge an airfare based on what their costs are.
Too bad the US carriers can't seem to do this post-9/11.

However, I do have to commend US airlines to raising prices on airfares across the Pacific particularly during heavy travel periods. Even pre-9/11, I could get fares around $1500 across the Pacific, but not anymore.


User currently offlineMutu From United Kingdom, joined Mar 2006, 536 posts, RR: 0
Reply 24, posted (8 years 4 months 3 weeks 6 days 11 hours ago) and read 2774 times:

Quoting Superhub (Reply 4):
Yes. I was going to mention BA as an example. The only thing which stopped me from it was the fact that they did not make a profit a few years back, apparently because low-cost carriers took a slice of the pie.

Well the only year they havent made a profit was in the post 9/11 period given their dependence on trans atlantic traffic but yes, LCC has been a big negative on their performance


25 Victor : yeah we are heavily unionized... but the flight atteadant union itself isn't as strong as before but still strong enough to fight for something. i'm
26 Post contains images Jacobin777 : I was suppporting BA during the period of 9/11-01/01......I fley them transatlantic no less than three times.....they upgraded me for free too...
27 Mutu : well you're on my xmas card list then!!
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