How Singapore airlines beat the pandemic and came out ahead

Highlights:

• Carrier went from brink of catastrophe to regional dominance
• Airline survived by persuading investors to put up $16 billion

The day after Wuhan went into a lockdown in January 2020, Singapore Airlines Ltd. Chief Executive Officer Goh Choon Phong called a crisis meeting at Airline House, the company's massive, factory-like headquarters at the end of Changi Airport's runways. The question to be answered: How bad is this going to be?

Within weeks, as China locked down more cities to try to stop the novel coronavirus spreading and nations began to shut their borders, a chilling reality emerged. Goh and other executives realized that if they didn't take drastic action fast, the airline that Singapore spent seven decades building into one of the world's largest and most respected international carriers could go out of business. 

"At that point, absolutely we were serious about it," Goh said in an interview on Tuesday. The company could not take for granted that it would be bailed out, he said.

What emerged over those tense weeks of meetings, while airlines around the world filed for bankruptcy or sought state help to stay alive, was a new strategy at Singapore's flag-carrier — one that not only allowed the airline to weather the pandemic, but would set it up to capitalize on the weakened state of its competitors once travel began to rebound.

"The virus was spreading across the world and borders were closing one after another," Goh said. "So the first priority obviously is to make sure that we have enough funding to outlast this crisis." 

Consistently voted one of the world's top three airlines for the past decade, the company could only wait for the pandemic to run its course. Unlike rivals such as Qantas Airways Ltd. in Australia, or Delta Air Lines Inc. in the US, Singapore Airlines has no domestic market. By April 2020, it was operating at just 3% of pre-Covid capacity. Persuading investors to put up money for a business that was burning through as much as S$400 million ($291 million) a month, was the key to survival, according to Lee Lik Hsin, executive vice president of commercial operations.

"Stakeholders came in to support us very strongly," Lee said on May 19. "They recognized the importance of Singapore Airlines to the Singapore hub and then to the Singapore economy as a whole." 

Dire Implication
The willingness of retail and institutional investors to buy the shares and bonds was partly a testament to the airline's status in the country — the nation's strongest global brand and an enduring source of pride for many Singaporeans. Support from state-owned investment firm Temasek Holdings Pte. was also crucial to the fundraising.

"Singapore Airlines is a national airline and Temasek is the biggest shareholder," said retail investor Goh Chia Hock, 57, who bought the airline's bonds. "I don't think Temasek will let it go bankrupt. The implication would be too dire for Singapore."

Altogether, Singapore Airlines raised S$22.4 billion since April 2020, including S$15 billion from shareholders through the sales of shares and convertible bonds.

"We have never had a need to reach out to so many different sources of funding," Singapore Airlines' Goh said during a briefing in May. "We learned a lot about how best to actually organize the process of getting those fundings."

Singapore Airlines still faces headwinds from the tail of the pandemic and the war in Ukraine. By the end of September it will only be back to two-thirds of its pre-Covid capacity. Oil prices, the biggest single cost for Asian carriers, have risen almost 50% this year. And the airline could face strong competition from Middle East competitors such as Qatar Airways and Emirates, both of which received government bailouts.

The whole industry is also facing major staff shortages. After two years of layoffs and downsizing, airports, airlines, ground handlers and services are struggling to rebuild workforces. Changi Airport alone has 6,600 unfilled vacancies.

"There's no doubt that that is an issue that needs to be solved," said David Mann, chief economist for Asia Pacific and Middle East Africa at Mastercard Economics Institute. But travel is rebounding around the world anyway. "People are willing to put up with maybe longer waits, with higher costs because at the end of the day, they still want to go on a holiday," Mann said.

The airline also needs to partly unwind a hefty cost-cutting program that it undertook during the pandemic. The company won agreements with Airbus SE and Boeing Co. to defer aircraft deliveries and re-negotiated contracts with other suppliers. Pay cuts were rolled out across the company. Some staff took early retirement, while flight crews were temporarily allowed to take jobs in hospitals and transportation companies. 

At one point, the airline even turned one of its A380 superjumbos into a pop-up restaurant, charging up to S$642 for a meal.

But the plan Singapore Airlines developed was not just about survival. The biggest disruption in aviation history also provided a unique opportunity to expand the carrier's global presence.

"Most airlines in the region are either skint or structurally damaged by Covid," said Shukor Yusof, founder of aviation consultant Endau Analytic. "Post-pandemic, this is the airline of choice for many who want to travel" to Southeast Asia. 

Airlines in Asia-Pacific region operated at about 18% of their capacity before the pandemic at the end of March, compared with 47% at Singapore Airlines, according to the carrier's earnings presentation last month. Some of the Singapore carrier's routes, including those to London and New York, are already back to normal and even adding services. 

The airline benefited as Singapore was among the first in the region to begin reopening its borders, initially allowing entry without quarantine to fully-vaccinated people from selected countries late last year. Since then, most remaining restrictions have been removed. It was also able to restore capacity faster than some rivals because most of its pilots stayed on by taking pay cuts during the pandemic, and it could bring back cabin crew who had taken temporary jobs in other sectors.

Regional Pain
Even before Covid, local rivals were struggling. Thai Airways International Pcl and PT Garuda Indonesia were both losing money, while Malaysia Airlines Bhd. had been bought out by sovereign wealth fund Khazanah Nasional Bhd. in 2014 after two crashes tarnished its image. In 2020, parent Malaysia Aviation Group began an urgent restructuring that involved negotiations with leasing companies and creditors to cut 15 billion ringgit ($3.4 billion) in liabilities.  

By late last year, Goh's strategy was beginning to pay off. 

In November, Singapore Airlines announced it was expanding a codesharing agreement with Malaysia Airlines to include 15 cities in Malaysia, while allowing customers of the Malaysian flag-carrier to fly on Singapore Airlines to nine cities in Europe and South Africa. Ultimately, the two plan to cement the pact in a joint business arrangement, which has since received a conditional approval from Singapore's Competition & Consumer Commission. The same month, Singapore Airlines agreed to explore commercial partnerships with Garuda, including the potential alignment of frequent flyer programs and joint marketing.

The partnerships will funnel more passengers from the region onto Singapore Airlines' long-distance flights between Europe and Asia, reinforcing its role as Southeast Asia's dominant carrier. They may also help solidify Changi Airport's position as the prime aviation hub in the region, augmenting the case for the massive new Terminal 5, which is due to begin construction in two or three years.

"If you were to pick airlines that would come out of this crisis, Singapore Airlines would definitely be one of them," said Sofia Hong, 56, who bought stock in the company in 2020. "The airline is too important for Singapore's economy for anyone to think that anything bad would happen."

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.