Long-Range Jets Threaten Singapore Airport's Hub Status

Friday January 6, 8:06 AM

Long-Range Jets Threaten Singapore Airport's Hub Status

SINGAPORE (Dow Jones)--Even as Singapore Airlines Ltd. (S55.SG) bypasses Tokyo and Taipei by using long-range planes to fly direct to the U.S., the prospect of other airlines doing the same to Singapore's Changi airport has the city-state worried.

Airlines such as Australia's Qantas Airways (QAN.AU) and British Airways PLC (BAB) could bypass Singapore to launch direct flights between Europe and Australia, although there are no such plans yet, Standard and Poor's aviation analyst Shukor Yusof says.

"Airlines with the B777-200LR can fly nonstop London to Sydney in 18 hours and there's very little any airport, be it Changi or Bangkok, can do if an airline decides to bypass," Shukor said.

Any drop in traffic at Changi would immediately hit a number of companies, including ground handling services like Singapore Airport Terminal Services (S58.SG), unlisted Changi International Airport Services and Swissport. In addition, aircraft maintenance companies like SIA Engineering (S59.SG) and Singapore Technologies Engineering (S63.SG) would feel the pinch.

The effect would also trickle down to tourism-related businesses such as hotels, shopping centers and travel agents. Tourism accounts for 5%-7% of Singapore's US$111 billion economy, and most inbound tourist arrivals are by air, according to the city-state's government.

Singapore considers the threat posed by the potential bypassing of Changi as serious enough for influential ex-prime minister Lee Kuan Yew to bring it up at a recent dialogue with SIA's management and unions.

A small nation of four million with no natural resources, Singapore has banked on its excellent infrastructure and air and sea connectivity to attract investment and to develop as a financial center.

Lee, who is also current Prime Minister Lee Hsien Loong's father, takes a special interest in Singapore's hub status, which he says is the government's responsibility to safeguard.

SIA is already making nonstop flights to the U.S. using Airbus' (ABI.YY) A340-500 aircraft. What worries Singapore's Changi, Asia's sixth busiest airport by arrivals, is the 777-200LR (long range) that rival aircraft maker Boeing Inc. (BA) is developing.

The long-range version of the 777 is fitted with raked wingtips, a wider wingspan and is powered by higher thrust engines, giving additional cruise altitude and range. It has been designed to compete with the A340-500, which has a flight range of 16,700 kilometers.

With a list price of US$209 million to US$232 million, the 777-200LR has an advantage over the slightly cheaper Airbus A340-500 as Boeing claims its plane burns at least 20% less fuel, even as airlines are getting squeezed by high oil prices.

For airlines, this segment - direct long-range flights - is becoming increasingly important.

"This segment, which is focused on the business class and people who don't want to stop three or four times during a flight, promises high margins and is an area airlines want to appeal to," says Ian Thomas, senior consultant with Sydney-based Centre for Asia-Pacific Aviation.

He estimates that the long-range customer segment accounts for about 30% of overall air travelers, but generates about 60%-70% of airlines' profit.

Singapore Has Time To Mitigate Threat

However, the threat to Changi, which is run by the Civil Aviation Authority of Singapore, is more in the medium to long term and that gives the time to prepare to meet the threat, analysts say.

Indeed, the airport handled 2.8 million passengers in November, a 3.3% increase from the year-earlier month, and processed 160,357 tons of cargo in November, which was 7.4% more than a year earlier, according to data from Singapore's government.

Currently, only one of the top 10 destinations from Changi - London - is long haul.

The other nine - Bangkok, Jakarta, Kuala Lumpur, Hong Kong, Shanghai, Tokyo, Sydney, Taipei and Melbourne - have flight times of around seven hours or less.

Because the long-range passenger jets have relatively small bellies, their use is unlikely to have much of an effect on Changi's cargo traffic.

To meet the threat from the long-range planes, Singapore needs a "compelling proposition," Ivan Png, a professor at the National University of Singapore says.

"Singapore doesn't have any great feature or center of attraction. It's not like Sydney and its Opera House. We need something unique," Png explained.

Standard & Poor's Shukor, meanwhile, suggests more of what had made Changi airport into the hub that it has become.

"An airport can respond (to the threat) by offering cheaper landing fees, better duty-free shopping, access to world-class business, entertainment facilities and other incentives to make airlines and tourists want to come," Shukor said.

Singapore lifted its ban on casino gambling in April last year, hoping that the change will help draw more tourists to the city-state.