SIA is serious about cargo
28 / 11 / 2017
The biggest news to come out of Singapore Airlines for quite some time was the announcement earlier this year that its freight arm, Singapore Airlines (SIA Cargo), would be reintegrated back into the main
group after being a separate corporate entity since 2001.
But those tempted to interpret the move, along with a reduced freighter fleet of seven B747-400Fs — less than half its ‘glory days’ size — as a sign that the carrier is losing interest in cargo, couldn’t be more wrong.
“Cargo continues to be an important part of SIA’s overall business. We remain committed to operating a fleet of dedicated freighter aircraft and continue to manage the passenger aircraft bellyhold capacity of SIA, SilkAir and Scoot,” Chin Yau Seng, president of SIA Cargo, tells Air Cargo News in an exclusive interview.
“We will also continue to invest in the cargo business through the development of our people, the enhancement of our systems and processes, and leveraging new technology and data to ensure that we stay relevant to customers’ needs. The provision of quality service and customised solutions will remain our key focus.”
The business case is pretty straightforward and, indeed, compelling. At its core, today’s air cargo environment is fundamentally different from when SIA Cargo struck out on its own 16 years ago.
The simple reality is that freighters are no longer the main driver of cargo capacity and, given the “right-sizing” of the main deck fleet, Chin says it is difficult to justify duplicating costs to support a separate air operator’s certificate (AOC) for the freighters.
Reintegrating SIA Cargo as a division within SIA group also presents opportunities in terms of both flexibility and efficiency, he adds.
There are numerous other benefits such as being able to better tap resources and expertise within the
SIA Group as a whole, not least in IT which is particularly important as the cargo division continues to
embrace technology to strengthen its capabilities.
And there are other benefits too.“We now have our own separate team of pilots for the freighters. Once we go back to SIA it will be a common pool. So that’ll be a big plus, both in terms of cost, but also flexibility which is really key for us, especially for the captains,” Chin observes.
One key priority is web services, which means building the application programming interface (API) layer and, again, being able to tap the group’s resources is key.
“API is unfortunately a buzz word in many sectors, but it is quite important because it facilitates the flow of information and functions, so that is particularly critical in areas like e-commerce where people want transparency and visibility across the supply chain.
“Of course it doesn’t stop there, because we need the parent company’s IT side to support us on various things, including the core systems, so we believe we can really tap the resources much better as a division, as opposed to a subsidiary where everything has to be accounted for separately,” he says.
Not a simple process
It is not going to be a simple process, that much is clear. Many of the work streams related to systems need to be sorted and this will take a few months of intensive work, Chin says.
Work is well underway: “We really didn’t waste any time in that area,” he adds, citing one example as being SIA Cargo’s SAP system which must be integrated within the group.
The core functions of planning, operations and services, and sales and marketing will remain with the cargo division.
SIA Cargo’s worldwide cargo offices, including regional offices, will also stay within the division’s purview.
This means unchanged points of contact for customers at the head office, regional and local levels.
The market reaction has been clearly positive. Singapore-based forwarders servicing multi-national companies that Air Cargo News spoke to were upbeat on the reintegration, saying it was a practical response to changes in the market.
They were confident that SIA Cargo’s focus on the market would not diminish. This view was echoed by Chin. In discussions with forwarders servicing multi-national companies and smaller local players, the sentiment “almost without exception, has been ‘why did you wait so long?’” he says with a laugh.
Right size freighter fleet
With freighters now contributing about a quarter of SIA Cargo’s total capacity, the balance is made up of the combined bellyhold capacity of Singapore Airlines’ passenger fleet, long-haul, low-cost carrier Scoot, which aside from narrowbody A320s also operates 15 B787-8/9s, and its regional narrowbody carrier, SilkAir.
Freighters used to contribute about 30% of total capacity just over three years ago, but that proportion has dropped, mainly as a result of what the carrier calls the “right-sizing of our freighter fleet”.
That ‘right size’ is currently seven B747-400F aircraft, alongside the ever-evolving expansion of the
passenger airlines within the SIA Group.
The group’s passenger strength includes substantial widebody aircraft, with Singapore Airline’s fleet currently numbering 112, including 27 B777-300ERs and A350-900s (18 in the fleet and 49 on order).
In general, loads have been strong on the long and medium-haul sectors operated with these aircraft types, Chin notes.
Although the Singapore Airlines Group has expanded, with Scoot and more recently Tigerair coming under the group umbrella, more than 90% of bellyhold loads still come from the parent airline.
It is seeing strong growth from its subsidiary carriers whose fleets are substantially narrowbody and, therefore, bellyhold cargo.
One key selling point for the cargo division is the fact that it does not sell separate products for each airline in the group.
Instead, all cargo capacity is marketed and sold under the Singapore Airlines Cargo air waybill (AWB).
“Although we manage a diverse mix of aircraft types across the SIA Group, our central space control unit, coupled with effective and efficient hub operations, has been instrumental in ensuring the seamless transfer of cargo.
The use of SIA Cargo AWBs, regardless of airline, also makes it easier for our customers to transact with us,” Chin says.
Of freighters new and old
Main deck capacity is probably one of the most watched aspects of combination carriers in the industry.
Many airlines are parking their main deck aircraft. SIA Cargo pared its fleet down from 16 B747-400 freighters at its peak in 2007 to just seven today, which begs the question of the future of its freighters.
“Freighters play a critical role in our business, forming a key component of the network and product solutions that we can offer our customers,” says Chin, adding: “We have reviewed our strategy and the answer is yes, we need our freighters, but we don’t need so many, so we actually brought the
freighter fleet size down to seven now.”
What may come as a surprise to many is that the carrier is not opposed to renewing, or even expanding its freighter fleet given the right conditions.
The cargo division continues to keep a “watching brief ” on the development of next generation freighters, but as Chin notes, these are not likely to come until the next decade.
He adds: “If we need any freighters in between, chances are that they will be leased-in because there is no point in us going into the current generation of freighters because very soon they will be obsolete as the new ones come out.
“So everything is very much still a paper review at this moment. All we can do is to keep in touch with them, but what we are acutely aware of is not to get ourselves into an obsolescence issue. So yes, we are still interested in freighters, but at the right economics — not at any price.”
In addition to its scheduled operations, SIA Cargo’s freighters also provide charter solutions for its
customers for various routings to meet the current upturn in air cargo demand.
Reintegration comes as the sector is enjoying a steady uptick — ideal from the cargo division’s perspective.
Like its industry contemporaries, SIA Cargo has benefited from the global economic improvement that
has seen a general uplift in demand since September last year.
Yields, which hit rock bottom in the first half of last year, have also seen some recovery in demand from Asia, with the Pacific being particularly strong, Chin notes.
In the carrier’s most recent financial quarter (April-June 2017), cargo loads in freight tonne-kilometres
were 6.9% higher year on year while load factor rose 3.7 percentage points and yield increased 4.8%.
With less freighter capacity in the air, SIA Cargo is now operating seven B747-400s. “We have to sweat
the assets a bit harder, so we are pushing aircraft utilisation and also pushing up the load factors,” says Chin.
There is a combination of factors behind the updraft in the air cargo sector, but underlying it all there has been a general uplift in demand, says Chin.
He notes that consumer sentiment has been quite positive, driving restocking, which has in turn increased airfreight demand. The overall demand uplift is in line with the improvement in industry indicators such as the Purchasing Managers’ Index (PMI), Chin notes.
E-commerce lends a hand
“E-commerce is part of it,” he says of the ongoing industry recovery adding: “We definitely see continued growth on the e-commerce side and we have benefited as well, but in addition there is also growth in general cargo — electronics, garments. All that has been moving at a greater volume.
“What we’ve seen is that from these few e-commerce segments that we track, the growth has been quite healthy over the past year, far outpacing the overall growth in loads.”
Chin says SIA Cargo has also been making a conscious effort to engage with various e-commerce players, “so it’s not just us getting an ancillary benefit of the overall growth in e-commerce movements, but also our deliberate attempts to actually capture more of this traffic.”
The SATS e-Commerce AirHub — recently completed at Singapore Changi Airport and the first of its
kind to offer specific airside e-commerce express handling — fits well with the carrier’s overall e-commerce push.
Anticipating strong growth in cross-border volumes, particularly across Asia, SIA Cargo has assembled
a dedicated e-commerce team to “build partnerships and design customised solutions for customers”.
Crucially, this could include moving beyond airport-to-airport services, something that most carriers
are loath even to contemplate.
“I think what is important is to focus on customers and be nimble in supporting their needs, even if this
means providing solutions beyond airport boundaries,” Chin says.
This means becoming more than simply a capacity provider for e-commerce cargo, and could even include last-mile delivery, but it must be motivated by the customer, Chin says.
The carrier is already working with various parties on e-commerce projects.
“We look for partnerships, we are not experts in e-commerce logistics, meaning the warehousing or 3PL part, but we can certainly find partners to fill that gap. So that is where we are not really restricting ourselves, or being terribly religious in sticking to airport-to-airport services. What we are looking at is really trying to solve customers’ needs,” he adds.
Chin says that the demand outlook is generally positive for the next few months, with the expectation of a strong traditional peak period in the run-up to the US Thanksgiving and Christmas holidays.
Ultimately, it will depend on consumer demand in the key economies. “Positive economic sentiment and
consumer confidence will continue to drive re-stocking in the near term, thus fuelling demand and certain segments such e-commerce and perishables will also help to drive growth,” Chin says.
The cargo division has also seen healthy growth across most of the special product segments that it is
actively pursuing: e-commerce, healthcare, aerospace, live animals, events and perishables.
The only exception has been the energy segment, which saw a substantial slowdown over the past couple of years as a result of the precipitous drop in fuel prices.
Zooming in on the healthcare segment as an example, SIA Cargo believes its attainment of the IATA CEIV Pharma certification early this year — the first airline in Asia Pacific to receive this accreditation — should help instil even greater customer confidence in its temperature-controlled handling capabilities.