A few days ago, Singapore Airlines cancelled more than 650 flights in response to weak demand due to Covid-19. Singapore Prime Minister had even said that the economic impact of Covid-19 is worse than that of SARS.
When SARS broke out 17 years ago, Singapore Airlines suffered badly. The situation was so bad that it reported an unprecedented loss of $312 million. The Singapore Girl sneezed again when H1N1, coupled with the Great Recession, hit. With the impact of Covid-19 still unfolding and warnings that this virus will be worse than SARS, Mr Salty wonders if the iconic Singapore Girl will fall victim to the virus?
To understand how an airline fails, one needs to understand how a business fails. A loss making business does not necessarily have to close down – Uber and Tesla are good examples. Till date, Uber has not reported a single year of profits since the start of its operation, with Tesla only posting its first annual profit in 10 years in Jan 2020.
The straw that usually breaks the camel’s back? Lack of cashflow. This is where Singapore Airlines has a strong footing.
Like all Singapore sons who served the army, the Singapore Girl also has a big chest – a war chest (shame on you if you thought otherwise). The company is reportedly to have $3 billion in cash (more than $3 billion, if investments are included). The last time the airline made a quarterly loss, it was for Q4 FY16/17, first time in 5 years, at $138 million. There was no quarterly loss since then.
Recounting Losses History
Since SARS in 2003, the airline had posted 3 quarterly losses. Other than the one in Q4 FY16/17, it also suffered a loss in Q4 FY11/12 of $5 million and a huge quarterly loss in Q1 FY08/09 at $307 million, due to the double whammy of Great Recession and H1N1. Yes, the airline never suffered 2 consecutive quarters of losses, much less a full year loss. If we can learn anything from history, the Golden Bird is still far from falling from the sky.
What If Singapore Airlines Make A Full Year Loss?
However, in the spirit of fear mongering and news sensationalisation, let’s assume that the current virus scare really causes a prolonged downturn for the carrier. Using the 4 rare occasions of quarterly loss as a point of reference, without adjusting for inflation, and extrapolating into 4 consecutive quarterly losses, the airline might make a full year loss of $750 million.
In other words, it would take the airline 4 years to bleed about $750 million a year.
That is, if they allowed themselves to make continued losses for 4 years (or 16 quarters). It had never seen 2 consecutive quarters of losses before, much less a full year loss, so bleeding $750 million a year is a real stretch.
And since the airline has never seen a full year loss, it is real difficult to say how much it will actually lose. For argument’s sake, let’s put the number at a cosy $100 million. That still mean the airline can still survive on its cash reserves for 30 years.
30 freaking years.
But let’s stick to the worst case scenario. since Singaporeans seem to dig paranoia in the past few weeks.
Arsenal of Singapore Girl
If you think all the Singapore Girl can pull out of her sarong kebaya are pens, you are wrong. She has more stuff hidden in her chest – war chest (double shame on you if you think otherwise again).
In that 4 years of full year losses, SQ would have enough time to implement sweeping changes like delaying delivery of new aircraft, leasing out idling aircraft, send idling aircraft for intensive C checks or expedite retrofitting of new cabin products, transfer aircraft to profitable ventures (like the fledgling Vistara), develop markets that are not hit by the Covid-19 virus (like in India, Africa), get staff to go on unpaid leave, diversify into non-core businesses… And the list goes on.
In the past, SIA utilised one or more of these methods to avert 2 consecutive quarters of losses, so there’s little reason why they won’t work this time around.
What’s more, unlike beleaguered Malaysia Airlines, Singapore Airlines has a track record of being successful, so there is a high chance that any options taken by SQ will turn out good. After all, Covid-19 is an external factor that has got nothing to do with the airline’s business strategy, and health experts all predicted that the virus will go away come Northern Summer, just like SARS.
The Singapore Girl is likely to stop bleeding before the end of 2020.
Singapore Girl vs Covid-19
Herein lies the big question: Will Singapore Girl, the airline’s world renowned icon, die from Covid-19?
In case you didn’t get the faux analysis made before this paragraph, here is the short answer: no.
As Mr Salty mentioned above, it will take at least 4 years for the airline to burn through its cash and in that 4 years, they have multiple options that they can exercise to turn the airline around.
The airline’s brand, and by inference, the Singapore Girl’s marketing prowess, is worth $2 billion. Before the airline management kills the Singapore Girl, they can still milk her for profits. They can use her to sell routes, expand markets and sell Singapore Girl inspired merchandise (Singapore Girl Honey, anyone?). I mean, they can even build a theme park based on the Singapore Girl and aviation geeks all over the world will still come and pay homage to her.
Internally, the icon also serves as a role model, benchmark and motivation for employees, during good times and in bad times.
In fact, in the case of a prolonged downturn, the Singapore Girl is most likely one of the positive factors that will help turn the airline around. The strength of the Singapore Girl is far greater than we tend to believe.
Ask a Singapore Girl to walk through a tropical thunderstorm without an umbrella, and she will still reach the HDB void deck with her French twist intact. What’s a flu virus, then?
