Singapore Airlines faces a gloomy 2009 as it struggles to cope with an increasingly tough near-term operating environment and fuelhedging losses. Warning passenger demand has dropped drastically from the highs of 2008, it will make wide-ranging capacity changes in response. "We are not seeing any visible signs of recovery across all our markets," says Singapore's flag carrier.

This was bourne out by the carrier's passenger traffic dropping more than a fifth in March. This far outstripped the 9% cut in capacity, leaving passenger load factor down 11 points at 69.4%

The airline has already taken several cost-cutting measures. Wages have been frozen, employees have been asked to take one day leave a month as annual or unpaid leave and overseas-based pilots are being retrenched. Staff unions have held several meetings withmanagement and SIA has not ruled out further job cuts.

SIA is also sitting on whether it should delay the delivery of its remaining Airbus A380s. It has sixin service and another 13 on order. It will also decommission 17 older aircraft in its fleet in the fiscal year starting 1 April, up from the four originally planned. This would amount to an 11% reduction in capacity across much of its network in response to falling passenger traffic.

The reduction in capacity, however, may not be enough due to the bleak outlook for the global airline industry, suggest analysts. "SIA may have to make additional cuts on top of the 11% already planned, if the situation does not improve," says Singapore-based research analyst Raymond Yap of brokerage CIMB.

SIA's heavy fuelhedging losses are not helpingand more may need to be done before the airline, which some analysts say could report losses in the next two quarters, steadies its ship. Wage cuts and retrenchments are possible options. "Retrenchments will be last resort because if you have an upturn, then the company will need people who are already trained," says Chin Y Lim of ­Morgan Stanley.

Source: Airline Business