SilkAir has experienced more than its fair share of turbulence since its establishment in 1989 as Singapore's regional carrier. After years of sustained losses, the carrier is on course to make a full recovery and is planning for a brighter future.

Following a wide-ranging restructuring of its fleet and route network, SilkAir is quietly confident of turning in a small profit for financial year 1996/7, ending 31 March. "We're seeing improvements over last year and are on track," says SilkAir general manager Michael Chan.

The airline, a wholly owned subsidiary of Singapore Airlines (SIA), has been making steady progress to stem the losses, cutting them to S$3 million ($2.1 million) for the first half of 1996/7, down from S$9 million for the same period for the previous year. Its deficit for the last full year totalled S$6 million, compared to S$27 million for 1994/5.

A significant factor has been SilkAir's decision to halt flights to Kaohsiung, in Taiwan, and Hangzhou, in China, and to return the routes and its two leased Airbus Industrie A310s to SIA. The airline acknowledges that it was ready neither to operate widebodies nor to face head-on competition from larger national carriers.


Rate pioneer

"Nobody wanted to go Kaohsiung. We were the first," recalls Chan. "We built it up, starting with three flights a week, using a Boeing 737. It was a good route for us, increasing to five flights and, finally, a daily service. The two national carriers of Taiwan, China Airlines and EVA Air, then came in -- and came in with a bang."

SilkAir has since focused its attention on smaller regional destinations closer to home and better suited to its fleet of five 737-300s and two Fokker 70s. Following the signing of a tourism co-operation agreement with neighbouring Indonesia, it has opened five routes to Lombok, Padang, Pekanbaru, Solo and Ujung Pandang, as well as to Vientiane in Laos.

In an effort to prevent a repeat of the Kaohsiung experience, and to protect its new "pioneer routes", SilkAir has entered into collaborative arrangements with three Indonesian carriers. Services to Lombok are now operated jointly with Sempati Air Transport, Solo with Merpati Nusantara and Ujung Pandang with Bouraq Indonesian Airlines.

In the longer term, however, Chan acknowledges that SilkAir faces the prospect of competition from its present-day partners. "The worry is that, once you make a route profitable, others will then jump in. We don't get exclusivity on developing a new route-they have the right eventually also to come in," he says.

With SilkAir's network having expanded to 20 destinations in eight countries, its efforts over the last 12 months have been concentrated on consolidating operations before adding any more routes. The main task before it has been to arrest the downward slide in yields and rising operating costs, by boosting passenger-load factors and increasing aircraft utilisation.

"With falling yields, it is important that we try to contain our unit costs, otherwise our overall break-even load factors will keep going up. They're now hovering around the mid-fifties. The objective is to ensure that they don't go beyond 60%," explains Chan.

The airline has already increased its passenger loads by 5% and is now averaging around 63%. In spite of the reduction in capacity following the disposal of its two A310 widebodies, cargo remains an important earner, representing some 8% of overall revenue.

Average daily aircraft utilisation has risen from 8.5h for the 737 and 7.5h for the Fokker 70 to more than 9h for both types. "This has, in effect, created a growth of about 10-12% for us in terms of CTKs [capacity tonne kilometres]," reveals Chan.

Long-term planning calls for the addition of two to three new routes and one or two more aircraft annually. SilkAir plans to start to flying to Davao, in the Philippines, from March and wants to add new destinations in southern China. There is also interest in branching out into India and, possibly, regional points in Australia and South Korea.

Much of this, however, is contingent upon SilkAir acquiring longer-range 150-seat aircraft to replace its existing fleet. Chan explains: "With the 737-300, we're now hitting our limit at about 4h. We need an aircraft that will give us a little bit more range and capacity [Flight International, 2-8 October, P9]."


Family aircraft

The carrier now operates five 118-seat 737s, one of which is leased from Ansett Worldwide, and will take delivery of a sixth aircraft from General Electric Capital in March. At the same time, consideration is being given to replacing its two leased Fokker 70s with one 100-seater. "As the market matures, there may not be a need for a 78-seat aircraft," suggests Chan.

SilkAir is looking at a family solution, with attention focused primarily on the Airbus A319/320, the 737-600/700/800 and the McDonnell Douglas MD-90/95. A decision on how many aircraft to purchase or lease will hinge on tax benefits and whether the carrier opts to retain any of the 737-300s now in service. It expects to make a final selection in the first half of 1997 and to take delivery of the first aircraft by the end of 1998, or in early 1999.

The result of recent changes is an airline with a much clearer perspective of its present position and future direction. "We're really now looking at what our role and mission is and that is to be a regional airline, working closely to develop synergies between SIA and ourselves and making Singapore into a regional hub for all parts of Asia," states Chan.

Source: Flight International