SINGAPORE TOURISM AND AIR TRAFFIC DOWN

UNCLAS SECTION 01 OF 02 SINGAPORE 000050

SENSITIVE
SIPDIS

New Delhi for Ehrendreich

E.O. 12958: N/A
TAGS: EAIR EIND ECON SN
SUBJECT: SINGAPORE TOURISM AND AIR TRAFFIC DOWN


1. (SBU) SUMMARY: The Civil Aviation Authority of Singapore (CAAS)
estimates that overall passenger traffic increased in 2008 despite
the economic downturn. Lower fuel costs have helped improve air
carrier revenues and Singapore Airlines has seen continued, albeit
slower, growth on routes to China and the Middle East. Cargo
traffic has not fared as well, dropping more than passenger traffic
due to the economic environment and the ban on Chinese food products
that followed revelations of melamine contamination. Singapore
airport retailers are feeling pinched, with several smaller vendors
leaving the new Terminal 3. Industry representatives offer mixed
assessments of the severity of the economic situation for airlines
and when the situation might improve. End Summary.

Passengers Reducing Travel or Going Budget
--------------


2. (SBU) Passenger air travel has slowed as the number of visitors
to Singapore fell two percent to 10.1 million in 2008, causing the
Singapore Tourism Board to miss its target of 10.8 million visitors
for the year. However, the Civil Aviation Authority of Singapore
(CAAS) estimates that overall passenger traffic for 2008 was higher
than in 2007 despite the economic downturn and lower passenger
numbers last quarter, Eileen Poh, CAAS Director for the
International Relations Division, told Econoffs January 2. CAAS is
still compiling data for 2008, but lower fuel costs and year-end
holiday travel that will continue through the Lunar New Year later
in January have helped revenue and traffic. Certain routes in Asia,
for example those between Singapore and China, continue to grow,
though at a slower pace.


3. (SBU) CAAS has noticed some passengers shifting from
full-service carriers to budget carriers and opting for regional as
opposed to long-haul international travel, Poh said. CAAS has
stepped up work to expand the existing budget terminal at Changi
International Airport to keep pace with budget travel demand. Phase
in of the ASEAN (Association of Southeast Asian Nations) Open Skies
agreement could further increase regional budget travel, Poh added.



4. (SBU) Singapore Airlines is taking stock of the effect that
lower fuel costs and holiday travel have had on its business, LEE
Yueh Chern, Public Affairs Manager for the airline, told Econoff
January 7. Lee estimated that fuel represents as much as 40 percent
of the airline's operating costs, so the drop in oil prices has been
a boon. The airline is realigning capacity to meet changing demand
on international routes. It plans to stop direct flights from
Singapore to Kuwait in March. In October 2008, it cut flights to
Amritsar, India. Singapore Airlines will also reduce flights
between Taiwan and Los Angeles, though the leg between Singapore and
Taiwan continues to operate at capacity, Lee indicated. The airline
will increase flights to Abu Dhabi and Cairo.


5. (SBU) Lee could not estimate losses specifically related to
reductions in business travel, noting that those numbers would
become clearer after the holidays and the first quarter of 2009.
She was sanguine about any possible effect of budget carriers on
Singapore Airlines' market share during the downturn, noting that
many passengers appreciate the reliability of full-service
carriers.

Air Cargo Volume Harder Hit
--------------


6. (SBU) Lee stated that in November 2008 Singapore Airlines'
overall load carried (passengers and cargo) dropped 7.5 percent
compared to November 2007. In the same period freight tonnage per
kilometers carried (cargo only) dropped 12.5 percent. CAAS
predicted that unlike passenger traffic, cargo volume would actually
show negative growth for 2008 compared to 2007. This is partly due
to the economic slowdown and its impact on trade in goods such as
electronic components, which has seen a particular drop off in the
past year. However, Poh noted that CAAS saw a substantial reduction
in air cargo volumes after melamine contamination was found in
Chinese milk products, prompting many countries, including
Singapore, temporarily to ban related food imports. Singapore
Airlines has asked its cargo pilots to take unpaid leave in an
effort to reduce costs and capacity, Lee said.

Tough Times for Airport Retailers
--------------


7. (SBU) The downturn in travel has also affected the retail
businesses at Changi International Airport. In January 2008, the
Ministry of Transport celebrated the opening of Terminal 3, which
includes multiple levels of restaurants and shops and a large
supermarket. MOT said at the time that the new terminal would help
meet growing tourist and business traffic that would one day reach
70 million passenger movements annually. Since then some smaller

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retailers have asked CAAS to renegotiate or terminate their leases
at the Terminal 3 because traffic flows and sales have not met
projections, Poh said. Overall the airport is still profitable, but
projected revenues for Terminal 3 may have been overly optimistic,
Poh continued. High-end luxury retailers and stores with strong
brand recognition that are part of a larger network of outlets
appear able to weather the economic downturn, but some smaller
retailers are leaving Terminal 3.


8. (SBU) Changi International Airport manages a S$150 million (US
$101 million) fund to assist airlines and provide incentives for
carriers to undertake riskier projects such as opening new routes
from Singapore, Poh stated. The goal is to encourage growth in
airport traffic, and participating companies must meet certain
benchmarks to continue to receive funds. CAAS anticipates that more
companies will apply for this program during the economic downturn,
Poh said.

Industry Predictions for the Future
--------------


9. (SBU) Poh was eager to discuss the timing of an economic
turnaround in the United States, emphasizing that it would have a
significant effect on both passenger and cargo traffic in Singapore.
Poh pointed out that even within the airline industry there are
differing opinions regarding the severity of the economic downturn
and when things will improve. In December, the International Air
Transport Authority (IATA) predicted US$2.5 billion in losses for
2009, and IATA's Director General and CEO called the current
situation the "worst revenue environment in 50 years." However, Poh
said that during a December speech in Singapore, Roberto Kobeh
Gonzalez, President of the Council of the International Civil
Aviation Organization (ICAO),struck a more optimistic tone and
predicted 0.9 percent growth in the airline industry for 2009 and
recovery and five percent growth for the industry in 2010.

HERBOLD