VZCZCXRO7431
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0050/01 0150904
ZNR UUUUU ZZH
R 150904Z JAN 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 6245
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 2177
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC

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 
 
SINGAPORE 00000050  002 OF 002 
 
 
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