Did Someone Say Price War at Changi Airport? Here’s What SATS Ltd’s Management Said in Response

Food caterer SATS Ltd  (SGX: S58) held its fiscal first-quarter earnings briefing recently.

As a brief background, SATS has two major business segments, namely, Food Solutions and Gateway Services. The former covers airline catering, food distribution, industrial catering, and other services. Meanwhile, the latter provides ground handling services of passengers, flights, and cargo.

Speaking of ground handling, an early-July article that appeared in Today suggested that a price war is happening between ground handlers in Changi Airport. SATS’s management was asked to comment on this in the earnings briefing.

Improving margins

The aforementioned article suggested that there was an intense price war between SATS and dnata, two ground handlers operating in Changi Airport. Mark Edwards, the chief executive of dnata, was quoted in the article as saying:

“I am still struggling to understand the strategy of my competitor, which only seems to be about cutting prices, even as costs continue to escalate amid headwinds and the manpower shortage.

My costs in real terms have increased somewhere around 2 per cent. Profits are falling off the cliff and I am not sure where we end up.”

In his outlook statement, SATS’s chief executive Alex Hungate said:

“Of course, all of our markets involve competition. So, the market place continues to be competitive. I wouldn’t say that there is an increase in the competitive pressures, but I think they continue as they have been.”

When asked about the article in question, Hungate responded:

“We did see the article, of course, on the price war. We weren’t aware there was a price war, to be honest. I think you saw that we commented that we are a premium player, we don’t compete on price, we compete on quality.

But we also compete on the unique network that we have. As we mentioned in our strategy briefing at our full year results, we operate now in 45 airports across 12 countries. We have the most complete network of airports across the region.

It’s very important that you can ensure the seamlessness from end to end in that corridor. We compete on the quality in one location, but also these unique services that we are layering into our cargo and ground handling across the region.

So, I deliberately, in the commentary on the outlook statement, mentioned that yes, of course, our markets are competitive.

But they always have been.

We don’t see a particular intensification of the competition over the last twelve months or last quarter, or whatever the article was meant to be referring to.”

In short, SATS considers competition to be a regular staple in its line of business and has not seen any intensification in the level of competition as the article suggests. SATS also believes that it has an advantage in terms of the network it has in the region.

Moreover, SATS is not sitting still. On Monday,  SATS announced that it will be investing S$18 million in a new production line where up to 50% of kitchen tasks are automated. This is in line with the food caterer’s goal of using technology to increase productivity and reduce costs.

For more stock analyses and investing tips, sign up here for your FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.