Singapore Airlines Limited (SGX: C6L), or SIA, is the flagship carrier airline of Singapore, and the group has many airline-related subsidiaries including SIA Engineering Company Ltd (SGX: S59), which handles maintenance, repair, and overhaul (MRO), and many joint ventures. SIA is majority-owned by the Singapore government and holding company Temasek Holdings.
While SIA is one of the world’s premium airlines and also enjoys a stellar track record of safety, the business itself is still subject to many external events and forces that could affect its financial health. While a great reputation certainly helps in attracting regular and frequent fliers, such events could still blow a dent in SIA’s financials and end up disappointing shareholders despite the airline’s best efforts.
Here are three disruptive events that could occur that are out of SIA’s control — and that could severely affect the airline’s performance.
1. Protests and riots
The recent disruption at the Hong Kong International Airport was a stark reminder of how protests and riots can affect airlines and airports. As Hong Kong grapples with its worst protests since its handover from the British to the Chinese in 1997, protestors have resorted to blocking access to the airport and paralyzing airport operations. On August 12, the airport cancelled all flights due to a sit-in by protestors, and airlines were forced to re-route flights or ground planes until the airport could function normally again.
2. Weather conditions
Bad or extreme weather conditions could also result in cancelled or delayed flights. Thick fog, blizzards, or typhoons could wreak havoc on planes’ navigational systems and render them unable to continue on their charted courses. Such weather conditions are tough to predict in advance, and many airlines have had to route their planes to other airports or airstrips, consuming large amounts of fuel in the process. Passengers also have to be re-scheduled and compensated for the delays and inconvenience.
3. Terrorist attacks
Terrorist attacks such as bombings or sabotage at airports or on planes could severely affect certain airlines, resulting in delays or cancellation of flights. Such an incident occurred at the Brussels Zaventem Airport in Belgium on 22 March 2016 when twin explosions struck the main terminal of the airport, killing 32 people in total.
This tragedy and the subsequent damage caused the airport to close from 22 March 2016 till 3 April 2016, and many flights were affected.
The airline industry is subject to unexpected events
The nature of the airline industry is such that unexpected events, such as those described above, are part and parcel of business operations. Investors need to brace themselves for such disruptive events as they may crop up unexpectedly and hit airlines such as SIA badly.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.