SIA: WORLD'S BEST AIRLINE - FORGET THE BEAUTY CONTEST, THE LESSON NESSUMO IMPARA IS THE GULF WAR

Singapore Airlines has won the "World's Best Airlines" award for the nth time. Congratulations are well-deserved. But this has drawn Singaporeans critical of SIA's involvement in Air India to throw caustic remarks like "Wah now got so much money to help other people, hor."  That is a double count of ignorance - of a strategic investment and of what this award is all about. 

This award measures passengers' perceptions of service, product and experience. Skytrax actually doesn't call it the "World's Best Airline". They call it the "Passenger's Choice Awards".

It is a beauty contest, not a profitability race. Megan Young was crowned Miss World 2013 doesn't mean Philippines had the best GDP. 

SIA can win Skytrax's beauty contest. But shareholders don't invest for beauty. They invest for returns on capital. That is not to take away the immense  marketing value of the award.

In aviation, beauty is not the same as economics. There are three different contests:
Skytrax: Measures passenger perception of service. Metric - World Best Airline ranking.
Profitability: How much money the airline makes. Net pre-tax profits.
Capital efficiency: How well management employs shareholders' money. Metric - ROE (Return on Equity); ROIC (Return on Invested Capital).

Who cares if SIA is Quasimodo, better known as the Hunchback of Notre Dame, so long it has high ROE and ROIC.

Singaporeans go ga-ga and feeling proud of the award as SIA is a national icon. It is this emotion that drives the anger at the Air India tie-up (because AI is losing money at the moment), I think the third contest is intellectually strongest. The question is whether the enormous amount of capital tied up (shareholder capital + reserves + debt) in aircrafts, subsidiaries and now Air India, is producing an adequate return.

There is a useful industry benchmark -- IATA estimated the airline industry's 2025 ROIC is only 6.7%. This shows how structurally difficult it is for airlines to earn their cost of capital.

Let's look at the performance of SIA itself, i.e. after adjusting for capital gains on Vistara and share of loses of Air India. In 2026 SIA's profits increased by S$366.7mn to S$2,129.2mn , and improved returns on equity and total capital employed. ROE is an impressive 15.5% and ROIC of 12.5% is double the industry benchmark. That is an incredibly good performance given the external shock of high fuel cost due to the war in the Middle East. How did SIA do it?

The normalised ROE of 15.5% in 2026 versus the 7.2% clearly shows the Air India investment is a big drag on SIA's financial performance. Those who decry the Air India cash call looks simply at the first report card with no one discussing future viability. 

Nessumo Impara Is Italian for "No One Learns"

Fuel is a variable cost of production which can be passed on to consumers. But the power for through-pass is constrained by competition. Pricing is determined by supply and the elasticity of demand. While world aviation industry suffers from the oil price shock, SIA reported an improvement in yields per seat for 2026. How could this be?

The Gulf hub system suffered an abrupt shutdown of normal operation beginning 28 Feb 2026. Dubai, Abu Dhabi and Doha subsequently reopened through limited, controlled corridors, but normal hub capacity took weeks to recover. 

SIA suddenly faced much less competition from the Gulf carriers. SIA's Europe load factor jumped to 93.5% in March 2026 (compared to 79.7% on March 2025). By July-August, the differential had disappeared and SIA's Europe load factor was actually below the previous year. So the evidence points to temporary pricing/capacity power during the acute Gulf disruption, not a permanent shift of East-West traffic to Singapore. 

SIA didn't need demand to explode. Capacity was already constrained elsewhere. Removing some competiting Gulf hub capacity meant that some existing East-West demand had fewer routes. That can raise fares/yields even without enormous underlying demand. The March disruption produced an extraordinary high 90.3% SIA load factor, but it was too late to materially transform the average for the year ended 31 Mar 2026. 
RPK or Passenger Yield is the average amount of money a airline collects from a single paying passenger to fly them one km. It ignores empty seats entirely and only tells you how much revenue you are successfully squeezing out of the passengers who actually bought tickets.
RASK or Yields per Seat is the total passenger revenue divided by the total number of seats flown, whether they were full or empty. 

RASK is a better measurement. If an airline has a high passenger yield but half the plane is empty, it can still lose money. SIA’s true historical execution strength lies in keeping passenger yields high (getting people to pay a premium) while simultaneously keeping its planes full. Due to the war, the Passenger Load Factor shot up to 93.7% in March pulling up the whole year average to a whopping 87.7% for the full FY2025/26 term. Gulf airport closure in March caused travelers to switch to SIA pushing Seat Yield to 10.34 cts. The Gulf airports were still not fully open April-July, thus SIA Seat Yield continued to rise to 10.74 cents.

Without the Air India investment, SIA yields look pretty good. This would support those who say SIA should just continue to do what they do best, stop investing in other airlines - having failed 6 attempts in the past. By comparison, Emirates hit ROIC of close to 30% mostly due to capital efficiency and economies of scale. SIA's investments in other airlines have always been about seeking the scale it never has. Without scale, a serious external shock can be existential in aviation industry.

While most people understand the economic value of hubs, the ME disruption provides a real-life demonstration of the risks. Singaporeans should pay attention here rather than the beauty contest. The Gulf hub model shows a weakness exposed in the ME conflict. It is the same weakness that Changi hub has. 

When regional conflict hits, Gulf mega hubs saw peak disruption of flights of 32% (Emirates).77% (Qatar) and 49% (Etihad). Their dependency on pure transit became an immediate operational crisis. In times of conflict, transit travelers avoid the Gulf mega hubs. This clearly demonstrates the high risks of single hub model without scale in home-based traffic - the exact risk exposure of SIA Changi hub. By contrast, the Indian hubs of Delhi and Mumbai, are anchored by massive native domestic and international origin-and-destination (O&D) demand, protecting them from the sheer network precarity that the Gulf hubs continue to navigate. 

IATA forecasts show Middle Eastern carriers swinging from a $7.2 billion net profit in 2025 to a $4.3 billion net loss in 2026. Gulf mega hubs were still profitable, but for all others -- Jordanian, Saudi, Iranian, Iraqi airlines, it's a financial disaster. Small single hub airlines without scale are hard hit. 

The war provided an accidental experiment on hub economics. When Dubai, Doha and Abu Dhabi went down, Singapore's position suddenly became more valuable because competing East-West capacity disappeared. SIA could not create that scarcity, but it could monetise it.  

Air India is the reverse proposition. SIA deliberately puts capital into another geographically advantageous hub before it needs that optionality. That is the strategic logic behind Air India. SIA is not merely buying another airline. It is buying access to another geographic hub and another enormous origin-and-destination market. The investment gives SIA network optionality that Singapore alone cannot provide. 

Air India's current losses therefore tell us what the investment is costing. They do not by themselves, tell us what the strategic asset may ultimately be worth. I have a Facebook stalker who keeps popping up and repeating a counterfactual question what my limit is -- would I stop if the loss is $5bn ... $10bn ... $50bn....

Arbitrary hyperbole isn't a strategy. If we are going to trade in ungrounded 'what-ifs,' then why stop at a ten-billion-dollar loss? What if the venture yields a hundred-billion-dollar profit next year? The flaw in escalating counterfactuals is that they look at the price of admission rather than the value of the theater. A global airline doesn't buy a ticket just to jump out of the plane at the first sign of turbulence. There is a vast difference between managing a portfolio on a phone app and securing a foothold in the world's most critical aviation corridor. If Singapore Airlines managed its global strategy based on catastrophic 'what-if' chains, we would still be a regional carrier operating out of Paya Lebar. Strategic investments are built on structural fundamentals, not imaginary breaking points.

SIA cannot simply rely on a competitive asset of "good service". It must have the organisational capability to sustain a premium service while operating a global network at scale. While Changi has been a good SIA hub for decades past, it does not have the scale to compete with mega hubs with the more geographical advantages of the Gulf states and India. Improved aviation technology introduces new fuel-efficient wide-bodied aircrafts challenge SIA's direct long-haul model, with Qantas Sunrise Project coming onstream next year posing a very serious threat. Sitting still is not an option for SIA. Instead of facing a new threat of Delhi/Mumbai mega hubs, the joint venture with Tata for a 25.1% stake in Air India is a strategic investment that allows SIA to capitalise and monetise India's aviation growth in the coming decades.

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