SATS Feeds Army to Bolster Airline Trolley Trade: Southeast Asia

SATS Ltd. (SATS), Asia’s largest provider

of in-flight meals and ground-handling services, is expanding

beyond stocking up Singapore Airlines (SIA) Ltd.’s food trolleys to

feed soldiers and pack vegetables for McDonald’s Corp.

The supply of food to hotels, restaurants and mining

companies will increase over the next five years to make up

almost a third of its catering sales from 22 percent now, Chief

Executive Officer Tan Chuan Lye said. It also provides other

food items to Burger King and Pizza Hut, he said.

“There are more opportunities where non-aviation food is

concerned, both domestically and overseas,” Tan said in a July

29 interview in his catering kitchen at the company’s Singapore

headquarters. “The aviation segment is very cyclical. That’s

why we took some effort to grow the non-aviation business.”

Demand is expected to increase as labor-strapped firms farm

out catering to companies such as SATS, said Tan, 63, who will

retire at the end of the year. The push to diversify the

company’s revenue stream will also help it weather turmoil in

the airline industry, he said.

SATS’s biggest customers, which include Singapore Airlines

and Qantas Airways Ltd., face increased competition from Middle

East and low-fare carriers, adding pressure on their yields.

While air-passenger traffic recovered from a global slump last

year, gaining 5.3 percent, the industry will experience more

challenges this year, Tony Tyler, chief executive officer of the
International Air Transport Association, said in June.

Airline Dependence

“SATS has been dependent on airlines, the health of the

economy and the competitive landscape,” said K. Ajith, an

analyst at UOB Kay Hian Research in Singapore. By developing its

institutional catering business, the company “removes that

cyclical element, leading to more stable growth,” he said.

SATS was a unit of Singapore Airlines, Asia’s second-biggest carrier by market value. Temasek Holdings Pte, the

Singapore state-owned investment company that’s the parent of

the airline, is now the largest shareholder in SATS.

The company’s shares climbed 14 percent this year, compared

with a 2.5 percent advance in Singapore’s benchmark Straits

Times Index. (FSSTI) Singapore Airlines declined 6.1 percent.

SATS is trading at 19 times reported earnings, compared

with the 33 times average of its peers in the airport services

industry globally, according to data compiled by Bloomberg.

Singapore’s key stock guage has a multiple of 13.

21-Year Contract

In March, SATS won a 21-year contract to provide meals at

sporting events at Singapore’s new stadium near the city-center,

Tan said. It’s expanding overseas and into remote sites

including oil rigs and mines, where it provides food for

workers.

SATS has set up companies in Australia and India to seek

new opportunities, he said, extending a reach that includes 37

airports in 10 countries in Asia and the Middle East.

“The business model of providing a comprehensive handling

service — ground and catering, we’ll roll this overseas,” Tan

said. “We want to grow in Asia Pacific and the Middle East.”

In Singapore, SATS also expects to expand at Changi

Airport, which plans to complete the construction of its fourth

terminal in 2017 and a third runway before the end of the

decade. Changi handled a record 51.2 million passengers last

year, 10 percent more than in 2012, according to the operator.

Travel demand will grow as the Association of Southeast

Asian Nations plan to allow carriers to fly as often as they

like among the region’s capitals by the end of this year and to

have fully open skies across all routes by 2015.

Be Prepared

“We’re planning ahead to take care of the growth,” Tan

said. “You have to be prepared. Regional growth is still

there.”

To complement the increase in demand, SATS has expanded its

food business to hospitals and Singapore’s two casino resorts,

which include convention centers and a Universal Studios theme

park.

Inflight meals and catering made up 64 percent of the

company’s S$1.82 billion ($1.43 billion) of revenue in the year

ended March. The rest came mainly from airport ground handling.

“For catering, we have a dedicated food research and

center set up,” Tan said. “We are using the knowledge and

experience in the aviation sector into the non-aviation

sector.”

To contact the reporters on this story:

Kenneth Foo in Singapore at

kfoo23@bloomberg.net;

Kyunghee Park in Singapore at

kpark3@bloomberg.net

To contact the editors responsible for this story:

Linus Chua at

lchua@bloomberg.net;

Vipin V. Nair at

vnair12@bloomberg.net

SATS Feeds Army to Bolster Airline Trolley Trade: Southeast Asia