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
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