Singapore Airlines Ltd said on Friday it would spend more than S$100 million ($74.5 million) upgrading the cabins of regional arm SilkAir as part of a multi-year initiative that would eventually result in a merger with the parent airline.

The move comes as Singapore Airlines undertakes a three-year transformation programme designed to cut costs and boost revenue amid competition from Chinese and Middle Eastern rivals and low-cost carriers.

Singapore Airlines on Thursday topped market expectations by reporting a 148 percent rise in full-year net profit to the highest level since 2011, as passenger and cargo revenue rose and the transformation programme produced early results.

But SilkAir was a weak spot, reporting a full-year operating profit of S$43 million for the 12 months ended March 31, down 57 percent from a year earlier.

SilkAir’s average fare prices have been falling as it competes against lower-cost rivals like AirAsia Group Bhd on short flights to destinations like Kuala Lumpur and Bali, and some analysts have advocated for a merger with Singapore Airlines.

The cabin upgrade, including the installation of seatback in-flight entertainment in all seats and lie-flat seats in business class on SilkAir’s all-narrowbody fleet, would start in 2020 due to the lead times required by seat suppliers, the company said. The merger would take place after a sufficient number of jets had the new product.

The cabin upgrade will close a gap with rival Cathay Pacific Airways Ltd, whose regional arm, Cathay Dragon, operates jets with cabins more similar to its parent than the wider gulf between Singapore Airlines and SilkAir products.

As part of its transformation programme, Singapore Airlines had already handed some of SilkAir’s routes to budget carrier Scoot and merged part of SilkAir’s finance team with its parent.

First Published:May 18, 2018 11:15 AM IST