SIA traced its roots to an organization called Malayan Airways that offered its first commercial passenger service in May 1947.Today, SIA is Singapore’s best-known company, and rated consistently as Asia’s “most admired company”(Asian Business, 1997,p. 24). Its smiling, willowy cabin attendant, outfitted in tight batik sarong kebaya designed by renowned fashion house Pierre Balmain, and marketed as the Singapore Girl, is now a well-known international service icon. In 1994, the year she celebrated her 21st birthday, the Singapore Girl became the first commercial figure to be displayed at the famed Madame Tussaud’s Museum in London. Madame Tussaud’s had unveiled the waxwork of the SIA’s global marketing icon that year to reflect the ever-growing popularity of international travel. SIA is widely reckoned by those in the airline industry, travellers as well as its competitors, as one of the very best airlines in the world, judging from the numerous industry awards it has won. According to the Business Traveller – Asia Pacific, SIA has become “the standard by which all other international airlines are judged” (Business Traveller – Asia Pacific, 1997a, p. 3). SIA also consistently leads the industry in profitability and rides through “rough and turbulent” times much better than most of its rivals. It has had an impressive and continuous profit streak since it took to the skies some 25 years ago; a track record almost unheard of in the brutally cyclical airline industry (Asian Business Review, 1996, p. 34). On 1 May 1997, SIA turned 50 and celebrated its Golden Jubilee Anniversary in grand style. It was a far cry from its humble beginnings in 1947 when it started life as part of Malayan Airways.
The airline industry had traditionally remained fragmented primarily due to the limiting effects of national and international regulations. Enforced in the form of landing rights and associated competitive constraints, even large airline companies had only been able to develop dominance over their own regional markets at best. With the exception of the United States, dominant national flag carriers, typically owned by the national governments, had remained the only international representatives of their countries. However, the competitive dynamics in this industry had started to change dramatically in recent years. Deregulation, privatization, and the advent of new technologies have started to reshape the industry on a global level. The United States deregulated its airlines in 1978 and had since witnessed heightened competition and aggressive jockeying for market position. Europe entered the throes of a similar escalation of competition following the creation of the European Union and the disbanding of country-specific barriers to free market competition among air carriers. In Asia, deregulation occurred in fits and starts with some major regions allowing greater access to foreign carriers. For example, India, a regional market of some significance, announced that it would privatize its state-owned airline company. It had already allowed its traditionally domestic airline to compete against its international air carrier in many of the regional markets comprising neighboring countries. Japan made major strides in deregulation after selling off its shares in the then state-owned Japan Airlines and permitted All Nippon Airways to serve international markets. In Latin America, many of the smaller national flag carriers were privatized.
Countries such as Mexico and Argentina infused significant levels of market competition in their airline industries by removing anti-competitive barriers and privatizing their national airlines Mexicana and Aerolineas Argentinas. The trend seemed certain to gain further momentum and open skies might be closer to reality than ever before. The major European nations were already in discussions with the United States to implement an open Trans-Atlantic market area where landing rights would be determined by free market forces rather than regulatory policy. Open skies agreements are bilateral agreements between countries that agree to provide landing and take-off facilities for air carriers originating in any of the partner countries. Such an agreement does not have the typical restrictions related to landing rights that are determined on a city-pair basis. For example, Singapore and the U.S. had signed an open skies agreement under which a Singapore carrier could travel to any destination city in the U.S. and vice versa.
The twin trends of privatization and deregulation resulted in an increasingly global approach to strategic positioning in this industry. Although most large carriers still retained their regional dominance, many forged alliances with other leading carriers to offer seamless services across wider geographic areas. These alliances made most of the larger airline companies’ de facto global organizations. With increasing geographic reach and decreasing regulatory barriers, many of the regions were witnessing acute competition often in the form of fare wars. Consumers in general became much more price sensitive than ever before. In attempting to keep up with the competition, many carriers upgraded their service offerings contributing to declining yields in a price-conscious market. Chronic excess capacity worldwide only exacerbated this situation. Not surprisingly, there was a decline in passenger revenue yield in all geographic regions and the airlines were fighting an uphill battle to extract higher levels of efficiencies from their operating structures. For example, passenger yield dropped by 1.9% and 2.5% in 1998 and 1999, respectively, in Europe and 0.8% and 1.5% in North America during the same period. The drop was far more geographic region-wise summary of key trends in passenger traffic, growth potential, and major players follows. (Source: Annual Reports and HSBC Research.)
By 1999, traffic in the Asian region had become quite important to the overall success of the air transportation industry. Collectively, this region represented 24% of worldwide revenue passenger kilometers. The ICAO estimated that the Asia-Pacific region had grown annually by 9.7% over the last ten years. This upward trend was expected to continue albeit at slightly lower levels, moderating between 6%-7% until 2001. Trans-Pacific traffic was expected to grow at 6.6% and intra-Asia-Pacific traffic by 5%. Some analysts predicted that Asia would play a key role in over half of the top twenty international markets ranked in terms of revenue passenger miles by 2002
The aviation market in Asia, while similar to Europe of the pre-EU era, did indeed have some dominant players. Japan Airlines and Singapore Airlines were the clear leaders and together accounted for 40% of the market share. The second tier included Cathay Pacific, Thai, and Korean Air, which comprised 33% of the market. Asian carriers in general had significantly lower operating costs compared to their American and European counterparts. For example, in 1998, according to Warburg, Dillon & Read, personnel costs for North American carriers accounted for approximately 32% of total revenues. For European carriers, it was 21%. However, for the Asia-Pacific carriers, it was only 17%. Most of the Asian carriers also had much higher labor productivity levels and lower unit labor costs than airlines in North America or Europe. This location-specific advantage was a primary reason why carriers from other regions were setting up significant hub operations in the Asia-Pacific region. While the yields for many carriers such as China Airlines, Korean Air, Thai, and Malaysian, the second and third tier competitors, were much lower than international levels, the top tier carriers such as Japan Airlines, and Singapore Airlines had yields consistent with their North American and European counterparts. The avenues for differentiating airline services in this region were shrinking. The elite carriers who had built a reputation for superlative service such as Singapore Airlines were now facing stiff competition from carriers such as Thai Airways and Cathay Pacific who had geared to deliver similar services. Thus, differentiation was becoming much more demanding and difficult to sustain
History and Culture of Singapore
Singapore had witnessed bountiful growth and become the envy of many neighboring countries as it entered the new 21st century. Its per capita GNP increased by a phenomenal 75% between 1990 and 1999 and currently stood at S$39,724. This meteoric rise could be directly traced to Mr. Lee Kuan Yew, the most powerful Prime Minister in Singapore’s history. He was able to tap the patriotic spirit of his people when he announced his intent to develop Singapore to rival Switzerland in terms of standard of living. His emphasis on superior education standards, a controlled labor environment, significant outlays for training and development, all helped to enhance the quality of human capital. At the end of 1999, Singapore boasted a literacy rate of 93%, among the highest in the region. Singapore’s Confucian work ethic dovetailed very well with his ambitions. It emphasized responsibilities over rights and placed enormous value on attributes such as hospitality, caring and service. As a result of these efforts, Singapore, today ranked among the best countries in terms of human capital and was often rated among the world’s friendliest places to do business. Rising standards of living meant higher wages .Coupled with the small size of the local population and a very low unemployment rate (3.2% in 1998), the availability of labor was seen as a potential stumbling block in the drive toward further growth. Many of the larger companies already depended on a sizable number of expatriates from neighboring countries as well as the West to staff positions.
A staunch believer in free trade and internally driven growth, Mr. Yew made it clear from the start that the “world does not owe Singapore a living.” For example, in the air transportation sector, Mr. Yew’s government declared that SIA, although the national carrier, would not receive any subsidies, protection, financial assistance, or economic benefits from the government. It would have to sink or swim based on its own resources and ingenuity. Singapore literally adopted a free skies approach whereby foreign flag carriers from other countries were welcome to serve the city-state without any restrictions. This meant heightened competition for SIA right from the start. However, the free market philosophy also resulted in sharper rates of market growth. For example, roughly 35% of the equity base of Singapore was foreign in origin, and foreign investors owned 17% of all companies in the country, both testaments to the successful programs that attracted foreign capital and commerce to the island nation.
The tourism industry played a very significant role in the overall development of the country. Handicapped by the small size and the lack of natural resources, Singapore had to rely on service industries such as tourism and finance to generate growth. It had always enjoyed an enviable status as an important geographic hub dating back to the pre-British Colonization era. During its history as a British colony, Singapore provided an important stop-off point for travelers from Europe and Britain to the outlying colonies of Australia and New Zealand. Building on this historical reputation, Singapore evolved into an important Asian tourist hub
In 1947, Malayan Airways was established and operated services between Kuala Lumpur, Singapore, Ipoh and Penang, using its fleet of twin-engined Airspeed Consuls. In May that year, when Malayan Airways first took to the skies, there were only five passengers onboard its twin-engined Airspeed Consul. With the flight crew having to attend to the flying of the plane, passengers had to help themselves with the only refreshment available onboard then – a flask of iced water. In 1963, it was renamed Malaysian Airways Limited. In 1966, both the Malaysian and Singapore Governments acquired joint majority control. The following year, it was renamed Malaysia-Singapore Airlines (MSA) Limited. On 26 January 1971, both the Malaysian and Singapore Governments agreed to set up separate national airlines, and on 1 October 1972, Malaysia-Singapore Airlines ceased operations. In its place, Singapore Airlines (SIA) and Malaysian Airlines System (MAS) took to the skies.
The split of MSA on 1 October 1972 saw MAS taking over all the domestic routes while SIA took over the international network and all the Boeing jets in the MSA fleet .SIA was government-owned, and the Singapore Government viewed the airline as an investment in a portfolio held by the republic. Although SIA was a state-owned enterprise, it paid taxes, like any other company in Singapore, and was expected to be competitive and profitable. Without any domestic routes to monopolise, SIA had to strategise to survive.
Soon after the split, SIA embarked on an aggressive growth and aircraft and equipment acquisition programme. It acquired Boeing 747 Jumbo Jets, which went into service in 1973. In that same year, subsidiary Singapore Airport Terminal Services Ltd (SATS) was set up to provide ground services. In 1977, in conjunction with BA, it introduced the supersonic Concorde on the London- Bahrain-Singapore route. The maiden flight was on 10 December 1977. After three flights, however, disputes over airspace delayed regular Concorde service until early 1979. On 1 November 1980, the SIA/BA joint Concorde service between Singapore, Bahrain and London was, however, terminated.
SIA began cargo service from Singapore to San Francisco via Hong Kong, Guam and Honolulu in 1978. Passenger service on the route commenced the following year. In 1979, SIA took the unprecedented action of trading in the B-747s purchased just a few years earlier for more advanced, fuel-efficient versions of the same aircraft while simultaneously expanding the fleet in a record-setting S$2.1 billion order with Boeing Aircraft.
By 1979, it became the ninth largest airline in the world, up from the 57th position prior to the parting of ways with MAS, achieved on the back of a continuous average annual growth rate of 46 percent over its initial seven-year period (Harvard Business School, 1989b).
SIA shares were listed on the Singapore Stock Exchange on 18 December 1985, and a new corporate identity was unveiled on 28 April 1987. On 14 December 1989, SIA concluded a major world-wide alliance with SwissAir and Delta Airlines, covering wide-ranging co-operation and eventual exchange of equity. An MOU with Cathay Pacific Airways and Malaysia Airlines was signed on 22 December 1992 to form a joint venture to develop and operate a frequent flyer programme. Passages,the frequent flyer programme, was officially launched on 1 July 1993.
On 22 June 1994, SIA placed a US$10.3 billion order for 22 Megatop 747s and 30 Airbus 340-300E aircraft. The following year, on 14 November 1995, it ordered 77 B777 aircraft powered by Rolls-Royce Trent engines worth US$12.7 billion, including spares and spare engines.
SIA turned 50 on 1 May 1997. It had by then grown into a diversified group, totally transformed from its humble beginnings 50 years ago. On 7 May 1997, less than a week following its 50th birthday, it took delivery of its first Jubilee B777-200, which touched down at Changi Airport. Symbolically, this ushered in another new and challenging era for SIA.
Within a year of the launch of SIA following the split of MSA on 1 October 1972, SIA began looking for new ways to differentiate itself. In 1973, SIA had in its service, some of the world’s most modern aircraft. Its maintenance operations were generally recognised to be on a par with those of the world’s major airlines. All its pilots and engineers were proficient and experienced, as there were no restraints from the unions on hiring Western crew members if SIA thought they were better.
The product/service differentiation strategy that SIA finally decided upon was based on in-flight service. The strategy, as summarised by its then SIA’s advertising manager, who later became its manager of in-flight services, was:
What we needed was a “unique selling proposition”. Happily, we found it. Or perhaps I should say we found her, because the Singapore Girl has become synonymous with Singapore Airlines.
SIA is an Asian airline, and Asia has a long tradition of gentle, courteous service. The Asian woman does not feel she is demeaning herself by fulfilling the role of the gracious, charming and helpful hostess. What we hope to do is translate that tradition of service into an in-flight reality (Harvard Business School, 1989b).
SIA was thus strategically positioned in the premium service, quality and value market segment of the international airline industry. SIA capitalised on Oriental charm with stewardesses of Chinese, Malay, Indian, and Eurasian ethnic backgrounds. By 1997, this resource pool within Singapore had, however, expanded to include Malaysia, Indonesia, India, Taiwan, China, Japan and Korea. In 1997, a third of its 5,800-strong cabin crew were non- Singaporeans (The Sunday Times, 1997a, p. 3)
SIA stewardesses were costumed in a specially designed version of the graceful Malay sarong kebaya, designed by renowned fashion house, Pierre Balmain. Passengers were treated to some of the best food on any airline, which is served with “lots of warm smiles, warm towels, and attention to details”. It provided first-class, business-class and economy-class passengers with cocktails, fine wines, and in-flight motion pictures at no extra charge. Since its inception, SIA has always subscribed to a policy that “once a passenger pays for his or her ticket, there should be no more charges on the aeroplane”. SIA now spend S$20 million a year on wines, with about 60 to 80 bottles of wine consumed per flight. International consultants who specialise in French, American and Australian wines are contracted to do wine-tasting twice a year for SIA, and they advise the airline on what to buy for its first, business and economy class passengers (Straits Times, 1997a, p. 22). According to SIA, the airline even receives letters from passengers asking for the names of wines that they took on SIA flights, with some asking where they can buy them (Straits Times, 1997a, p. 22).
Service became the raison d’etre for SIA, and at the heart of its service reputation was the Singapore Girl. Slogans like “A standard of service that even other airlines talk about” and “SIA: you are a great way to fly” were used regularly in its marketing. SIA has always been of the view that the key to its success was its “value or quality for the money”. SIA’s corporate philosophy of the airline industry since the late 1980s is best summed up by:
The airline industry is, by its very nature, a service industry. In a free market, the success or failure of an individual airline is largely dictated by the quality of the service it provides (Joseph Pillay, Chairman SIA, Harvard Business School, 1989b).
Most had to confront the apparent contradiction between cutting costs and prices, on the one hand, and maintaining customer focus and delivering customer service, on the other. It was a challenge many found most difficult.
Into the 1990s SIA had developed a very strong market position. While keeping an eye on costs, its “quality and service-enhancement strategy” allowed it to command a relative market price premium position through “premium service, value and quality”. Its enviable position can be summed up as follows:
If others resort to cutting fares, we can certainly do the same and we have a far better financial strength to cut fares and last longer than anyone else. But we ask ourselves first whether it is necessary to do that . . . So far, we have no need to do that (S. Dhanabalan, Chairman SIA, 1997, The Sunday Times, 1997b, p. 32).
On competition, S. Dhanabalan reiterated SIA’s long-standing strategy: “Strong competition is not new to SIA. Every now and then, some airline, in an attempt to gain market share, will resort to senseless heavy discounting. It is a short term phenomenon. We take such competition in our stride” (The Sunday Times, 1997b, p. 32)
The Singapore Girl, the idealised version of the SIA cabin attendant, was the centrepiece in SIA’s marketing strategy. Very high-quality photography was used in SIA’s advertisements, and the Singapore Girl was always the central feature of the advertisements. The advertisements portrayed her in a number of settings and used a variety of themes to good effect.
The Singapore Girl strategy proved to be a powerful idea and turned out to be a phenomenal success. International Research Associates (INRA), a firm which conducted surveys (covering the area of advertising recall) in the Asia Pacific area triennially, found that SIA’s advertising enjoyed steady increases in unaided recall in the three successive INRA surveys in advertisement recall it conducted in 1973, 1976 and 1979. The SIA advertisement recall was 21 percent in 1973. It rose up to 32 percent in 1976, and shot up to 50 percent in.The average advertising recall of about 40 airlines studied over the same time period was only 9.6 percent (Harvard Business School, 1989b). SIA’s market research up to 1997 continues to attest to this:
Around the world the Singapore Girl remains a very positive marketing icon. She evokes the very best in Asian charm and hospitality (Director, Market Research, SIA, The Sunday Times, 1997a, p. 3).
Although there were initial protests in some Western quarters in what was perceived to be sexist overtones in the advertisements, not everyone took offence at the advertising image. In a 1979 Fortune magazine article, “Flying high with the Singapore Girls”, it was noted that “far from being repelled by the notion of becoming a `girl’, about 7,000 young Singaporean women applied last year for 347 openings in the hostess ranks of SIA” (Harvard Business School, 1989b). In the West, its acceptability in recent years had changed quite appreciably. In 1997, it was noted that:
Her popularity in the West is such that it would be quite risky for SIA to attempt to change the image at a time when people there are getting used to her (Analyst, Goldman Sachs, The Sunday Times, 1997a, p. 3).
On an SIA flight in 1996, a Chinese couple travelling in first-class with their children and nanny had refused the food served. When asked, the man of the family replied: “We are just not used to these and would prefer a bowl of instant noodles.” Since then, every SIA flight carries a supply of instant noodles for those customers who find in-flight cuisine not quite to their taste (Asian Business, 1996, p. 40). In addition, first-class and business-class passengers flying out of Singapore can now pre-order certain Singapore local fare prior to their flight to be served to them onboard. These are just some examples that illustrate the constant drive by SIA to introduce new ideas to improve customer service, in its customer focus to win customer satisfaction and even delight.
There is of course nothing high-tech or sophisticated about instant noodles nor Singapore local fare, but these examples highlight the creative customer service even in simple things that has won SIA wide praise (Asian Business,1996, p. 40). This has become a hallmark of SIA’s service excellence. In 1972, SIA was the first airline to introduce free food and alcoholic drinks on its flights.
SIA has recognised that in this highly competitive market, any advantage gained by one airline over others will be short-lived, and ideas that are new will become commonplace in a matter of months. However, it noted that the important thing is to always stay in the forefront both in service and in technology (Asian Business, 1996, p. 40).
This strategy of SIA focuses primarily not on reducing costs, but on enhancing quality or service and preventing customer problems from arising. SIA has succeeded most uniquely with this type of strategy in the airline industry, a strategy commonly employed in service businesses that command premium prices with high margins, businesses in which there is a high degree of repeat business, with word-of-mouth praise by customers as a most important marketing channel.
It has been argued by some that an organisation should be conservative in its promises regarding service excellence to prevent customer expectations becoming too high. High expectations, so that argument goes, increase the potential for customer dissatisfaction. Such prescriptions, however, serve only companies with modest ambitions. In SIA’s case, it was very different. It had a bold strategic vision and aspiration of being a top airline, not just any ordinary good airline. Through its careful market positioning and delivering its service promise, SIA could be said to be the very first airline in the international airline industry to have succeeded in developing such a powerful and enduring image of quality service that has resulted in its acquiring a sustainable competitive advantage. Its ability to sustain this advantage, even as its competitors seek to develop comparable service capability, had been buttressed by the fact that it was the first to earn and attain the quality-service position and image in the market and in customers’ minds.
High service quality standards need to be developed systematically over time. Although sustaining a competitive advantage based on service quality is possible, this requires unrelenting effort on the part of an organisation to continually improve its service. This was achieved in SIA’s case.
As part of SIA’s strategy to differentiate itself on the basis of superior customer service, it was able successfully to generate a vision of service excellence throughout the organisation. Such an organisation-wide energizing vision of service excellence is a powerful source of competitive advantage in top class service organisations. Such strength can be the bedrock of a quality and service-based sustainable competitive advantage. A service organisation that does not have such a shared vision and culture of service excellence will have a tough task acquiring it, as it cannot be bought. It must be built, as in SIA’s case.
In SIA’s case, setting exceptionally high customer service standards generated a positive spirit and culture that had many follow-on results. Customer servicewent beyond the mechanics involved in efficiently providing a service onboard. Pride, zeal, and motivation were some of the positive service hallmarks that flowed from the shared vision and culture of service excellence, and the results were impressive. Unlike robots or machines, where differences in performance are largely rooted in technical specifications, human beings are subject to major performance variation. The SIA’s vision and culture that hold exceptionally high customer service standards as a strategic objective to be attained were a most important factor accounting for its exceptional performance.
To support this service excellence strategy, SIA adopts a most rigorous quality control system and process for staff recruitment and selection, as well as a rigorous training and service policy (Asian Business Review, 1996, p. 34). For example, SIA has one flight attendant for every 22 seats, the highest in the world and well above the industry average. Cabin crew must be under 26 and are employed on a five-year contract after making it through a very selective three-stage interview process that includes a social function
Previously, all cabin crew would complete a six-month training course before they could be allowed to serve a customer. However, this has now been compressed into an intensive four-month course, which is still considered to be the longest and most comprehensive programme of any major airline. In comparison, Cathay Pacific, for instance, conducts only a seven-week intensive training programme on technical, safety and interpersonal skills.
The aim of SIA’s training is to provide gracious service reflecting warmth and friendliness, while maintaining an image of authority and confidence in the passengers’ minds. Each month, thousands of young ladies would apply for the airline’s rigorous course that emphasizes safety training and encompasses beauty tips, discussions of gourmet food and fine wines, and the art of conversation.
SIA is also at the forefront of service innovation through technology. For instance, it introduced Electronic Ticketing for flights from Singapore to Kuala Lumpur and Penang (and vice versa) on 1 October 1997. About two weeks earlier, on a flight from Singapore to Tokyo on 15 September 1997, it had launched a revolutionary innovation in in-flight entertainment with the introduction of the WISEMEN system, offering passengers full control over their viewing and listening options. With WISEMEN, passengers will be able to choose from 15 movies, 20 short features and about 50 CDs. This is over and above the current SIA’s in-flight entertainment system, Krisworld, which already had 22 video channels, 12 audio channels and ten games channels. Internet check-in for First Class, Raffles Class and PPS Club Members flying out of Singapore was introduced on 20 November 1996.
Just as well-known as its product/service differentiation strategy, as well as its creative service and service excellence, but certainly less familiar, is SIA’s profitability track record. Since its inception in 1972 some 25 years ago, SIA has had an uninterrupted profit track record. Asian Business Review, in an article piece on Asia’s Great Companies, noted that its financial track record is almost unheard of in the brutally cyclical airline industry, and touted it as the “World’s most profitable airline” (Asian Business Review, 1996, p. 34).
Its profitability track record is even more astounding considering that it is the national airline of a small country that is essentially just a city, of only 647 square kilometres and 3.6 million populations, with no domestic routes to monopolise. Yet, despite this it has managed to consistently deliver profits in one of the world’s most cyclical industries. SIA has an established practice of keeping its fleet young and modern (Singapore Airlines, 1997b, p. 5). This, made possible by the airline’s strong cash flow position, has allowed it to maintain a fuel-efficient fleet that averages just over five years of age without resorting to heavy borrowing or costly leasing deals.
The fleets of most other international carriers are more than twice as old as SIA’s. SIA’s fleet is in fact the youngest in the world, not taking into account the couple of small regional airlines that have just started up.
For SIA, this strategy which entails heavy capital costs, however, translates to significant savings through minimising aircraft downtime and minimizing maintenance costs. Newer aircraft are also faster and more fuel efficient, and are perceived by passengers to be safer. For instance, the B747-400 is 10 percent more fuel efficient than its predecessor. For SIA, this means a significant saving as about 15 percent of the company’s expenditure is on fuel (Asian Business Review, 1996, p. 34).
Most airlines use a combination of different financing schemes for their aircraft with the core fleet usually on long-term leases to minimise interest costs. SIA is, however, about the only major airline in the world to finance aircraft internally. Although there were times in the past when SIA financed aircraft using operating leases, these were primarily because of tax considerations. SIA has always viewed it as advantageous for an airline to own aircraft outright, as excess capacity can be disposed of expeditiously should a rapid downturn occur in the economy. In this way, the cost of maintaining underutilized aircraft can be avoided. SIA is very active in the used-aircraft market. In the last 17 years, SIA has in fact sold off 69 of its older aircraft at a total value of US$1.69 billion. To have flexibility, SIA makes it a high priority to negotiate options on new aircraft purchases and deliveries:
We aim for steady growth, not haphazard fits and starts. We do not try and outguess the economy. It is only through advanced planning, focused on consistent growth, that the whole organisation can function efficiently. We need to train pilots, buy new aircraft, expand facilities, design new aircraft configurations and move forward in 100 other areas of the company (Dr Cheong Choong Kong, CEO, SIA, 1996, Asian Business Review, 1996, p. 34).
SIA’s strategy can therefore be described as one of steady growth, and of taking the long-term strategic view. It does not simply react to cyclical and transient market conditions. It invests in capacity and increases route frequency only when it is confident that there is the market. This means that operations are not necessarily cut back when yields indicate a downward trend or when a particular business is struggling during its start-up or infancy stage.
SIA’s strategy of having separate subsidiaries to run and manage its business strategic units has contributed favourably to profitability. SIA’s data processing division was moved from Singapore to Bombay to cut costs.
Vertical integration and expansion through the formation of its Singapore Engine Overhaul Centre allowed the company to become self-sufficient in engine maintenance and reduce costs. Subsidiary SilkAir is run as a separate airline with its own brand and its own strategy, concentrating on secondary destinations within the region, and not major cities like London or New York, or places as far away as Japan. It is a different product with a different clientele. For example, SilkAir does not have a First Class.
The freight business is becoming increasingly important for SIA. Although it is currently contributing about 20 percent to the group’s revenue, it is set to grow. This may increase to 25 percent within the next few years. SIA now has five Boeing 747-400 dedicated freighters, known as Mega Arks. This is the most modern Boeing 747 and SIA is the largest operator of the freight version in the world. Including underfloor space on passenger aircraft, SIA has a weekly capacity of 126 million freight ton kilometres. Its growth in market shares surpassed its growth in freight volumes.
In financial year 1996, SIA posted group profits of S$732 million (Asia Aviation, 1996, p. 18). For the financial year 1997, SIA posted interim net profits for the six months to 30 September 1997 nearly 10 percent higher to S$616 million, more than most analysts had expected (Business Times, 1997b, p. 7). The 9.9 percent rise in earnings was due to better yields and lower costs, a strong recovery in the cargo market and lower fuel prices (Straits Times, 1997b,p. 88). SIA’s strong showing exceeded the expectations of many analysts. The consensus full-year forecast by analysts polled was S$1.14 billion with estimates ranging from S$1.07 billion by CS First Boston to S$1.3 billion by Union Bank of Switzerland (The Estimate Directory, 1997). This works out to be an average forecast of 10 percent full-year net profit growth for SIA by the 32 analysts polled.
Of all things I’ve done, the most vital is coordinating the talents of those who work for us and pointing them toward a certain goal (Walter Elias Disney, Founder, Walt Disney Company, 1954).
Far better to dare mighty things, to win glorious triumphs, even though checkered by failure, than to take rank with those poor spirits who neither enjoy much nor suffer much, because they live in the gray twilight that knows not victory, nor defeat (Theodore Roosevelt, 1899).
The SIA story parallels and reflects the visionary, “can-do” and energizing spirit embodied in the above quotes. SIA was able to have a highly focused and energising strategy that engages its people, reaching out to them and “grabbing them in the gut,” to produce spectacular results over its 50-year history. No airline can boast and match this in terms of overall impact and sustainability. Comparison with its “twin sister” airline, MAS, in which they share a common first 25 years, demonstrates starkly what SIA has achieved in the last 25 years.
1997 saw SIA named The World’s Best Airline for the fourth year running in the Zagat Airline Survey. A major consumer survey company in the US, Zagat surveyed 10,000 frequent travellers to rate 61major air carriers.Air Transport World, in 1994, called SIA“theWorld’sNo. 1 airline over the last two decades.”
Accolades also came in for SIA from Europe. At the Seventh Espace Voyages Professionals (Business Travel Fair) in Paris in October 1997, SIA was announced the top airline in the only business travel survey, Baromeatre Voyages d’Affaires, in the long-haul category. In the British-based 1997 Executive Travel magazine awards, SIA swept the Airline of the Year, Best
Airline to the Far East, Best Long Haul Airline, Best Ground Check-in Staff and Best Airport Lounges awards.
Closer to home in the Asia-Pacific, 1997 marks the sixth straight year in which SIA has walked away with the overall Best Airlines Award in the Business Traveller -Asia-Pacific awards. BA clinched the seventh position. Its positions for 1996 and 1995 were sixth and seventh, respectively. MAS dropped to the 32nd position in 1997, down from its 18th and 26th positions in 1995 and 1996, respectively (Business Traveller -Asia Pacific, 1997b, p. 40).
SIA’s performance in competitive rankings of all companies in Asia is just as impressive. In all the annual Asia’s Most Admired Companies (AMAC) surveys conducted by Asian Business since the inception of the AMAC Polls in 1991, SIA has been voted either first or second. In the three most recent Asian Business AMAC Polls (1995 to 1997), which covered some 250 major companies across Asia, it consolidated its position by emerging the clear winner. BA and MAS were placed at the 117th and 206th positions in 1997, respectively (Asian Business, 1997, p. 24).
A 1997 research report by the London-based Travel and Tourism Intelligence on a study of the Asian civil aviation industry concluded that SIA is set to remain Asia’s leading carrier for the next decade (Straits Times, 1997f, p. 6). MAS saw its previous position slip, and was reckoned to need several more years to recover. The research report, which profiled 18 major airlines in the region, attributed SIA’s lead to its unique combination of profitability, market leadership in in-flight entertainment, its reputation for quality and the advantages of its Changi Airport base.
Singapore’s excellence in the world of international aviation remains so unquestioned that it’s become an article of faith. Through a combination of constant product development, consistent and excellent in-flight service and what is probably the most ambitious and extensive fleet-renewal programme in the world, SIA has become the standard by which all other international airlines are judged. That pre-eminence in the sky had been buttressed on the ground by an urban infrastructure that, whether you’re talking in Asian or global terms, is second to none. Changi Airport . . . (Business Traveller – Asia Pacific (1997a)).
SIA is a world-class airline and we respect it greatly. It is still very competitive. Other carriers are always interested in what SIA is doing (Ian Gay, Regional General Manager of Qantas-BA Alliance, 1997, The Sunday Times, 1997d, p. 3).
SIA is an airline that sets trends, is profitable and well-managed, and takes a personal interest in its passengers (Mike Simon, Emirates Head of Communications, 1997, The Sunday Times, 1997d, p. 3).
In its 50-year history, SIA has come a long way. It has become an industry leader and innovator, setting standards to which other airlines aspire. At 50, it is still riding high as it begins a new chapter of its corporate journey. On the occasion of its 50th Anniversary Celebration, it was thrown a new challenge by the Prime Minister of Singapore to “scale a new peak” (Straits Times, 1997g, p. 5). Six days later, the first of the 77 Jubilee B777-200 aircraft that SIA has ordered from Boeing touched down at Changi Airport. In October 1997, SIA announced that it is considering inviting foreign talent to join its board of directors, to reflect the international nature of its business. This is to underline its global character and to stay ahead of the competition. A month later, its HQ moved into its new HQ building in the heart of the city’s downtown. It has also embarked on a major exercise to change its corporate culture to prepare for the global competition in the new millennium.
In October 1997, SIA Chairman, revealed that SIA is gearing up for a new era of heightened competition where tailor-made in-flight service, for the increasingly demanding passenger, will be the norm. He noted that: “one of the changes we see is that passengers will refuse to be compartmentalised into one average unit. Each person will have his own particular needs and he will want service that is tailored tomeet those particular needs.” On SIA’s future direction, he pointed out that: “Basically, it has to be service, and better service. Others have learned that what differentiates one airline from another is service. They have wised up to it and have also starting improving their service. The challenge is therefore to keep ahead of the pack” (The Sunday Times, 1997b, p. 32).
On how SIA intends to keep ahead, Chairman revealed that: “The crew will have to be equipped to meet the special needs of passengers. They would have to be . . . We are constantly reviewing procedures and training methods. . . so that when people fly, SIA will be the preferred airline” (The Sunday Times, 1997b, p. 32).
He further stressed that, while customer satisfaction was seen in the many awards the airline received, SIA would not take this for granted. For all its international flights, SIA crews are now being prepared to be conversant with and to make announcements in the languages of the countries it flies to.
In November 1997, SIA hired McKinsey & Company to conduct a 12-week management review. Its plans for more expansion and to become more global are well underway.
On Sep 2000 Singapore Airlines (SIA) signed a memorandum of understanding to acquire 49 per cent of Virgin Atlantic, the holding company for Virgin Atlantic Airways, Virgin Holidays, Virgin Sun and Virgin’s cargo operation, Virgin Aviation Services. The cost of the transaction to SIA is GBP 600.25 million (S$1620 million), which includes a capital injection of GBP 49 million (S$132 million). Virgin will reinvest a further GBP 51 million (S$138 million) into Virgin Atlantic. This big investment, the first by the SIA Group in another airline, will move it nearer to its goal of being a major global
In 2006 Singapore Airlines announced that it has expanded its co-operation with Virgin Atlantic Airways to enable customers of both airlines to enjoy more choice when they fly between Australia, the UK, the United States, the Middle East and Singapore.
Judging from its past track record, as well as the concerted and systematic way it has anticipated and prepared itself for the new competition and changes to come, the prospect of it continuing with its winning streak looks good.
U.S. Dot Form 41, Boeing Corp; World Airlines in Review, Interavia Business & Technology, June 1999.
Journal of Management Development, Vol .19
Journal of Air Transport Management xxx (2009) 1-6
Asia Aviation (1996), “SIA posts strong $732m group profit”, June.
Asian Business (1996), “Asia’s most admired companies 1996: creative service is secret of success”, May.
Asian Business (1997), “Asia’s most admired companies, 1997”, May.
Asian Business Review (1996), “Asia’s great companies: why SIA is the world’s most profitable airline”, December.
Business Times (1997a), “Airlines told to stop slashing fares or industry will suffer”, November
Business Times (1997b), “SIA posts surprise 10 percent rise in interim earnings to $616m”, October
Business Traveller – Asia Pacific (1997a), “Fast-lane flyers”, October.
Harvard Business School (1989a), “Cathay Pacific Airways (A)”, Vol. 9, pp. 144-89.
Harvard Business School (1989b), “Singapore Airlines (A)”, 9-687-022, Rev. 3/89, 13 September.
Harvard Business School (1993),”Changing the culture at BA”, 9-491-009, 13 September.
Silver Kris (1997), “The birth of SIA”, October
Singapore Airlines (1992- 2007)
Straits Times (1997c) “Singapore and SIA must adapt to meet competition”, July, p. 56.
The Sunday Times (1997c), “SIA recruits cabin crew who speak passengers’ languages”, October
The Sunday Times (1997d), “Even No. 1must do better to stay ahead of the competition”, August
The Estimate Directory (1997), October
Government of Singapore, Department of Statistics, browsed on (22nd Aug) www.singstat.gov.
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