Airline Profile — Singapore Airlines

The success of Singapore Airlines has had much to do with good management, but also Singapore’s strategic position within Asia. The advantages of Singapore’s location its central location in South East Asia making it an ideal hub and the unprecedented growth of most Asian economies are obvious, and something the airline has fully exploited. This has allowed the airline to grow to the size and stature that it has achieved today, despite Singapore’s modest population of three million people.

Indeed it is the continued development of Singapore as a hub and the continued strong growth in Asia Pacific air traffic put at about 8% per annum that are driving SIA’s future plans. Originally when the airline began the procurement process for its so called ‘Y-aircraft’ which led to the 777 order, Singapore was planning to acquire 16 aircraft plus 17 options. However one of the major factors influencing the airline’s decision to increase the order was the need to keep increasing the airline’s overall capacity by 10% each year to keep abreast of projected traffic growth in Asia Pacific, where the 777s will be primarily used. However, not all the 777s will be used purely for new traffic growth, some will be needed to replace A310s and early models 747s.

Another major factor in the 777 decision was the availability of the three different 777 family members the base 777-200B which SIA has currently on order, the stretched 777-300 and the shortened 8500nm (15,750km) range 777-100X (as yet unlaunched), which would allow nonstop Los Angeles/Singapore operations.

In SIA’s planning, the A330 began as the favourite to meet the ‘Y-aircraft’ requirement because of its close commonality with the A340 (Singapore has 17 A340-300s on firm order). However the 777’s greater capacity and promise of a family of variants (each of which would be well suited to SIA’s requirements) swung the decision to Boeing. The 777 order currently covers 777-200Bs only, although SIA retains the right to substitute model types.

SIA has expressed a strong interest in the 777-100 as the aircraft would open up a range of new nonstop trans Pacific services. Before ordering though the airline has said that it would have to look closely at the operating economics of the aircraft and make sure that the yield would be acceptable for an aircraft that would inevitably have higher operating costs per passenger than shorter range aircraft. An alternative would be Airbus’ planned A340-8000.

The 777 family commonality was another major factor in Singapore Airline’s decision to almost double its planned order the family of variants allowed the airline to order a large number of the one basic aeroplane type, thus reducing acquisition costs through bulk purchasing and keeping commonality within the fleet high and the number of aircraft types in the fleet low. Airbus’ shortened A330, the A330-200, and the ultra long range A340-8000 were both taken into planning consideration, however in the end SIA felt the 777 series still offered the greatest family flexibility.

Singapore’s 777s will be powered by Rolls-Royce Trent 800s (the first time SIA has ordered a Rolls powered aircraft) and the airline intends establishing a Trent overhaul facility at its Singapore airport base. The aircraft will be configured in a three class arrangement. SIA had given consideration to fitting the aircraft in a two class configuration, which would have matched a number of other competitors who have dropped first for regional Asian services (such as Qantas and Cathay), but has instead reaffirmed its commitment to the premium class on all its flights.

On the surface, having large numbers of A340s and 777s on order seems to be an example of the unnecessary duplication of aircraft types that the airline says it is trying to avoid. However SIA says the aircraft are not directly comparable and it is not a case of either/or despite their similar size. Singapore plans to use the A340-300s for its long and thin services to Europe, complementing 747-400s and allowing the establishment of more nonstop services or greater frequencies. The 777s (at least the -200s and any -300s) would be used within Asia and down to Australia (but not New Zealand, for which SIA says the A340 is better suited).

However, now with so many 777s on order the airline says it may not exercise all of its A340 options (in recent times the airline has exercised all of its options). Instead SIA wants to wait and see how both the A340 and 777 perform in service before making further decisions regarding the two types’ positions in the fleet.

Despite having increased the number of 777s it planned to order, SIA says it will still self finance the new aircraft, as it is doing with the A340s and 747-400s on order. The airline has no debt, large cash holdings (over $1bn) and a very healthy cash flow, a result of its consistently strong financial performance.

Further into the future the airline has expressed an interest in acquiring any future Very Large Aircraft (VLA). SIA says it would be used for services to London, Tokyo, Hong Kong and even Sydney.

Lower down the capacity scale SIA will eventually look for a true replacement for the A310 although not for some time as the last of 23 A310s was only delivered in 1994. Fifteen so called ‘W-aircraft’ would be required around the turn of the century but the airline is not yet considering specific types.

The 777 and A340 orders are aimed at allowing Singapore Airlines to steadily develop its network and to cater for eight to 10% growth. Currently the airline’s network spans 77 cities in 42 countries (four cities are served solely by freighters). Incorporating subsidiary SilkAir’s destinations, the SIA route network extends to 96 cities in 45 countries. SIA flies 504 round trips each week.

Asia, as the airline’s home market, accounts for about 35% of SIA’s capacity, with Europe, North America and Australasia accounting for between 15% and 30% each of the airline’s capacity.

Within Asia, Japan remains one of Singapore Airline’s key markets with 50 services each week. While the airline expects outbound traffic from Japan to steadily increase, the importance of China and India as markets looks set to boom in coming years with the airline planning for rapid route expansion. SIA is currently using its subsidiary SilkAir to develop new services to secondary centres in China, while by mid 1997 SIA will fly to Beijing twice daily.

Within Asia, Singapore Airline’s regional subsidiary SilkAir serves a number of secondary ports. SilkAir flies to 20 Asian destinations from Singapore with a fleet of five 737s (four owned, one leased from AWAS) and two Fokker 70s (both leased), while the carrier’s two A310s have been leased back to SIA allowing it to concentrate on regional, low density routes. SilkAir is playing a key part in opening up new destinations in China and Indonesia to the Singapore Airlines network, and as routes develop and demand dictates they will be progressively handed to SIA.

Sydney was one of SIA’s first international destinations outside of Asia, and the importance of the Australian and New Zealand markets to the airline continues to grow due to increasing tourist traffic. The introduction of the A340 into service is central to the airline’s plans for Australia and New Zealand. Australian frequencies will be increased from 39 to 46 a week from this July, with more nonstop services and Sydney gaining twice daily services.

The A340 is also a very important part of the airline’s plans for Europe. Initial A340 deliveries will allow SIA to fly daily A340 services to Paris. The A340 will also allow SIA to decouple existing European services (i.e. Singapore/Paris/Madrid) with more nonstop services between Singapore and the medium market size European cities. The airline currently flies 42 services a week to Europe.

From April SIA will operate 35 weekly return flights to North America (seven to New York, 14 to Los Angeles, 12 to San Francisco and two to Vancouver). New frequencies will be added to these cities over time, with other destinations possible. South America is not currently served, however the airline says it is working towards acquiring the necessary traffic rights to begin operations.

Freight accounts for about 20% of the airline’s revenue, with the freighter network reaching 26 cities. Although SIA is continuing to expand its freighter network and capacity, increasing competition is keeping a strong pressure on yields. However the airline expects the contribution its freight network makes to its bottom line to increase, as Asia’s economies continue to grow strongly and the ongoing liberalisation of world trade generates freight traffic growth. They will operate the world’s largest 747-400F fleet of Mega Arks. SIA Cargo is also currently leasing a DC-8-73 freighter for regional freight operations (replacing a 737) and sees a need for intermediate size 30 to 40 tonne capacity freighters for operations to India and North Asia.

SIA Cargo initiatives to improve service apart from increased capacity and more modern aircraft with better range and on time performance, include increased levels of automation including barcoding of consignments, electronic customs clearance of consignments before the aircraft lands in the destination country (something pioneered with Australian Customs) and electronic issuing of waybills.

Singapore Airline’s service improvements for ‘self loading cargo’ reflects the airline’s desire to remain at the forefront of customer service and innovation. For example the airline is progressively introducing its Krisworld inflight entertainment system on all 747-400s, while the A340s and 777s will be delivered with Krisworld fitted.

Krisworld features a personal television screen for every passenger regardless of the class of travel in first and business (Raffles) classes the screens are stowed in the seat armrest, while in economy class the screens are fitted to the seatbacks. Krisworld offers a choice of 22 video channels (14 movie channels, six short feature channels and two news channels), 12 stereo audio channels and a selection of Nintendo computer games. The handset used to control these functions also features a built in credit card operated telephone.

The Krisworld system is upgradeable, and recently introduced features include a live direct broadcast text news service featuring Reuters reports and seat to seat telephone calls! In the future, first and business class passengers will be able to call up audio and video programmes on demand, while inflight shopping is also mooted.

A reconfiguration of the aircraft cabins has seen the business class pitch on 747-400s increased to 47in and to 44 to 45in on the A310s, while the A310 first class seat pitch has been increased to 60in. The number of seats in the first class cabin in the 747-400 has been decreased to just 16, with some of the extra space taken up by a small self service bar counter. Following British Airways’ lead, SIA also plans to introduce espresso machines to First Class.

The A340s will be delivered with a 74in pitch first class and a 47in pitch business class. Features of the first class seats include an adjustable headrest, horizontal legrest extensions, four way electronic lumbar support and fibre optic reading light incorporated in the seat headrest. A340 business class seats will have adjustable headrests, foldable ears or wings, electric legrests, deflatable lumbar support and amenity receptacles. Economy class seats will have adjustable headrests, foldable ears and footrests.

While a young aircraft fleet and high quality of inflight service have long been Singapore hallmarks and big contributors to the airline’s economic success, in more recent years SIA has had to battle growing costs. On January 1 this year the OECD reclassified Singapore as a developed nation (based on per capita GDP) recognition that Singapore Airlines has to battle with a growing domestic cost base.

Despite growing costs in Singapore, the airline has still maintained its enviable record of profitability. The airline maintains strict control over staff numbers, as staffing is its largest single cost. In the 1995 financial year SIA staff numbers grew by 3.3%, however this was largely due to increased numbers of pilots and cabin crew. Aircrew aside, staff numbers fell slightly by 0.95%, while at the same time the airline boosted capacity tonne kilometres by 9%.

Part of the key to SIA’s staff productivity is its biennial Towards Optimal Productivity (TOP) reviews where all levels of the airline’s staff look at ways of increasing productivity and reducing waste. SIA’s most recent TOP shaved $S30m in annual recurring costs. Recognises SIA’s Managing Director Dr Cheong Choong Kong “it’s not an astronomical figure, but then we are not engaged in re-engineering and no employee is in danger of losing his job. TOP, conducted regularly and involving everyone, reinforces the message of good work practice. It is good for the corporate soul.” Productivity at the airline rose 8% from 1993/94 to 1994/95, while value added per employee rose 9.7%.

The airline’s efforts to continually reduce costs are obviously paying off. For the six months ending September 30 last year the airline group’s operating profit before tax was $528m, an increase of $50m or 10.5% over the same period in 1994. Revenue meanwhile increased by 4.5% or $134m to $3.1bn. During that period yield dropped by 4.4%, attributed to the growing strength of the Singapore dollar, although unit costs fell at a higher rate of 5.7% per capacity tonne kilometre, allowing the breakeven load factor to fall slightly.

Looking to the future Singapore Airlines plans to continue expanding capacity by eight to 10% per annum, and, should it exercise all its outstanding options, could operate a fleet of 150 widebody jetliners by mid next decade. The Singapore Girl has certainly come a long way.