Singapore Airlines: Service Excellence at Low Cost
In an industry where bankruptcies are commonplace, Singapore Airlines soars above the rest by achieving the paradox of premium service at low cost.
When Singapore Airlines (‘SIA’) took delivery of the world’s first Airbus A380 in Toulouse (Oct 07), it cemented its status as one of the world’s leading airlines for innovation and customer service. Singapore Airlines has won Conde Nast’s Readers’ Choice Award a remarkable 27 out of 28 times, yet it also operates with some of the lowest costs in the full service airline industry – an industry notoriously difficult to succeed in, characterized by fierce competition, high fixed costs, cyclical demand and vulnerability to external shocks.
SIA Business Model:
Singapore Airlines is the national air carrier of the small island-state of Singapore (population 5.4M) carrying 18.7M passengers annually. It is positioned as a premium carrier dedicated to providing air transportation services of the highest quality whilst giving priority to profitability over size. Singapore Airlines currently operates passenger services to over 30 countries in the world with 105 aircraft.
Best-in-Class Operations in a Tough Competitive Environment
According to the International Air Transport Association (‘IATA’), the global aviation industry suffered $31.7B cumulative losses during the period 2001-10. A separate study (also by IATA) found that on average full service carriers had cost per available seat kilometer of 8 to 16 cents in Europe, 7 to 8 cents in the US and 5 to 7 cents in Asia. By comparison, SIA’s average cost during the period 2001 and 2009 was 4.57 cents.
A few specific elements of SIA’s operations and organization have enabled SIA to achieve this paradoxical achievement of service excellence at low cost:
- Heavy and continuous investment in human capital
- Rigorous approach to customer service design and innovation
- Investment strategy, particularly in relation to fleet
- Culture of relentless cost focus
Investment in Human Capital
SIA invests heavily in human resource management processes – with training lasting an average 4.5 months, more than twice as long as the industry average. The higher investment in training covers wine appreciation, interaction style and poise, with equal weighting placed on understanding the airline industry and the need to be cost competitive. The higher quality of service provided to customers creates a virtuous cycle, as service excellence promotes customer loyalty, lower turnover and therefore reduced customer acquisition costs. Furthermore, with profit-consciousness engrained in all members of its staff, SIA empowers frontline employees to come forward with ideas for improvement (known as the Staff Ideas in Action programme). It is not uncommon for cabin crew to come forward with more cost-effective ways of serving champagne in first class.
Rigorous Approach to Customer Service Design and Innovation
SIA’s service development department undertakes research, trials, studies and mock ups to assess customer reaction in order to ensure that a service innovation can be effectively operationalized and is supported by the appropriate procedures. The Company also recognizes that competition that does merely come from the airline industry but from all service industries, thus it employs broad benchmarking against the best in class service companies. Examples of SIA’s service innovation include SIA’s legendary first class suites, the first all business class flight and pre-flight individual meal selection.
Fleet Investment Strategy
Investment in aircraft one of the biggest investments for a full service airline. With an average age of 85 months, SIA’s fleet is one of the youngest in the world, compared with an industry average of 148 months (Singapore Airlines, 2013). The newer aircraft supports SIA’s strategy of premium service, whilst benefiting from lower repair and maintenance costs as well as lower fuel consumption. A younger fleet also supports higher utilization, allowing longer flight time per day and hence lower cost.
Relentless Focus on Cost
A relentless focus on cost and profitability permeates throughout SIA. Whilst anything that touches the customer has to exude quality and be consistent with premium positioning, anything below the line of visibility is subject to rigorous cost management. For example, SIA’s headquarters are simple and functional, epitomizing the drive for internal efficiency. SIA also outsources where possible to lower-cost countries – ticketing and payroll processing, for example, is outsourced to an Indian provider.
In an industry where bankruptcies are commonplace and competition is rife (including from low cost carriers), Singapore Airlines’ business model has proven highly successful and is supported by strategic and operational alignment throughout the organization.
References:
http://www.cntraveler.com/galleries/2015-10-07/top-international-airlines-readers-choice-awards/20
https://hbr.org/2010/07/the-globe-singapore-airlines-balancing-act
https://en.wikipedia.org/wiki/Singapore_Airlines
LEK Aviation Insights Review Executive Insights, Volume XIII, Issue 23
‘Singapore Airlines: Achieving Sustainable Advantage Through Mastering Paradox’ Loizos Heracleous and Jochen Wirtz, The Journal of Applied Behavioral Science 2014
‘Business Strategies in Asia: A Casebook’ Singh, K., Pangarkar, N. and Heracleous, L. 2013.
Wow, really interesting post, Hui! I am shocked that Singapore Airlines has been able to achieve high customer service at such low costs. I’m very curious whether their flight route design has anything to do with their costs. For example, it seems that they have quite a few 5hr+ flight routes. I wonder if that has something to do with their ability to operate more efficiently. Maybe longer flights have higher margins because they face lower competition. Or perhaps longer flights face consumers with more inelastic demand. I wish we had a case about the airline industry — I’d love to learn more!
Great post Hui! It really saddens me that customer service for US carriers continue to spiral downward in a fierce competitive landscape of relentless cost-cutting. So incredible that SIA exemplifies that this doesn’t have to be the case? I wonder how translatable this could be elsewhere and how much the ability to attract loyal customers has to do with the fact that this is a national airline in a teeny tiny nation state.
This is great, Hui! I really feel like your comment about customer service hits it on the head – it might seem counter-intuitive to invest heavily on human capital as a “cost-cutting” measure, but I think customer retention and loyalty, in the long run, will do a lot to bring down an airline’s costs and keep them in business. I’ve always felt like international airlines did a much better job with customer service than American airlines, and to Sophia’s point above, I do wonder if it has anything to do with the physical distance traveled? But then I think of airlines like JetBlue and Virgin America who have great customer service and go to mostly domestic destination so I don’t know if distance is the only factor at play, here. I’ve never flown Singapore Airlines, but I’ve heard wonderful things about it from friends and after reading this post, it is definitely one I will try in the future!
Great post! I’ll be taking my first Singapore Airlines flight over winter break for FIELD, and have heard great things about the airline. I love to hear about an airline that isn’t sacrificing customer satisfaction in the name of being a “low cost carrier”. With so many airlines grappling with the question of how to be profitable in such a competitive industry, it’s fascinating to see that Singapore Airlines hasn’t resorted to some of the “easiest” tradeoffs to make. I hope to see that this model is sustainable in the long term, and that perhaps some of SIA’s tactics will start to become more of a norm in the industry.
This post is very insightful! I always thought cost level and service quality are two things a company has to trade off. I’m a little surprised Singapore Airlines is able to deliver both in this highly competitive market. I like the idea the company empowers frontier labor force to come up with cost optimisation ideas. But as the labor cost in those traditional out-sourcing countries are becoming higher and higher, I’m not sure whether SIA is facing problems with cost optimisation. And if it is, I’m curious about how this company is going to further reduce its cost in other areas.