Singapore Airlines: Achieving the best of both worlds of low-cost operations model and service excellence
How the world's most awarded airline soared to such great heights by mastering the paradox of dual strategy
Overview:
The Singapore Airlines (SIA), an airline whose name precedes its country of origin. In the past decade, while some may not know exactly where on the map the small island-nation of Singapore is, many have heard of the Singapore Airlines as the world-class airline renowned for its excellent service quality. Yet in the extremely cut-throat airline industry which had an estimated $31.7 billion cumulative losses between 2001 and 2010 (IATA, 2011) [1], SIA has never reported an annual operating loss since its founding in 1972, it has achieved consistent profitability and is the most awarded airline in the world [2] .
Business model
Singapore Airlines, the flag carrier of Singapore, prides itself as the airline synonymous with service excellence, particularly dominating the business-travel sector. It offers 5 classes of seats including Economy, Economy premium, Business class, First Class and Suites [3]. It attracts flyers through its luxurious amenities and services on board such as the Krisflyer entrainment system, carefully crafted in-flight menus and even its symbolic Singapore Girl (SIA stewardesses) which has become a brand in itself. The airline also enjoys great success in retaining customer through it Krisflyer loyalty program. Despite its premium prices, the Singapore Airline is the choice airline for many travelers, particularly those traveling for business and has in some ways, become a flight experience many travelers aspire to embark on, at least once.
Operating model and implications
Paradoxical as it may appear, it is interesting how SIA has boldly and successfully adopted and implemented dual strategy to support its customer service business with its low-cost operating model.
- Invest in the people who serve your customers
Full-cost airlines often claim superior and differentiated customer service. SIA stays true to its business compass of delivering service excellence by investing heavily in its training program. My friends who have joined SIA’s flight crew testifies to the four and a half months intensive training which is twice as long as the industry average and includes etiquette classes and cultural appreciation[4]. While it appears that SIA is just pouring in money to achieve service excellence, this mode of operation helps the airline save cost in the long-run by retaining customer loyalty and reducing customer turnover, thus reducing customer acquisition cost.
- Getting the airline business’s bread and butter right- the aircrafts
As the airline with one of the youngest fleet in the world, SIA’s cost-effective infrastructure model enables service excellence. A younger fleet not only allows lower maintenance cost and fuel consumption, it also supports a higher utilization rate- SIA planes fly for 13.7 hours per day vs. industry average of 11.3 hours per day’ [5]. This implies that the airline can then invests in modelling its aircrafts into the finest carriers the industry has seen with the widest business class seats in the world and the suites on A380 (“a class beyond first”) to drive service excellence consistently.
- If you have it, flaunt it- the SIA brand name
For an airline offering amenities which exudes luxurious comfort such as a top-notch Kris-Flyer entertainment system and book-a-cook service where business- and first class customers can order their meals from chef-crafted menus, all-round, it is not abashed to leverage its bargaining power vehemently. SIA is well aware that its stellar brand name attracts vendors as it is a great reference client to have. This soft power allows SIA to purchase in planes in bulk, have more flexible payment terms and enjoy substantial discounts [6]. These cost-savings behind-the-scenes are in-turn directed towards creating a premium flight experience for its customers.
The beauty of SIA’s dual strategy is how it has adhered to maintaining low cost with rigor and discipline creating best-in-class quality at every customer touch point, through the years.
“The SIA Group reported on 14-May-2015 a 58% increase in operating profit for the year ending 31-Mar-2015 (FY2015) to SGD409 million (USD318 million). The SGD409 million operating profit represents the highest annual profit since FY2011”[7] . As a proud Singaporean, I look forward to see how SIA takes our national carrier to greater heights in 2016 and beyond.
References:
[2],[5]http://bizfaculty.nus.edu/media_rp/publications/dg9br1421641924.pdf
[3] http://www.singaporeair.com/en_UK/flying-with-us/economy-listing/
[4] https://hbr.org/2010/07/the-globe-singapore-airlines-balancing-act
[6]http://www.aspireaviation.com/2012/03/08/singapore-airlines-stands-firm-to-premium-business-model/
Hey Wendy! I think it’s so interesting that Singapore Airlines spends 2x as long as its competitors training its stewardesses, and yet saves money in the long run. I can definitely see how this policy would promote customer loyalty. I also wonder whether it decreases employee turnover, and thus ensures a more tenured workforce? That would actually help to decrease training costs and offset what they’re spending on the 4.5 month program. Interesting!
Great post, Wendy! Fascinating to learn how SIA keeps its overall operating / maintenance costs low by having a very young fleet. It is also pretty cool that SIA has such strong bargaining power to get significant discounts on purchasing planes. I would have thought that the savings on maintenance and operating costs would have paled in comparison to the costs of continuing to refresh the fleet, but it looks like my intuition was wrong!
Wendy,
One dimension/capability you didn’t mention was landing slots. I understand for British Airways that their landing slots are their most valuable asset. Is the same also true for SIA? I imagine that their large share of landing slots at Changi airport is a huge competitive advantage as it provides a gateway hub to many cities in Asia. I wonder what percentage of SIA’s traffic is driven by connections through Singapore to the rest of Asia and how this contributes to SIA’s success.