_________

___________O K O
* Nitin Pangarkar2 *

THE SING APORE AIRLINESGROUP '

In November 2000, the Singapore Airlines group was at a critical juncture in its history.

Over the past two years, the company had undertaken a series of strategic initiatives. It had made the most expensive product launch in its history, acquiring a 49 per cent stake in Virgin Atlantic Airways and a 25 per cent stake in Air New Zealand. It had also joined the Star Alliance, a broad-ranging alliance comprising 11 airlines. The outside environment, especially within East Asia had improved, with many countries such as South Korea, Thailand and Malaysia, rebounding off economic lows. This favourable external environment coupled with the new initiatives was expected to open up many new opportunities. There were, other challenges, however. SIA's regional competitors such as Thai Airlines and Malaysian Airlines were recovering from the impact of the Asian economic crisis and competing vigorously for a share of the market. The Singapore dollar remained weak against the U.S. dollar thus raising the costs denominated in U.S. dollars such

as aircraft procurement and fuel. Many observers were also wondering if SIA had taken on too much uncertainty. One cause for concern was its inexperience in undertaking acquisitions. Even the Star Alliance represented a significant departure from SIA's time-tested strategy of internal growth and partnerships on a limited basis so as to protect its brand reputation. Finally the recent crash of flight SQ006 might tarnish SIA's excellent reputation for safety.

History
Malayan Airways, the predecessor of Singapore Airlines, was started in 1947. The airline operated flights between Singapore, Kuala Lumpur, Ipoh and Penang, all within the-then Malaya. With the formation of the Federation of Malaysia in 1963, the Airline was renamed Malaysian Airways and then Malaysia-Singapore Airlines (MSA) in 1966 when the governments of Singapore and Malaysia acquired joint control. By then MSA had successfully developed a

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© 1998 by National University of Singapore. Updated and reproduced with permission from Asian Case Research Journal (September 1998): 211-237. Also published in Business Strategy in Asia: A Casebook (2001), Singh, Pangarkar and Lim, Thomson Learning: pp. 67-84. This case was prepared as the basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Nitin Pangarkar is Associate Professor of Business Policy with the NUS Business School, Fac ulty of Business Administration, National University of Singapore, 17 Law Link, Singapore 117591, Tel: +65-8745299, Fax: +65-7795059, E-mail: fbapn@nus.edu.sg. Not to be reproduced or used without written permission.

Singa pore's top leaders had made it clear that SIA could not expect any subsidies from the government and had to make profits if it was to survive. p.Y. The new airline continued to serve the international network of MSA and retained all its B-737 and B-707 aircraft. A discounted economy round-trip ticket for a 4. SIA had been a strong proponent of deregulation and free compe tition within the global airline industry under which airlines could choose their route structure and other aspects of serv ice without government intervention (See Appendix 1). 1 . spanned 92 cit ies in 42 countries (See Exhibit 1).2000. the Los Angeles Times acknowledged SIA as "one of the world's best managed and fastestgrowing airlines". In 2000. J. It was also routinely one of the most profitable airlines in the world. Yeong Wee Yong and Lawrence Loh 1996. up from 572 weekly passen ger flights 12 months earlier.75 = US$1. 5 Chang Zeph Yun. The airline's intercontinental route network. however. had once said: "We fear no airline and wel 6 come competition from them all". Its goals were: To deliver customer service of the highest quality that was safe. SJA placed an order worth US$900 million for 13 Boeing 747 and six Boeing 727 planes. 6 Mr J. In 1978. SIA's chairman. 1972. The sub sequent growth of the airline paralleled the economic development of Singapore in par ticular and the Southeast Asian region in general. reli able and economical.Case 8 • The Singapore Airlines Group 619 route structure encompassing most of Southeast Asia and turned its attention to expanding its intercontinental network. Singapore Airlines. By March 31. The Quest for Global Quality: A Manifestation of Total Quality Management by Singapore Airlines.singaporeair. which formed important destinations for SIA. 7 Ibid. motivated and retained employees who contrib uted to the company's objectives. 118. 4 The aircraft acquisition of the most modern and youngest fleets worldwide. 1978. - To generate earnings that provided sufficient resources for investment and satisfactory returns to share holders. Reading Mass: Addison Wesley Publishing. On October 1. 8 the same prices as a round-trip - - - - 3 The SIA Story. 7 Many Asian countries. To maximise productivity and uti lisation of all resources 5. Piliay. 1987. 8 In September 2000.Y. Piliay quoted in SIA. (See Exhibits 2 and 3) SIA's broad goals and objectives had not changed since its earliest days.5 hour flight from Singapore to Bom bay costs. heavily regulated the flights to and from their airports with a resulting reduction in the "supply" of airline seats. To adopt human-resources manage ment practices company-wide that attracted. anywhere between S$800S$1000. developed. the airlines operating on these routes were able to charge higher prices and also enjoy higher load factors. the approximate exchange rate was S$1. including freighter-only destinations. Consequently. http:l I www. MSA ceased operations and Singapore Airlines became its succes sor. the SIA group was Singapore's largest pri vate sector employer. Singapore Airlines.com I The Pursuit of Excellence: An Island and its Airline. SIA was op erating 613 passenger flights per week out of Singapore. Since the beginning. 3 Soon afterwards. Take Off to Success. one of the largest or ders at the time.

It spent almost S$1. SIA took delivery of its 34th 747-400 and became the larg- Dr Doug Sikorski 1990. SIA was also the first airline to recognise the demand for more non-stop services that offered travellers. 1995.5 Sources: SIA Annual Reports. The average age of SIA planes was about five years and two months as of March 31. These investments. compared to the industry average of 13 plus years. SIA also had substantial investments in Changi Airport. SIA's planes were more reliable. The then Prime Minister of Singapore.6 75. Mr Lee Kuan Yew.3 70. 10 . though the flying time each way was less than one hour. Malaysia and Indonesia (e.23 68. 2000.0 63. had intervened on SIA's behalf so that it could receive fair treatment for serving routes in Australia.4 75.8 59. (SIA).9 70.1 74.72.1 65.8 Africa Rvstprnwide 7942 6858 6750 71.5 70.8 69. mainte9 nance centre and catering centre.1 74.5 billion (at 1981 prices) for completing the first phase of the ultra-modern Changi Airport.7 75. however.6 Revenues (S$ millions) Overall load factor (%) 99-00 98-99 97-98 99-00 98-99 97-98 2453 1903 1674 1090 822 2060 1625 1554 909 710 2207 1572 1512 796 663 65. In Business Strategy and Management. the Singapore Government helped it gain fair access to other markets. were mostly related to its facilities such as hangar.0 72.4 66. Bali).1 75. especially businessmen.6 67.620 Case 8 • The Singapore Airlines Group Exhibit 1 Geographic area North and South East Asia Americas Europe SouthWest Pacific West Asia and Geographical Analysis of SIA's Revenues and Load Factors Passenger Seat Factor (%) 99-00 98-99 97-98 71. to the tune of S$500 million.2 79.9 72. Singapore Airlines Ltd. On October 14..1 66. Ibid.4 57.2 72. Similarly a round-trip ticket from Singapore to Kuala Lumpur costs S$290.6 76.2 63.4 77.0 71. Being younger. quieter and roomier.0 10.1 73. Singapore: Times Academic Press. ticket from Singapore to Los Angeles.8 71. Text and Cases for Managers in Asia.2 69. uninterrupted travel to longhaul destinations. 1999-2000 and 1997-98.9 The Government had also not hesitated to build the necessary infrastructural facilities. among others. Though it did not provide any direct assistance to SIA.6 76.5 76.10 Strategy Deployment of Technology SIA maintained the youngest fleet of aircraft of all the major international carriers.6 .g.

958 11.798 2.164 1.164 1.145 15. .912 115 91 3.398 103 126 937 1.493 1.476 13.070 3.035 1.87 1.~ n 1i* .942 854 211 14 23 7.954 2.421 2.054 95 73 840 1. n .695 1.72 9.032 1.326 896 174 Total revenue Total expenses Operating profit Surplus on sale of aircraft Share of profits of joint ventures Share of profits of minority interests Profit on sale of investments Surplus on liquidation of Abacus Distribution System Profit before tax Profit after tax and minority interests Profit attributable to shareholders C j.283 6.512 2.032 1.370 3.033 1. .647 2.464 1.222 6.528 16.947 9.845 1045 34 1 2 21 33 171 ________ 2 4 9 Distributable reserves Non-distributable reserves Shareholder's funds Fixed assets Associated companies JV companies Long term investments Current assets Total assets Long term liabilities Current liabilities Total liabilities Net liquid assets Cash flow through operations Internally generated cash flow Capital expenditures Per share data Earnings before tax (cents) Earnings after tax (cents) Cash earnings ($) Net tangible assets ($) 1.899 7.101 1.22 Unless noted otherwise.283 7.172 1.Case 8 • The Singapore Airlines Group 621 Exhibit 2 SIA's Financial Results* 1999-2000 1998-99 1997-98 1996-97 1995-96 7.64 1.345 2.882 306 188 547 14 1..537 844 2.286 12.254 11.025 1.450 84 80 1.380 11.459 14.429 3.351 7.573 84 80 1.741 4.283 7.796 9.239 1.566 1.076 1.707 523 2.121 91 81 3.890 5.195 442 3.796 6. Source: Singapore Airlines Annual Report.168 566 3.033 1.962 1.542 11..025 1.451 567 4.312 1.667 223 153 943 ___ ________ ________ 1.976 2.521 464 2.307 1.50 1.039 1.724 6.975 2. all figures in S$ millions.053 87 3.52 7.76 81 1.57 8.947 10.286 10. 1997-98.521 2..759 1140 98 7.792 73 43 812 3.725 999 157 7 6.117 1. .652 2.006 1.082 1. .181 17.171 3.86 8.844 2.283 8.UL I tip 1 i Un il .64 8. 8.144 2.188 11.773 2.073 3.

est operator of this most advanced version of the jumbo jet.332 220.304 11.2 92 62 63 71 68 77 118 13.11 In March 2000. op. SIA became the launch customer for the A340300E which was said to have the quietest cabin in the sky. it became the first airline in the world to install a B747-400 flight simulator for training pilots. Krisworld. Jointly with the Government. Source: Singapore Airlines Annual Report. 13 Chang. 1999-2000.1 68. SIA was one of Boeing's leading customers for large commercial aircraft. In May 1999.622 Case 8 • The Singapore Airlines Group Exhibit 3 SIA's Operating Statistics 1999-2000 1998-99 63. For instance. Public Relations Department. 1997-98. Aircraft age (Months) Destination cities (No.) Passengers carried (OOOs) Passnger seat factor (%) Cargo carried (mil-kg) Cargo load factor (%) Overall load factor (%) Average strength i^Nuts.690 226. it invested in highly auto- A Corporate Profile of SIA 1997. the airline purchased 22 per cent of the total production of the B747-400.5 768.13 Through these measures. SIA was also at the forefront in the area of in-flight entertainment. In 1994. SIA Annual Report. Key features of the system included 22 video channels.8 71. Value added per employee a 66. In 1988.782 74.9 89 57 110 1997-98 67 44 65 86 62 77 1996-97 67 44 66 80 63 77 1995-96 70 44 Yield (c/ltk) Unit cost (c/ltk) Breakeven load factor (%) Aircraft no.440 Average strength refers to the number of employees in the core airline operations and excludes the employees in related operations.4 68.720 290.957 71 736 69 69 12. In 1996. The Quest for Global Quality. 12 11 . Yeong and Loh.0 43. This plane offered a greater flying range and better fuel efficiency than the 747-200 or the 747-300.9 905. video games and Reuters Teletext news updates hourly.258 1 l?. It was also the first commercial airline to use Learjet 31s to train its cadet pilots from the ab-initio stage to the First Officer rank.777 72. SIA ensured that its pilots were extremely well-trained.160 12.2 13.7 42.451 13. cit. its entertainment system. fitted at every seat throughout the aircraft.6 66.9fi« 209. offered a six-inch video screen and a combination remote control unitcum-telephone. SIA became the first airline in the world to offer Dolby Headphone "Surround Sound" as a new feature of its in-flight entertainment.057 73 604 68 69 69 71 13 506 235.8 13. SIA's operating fleet comprised 92 aircrafts.022 74 674 11.5 66.12 The group also embraced the latest technology for its remaining operations.7 66. Singapore Airlines.

more than 100 shops and a host of other services. SIA had been offering Japanese cuisine to iirst class passengers flying to Japan. 19 SIA Annual Report. screen the passengers and the actual time taken to finish immigration formalities at the destination airport was shortened. a conference hall. all SIA aircraft were equipped with automatic external defibrillators — life saving equipment that could revive passengers experiencing sudden cardiac arrest.18 By the end of 1999.14 Customer Conveniences and Facilities two business centres. free drinks and free headsets in economy class. four full-service banks. such as the following. Celestel and also the world's first conventional in-flight fax service. the home of SIA. 205. toothpaste. an exhibition hall.000 meals daily.S. Ibid. In November 1996. The travellers' particulars were transmitted to the U. p. an airline must be a service innovator rather than a price-leader.singaporeair. It also provided a complimentary bag of toiletries including toothbrush. Raffles Class and Priority Passengers flying out of Singapore. The Quest for Global Quality. cit.com ^Perspectives 1998. It also operated a centralised information system known. which enabled more effective management of mishandled baggage. 17 Chang. 20 restaurants. The Immigration officials could.Case 8 » The Singapore Airlines Group 623 mated systems at Singapore's Changi Airport that dramatically expanded passenger handling capacity and facilitated the provision of hassle-free customer services. SIA introduced Internet check-in for First Class. 1999-2000.19 SIA has always maintained the philosophy of putting the customer first. 14 .15 In 1991. op. SATS Catering. had a gymnasium. operated the largest completely integrated ware washing system under one roof in the world. SIA introduced the world's first global satellite inflight telephone service. Yeong and Loh. 89-91. It also constructed a S$215 million kitchen complex with a capacity to produce 45. SIA operated the Blue Lane APIS (Advanced Passenger Information System) facility for passengers travelling to selected destinations in the U. Being customeroriented means introducing innovative features and setting new standards. In the words of Mr Michael Tan Deputy Managing Director (Commercial) of SIA: We believe that to succeed. 201. The cuisine was served on a range of Japanese Shokado 17 Bento serviceware. socks and a comb to all passengers on long-haul flights. It is difficult to imagine travel today without choice of meals. Forging A Competitive Edge: The SIA Experience. Immigration offices well before the flight landed. 16 Ibid. pp. April. a division of SIA.16 Since October 1993.S. All were SIA's innovations in the 1970s. as Centralised Baggage Tracing unit. thus. 18 Ibid. Several unique conveniences and facilities. awaited SIA customers: Singapore's Changi Airport. p. and www.

Dcltn T. accounted for about 15.S. In June 1999. including code-sharing. network and schedule development. SIA entered into a trilateral alliance with Delta Airlines and SwissAir to form a global network spanning 300 cities in more than 80 countries. Owing to its different geographical focus (primarily the U. SIA pulled out of the trilateral alliance in 1997. to a leaser extent"). information technology and cargo operations. 1999-2000. Cargo and Related Operations Cargo revenues constituted almost 20 percent of SIA's revenues. frequent flyer programmes. From SIA's point of view. With revenues of S$l.va? not too committed to the alliance. groundhandling. SIA believed that it would be better-off forging a relationship with an airline that belonged to one of the EU member countries. Independent studies had consistently rated the SIA advertising as having an extremely high recall rate among customers. customer service. sharing of airport facilities and exchange of personnel. These activities included airport operations. In 1989. The Wisemen system offered a choice of 25 movies. however identifies only a few major cooperative ventures. The following discussion. there were several problems. Though the alliance led to some synergies through joint purchasing. SIA's other activities. it did not have a major presence in any of the important European hubs such as Paris. product development. Marketing SIA had been running the highly recognised Singapore Girl campaign for several yoprp. With the formation of the European Union.21 Over the years. Though Swissair was comparable to SIA in terms of service reputation and image. SIA and Lufthansa announced the formation of a comprehensive alliance. . SIA had launched local websites in 16 countries and SIA's e-ticketing facility was available in 24 overseas stations. Related operations also contributed 26 per cent of SIA's total profits. and Europe and Latin America.624 Case 8 • The Singapore Airlines Group Alliances and Acquisitions By March 2000.20 SIA's advertisements also routinely stressed the fact that its fleet was the youngest in the world. the alliance offered opportunities to service a greater number of destinations in both the U. Frankfurt or London. 9-687-022. SIA has signed several alliances. SIA was the third largest cargo airline in the world in terms of international freight tonne kilometres.and video-on-demand service to its First and Raffles Class customers. besides transport of passengers and cargo.8 per cent of its total revenue. and Europe.S. Harvard Business School Case no. SIA Annual Report. kitchen operations and maintenance operations (see Appendix 2). The alliance would cover a wide area of commercial cooperation. In November 1997. During the 1999-2000 fiscal year. 50 short features and 50 audio-CDs.909 million for the year ended March 2000. SIA introduced a new generation of Wisemen audio. Lufthansa would use Singapore as a primary hub in Southeast Asia and Australa- 20 21 Singapore Airlines (A).

Ansett Australia.3 per cent of the share capital of Air New Zealand in the form of "B" ordinary shares.singaporeair. Other members of the Star Alliance included Air Canada. The investment came on the heels of SIA's purchase of 8. SIA had extended its combined reach (with its partners) to more than 200 cities around the world." On April 25.com/ Singapore Airlines' stake in Virgin Atlantic. http: 11 www. United Airlines and VARIG Brazilian Airlines.25 SIA had entered a partnership with SAS which allowed joint marketing of an all-cargo service between Copenhagen and Singapore. http: I / www. singaporeair. Virgin Aviation Services. SIA deputy chairman and CEO. http://www. while SIA would use Frankfurt as its hub in continental Europe. Ansett is another important step towards that goal. Air New Zealand.singaporeair. the holding company for Virgin Atlantic Airways. will allow both airlines to grow faster than either can manage on its own.. http://www. Thai Airways International.26 22 23 24 25 26 Singapore Airlines and Lufthansa Sign Alliance Agreement.com/ . Lauda Air and Tyrolean Airways). "This alliance brings two of the world's top airlines together with one objective: to give our passengers an even better travel experience. All Nippon Airways (ANA). indirectly. had the following comment: "As evidenced by our recent 49 per cent stake in Virgin Atlantic. Lufthansa German Airlines. Dr Cheong Choong Kong. Ansett Australia and Ansett International announced plans for the creation of the largest international alliance of airlines based in the Asia Pacific region. http://www.sinagporeair. SIA announced that it would acquire a 49 per cent stake in Virgin Atlantic. Previous SIA alliances included a codesharing agreement with American Airlines (Singapore-Chicago route). including seamless air travel worldwide". KLM and Lufthansa.Case 8 • The Singapore Airlines Group 625 sia.7 per cent of Air New Zealand Limited (Air New Zealand) in the form of "B" ordinary shares for NZ$285 million. With its recent acquisitions. SIA's ultimate objective is to become a global group of airline and airline-related companies.com I Information regarding alliances from SIA website.com Singapore Airlines and American Airlines begin code sharing flights.24 Delta Airlines (Singapore-New York route) and Austrian Airlines (Singapore-Vienna route) and joint cargo services with British Airways.com I Singapore Airlines and Lufthansa Cargo Expand Cooperation. among others. Singapore Airlines. Virgin Holidays and Virgin's cargo operation. for £551 million. Air New Zealand. SIA announced that it would join the Star Alliance "as a part of its global strategy to provide improved services and benefits."23 In July 1997.2000. in particular Virgin's transatlantic network. With 25 per cent of Air New Zealand. SIA announced that it had reached an agreement with Brierley Investments Limited (BID to acquire 16. This stake in Air New Zealand and." remarked Lufthansa's Chairman Juergen Weber. The New Zealand carrier owned 50 per cent of Ansett and would acquire the other 50 per cent soon. It had also formed an alliance with Aerolineas Argentinas to offer one of the cheapest round-the-world economy fares for a trip via the South Pacific. Scandinavian Animus System ^tiAtij.22 In October 1999. the Austrian Airlines Group (comprising Austrian Airlines.singaporeair. SIA would have a strategic stake in both Air New Zealand and Ansett Holdings Limited (Ansett). SIA had the following comment regarding the acquisition of the stake: "The synergies derived from linking the complementary route networks of SIA and Virgin. In December 1999.

pp. 26-34.000 out of 24. In 1997. by itself. They included a cut in cabin crew pi7. M a y 3 . Air Transport World. DragonAir. meeting small groups of 20 managers each time to show how serious they were about working together.S. N T U C w as. Philippine Airlines. NTUC (National Trades Union Congress) chief Lim Boon Heng. United and Swissair. The three deputy managing directors and the union leaders sought to reach out to the company's 24. by far. pp.700 by March 1996. In May 1997. Soon afterwards.000 people in its airline operations. it enlisted eight partners including Cathay Pacific.28 However. American at Bay. Air Transport World 1997. SIA had never faced a strike and the union management relations were considerably better than in many U. the corresponding percentage was in the region of 35-37 per cent. 4 2 1 43.5 per cent of total (United) to 37. a contract characterised by the company and Wall Street as the most generous in the industry. Realising that. For the four major U. American Airlines. staying and other arrangements in overseas locations and the workload especially during packed flights.30 SIA's labour costs formed only 16-17 per cent of its revenues. th e largest un ion in S ingap ore. It h ad a goo d relatio nship w ith the go vern m en t an d the N T U C chief served as a M inister w ith ou t Po rtfolio in th e Sin g apo re C ab inet. For other carriers such as Lufthansa. joined the SIA Board of Directors. He said that the management culture must change to rally every SIA worker to help meet global competition.4 per cent (Delta).p for first class and requiring supervisors to serve meals. who was also the Minister without Portfolio in the Government. Will the real United please stand up? August. American Airlines' pilots rejected. SIA's cabin crew meal allowances had come down from $2. which they were not required to do before. Royal Brunei Airlines. p p .29 He promised to help the unions see the big picture—mainly issues relating to the airline's competitiveness. Malaysia Airlines. .-based carriers. 1. The management was able to implement several changes. for a S$300 allowance. cit. Air Transport World.000) of SIA's employees were members of the SIA C 2 7 ^ lationship between the union and the management had been neither very cordial nor very adversarial. Also see. labour costs varied from 35.000-strong workforce. Despite these conflicts. American at Bay. it did not have the critical mass.626 Case 8 • The Singapore Airlines Group SIA was the pioneering member of the group that created Abacus. op. by far the lowest figure among all major airlines (See Exhibit 4). T h e N e w F a c e o f L a b o u r M a n a g e m e n t R e l at io n s a t S I A . 28-40. by a 2 to 1 margin. T h e S t r a i ts T im e s 9 9 8 . There were occasional strains in the relationship.000 copies of an anonymous circular went out to the cabin crew.S. 1997.500 per month before 1987 to $1. March 1997. China Airlines. Tradewinds and WorldSpan Global Travel Information Services to form Abacus. carriers. the Asian Computerised Reservation System. Some major points of contention included flying allowances. Internal Organisation Policies Labour Relations Almost 37 per cent (9. there was improvement in union management relations.31 The only major carrier that came close to 27 28 29 30 31 SIA employed about 14. The remaining were employed by the group's subsidiaries. The circular listed grievances such as a proposed cut in meal allowances and a drop in the number of crew on some flights. in July 1997.

It is not to be dispensed with when times are bad. The compulsory retirement 32 age for male stewards was 55 years. 4 14. Singapore Airlines. after which they could assume ground positions. We do not Training SIA in-flight crew members were taught the motto "Unless you can make the oth ers happy.6 5.1 11. Training is for every body.8 2.4 7. SIA's steward esses' starting salaries were comparable to many U.7 11. communication expenses.4 15. 0 7.5 16. - self'. not an option. Dr Cheong Choong Kong.8 7. the theme was "Let's prove we are the best". Faculty of Business Administration. she had to leave her job. CEO of SIA said: Training is a necessity. 8 12. company accommodation. aircarft license and insurance. Na . Source: SIA Annual Report.1 % of total costs for the year 1998-99 17. Speaking about SIA's training philosophy.1 7. 6 2. It embraces everyone from the office assistant and baggage handler to the managing director.6 11.9 Category of costs Staff costs Fuel costs Depreciation charges Rentals on lease of aircraft Sales costs Handling charges Aircraft maintenance and overhaul costs Inflight meals and other passenger costs Landing.1 3.S. If a stewardess became pregnant. 6 16. parking and other overflying charges Other costs 3 a Other costs comprise expenses. matching SIA's cost advantage was Brit ish Airways whose labour costs constituted 24 per cent of its revenues. you can never be happy your- - 32 Lim Gaik Eng and Ng Seok Hui. SIA stewardesses also tended to be young and were given a maximum of four five-year contracts.0 6. SIA's training programme for its crew members was extremely rigorous. carriers but did not increase as rapidly with seniority. 1999-2000. net interest receivable and gain/ loss on exchange. In 1993.5 6. A new in-flight/ cabin crew member was put through three months of training before the new crew member could start serving as operational crew.Case 8 * The Singapore Airlines Group 627 Exhibit 4 SIA's Cost Structure % of total costs for the year 1999-2000 16. 33 Crew management also put forward a theme for an annual service campaign.

op. Yeong and Loh. p.33 tional University of Singapore.. cit. ' . Chang. The Quest for Global Quality. 185.

Passengers were asked to rate the quality of SIA's in-flight service.36 Most of SIA's ground service operations were handled by SATS. Training is for ever. rank or title. 34 35 36 37 38 39 Perspectives. There were specific rules regarding laundering uniforms. SIA spent S$84 million on training or around $5. 9-687-022.628 Case 8 • The Singapore Airlines Group stinge on training. To give personalised service with a friendly smile. reservations and ticket office operations. Lim Gaik Eng and Ng Seok Hui. our investments in staff development are not subject to the vagaries of the economy. nor too old. Harvard Business School Case no.35 SIA had also launched the "Outstanding Service on the Ground" programme to motivate the airline's frontline staff on the ground to provide genuine innovative service. A Symbol of SIA's Training Philosophy. 34 To maintain eye contact during our transaction. Singapore Airlines case. oy Perspectives 1998. SIA's decision to invest S$52 million in a cabin management and interactive video system was prompted by the relatively lower ratings scored by the in-flight entertainment compared to other areas of in-flight service. We'll use the best in software and hardware that money can buy. April. h. airport operations. pp. cabin crew were instructed not to eat onions or drink alcoholic beverages for ten hours before flight time.000 per employee which was 12 times Singapore's national average. food and beverages. 58-59. in-flight entertainment. Crew members had to report to the SIA clinic to have their teeth checked and cleaned every six months. To address them by name. Every* SATS Airport Services frontline staff member was required to take the following pledge: We. April.38 It conducted regular reviews to ensure that its salaries were market-competitive. vSTA conducted rpgiilpr passenger opinion surveys to monitor the quality of its services. thus bringing all SIA's training needs under one roof. poise and personal conduct. In 1993. Singapore Airlines (A). aircraft interior. makeup and hair styling. The survey results were analysed and past and present performance regarding the Service and Performance Index was circulated to key personnel in the organisation. c i t . 1998. pp.. Forging a Competitive Edge: The SIA Experience.37 In 1992. Y e o n g a n d L oT h e Q u e s t f o r G l o b a l Q u a l i tp . Customer Feedback To supplement the informal channels of communication. Ibid. No one is too young to be trained. 89-91. the staff of Terminal Two Pledge by these qualities towards service excellence: To greet each passenger at the beginning and at the end of their journey. SIA opened a $80 million training centre.39 There were several rules regarding personal grooming. uniform care. . Because we take a long term view of training. C h a n g . For instance. Customer service is what we are out to give. a sister company. The survey forms were designed to take only five minutes of a passenger's time and were printed in five different languages to cover the widest spectrum of passengers.

- Financial Position The SIA group's financial position was ex tremely strong.6 per cent). This practice also created an appetite for change and inno vation as people constantly brought new ideas with them to new jobs. for the elev enth time in 12 years. Under a profit-sharing scheme. The market research depart ment conducted regular focus group stud ies to predict future customer require ments. enough to pay for most of its purchases of aircraft in the foreseeable future. In March 2000. Cor porate newsletters and circulars helped promote information sharing. SIA practised job rotation by moving executives between resulted in several benefits. The load factors were. five to six points better than the industry average for international serv ices and comparable to a few carriers such as Air France. - Performance Accolades and Awards SIA was routinely recognised as one of the world's premier airlines. - play at the SIA Control Centre. the shareholders' funds had grown at a rate exceeding S$500 million every year. It also promoted a corporate outlook among staff and mini mised sectoral interests. In the recent past.707 mil lion. During the 19992000 year. Total Involvement To promote greater autonomy in decision making and a sharper focus on quality and customer services. - - Incentives SIA had instituted the Winning Ways Award to recognise and reward crew mem bers who provided excellent service to pas sengers. the group's shareholders' funds stood at S$9. employees received special bonuses based on the profitability of the company. It was named Asia's Best Managed Company of the Decade by the Asiamoney magazine and Asia's Most Admired Company (for the magazine. SIA received over 60 awards worldwide in a range of categories. The group had no debt. The yearly winner received a distinctive Omega Constellation timepiece. higher than several other reputed carriers such as Lufthansa (68. American (67. however. Staff acquired an understanding regarding how the en tire organisation worked. Interaction between staff and management was en couraged through regular staff meetings. Its management systems and training were designed to ensure that staff at all levels were empowered and encouraged to make independent decisions.Case 8 • The Singapore Airlines Group 629 SIA paid careful and prompt attention to each customer complaint or compliment it received. United (70. The top WWA win ner's name was carved in gold on the Roll of Honour. SIA formed 21 subsidi aries and five associated companies.8 per cent). The bonus could amount to a significant percentage of the annual salary of an employee. KLM and Cathay Pacific. The award was based on customer compliments and was given quarterly. readers of the Conde Nast Traveler magazine declared SIA as the best airline in the world. which was on permanent dis- Load Factors and Yields SIA maintained load factors of about 7374 per cent.6 per cent) and North- - - . Corporate-wide business meetings and briefings were held regularly to keep staff informed of the latest developments. In a survey.

3 and 90. SIA's overall break-even load fac tor varied between 65. Seventy-nine pas sengers and four crew members died after the Boeing 747 crashed into construction equipment and broke in two. SIA's passenger yield stood at 95.sgI . whereas the cargo yields were 33.mediacorpnews. SIA has always been innovative but cautious. Changi Looks to the Future.7 and 32. the number of partners could be an issue. In 1999-2000 and 1998-99. New hubs in Manila. carrying 159 passen gers. It is also harder to recruit good employees in Singapore due to a tight labour market. c o m n/d u s t r y a v e ra g e f r o m ir T r a n s h I A port World.ttp : 1 1 w w w . The runway had been closed for construction for sev eral months (Fate of SQ006. In the past. With increasing affluence. Future Issues SIA faces several challenges in the near future. it had always grown in ternally or through alliances. The acquisition of stakes in Virgin Atlantic and Air New Zea land represents the first of such moves by SIA. possibly because SIA had neither a domestic market that it could dominate nor highly regulated routes (e.com/sq006'). There are also significant differences between SIA and Virgin. http: 11 cna. These include Malaysian Airlines and Thai Airlines. there are con cerns that if even one of the alliance part ners does not provide adequate levels of customer service. several other airlines in the region are trying to imitate SIA's success. The slight improvement in the Financial Year 2000 was attributable to the recovery of many of the crisis-af fected Asian economies. 40 In terms of cargo op erations. While the alliance enhances the possibility of offering seamless travel to passengers. s i n g a p o r e a i r . the probabilities for divergence and disagree ment multiply.asial. forcing the airline to turn to foreign coun tries. The plane. Cathay Pacific was already com parable to SIA in terms of service reputa tion. 41 Another challenge comes from within Singapore it self. 2000. Hence the inte gration of the new acquisitions is likely to pose a significant "challenge.4 per cents respectively. Taipei and Seoul are competing with Changi for air cargo volume and threatening Changi's position as a pre eminent transshipment centre. several internal issues have come up recently. the reputation of the other members will be tarnished.630 Case 8 » The Singapore Airlines Group west (69 per cent).6 per cent (1995-96). http:11web3.6 per cents. SIA maintained load factors of 68 per cent. especially when its reputation is at stake. Malaysia and Hong Kong have new airports that rival Changi Airport in so phistication and amenities. There are also concerns about the Star Alliance. Singapore Air lines flight SQ006. In general. in terms of their corporate culture. On October 31.9 per cent (1996-97) and 62. SIA's passenger yields were lower than most other close rivals.g. In addition. 1/1995.com. tried to take off in bad weather (heavy rains and gusty wind) from the Chiang Kai Shek Airport in Taipei.. In addition. First. within Europe). was less than four years old and had no apparent defects. With so many involved. The acquisi tions pose a significant challenge to SIA since it means managing people in coun tries that are culturally distant to Singa pore. the salary levels within Singapore are rising rapidly. 40 41 S IA s t a t i s t i c s f ro m w e b s i te . Virgin is more open to trying risky ideas. bought in January 1997. An investigation by The Austral ian found that even though some flight at tendants risked their lives to save people.

times the number of kilometres) rather than the number of seats occupied. travel to and from Asia was the fastest growing segment of the travel industry. r o r n I 1s b tp .Airline profits are a function of the followin^ EuCbOrS. http: I1 www.org/swOO/001216au. SIA's stock amounted to only 1 per cent thus narrow price dipped slightly but rebounded to its ing already thin margins.iC [Oau caCLOr.htm). L.on the basis of available seat kilometres (that is the number of seats on a plane ing the sector's p tuspects. cars or not travel at all if the fares seem higl . Singapore Airlines. . an - - - - 42 43 Air Transport World. Between 1987 and 1996. Major competitors in the airline industry include American Airlines. the number of passengers car . people around the world each passenger.Case 8 • The Singapore Airlines Group 631 others failed to help passengers open emer . in general. Lufthansa (Ger . O c t oh te r :9 I / w w w . With in . Yield is the revenue derived by an airline for each kilometre travelled by creasing affluence. ing more fuel-efficient flying equipment To maximise revenue. y a h o o . IATA (Inter . 2/97.g.in a flight. 43 pre-crash levels quickly (The Tragedy of The Asian economic crisis. more coming down allowing competitors to ply new routes and exerting a downward pres . sion to the competitive dynamics. With the crisis. Leisure travellers are. The incident was member carriers fell 2.. British Airways (U. has gency doors. added a new dimen window. fares. these growth rates are expected to Airlines Industry moderate considerably. Regulatory barriers are lers. yet powerful. Before the Asian economic crisis. Swissair the costs. travellers can be Airlines around the world face several divided into business and leisure travel threats. thus enhanc . fleeing the plane before all said that revenues per passenger for its inside had been rescued.. airlines try their and inexpensive. however. Load factor can be defined as Qantas (Australia). Airlines try to maximise both the (Switzerland).IO. information best to identify the willingness and the technology is leading to new opportunities ability of the passengers to pay varying for cost reduction. This is ried by all the airlines increased by 31 per cent whereas the number of passenger kilo . Industry Economics Delta Airlines and Northwest Airlines (all from the U. At a broad level. national Air Transport Association). travel. Y a h o o B u s i n e s s N e w 9 9 7 .association of more than 250 airlines. Cathay load factor and the yield but try to mini Pacific (Hong Kong). how Appendix 1: The International ever. CriG ' iciu .singa.rather than by the number of passengers served._n* many). includ .native modes of transportation (e. the percentage of seats that are occupied This industry is a major component of the travel and tourism industry. likely to tarnish SIA's reputation for safe Operating cost reductions. Japan Airlines and mise costs. W o r l d A i r T r a v e l G r o w i n g S l o w ly . which Flight SQ006. 42 vary by capacity offered (available seats) The emergence of new technology.5 per cent in 1996. On the day of the crash.). Unit costs are calculated are spending a larger percentage of their income on travel and tourism.S. United Airlines.poreerupted in July 1997..sensitive to prices and will switch to alter sure on prices in the process. however.because most of the expenses of an airline metres increased by almost 51 per cent. Air France.

airlines compete fiercely with each other. most often. Business travellers.45 Such agreements might also not allow a SIA flight to Bangkok to continue to some other destination within Thailand. are unrelated to the number of flights flown. due to both falling economy class fares and rising business and first class fares. These are labour. this differential has widened considerably. an agreement between Thailand and Singapore might stipulate the number of weekly flights between Singapore and Bangkok. which increase their financial risk. Open skies agreements between the U. The price differential between economy class. and Singapore which will allow SIA to fly to new destinations in the i4 45 Research on Singapore Airlines by Goldman Sachs. by economy class. the higher is the feasibility of maintaining in-house repair operations in that location. In their zeal to increase load factors. . only 16 per cent of an airline's costs are tied to traffic (number of passengers in a particular fliyU). on the one hand. an Open Skies agreement has also been signed between the U. however. mostly interest and depreciation. Oil prices are also denominated in U. Airlines also undertake high levels of debt to finance purchases of new planes. it could be considerably cheaper than contract maintenance. the fares are also subject to approval by the country of origin of flight (either Singapore or Thailand in the above example). on the other hand. and business and first classes. Airlines often perform routine maintenance at the home base but contract with local airlines for local maintenance capacity.S. on the other hand. even at rock-bottom prices. This is only a hypothetical example and does not reflect the reality in any way. In the international arena. Since 1980. Airlines have very little control over their fuel costs. airlines have a strong incentive to carry additional passengers (improve their load factors). if the utilisation is high. Since oil is a commodity. As a rule. its price fluctuates significantly. According to the Asia Pacific Airlines Association. maintenance and aircraft purchase. Since the remaining costs ^b^ «<t per cent of the total) are fixed. fuel.S. Labour is the most significant expense for most of the airlines from the developed countries.632 Case 8 • The Singapore Airlines Group They also travel. In general. Fuel expenses are also a significant percentage of costs. is very high. often travel by either business or first class. Many airlines from developing countries are able to offer comparatively lower pay to their staff and thus could reduce this expense considerably. Maintenance and ground services also constitute a substantial percentage of an airline's expenses. For instance. Regulation and Government Intervention Though the extent of government intervention in the airline industry was declining. the route structure as well as the frequency of flights is governed by agreements between the two concerned countries (origin and destination). lowering the quality and predictability of any airline's operating earnings. the larger an airline's presence in a particular location. in-house maintenance is scale-sensitive but. dollars. Increasingly. Recently.S. Industry analysts estimate that 55 per cent of an airline's costs. it is still higher than most other industries.44 There are four major components of an airline's cost structure. thus adding an element of exchange rate risk. In some cases. and the European countries are leading to the dismantling of the restrictions on flight frequencies. the regulatory barriers are falling.

S.. Of late. Service Quality Centre. Equity was involved in 62.. One example is the proprietary reservation system which involves writing extremely complex software programs and is typically the domain of large airlines such American Airlines and United Airlines. For instance. SIA Properties. Under the Open Skies agreement. The SATS group is in charge of Changi Airport. SATS Group Airlines make extensive use of technology in their operations. Technology Appendix 2: Subsidiaries and Related Operations The SIA Group has 21 subsidiaries including the following major ones: Singapore Airlines Company. Industry Trends Alliances Over time. Strategic Dimensions Airline strategies were extremely complex and cover several interrelated factors. They can make telephone calls. the quality of in-flight and ground services offered and the prices charged to economy class passengers. or 16 per cent of these alliances. Flying larger planes is particularly essential for busy routes such as New York to Tokyo or London to Singapore. SilkAir. Inside the plane.SATS Airport Services.g. Newer planes are bigger and can fly farther. New York) to other destinations in the U. SATS Catering. a country's laws regarding unions could have a tremendous impact on the wages-and-salary component of an airline's cost structure.Case 8 • The Singapore Airlines Group 633 U. Airline alliances have proliferated over the past 15 years. send faxes and enjoy personalised entertainment. SATS Security Services and Aero Laundry and Linen Services.S. technological advances have enabled customers to enjoy new features and services.g. As of May 1996.. These planes also offer better fuel efficiency over the older designs. Different airlines also emphasise different within the airlines industry include: the route structure of the airline. These could be served by direct flights from the home base in Singapore as well as by continuing its flights from a U. there were a total of 389 alliances worldwide. Alliances also serve a variety of purposes. Many smaller airlines have formed consortia to develop rival computerised reservation systems. Singapore Engineering Company Pte Ltd and Singapore Flying College. regularly voted as one of the world's best air- . port of entry (e. the most important of which is to extend an airline's reach. The SATS Group comprises four companies . Singapore Terminal Services (SATS) group. functions like baggage handling are also becoming increasingly automated. Some other policies that were not specific to the airlines industry have also affected it. check-in facilities are extensively computerised.g. the type and the age of the flying equipment (planes). SIA could also determine its own flight frequencies. Singapore to New York) or quite broad to include cooperation at the corporation-level (covering all the routes served by the cooperating airlines). Atlanta). (e. Alliances was a catch-all term and the scope of an alliance could be as narrow as a particular route (e.S. In addition to ticketing. flying equipment has also become more sophisticated.

49 Ib id . No Indication of Survivors in SilkAir Crash. As of March 2000. Formed in 1991. On December 19. Changi Airport is widely considered the premier express freight hub in the Asia Pacific region.05 million tonnes a yo. the new terminal would boost SATS' total cargo handling capacity 2. it trains sev eral thousand employees from more than 100 companies in both the service and the manufacturing sector. s i n g a p o r e a i r . Federal Express and China United. the first in either SLA or its subsidiary's history. SATS had recently (mid-2000) com pleted the construction of a S$215 million Inflight Catering Centre with a production capacity of 45. 1999-2000. SIAEC took a 10 per cent equity stake in Kong Kong Aero Engine Service Pte Ltd which overhauled Rolls Royce and Trent engines. has made SIA fully self-sufficient in airframe and engine maintenance and capable of selling engineering services at all levels to other airlines. December 20.7 million passengers.9 per cent of SATS' profits during the year. It also leases 430 properties located in 122 cities in 45 coun tries. 2000.4 million tonnes of cargo. in Singapore and in Taiwan.yahoo. Construc tion of (S$270 million) Airfreight Terminal 6 was expected to be complete in mid-2001. As much as 18. 1999-2000 and www. The crash.000 meals daily. SATS serviced 47 airlines at the Changi Airport and handled 21. ventures accounted for 8. SIA Engineering Company SIA Engineering Company has developed extensive capabilities in repairing aircraft including overhauling engines and refur bishing aircraft components. SilkAir operated 88 scheduled revenue flights each week to 19 destinations and maintains a fleet of six aircraft. a major aircraft engine manufac turer. It primarily operates flights to regional holi day destinations. The Boeing 737 was less than a year old and there were no distress signals from the aircraft before the actual crash. It also handled 1. c o m I t ttp 48 SIA Annual Report.com I 47 P r a t t a n d W h itn e y a n d S I A E C F o r m E n g i n e O v e r h a u l V e nh u r e:.6 per cent of its revenues are drawn from third party work.singaporeair. Polar Air. 48 Other Subsidiaries The Service Quality Centre is a joint ven ture with the National Productivity Board of Singapore. 47 In March 2000. It operates joint venture companies with Pratt and Whitney. SIA Properties oversees the develop ment of these properties both within and outside Singapore. 46 - - Yahoo News 1997. the SIA group owned 20 commercial and 25 residential properties. SIAEC does maintenance work for 56 airlines includ ing Air India. it had entered into ten joint ventures in nine countries including India and China. During the year ending March 31. As of March 2000. When completed. The Sin gapore joint ventures serve as Pratt and Whitney's exclusive Center of Excellence Facility in the Asia Pacific and Indian sub continent. The SIA hangar.com}. 1 1 w w w . killed all 104 people aboard the aircraft. As of March 2000. http:/1 w ww . 46 . primarily due to SATS in vestments and foresight.ir Airlines Annual Report.634 Case 8 • The Singapore Airlines Group ports. the world's largest column-free hangar. 49 The airline's other - - - - - - SilkAir SIA's regional arm is known as SilkAir. Joint . Singapore-bound SilkAir flight MI 185 from Jakarta crashed in a swampy terrain in Sumatra (Indonesia). 1997.

Auspice. What generic strategy is SIA following? What factors can explain SIA's success? Optional question: Does Singapore have a national competitive advantage in terms of having an international airline? (For discussing the optional question.) 50 SIA Annual Report. . a Singapore based subsidiary responsible for the group's regional portfolio investment activities.50 Study Questions 1. a Channel Islands-based portfolio investment company. the students will need a fairly good knowledge regarding the Singapore econom y. 1999-2000. a leasing company.Case 8 » The Singapore Airlines Group 635 subsidiaries included SALE. and Sing Bi Funds.

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