Beyond Singapore Girl: Grand and Product/service Differentiation Strategies in The New Millennium

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Grand and product/service differentiation strategies in the new millennium

Deputy Head of Department/Group Head, Republic of Singapore Air Force, Singapore
Keywords Airlines, Singapore, Brands, Differentiation, Strategy, Globalization Abstract Takes a strategic journey into the future of the airline industry and air travel. The strategic trends and profound changes that are sweeping through the world airline industry and air travel currently, as well as into the next millennium, are analysed. So too are the responses of the lead airlines that are leading the charge in shaping as well as responding to these changes, which will present new opportunities, threats and challenges to airlines with global aspirations operating on the world stage. Singapore Airlines was analysed with British Airways and United Airlines as the leading European and US comparison airlines, respectively, for comparative and benchmarking purposes.
Beyond Singapore Girl

Daniel Chan
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Introduction In this research paper, one is taken on a strategic journey into the future of the airline industry and air travel. In deciding upon a suitable candidate to ``go on such a journey and tell the story'', both the successful and enduring track records as well as the articulated and demonstrated visions of all leading proponents are considered. Singapore Airlines (SIA) was finally chosen with British Airways (BA) and United Airlines (UAL) as the leading European and US comparison airlines, respectively, for comparative and benchmarking purposes. SIA Why SIA? SIA is widely considered 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. It is arguably Singapore's and Asia's best-known company, and rated consistently as Asia's ``most admired company'' (Asian Business, 1997a, p. 24). 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 airline industry in profitability and rides through ``rough and turbulent'' times much better than most of its rivals. It has had a continuous profit track record since it took to the skies more than 25 years ago, a track record almost unheard of in the brutally cyclical airline industry (Asian Business Review, 1996, p. 34). Its smiling, willowy flight stewardess, 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
Journal of Management Development, Vol. 19 No. 6, 2000, pp. 515-542. # MCB University Press, 0262-1711
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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 and service icon that year to reflect the ever-growing popularity of international travel. In an era marked increasingly by competitive rankings, SIA has been voted regularly by both the airline industry and travellers alike as one of the best airlines in the world. It is the winner of more industry awards than any other airline. The New York-based Conde Nast Traveller magazine, for example, in 1997 named SIA The Best Airline for the ninth time in ten years in the magazine's annual Readers' Choice Awards Poll. Conde Nast Traveller, a monthly magazine with a circulation of more than 800,000 worldwide, hands out yearly awards to airlines, hotels, cruise lines and others in the travel industry. In 1997, to mark the tenth anniversary of the awards, it also presented its first-ever Hall of Fame awards to four individuals, ``who over the decade, have put a particular stamp on the best in modern travel.'' Winning the Hall of Fame award in the airlines category was CEO of SIA, Cheong Choong Kong, who was honoured for `à decade of outstanding leadership and for transforming the standards of in-flight service in the 1980s'' (Straits Times, 1997b, p. 33). 1997 also saw SIA winning The World's Best Airline for the fourth year running in the Zagat Airline Survey. A major consumer survey company in the USA, Zagat surveyed 10,000 frequent travellers to rate 61 major air carriers. In 1994, the leading US aviation magazine, Air Transport World, named SIA ``the World's No. 1 Airline over the last two decades'' (Fortune, 1994, p. 26). Accolades for SIA also came in from Europe. At the 7th Espace Voyages Professionnels (Business Travel Fair) in Paris in October 1997, SIA was announced the Top Airline in the only business travel survey, Barometre Voyages d'Affaires, in the long-haul category. In the UK-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. SIA also bagged the top award in the inaugural Conde Nast Traveller 1998 UK Readers' Travel Awards. Closer to home in the Asia-Pacific, 1998 marks the seventh straight year in which SIA has walked away with the overall Best Airlines Award in the Business Travel Asia-Pacific Awards (Straits Times, 1998a, p. 35). Comparison and benchmark airlines: BA and UAL BA, Europe's biggest airline, is now widely regarded as a top European as well as global airline. In 1990, Air Transport World selected BA as the winner of its Passenger Service Award. After suffering through years of poor market perceptions during the 1970s and earlier, BA, through the 1980s, had improved its financial strength, persuaded its workforce of the paramount importance of customer service, and improved its perception in the market. In less than a decade, BA had lifted itself out of bankruptcy to become one of the world's most respected airlines. The financial crisis of 1981 and the drive to
prepare itself for privatisation had given BA a focus that led to many changes. After its privatisation in 1987, BA made globalisation a major thrust. In early 1988, BA finally beat Scandinavian Airlines System (SAS) to acquire British Caledonian. In December 1989, BA concluded a deal with Sabena Airlines through which it secured a 20 percent stake in the Belgian carrier. All in all, the moves bolstered BA's global power and prepared it for what analysts expected to be a post-1992 European marketplace in which only the strongest carriers would survive. Into the 1990s, BA had to deal with the difficult challenge of how to maintain its momentum and recapture a focus that would allow it to meet new challenges. In looking for a new focus, BA management dealt with the seemingly unattractive need of trying to get its staff to identify with an issue as glamourless as cost-cutting. Yet, without increasing the value placed on productivity and profits, while maintaining or increasing the value placed on customer service, BA's continued success in an increasingly competitive global marketplace could not be guaranteed. By 1997, BA had been turned around dramatically, from an overall deficit of 544 million for 1983 to a pre-tax profit of 640 million announced in May 1997 (Straits Times, 1997a, p. 56). In 1997, it again relaunched itself and unveiled a new corporate identity. Its new global identity represented a major makeover and rebranding of itself, involving the use of more than 50 different images from every continent. It was, however, hit by some controversy over its decision to scrap the `Ùnion Jack'' livery on its aircraft tails in order to give it a more global airline image. It provoked a domestic storm in the UK and incurred the wrath and public rebuke of former UK Prime Minister Margaret Thatcher, who draped the tailfin of a model at the design launch. Lady Thatcher harangued BA over the design at a function in October 1997. ``We fly the British flag, not these awful things you are putting on the tail,'' she was quoted as saying (Straits Times, 1998b, p. 52). In 1997, BA also completed a major customer service review and revamp, and invested 4.5 million to set up its ``customer analysis and retention system'' (acronym CARESS), in order to enhance its customer retention and satisfaction (William Reed, 1998). In 1998, in preparation for the new millennium, BA embarked on yet another major initiative a massive training programme for its cabin crews, with the aim to make them ``less British'' and ``more informal'' in the latest stage of the company's attempts to market itself as a global airline. Its 15,000 strong, mainly female staff were sent on courses designed to help them drop some of the British reserve (for which the airline is well-known), and to ``bring out their personalities.'' This was in response to feedback and a research survey of its foreign passengers, which showed that BA hostesses were perceived to be too stuffy and tended to be too aloof. The courses would encourage the cabin crew to make more eye contact, give friendly taps on the shoulder and spend more time crouching beside passengers (Straits Times, 1998c, p. 6). However, just like its decision to drop the Union Jack livery from its plane, this latest initiative
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also met with some resistance from its cabin crews. The impetus for this change from its traditional national sense of formality is driven by BA's expectation that less than 20 percent of its customers will be British by the year 2000 (Straits Times, 1998c, p. 6). UAL, the world's and USA's largest airline, has always been one of the cost leaders in the industry. However, following one of the most comprehensive studies of US air travel (both domestic and international) ever undertaken in the USA, UAL in 1997 unveiled a new customer-driven initiative that is set to revolutionise the US airline industry and air travel in the next five to ten years (Southeast Asia Business World, 1997, p. 22). Among other things, it launched a new strategy and marketing campaign called ``Rising'' to replace its 30-year old ``Friendly skies'' slogan. The study, commissioned by UAL, was conducted by the strategy consultant The Cambridge Group, headquartered in Chicago, together with UK company MSB (Managing the Service Business). The study took nearly nine months to complete and included both qualitative and quantitative primary research consisting of more than 50 focus groups with customers in eight countries, more than a dozen focus groups with UAL employees and a series of interviews with key travel agencies, corporate accounts and suppliers. The study also included a quantitative survey of more than 1,800 customers designed to uncover the underlying motivations of travellers (Southeast Asia Business World, 1997, p. 22). Using the study's findings as a blueprint for improvements, UAL developed its customer satisfaction philosophy (CSP), a new customer-driven initiative on which all current and future service improvements, employee training and communications will be centred. UAL hopes its new service philosophy will differentiate it from its competitors, motivate employees to better service, and achieve better than average industry growth and revenues. The CSP was also the driving force behind the new ``Rising'' marketing campaign, and represents a multiyear commitment to significantly improve customer service (Southeast Asia Business World, 1997, p. 22). The ``Rising'' marketing campaign was based on the marketing research of the CSP in which UAL have invested since completing the study. In retiring its familiar slogan in 1997, UAL CEO, Greenwald said:
The ``Friendly skies'' will always be a cherished part of our heritage and our history, but UAL's future is ``Rising''. Our research found that, while customers like air travel to be friendly, it is even more important to them that air travel be made professional (Southeast Asia Business World, 1997, p. 22).
With this, UAL has taken on the mantle of service leadership in the airline industry in the USA. Strategic challenge No. 1: product/service differentiation Airlines in the new millennium have to tackle two key strategic challenges: that of grand strategy as well as product/service differentiation. We will cover the latter first. A quiet but sure sea change is transforming the nature of
air travel, driven by the changing needs and demands of the individual traveller and modern travel, in a fast globalising industry fuelled by increased international trade, travel and tourism. To be sure, the need to be customer-driven is not something new in the airline industry. The key difference this time round is that it is sweeping across the industry globally, including the US air travel market, which has up to now seen itself more as a transportation than a service industry. This markedly pronounced service nature of the airline industry is set to become a key challenge for all major airline players. These airlines, if they are to succeed in the new millennium, will have not only to think in grand strategy terms, but also to produce winning product/service differentiation strategies that can deliver superior customer-driven service. Product/service differentiation strategy SIA and BA have long been widely acknowledged within the industry as the industry's strategic benchmark airlines, as well as the industry leaders and innovators of service branding as a source of strategic competitive advantage. ``New kid on the block'', UAL, with its 1997 CSP and ``Rising'' campaigns, has, however, served notice of its intention to take on or join this small club of branded top airlines. The product/service differentiation visions and strategies of SIA, BA and UAL, as they prepare for the new millennium, provide interesting contrast and comparison insights and lessons on product/service differentiation for the industry as a whole. SIA comes immediately to mind when one thinks of branding and service in the airline industry. A recent sampling of views from competitor airlines continues to attest to its image in the market:
A highly recognisable product (David Turnbull, Cathay Pacific CEO, Straits Times, 1998d, p. 42). 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, The Sunday Times, 1997a, p. 33). 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, The Sunday Times, 1997a, p. 3).
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Indeed, its Singapore Girl has become the airline industry's icon of service and SIA one of the industry's strategic benchmarks. SIA is strategically positioned in the premium service, quality and value market segment of the international airline industry. Service is the raison d'etre of SIA, and at the heart of its service reputation is the Singapore Girl. Since the late 1980s, SIA has always held the view that: ``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'' (Harvard Business School, 1989).
The Singapore Girl idea proved to be a powerful strategy. Although, there were some initial protests in the West, its acceptability in recent years has changed quite appreciably. In 1997, an analyst with Goldman Sachs noted that: ``Her popularity in the West is such it would be quite risky for SIA to attempt to change the image at a time when people there are getting used to her'' (The Sunday Times, 1997b, p. 3). SIA's market research up to 1997 indicates that around the world the Singapore Girl remains a very positive marketing icon, and that ``She evokes the very best in Asian charm and hospitality'' (The Sunday Times, 1997b, p. 3). Many other airlines have their own catchy slogans and advertisement lines, but none has been able to capture the imagination to the extent that SIA had with its Singapore Girl and its other slogans. Singapore Girl has given SIA an enduring competitive advantage. More than 25 years on since its first introduction to the world, the Singapore Girl, far from being a fashionable passing fad, has become even more popular and entrenched. It is an extraordinary and singular success story for an airline product/service differentiation strategy. No other airline can boast of such a product/service differentiation strategy that has lasted for more than 25 years, and still shows no signs of letting up. SIA's new product/service innovations for the new millennium Three major innovative service ideas were announced by SIA in July, September and October 1998: the introduction of gourmet cuisine in-flight dining, SIA's $500 million cabin revamp, and the launch of its new Frequent Flyer Programme, KrisFlyer, respectively. Very soon, when you fly with SIA, the cabin attendants will not come around just offering: ``Chicken or fish, sir?'' Instead, the choice may be between vinegared cucumber with barbecued eel or green tea noodles and smoked chicken salad. With this, SIA plans to make in-flight dining even for its economy class a new experience. First-class passengers will get gourmet dishes such as Buddha-jumps-over-the-wall soup and miso-flavoured grilled salmon trout. These and 30 other signature dishes have been concocted by a panel of seven culinary experts engaged by SIA to put a new spin on airline food, a long time bane of travellers, which will set a new benchmark in in-flight cuisine. SIA hopes that with this it can further differentiate itself from its rivals. The airline introduced its panel of seven culinary experts and launched the World Gourmet Cuisine in July 1998 (Straits Times, 1998e, p. 3). Passengers flying out of Singapore will be the first to try the cuisine, which will be introduced by the end of 1998. The panelists engaged by SIA include chef Georges Blance from Vonnas, France, of three stars merit in the famous Michelin Guide, restaurateur David Burke of the Park Avenue cafe in New York, and Japanese food expert Yoshihiro Murata of Kyoto. The other experts are Sydney-based restaurateur Dietmar Sawyere, who won the Savoy Company's Best Young Chef award in 1982, and chef and consultant Peter Knipp of Singapore, known for launching the fusion cuisine in Doc Cheng's
restaurant at the Raffles Hotel. Food columnist William Mark, a consultant to the Hong Kong Tourist Association, and Fred Ferretti, a leading food critic of New York, are also on the panel. According to Mr Knipp, the panel took over six months of collecting recipes of signature dishes from the chefs, cooking them, tasting them, and making them in-flight-ready, before they were finally satisfied. Preparations included checking whether the dishes would stand the rigours of refrigeration and reheating. The panel will train chefs from catering kitchens in the key sectors to which SIA flies. The panelists will also make quality checks periodically. SIA indicated that there will be more perks to come, such as, `ìn the future, firstclass passengers can even pre-order a lobster thermidor before their flight'' (Straits Times, 1998e, p. 3). The $500 million cabin revamp covered details from custom-built seats to cashmere blankets. According to SIA, ``no detail was considered too small for SIA'', with the airline planning the upgrading two years ago (Straits Times, 1998f, p. 37). In total, 4,000 passengers from all classes were surveyed. The passengers were from a cross-section of flights, including those to London, New York, Los Angeles, Sydney, Mumbai and Hong Kong. The survey found that people wanted comfort, privacy and the experience that SIA offered. A team of 100 consultants, designers and builders then got down to work. SIA said that intense competition meant that it could not just come up with small changes. So the airline started from scratch when it came to redesigning the first-class cabins, which now come with an ambience of a mini-suite in a luxurious hotel. James Parks Associates, which designed the Orient Express, designed the suites. The pampering begins even on the ground. A porter and staff member will greet first-class passengers as they alight from their car, take their luggage and check in for them. The passengers wait in a special lounge at Changi Airport, just 15 steps away from immigration. Business-class passengers get better seats too. These are wider and can recline further. Economy-class passengers on all flights will get free flow of champagne an industry first. KrisFlyer, SIA's new frequent flyer programme, announced in October 1998, will be launched on 1 February 1999, and will now include all classes of travel. In 1997, SIA revealed that it has to gear up for `à new era of heightened competition where tailor-made in-flight service, for the increasingly demanding passenger, will be the norm'' (The Sunday Times, 1997c, p. 32). On SIA's future direction and strategy to cope with the new competition, it noted 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, 1997c, p. 32). On how SIA intends to keep ahead, it noted that: ``The crew will have to be equipped to meet the special needs of passengers. They would have to be F F F We are constantly reviewing procedures and training methods F F F so that when people fly, SIA will be the preferred airline'' (The Sunday Times, 1997c, p. 32).
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As the bulk of its clientele are non-Singaporeans, SIA crews are now being prepared to be conversant with and to make announcements in the languages of the countries to which it flies. This customer-focused service strategy has served SIA well, and had enabled it to withstand and overcome the competition posed even by domestic deregulation battle-hardened US airlines such as UAL in the 1990s. Asian airlines, long known for their service, and led notably by SIA, have always spearheaded the charge in competing not just on the basis of costs and prices, but also on differentiating themselves on premium-quality service. It was SIA that had most successfully converted this into an enduring competitive advantage. Product/service differentiation strategy comparison of SIA with BA and UAL SIA's product/service differentiation strategy 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, in businesses in which there is a high degree of repeat business, with word-of-mouth praise by customers as a most important channel of marketing. An airline could be conservative in its promises regarding service excellence to keep customer expectations from becoming too high. High expectations, some would argue, increase the potential for customer dissatisfaction. However, the SIA's experience has been a very different one. In any case, SIA had never aspired to be just any ordinary good airline, but a top-notch airline. SIA could be said to be the very first airline in the 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, has 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. SIA's strategy to differentiate itself on the basis of superior customer service, also saw it successfully generating a vision of service excellence throughout the organisation. Such an organisation-wide energising vision of service excellence is a powerful source of competitive advantage in top class service organisations. Such a strength can be the bedrock of a quality and service quality sustainable competitive advantage. A service organisation that does not have 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 spillover results. Customer service went 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 the exceptional performance of SIA. Sustaining a competitive advantage based on service and quality is possible, but requires unrelenting effort on the part of an organisation to continually improve service. Only then can high service and quality standards be attained and sustained. This was clearly achieved in SIA's case. BA, on the other hand, has taken a very different product/service differentiation strategy and approach for their brand and service strategy. In its chequered and colourful history, BA has seen its fair share of ups and downs. As an industry innovator and leader, BA has always relied on, and has been very active in, introducing new and innovative ideas every few years, some of which were perceived by some to be too revolutionary. In the case of SIA, SIA has capitalised and continues to capitalise on an enduring and intrinsic competitive strength founded upon an idea that is intrinsically Asian the familiar Singapore Girl to sustain a product/service differentiation strategy that has spanned over 25 years and still shows no signs of letting up. SIA's market research up to 1997 affirmed that around the world the Singapore Girl remains a very positive marketing icon (The Sunday Times, 1997b, p. 3). In contrast to SIA's Singapore Girl strategy, BA's strategy is marked by the relentless drive to introduce regular and major updates or changes and, in some instances, rather revolutionary changes. In April 1983, BA introduced a widely publicised global marketing campaign to boost its corporate image worldwide. The campaign included the well-known 90-second Manhattan Landing TV advertisement created by the Saatchi & Saatchi (S & S) advertising agency. The results of research following implementation showed increases in unaided awareness and recall of BA in almost all markets, especially the USA. The campaign improved consumer recognition of BA's size and passenger volume. BA's image also improved as a modern, progressive company performing better than it had in the past. However, recall of its slogan ``The world's favourite airline'', was poor. Negative perceptions of BA, especially regarding poor customer service, were not corrected. Research results suggested that the campaign did not convey any feeling of warmth or caring. In response, for 1984-1985, BA developed a follow-up advertisement to Manhattan Landing called Lunar Landing. The 1983-1984 campaign was subsequently rerationalised as the first part of a multi-stage programme to rebuild BA's image with the Manhattan Landing advertisement designed as an attention-grabber. As part of the overall image programme, BA began changing the livery on its entire fleet in 1984 (Harvard Business School, 1993).
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In 1995, in referring to its brand and service strategy, BA chairman Sir Colin Marshall made the point that ``service brands, like packaged-goods brands, need to be periodically refreshed to reinforce the message that the customer is receiving superior value for money'' (Harvard Business Review, 1995). He went on to add that refreshing a service is also a way to make sure that you periodically reassess how the value you think you are delivering compares with the value customers think you are delivering. In outlining BA's strategy, he made the following point that: ``When we began, I thought the wear-out factor for a service brand was somewhere in the five-year range. Now I am pretty convinced that five years is about the maximum that you can go without refreshing the brand'' (Harvard Business Review, 1995). In elaborating its service brand philosophy, BA pointed out that refreshing a service brand so the customer will really recognize the change requires something major (Harvard Business Review, 1995). This is unlike consumer products, where refreshing the brand may only require different labelling. It cannot be something superficial such as changing the colour of the menus. As an example, when BA relaunched its Club Europe service in 1995, it included some of the best short-haul cuisine found anywhere in the world (to meet the needs of the numerous culinary cultures across Europe) and added nine new airport lounges throughout Europe. In addition, BA wanted to create the most ergonomic short-haul seat around, a telephone check-in service, and a valetparking service. According to BA, it was not competitive pressure that compelled it to do so. BA did it because it wanted to stay ahead so that it could continue to win premium customers. As far as BA is concerned, refreshing its brand also might include a complete revamp of in-flight entertainment. For example, when BA refreshed its World Traveller (economy class) brand in 1994, it completely overhauled the audio and video channels. Since then BA is looking at interactive video services for its new Boeing 777s. Major global airlines like BA and SIA have constantly striven to deliver superior service and to meet the needs of their largely and increasingly more international clientele of travellers. US airlines are now realising the need to do so. Compared to non-US airlines like SIA or BA, most of the major US airlines have not been very innovative or creative as far as branding and service are concerned. The flying experience in the USA today is pretty ghastly by international standards. According to BA's extensive research conducted with USAir (when the two were alliance partners), there were already very strong indications that many people in the USA were willing to pay a premium in order not to be treated ``like cattle'' (Harvard Business Review, 1995). They want to be respected and rewarded for their business and not just with frequent-flyer miles, which have become a commodity, a price of entry into the market. There is therefore the immense potential of revolutionising the US airline industry and creating an entirely new market segment of the industry. USAir has begun
to implement this strategy with its new Business Select Service. UAL, long known for its cost leadership in the world airline industry, has, however, taken over the mantle of service leadership in the US airline industry. In a study commissioned by UAL in 1997 and conducted by strategy consultancy The Cambridge Group, headquartered in Chicago, together with UK company MSB (Managing the Service Business), service has emerged as a key concern that must be addressed. The 1997 UAL study, one of the most comprehensive studies of US domestic and international air travel ever undertaken, took nearly nine months to be completed, and included both qualitative and quantitative primary research. Based upon the findings and recommendations of the study, UAL has unveiled a new customer-driven initiative that is set to revolutionalise the US airline industry and air travel in the next five to ten years. If this succeeds, UAL could well join the ranks of SIA and BA in the club of ``branded'' airlines. There are two facets to the business equation: costs and revenues. In the US airline industry, the focus has always tended to be on the former. Any business that focuses on one at the expense of the other is going to pay very heavily. The airline industry is no exception. However, lead airlines like BA or SIA have been able to compete against cost-efficient airlines without undermining the brand/service strategy on which their airlines have been built. There are therefore different strategies on how one can compete in the airline mass-market service business. One, the traditional US approach, is to think of the business as merely performing a function transporting people from point A to point B on time and at the lowest possible price. This is the commodity mindset, thinking of an airline as the bus of the skies. Another strategy to compete, exemplified by SIA and BA, is to go beyond the function and compete on the basis of providing an experience, and to make the process of flying from point A to point B as comfortable and pleasant as possible. The thrust of such a strategy is that anyone can fly airplanes, but few organisations can excel in serving people. And because it is a competence that is hard to build, it is also hard for competitors to copy or match. The airline industry in the USA since its inception has always been a ``commodity'' rather than a service industry. However, by 1998, there were clear indications that this is set to change, with a market segment within the USA clearly evolving into a service oriented market. This is in direct response to changes in the US marketplace and society. A new elite in the USA is emerging. This new class of the wealthy has lifestyles and habits different from those of the rich in earlier times. These, which include investment bankers, corporation lawyers, entrepreneurs, realestate developers and entertainment moguls of today's business and professional elites, are in constant motion. They work and play on the run and are money-rich but time-poor. Rather than spend a fortune on fox hunts or long cruises, they spend a lot on what they need. These ranks of America's affluent are growing and the marketplace is responding creating superior spaces and services for them (The Sunday Times, 1998a, p. 40).
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The economic impact of this on the US airline industry is that US airlines are earning more and more from these passengers in their domestic first and business class seats than before. First and business class seats now account for more than 22 percent of US airlines' domestic passenger revenue, up from 9.5 percent in 1987, according to the Air Transport Association (The Sunday Times, 1998a, p. 40). The result is that US airlines are expanding their accommodation for these travellers in the business and first classes with bigger cabin seats and more flight attendants in service. Strategic developments of the industry At the international level, the past few years have seen the relentless trend towards globalisation of the airline industry and the formation of greater and more comprehensive airline strategic alliances/partnerships worldwide. Further industry consolidation within the three key geographical regions of the world, viz. the USA, Europe and the Asia Pacific, are also in the offing. Collectively, these developments will precipitate the global consolidation of the industry with the spectre of the emergence of global airline consortia/alliances in the new millennium a distinct possibility. Building strategic alliances/ partnerships has become necessary for airlines to stay competitive and gain access to a global market too huge for any existing airline to reach let alone dominate. They facilitate access and reach to a globalising industry. They are viewed by airlines as necessary and have become the fast-growing area of competitive advantage since 1993 (Asian Business, 1997b, p. 22). Virtually every major airline is involved in some kind of alliance/partnership or another. Some are in as many as 30 alliance/partnership, including linking up with two directly competing rivals at the same time. The trend towards increasing airline alliance/partnerships is now evident. According to a survey conducted by Airline Business in 1997, there were only ten such airline alliances in 1983. Three years later, in 1986, this number grew to 52. By the middle of 1997, the number has, however, proliferated to 363 (Business Times, 1998, p. 2). In terms of size, scope and scale, alliances are also increasing. Besides equity swaps, code-sharing, selling seats on each other's flights, many alliances now include joint marketing, pooling of frequent flyer programmes as well as mutual access to airlines' airport lounges. In 1997, the largest ever alliance, the Star Alliance, was formed by the six partner airlines of UAL, Lufthansa, SAS, Air Canada, Thai Airways and Varig (of Brazil). Its ranks are set to include Air New Zealand and Ansett Australia. ANA, in addition, also indicated its intention to join the alliance by October 1999. Star's formation was followed in 1998 by the formation of Oneworld, a marketing alliance of American Airlines (AA), BA, Canadian Airlines, Cathay Pacific and Qantas. The global presence and significance of both Star and Oneworld is depicted in Tables I and II. Preceding these two major developments was the high profile BA and AA proposed alliance, first announced in 1996. Their intention and plans to marry their services across the Atlantic has attracted great attention and generated
Canadian Airlines Fleet size Destinations Countries Passengers per year Number of employees 131 135 13 11 million 16,111
AA 856 237 49 41 million 100,500
BA 330 255 102 41 million 60,675
Cathay Pacific 62 47 25 10 million 14,800
Qantas 145 108 32 19 million 28,900
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Table I. The Oneworld Alliance
Notes: Oneworld total: number of planes: 1,524; number of passengers: 122 million Source: Straits Times (1998g, p. 12)
UAL Fleet size Destinations Countries Passengers per year Number of employees 582 140 28
Air Canada 232 118 25
Varig 87 71 23
Lufthansa 314 300 89
SAS 164 104 34
Thai Airways 76 72 37
84.1 million 16.5 million 9.9 million 41.4 million 20.8 million 13 million 94,178 24,000 17,812 57,391 22,500 14,800 Table II. The Star Alliance
Notes: Star Alliance total: number of planes: 1,455; number of passengers: 185.7 million Source: Straits Times (1998g, p. 12)
much interest from the outset. It saw BA dumping an earlier alliance forged with USAir for the AA deal. BA has since sold off its 24.6 percent shareholding in USAir and ended an extensive operating alliance linking their networks. The deal is still under scrutiny and is being examined by US, UK and EU regulatory authorities. The BA and AA alliance does not involve an equity swap, but aims to combine operations on all transatlantic flights. According to the proposal, BA and AA will pool resources and possibly collaborate on pricing. At the heart of the deal is a code-sharing and schedule co-ordination arrangement. Codesharing, which is now very common in the airline industry, is often used to expand the number of flights offered at only a low incremental cost. By providing access to each other's flight codes, two airlines can quickly increase the number of flights they offer to customers/travellers, without having to negotiate for extra airport slots. For example, with such code-sharing, if one airline with weekly flights from City A to City B teams up with another with a twice-weekly service, sharing flight codes will enable both airlines to sell tickets on each other's flights. As a result, both will be able to offer three flights a week. Negotiating for extra airport slots, on the other hand, can be a difficult
and tricky business. There is, moreover, no guarantee of certain success. For example, Heathrow Airport in London is one of the most tightly controlled airports in the world. The lion's share of airport slots and terminal space is secured by BA. Historical precedence is the main criterion in the apportioning process. This, which is often referred to in the airline industry as ``grandfather's rights'', results in incumbent carriers currently `èntrenched'' or operating the most flights at an airport having the greatest advantage. Newcomers virtually have little chance unless they have something else to trade with. Alliances like Star, Oneworld and the proposed BA and AA alliance, will herald in a new era of strategic airline alliances/partnerships building, besides the obvious fact that such alliances will pose formidable threats to other airlines not in such alliances. The Star Alliance, with its total of 1,455 planes and 185.7 million passengers, and Oneworld, with its total of 1,524 planes and 122 million passengers appear to be the frontrunners of the truly global airline consortia to come. Even tie-ups between two major airlines have significant implications for the entire industry. The BA and AA alliance, for instance, is highly significant in that between them they control between 60 percent and 70 percent of the transatlantic traffic. With this alliance, they will be able to give customers/ travellers an unprecedented choice of transatlantic flights a choice other airlines would find it hard to match. From an industry-wide strategic perspective, key alliance developments such as those of Star, Oneworld, or the BA-AA Alliance types have several significant industry-wide implications. The first pertains to the co-ordination of the participating airlines' schedules to offer flights onwards to final destinations beyond their common connecting legs between two partner airlines. In the case of the BA and AA alliance, the common connecting leg is the transatlantic leg. AA will be able to offer tickets on BA's network across Europe and onwards from London to destinations in Asia, such as Hong Kong, Singapore, etc. BA, on the other hand, will have access to hundreds of domestic US flights that it is not able to provide under current regulations. In total, it is estimated that the two airlines could offer around 36,000 different routes. The direct threat that this will pose to other world airlines is obvious. Second, although such alliances, if allowed to go through, will spawn greater competition and threat against other world airlines, it could be argued that nonparticipating airlines could potentially derive benefits, albeit indirectly and further downstream. For instance, on the BA and AA alliance, the potential benefits to other world airlines, particularly Asian airlines with aspirations to be major global airline players, could in fact be very great. This is because these Asian airlines present as obvious and necessary players to be courted by US and European carriers with global dominance, vision and intent. Therefore they can become key beneficiaries of such developments without having to pay the high and costly ``start-up'' costs for bringing this about, as can be seen from the current BA and AA alliance experience, which is still mired in protracted legal and regulatory battles. Therefore, in contrast to the spontaneous ``cry-
foul'' responses from US and UK airlines such as Virgin Atlantic Airways, USAir (the ``jilted'' partner), Continental Airlines and TWA, Asian airlines have remained tight-lipped, reacted cautiously and have kept their cards close to their chests. Their response will ultimately depend on how the final act will unfold. Finally, if such alliances go ahead they may come together with specific competition provisions. Taking the case of the BA and AA alliance again as an example, there may be the potential that, if the US, UK and EU authorities do allow the deal to go ahead, concessions or compensation for the BA and AA domination of transatlantic routes at the outset of the deal could be arranged by the opening-up of their airports as well as transatlantic skies to greater competition. SIA, an Asian airline with global vision and intent, for example, could potentially benefit, and would certainly take advantage of, such opportunities. In June 1996, while in London to attend the signing ceremony for SIA's purchase of Rolls-Royce engines, SIA's CEO, Dr Cheong Choong Kong, took the opportunity to drive home the point to the UK government. In a speech at which the British deputy prime minister and trade minister, Mr Michael Heseltine, was present, he was quoted as saying: `Òne possible way of restoring the balance is to open the skies above the USA and the UK, not only to American and British carriers, but also to airlines from third countries. SIA has been trying for many years to obtain transatlantic traffic rights from London, and we hope that our request will finally be considered more favourably'' (Asian Business, 1996, p. 53). All these alliance developments will precipitate further globalisation, deregulation and more `òpen skies'', leading the industry a major step nearer to the proliferation of global ``white-tail'' airlines, without individual brand identities envisaged by some airline chiefs (Asian Business, 1997b, p. 22). SIA has always been in the forefront of strategic alliance/partnerships building. It has been pushing for increases in its intercontinental routes for many years now. To help expand its network of flights, it has code-sharing agreements with about 20 airlines, including key partnerships with Delta Airlines and Swissair. SIA, Delta Airlines and Swissair are partners of the Global Excellence Alliance, each holding 5 percent equity stakes in the other two. SIA's strategy thus far has been not to limit its possibilities to joining big alliances such as Star or Oneworld. Although it is poised and can join Star, it appears to be weaving a virtual global alliance, centred upon itself, with strong global/regional players, before making the next move. In this way, it can collaborate rather than compete directly with as many strong players as possible for mutual benefits. In 1998, SIA completed a strategic tie-up with Lufthansa. With this, SIA has secured a new strategic European gateway/hub in its international network, while Lufthansa will now have a strategic gateway in South East Asia. SIA passengers travelling between Singapore and Frankfurt now have more flights from which to choose. According to the memorandum of understanding signed between SIA and Lufthansa, each airline has increased its frequency on the
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route from seven to ten a week, and passengers with an SIA or Lufthansa ticket can travel on flights by either airline. Passengers who carry on beyond Frankfurt to New York's JFK International Airport can also enjoy this sharing arrangement. SIA said that its passengers can switch to Lufthansa's flights between Frankfurt and destinations within Germany and throughout Europe in the near future. Similarly, Lufthansa passengers can do the same for SIA flights between Singapore and destinations in Asia and Australasia. Besides having a wider range of flights, passengers can also enjoy seamless through check-in service. This means that those who need to connect to another SIA or Lufthansa flight need only check in once. Eligible passengers can also use either airline's airport lounges. Lufthansa has moved from Terminal 1 to Terminal 2 to be with SIA at the Changi International Airport. SIA will move from Hall C to Hall B at Frankfurt Rhein-Main Airport at a later date. According to SIA: ``This will firmly establish the Singapore-Frankfurt route as the premier trunk route between continental Europe and South East Asia.'' (Straits Times, 1998h, p. 8). Lufthansa, on the other hand, noted that: ``By capitalising on each other's synergies and combined resources, both airlines will continue to work closely together to enhance our customer services, including additional destinations, better connecting times and shared amenities'' (Straits Times, 1998h, p. 8). The memorandum of understanding, signed in November 1997, is an expansion of a long-standing commercial relationship between both airlines, which began in September 1989, when they initiated a freighter service between Singapore and Frankfurt. On the Pacific end, SIA has also developed a code-sharing arrangement with AA, which will allow it access to US cities from its Pacific entry gateways such as San Francisco, Los Angeles, and as far East as New York City. For its access to Australasia, SIA has developed an alliance with Air New Zealand, Ansett Australia and Ansett International. The four-partner alliance came into effect in August 1998 and serves more than 200 cities in 47 countries. It is the largest international partnership of airlines based in the Asia Pacific. In October 1998, SIA announced its intention to form a strategic alliance with SAS which would come into effect on 1 April 1999. The tie-up will allow SIA to offer efficient connections to and from destinations in Denmark, Norway and Sweden via Copenhagen, and similarly to and from destinations across SAS's extensive European network, including the Baltics. Earlier, SIA announced that it will take a stake in China Airlines, and also re-affirmed its interest in taking a stake in Thai Airways. BA, the other airline besides SIA widely considered an industry leader in strategic alliance/partnership building, on its part has acquired a 25 percent stake in Qantas for its access to the Australasia market. Both BA and Qantas now have a joint marketing and operating arrangement in South East Asia. However, Qantas's base in Australia is just too far away from the Asia Pacific region to be really useful to BA. BA has long hoped to find a strong partner in Asia to build on its global vision and reach, but has not had the opportunities
so far. It is, however, still actively on the lookout for new opportunities. In September 1998, its Oneworld Alliance involving AA, Canadian Airlines, Cathay Pacific and Qantas, was announced. JAL has some 14 code-sharing arrangements with other airlines, including that with AA, Lufthansa and KLM for access to the USA and Europe. Cathay Pacific meanwhile has banked and concentrated on the Asian market since the early 1990s, particularly in China. As a consequence, it has not moved to develop any key alliance or code-sharing arrangements with US or European based airlines. With the Asian financial turmoil and economic meltdown descending upon Asia catching it by surprise, Cathay Pacific will find itself severely disadvantaged strategically in the next few years. Its participation in the Oneworld marketing alliance suggests that it is seriously re-thinking its strategy. Other notable strategic alliances/partnerships forged internationally include that between Northwest Airlines and KLM, both named joint winners in 1998 of the ``Best Airline of the Year in 1997'' by IATA, and the UAL-Lufthansa-SAS Atlantic alliance, set up along the lines of the BA-AA Atlantic alliance. While the strongest airline players such as SIA, BA, UAL, AA, Lufthansa are actively expanding their international access and presence and consolidating their international and regional competitive standings and strategic networking, the weaker and strategically ill-disposed airlines will find themselves more and more disadvantaged. In the USA, an impending further consolidation of the US domestic airline industry is around the corner. In 1996, NatWest Securities aviation analyst Susan Donofrio predicted such a possibility. Two lists of possible partners, based on fleet and pilot wage commonality, culture, route systems and costs, were thrown up. The first list, which assumes no antitrust concerns, sees the teaming up of UAL Delta, AA Northwest, Continental America West Southwest TWA, and Alaska US Airways. The second list, which assumes the US Justice Department blocking a merger that would gobble up more than 30 percent of US capacity, involves the following combination: UAL Southwest Alaska, AA Continental, Delta and Northwest and US Airways TWA America West (Donofrio, 1996). On 30 April 1998, UAL and Delta Airlines officially announced confirmation of their alliance plans. According to the plans, they will codeshare and have reciprocal frequent flyer programmes in the USA for now, extending to international services later. European routes, however, will be excluded from the codeshare `àt this time'' because of the current sensitivity over alliances on both sides of the Atlantic. The announcement came after earlier announced deals between AA-US Airways and Continental-Northwest. The UAL-Delta alliance goes further than the AA-US Airways frequent flyer partnership, but not as far as the Continental Airlines-Northwest Airlines alliance that involves equity transfers and eventual voting control by Northwest. In 1998, Philip Baggaley of Standard & Poor's, in referring to the proposed UAL-Delta alliance, said that ``the proposed alliance would create by far the
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world's largest airline network, improving the competitive position of both carriers'' (Airline Business, 1998a, p. 8). Delta and UAL estimate that their improved competitive position will reap an additional US$600 million annually that will benefit each partner equally. The UAL-Delta alliance will control some 32 percent of total US airline traffic, while that of AA-US Airways and Continental-Northwest account for 25 percent and 17 percent, respectively (Airline Business, 1998b, p. 14). In Europe, with the full deregulation of the airline industry more or less completed this year, we are witnessing the emergence of a new competitive scenario triggered by incumbent powerful airlines consolidating their positions and expanding their operations, and new carriers starting up services with a gold-rush urgency. The scene is reminiscent of the US experience when the US domestic market was deregulated. Already the substantial increase in links between large carriers and smaller airlines have led to the observation that ``the point may soon come where few such small airlines will remain entirely independent of a national carrier'' (Financial Times, 1998, p. 16). Previous experience of the airline industry worldwide over the past 20 years of deregulation suggests the prospects of an eventual shake-out of the industry and the subsequent consolidation by the strongest of players in the European scene. In the Asia Pacific, after a year-long slump in the Asian air travel market, brought on by the Asian financial turmoil and economic meltdown since July 1997, many Asian airlines are now struggling to adapt to this unprecedented crisis which they can do little about, with some fighting just to survive. Falls in Asian currencies have had a major impact on the airlines. With typically about 80 percent of carriers' costs denominated in US dollars, the falls in Asian currencies have badly affected many airlines. Many carriers have slashed costs by selling planes, retrenching staff and dropping routes. Some carriers have also resorted to diverting airplanes to routes that will generate income in US dollars. However, this has not necessarily translated to more traffic. Fare-cutting has also cut into the airlines' profit margins. In June 1998, the crisis in Asian skies claimed its first victim, Indonesian domestic airline, Sempati. The rupiah had depreciated more than 80 percent against the US dollar over the past year. The Indonesian National Air Carriers Association had also issued dire warnings that further collapses could follow. Indonesia's flag carrier, Garuda International, has announced plans to return all its leased aircraft. The airline has a foreign debt of about US$200 million, of which half is already due. There have been calls for Indonesian airlines to pool resources and combine domestic routes. Philippines Airlines (PAL) and Korean Air are both selling planes. PAL's president Jose Antonio Garcia warned that closing down was an option for PAL as the airline sacked striking pilots and abandoned most of its international routes in June 1998. The extent of Asia's woes can be best
highlighted by the reported loss in August 1998 of HK$175 million for Cathay Pacific in the first half of 1998 the first time Cathay Pacific has lost money in its 50-year history. The current crisis could create opportunities for the strongest players in the Asian market including Northwest Airlines, UAL, SIA and JAL to pick up some cheap planes or expand their presence through acquisitions and alliances. With simply too many airlines for the existing competitive regime, these strongest carriers will benefit eventually from their rivals' cutbacks. A consolidation is therefore in the offing. While traffic growth in Asia is now expected to be flat or even fall for 1999 and possibly the following year, aviation experts still believe the region's economies will rebound, and the region will regain its position as the world's fastest-growing market, possibly by year 2001 or 2002. Strategic challenge No. 2: grand strategy at the global level What do all these foregoing developments and changes regionally and internationally point to? How are the airlines responding, and how should they respond strategically? The consensus in the airline industry seems to be that both competition and collaboration will soon be inevitable in all parts of the world. We can already see some of the major pieces of the strategic jigsaw puzzle falling into place. Beside the macro view, it is useful to take an airline-centric perspective of what is happening. For example, SIA: it now has Lufthansa, SAS and Swissair as strategic European partners, Delta and UAL as strategic US partners, and Air New Zealand, Ansett Australia and Ansett International as its strategic Australasia partners. Within Asia, SIA has also reported that it will take a stake in China Airlines, and has indicated an interest in Thai Airways. In BA's case, in addition to its partners in Oneworld, it has AA as its strategic US partner, and Qantas as its strategic Australasian partner. For Lufthansa, besides the Star Alliance, it has SIA and JAL as its strategic Asian partners, and UAL as its strategic US partner. For JAL, there is Lufthansa, KLM and AA as strategic partners. From the point of view of US airlines like UAL, AA, Delta and Northwest, besides their strategic domestic partners, they also have strategic partners in SIA, BA, JAL, Lufthansa, KLM, etc., as the case may be. A strategic picture is therefore emerging in which strong regional giants are not only becoming stronger, but are also teaming up globally to form larger and more formidable global partnerships/alliances. By the early 2000s, the process may converge into a state of a small number of strong and strategically-networked global partnerships/alliances. Underpinning this is the strong international wave of global mergers and acquisitions that have swept through key global industries like financial services, information technology, telecommunications, car manufacturing, shipping, etc., in recent times.
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The formation of such strong and strategic global airline partnerships/ alliances will result in competition being elevated up to the highest levels. This means that size will be of strategic significance, and will be used as a strategic weapon. With global consolidation occurring on a grand scale, only a small number of consortia/alliances, each comprising lead airlines from all key regions of the world, would ultimately supply most of the world's air transport demand. These global consortia/alliances will wield considerable power, highly differentiating themselves, expanding their clientele base and market share. Faced with the competitive challenges among themselves, they will be transformed into lean and sleek marketing and strategy led powerhouses. Competition among the small set of global players will keep the airline industry lean and efficient. Old style cartels are unlikely to return, but in certain respects the degree of control that these global players will be able to exert over their markets will show some resemblance to this. These global players, drawing from the experiences of the past, will not rock the status quo they have so established, knowing how this can be mutually destructive and disastrous. One of the key challenges for these global players will be to offer and compete on the basis of consistency/compatibility of products, service standards, and operational integrity throughout their global/strategic network. Oneworld appears better placed than Star to meet this challenge. A largely Anglo-Saxon set-up, tackling this from an overall alliance perspective, would be less complicated, compared to Star's less homogeneous multi-cultural corporate set-up. However, Star's relative weakness in this becomes a relative strength compared to Oneworld, in meeting the key challenge of developing an intercultural corporate and service culture to service its international intercultural clientele and markets. The age of `èxpedient and efficient seamless global air travel'' may soon become a reality with the dovetailing of route networks, flight schedules and code-sharing among the participating partners. Costs can be lowered and growth and revenue enhanced in these strategic arrangements. There is also immense scope for invention, innovation and pushing out the competitive frontiers in strategy, marketing and operations. Technological development can also be spurred, from the introduction of new large or more advanced aircraft to implementation of more sophisticated and advanced groundhandling systems, including their integration globally among partner airlines. Information technology can also be exploited in a cost-effective manner to derive greater competitive advantage. The strategic competitive advantage of global networks and hubs Key to strategic global networking is the role played by strategic hubs. There are two fundamental methods of flight planning or organisation: point-to-point and hub-and-spoke. Point-to-point involves flights directly connecting a traveller's origin and destination. For four cities in a network, point-to-point requires six roundtrips to offer complete service. A hub-and-spoke system, on
the other hand, requires only three roundtrips for a network of four cities. As the number of cities in a network increases, there is a dramatic reduction in the required number of aircraft. For a system of 25 cities, point-to-point requires 300 roundtrips while hub-and-spoke requires only 24. Hub-and-spoke system therefore dramatically reduces the number of flights for coverage. Airlines can channel the net excess capacity by offering increased frequency, move aircraft to tap new markets, or they can use bigger planes to increase efficiency resulting in lower costs. The hub-and-spoke system became the predominant way of organising travel after deregulation in the USA some 20 years ago. Today it has developed to include the way air travel is being organised and run internationally. This is not surprising considering the number of cities involved in international air travel. Over the years, a combination of factors has led to the rise of several distinct strategic aviation hubs in the various key regions of the world. These strategic hubs include Singapore, Hong Kong, Tokyo and Sydney in the Asia Pacific region; London, Paris, Frankfurt, Zurich and Amsterdam in Europe; and San Francisco, Los Angeles, New York and Chicago in the USA. These strategic hubs share several common characteristics. First, they are inevitably the home bases of lead airlines on the world stage. These include SIA, Cathay Pacific, JAL and Qantas in Asia Pacific; BA, Air France, Lufthansa, Swissair and KLM in Europe; and UAL, Delta, Northwest and AA in the USA. Second, in the majority of cases, they command premium strategic locations within their respective regions. Finally, they boast of aviation/airport infrastructure that provide commensurate world-class services and support to their national flag/ ``home'' carriers and other airlines. Table III summarises the rankings/ratings of some of the world's leading airports. Strategic hubs increasingly will play strategic roles in the competitive advantage of their respective national/``home'' airlines. With strategic alliances/ partnerships on a global basis gathering pace and importance in strategic competitive advantage, airlines with and access to major strategic hub competitive advantage will become more and more attractive partners. They can better dictate the terms for joining strategic partnerships/alliances and are likely to have more and better choices of partners/alliances. Aviation hubs/airports in the West were generally developed much earlier than those in Asian cities. In Europe, the key strategic hubs are London, Frankfurt, Paris, Amsterdam, Zurich and Copenhagen. London, Paris and Frankfurt command strategic gateway locations into Europe either from the USA or Asia Pacific. Those not endowed with such premium gateway locations compensate with superior aviation/airport infrastructure, facilities or services. Amsterdam, Copenhagen and Zurich, which are in this category, have been ranked consistently second, third and fourth best airports in the world, respectively, in the past three years from 1995 to 1997. In the USA, the key strategic hubs are San Francisco and Los Angeles in the West, and New York and Chicago in the East. All four airports were ranked within the Top 30 in
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Airport Singapore Hong Kong Tokyo Narita Bangkok Frankfurt Amsterdam Zurich Paris CdC London Heathrow Sydney San Francisco Los Angeles New York JFK Vancouver Melbourne Copenhagen Chicago O'Hare Osaka Kansai
1995 1 26 31 24 8 2 4 19 12 9 15 27 32 18 7 3 11 6
1996 1 24 27 28 6 2 4 17 13 9 14 25 36 20 7 3 15 5
1997 1 20 26 25 14 2 4 19 12 9 13 23 29 5 8 3 10 6
Table III. Rankings/ratings of leading airports
Source: Business Traveller Asia Pacific (1997b)
1997. In contrast, the development of a comparable network of aviation hubs/ airports in Asia is much more recent, and it is in Asia that we will see the most changes and developments in the years to come, as it catches up with the West. By virtue of their strategic locations and their current dominant positions, Tokyo, Hong Kong and Singapore are strategic hubs that can further dominate the air travel scene in Asia in the new millennium. Tokyo's Narita Airport suffers from severe congestion as well as traffic overload. Expansion of its airport capacity is therefore a logical consequence. However, although the need for expansion of Narita Airport was well recognised, the Japanese government had been frustrated by the efforts of militant environmental groups blocking all efforts so far in expanding Narita Airport. Finally, a new US$14 billion airport on a man-made island near Osaka had to be built instead. Strategically, from Hong Kong, one can reach half of the world's population within a four-hour flight. However, Kai Tak Airport in Hong Kong is just as congested and overloaded as Narita Airport. Expansion of airport capacity in Hong Kong was a logical and pressing necessity. The US$21 billion project to expand airport capacity that included a new airport and connecting roads to be constructed was, however, hampered by squabbling over costs and bitter wrangling between the Chinese government and Hong Kong's UK overseers. As a result, Hong Kong's new airport, Chek Lap Kok could not be ready in time for the colony's return to the People's Republic of China in 1997. It was completed in mid-1998 instead.
The same strategic case can be made for Singapore, the third strategic aviation hub of Asia. It sits at the aviation crossroads of Asia. Travellers from South Asia and South East Asia use the island-city as a gateway for trips to and from North East Asia, North America or Europe. Travellers from North East Asia funnel through this city-state en-route to and from Australia or New Zealand. Australians and New Zealanders pass through it on their way to and from Europe or North America. Changi Airport is home to SIA. It is the world's best airport, judging by the number of awards it has consistently won year after year. Clean, cool and uncluttered even at its busiest, Singapore's Changi Airport stands in marked contrast to other airports in the region where crowds throng check-in and immigration counters, where lounges are a heaving mass of humanity, and airconditioning has all but given up the ghost. Most of Asia's industrialising economies had placed properties and cars before customer-friendly infrastructure. Now with their weakened currencies, stock markets and economies, some grand improvement plans may have to be deferred. Changi Airport's supremacy looks set to be unchallenged for now and up to the mid-2000s. Only Hong Kong's Chep Lap Kok Airport looks capable of mounting any serious challenge. However, even before Chep Lap Kok Airport was completed and opened, Changi Airport had already announced plans in a next-stage bid to move further ahead. In 1997, the next-stage expansion plans for Changi Airport were announced. Plans for the new Terminal 3 had in fact been brought forward by a couple of years. With this, Changi Airport hopes to maintain and even further increase the lead it has over the other airports. In 1998, for the seventh year running, both Changi Airport and SIA were voted the best airport and airline in the world, respectively, by Business Traveller Asia Pacific, which noted that ``the well-oiled and much-envied travel partnership of SIA and Changi Airport is something the likes of BA and Heathrow, Lufthansa and Frankfurt, Air France and CdG, and KLM and Schiphol would love to emulate but just cannot seem to get it right'' (Business Traveller Asia Pacific, 1998, p. 5). Elsewhere throughout Asia a next wave challenge is, however, being launched. There is no let-up in the growth and development of other Asian airports. New and bigger airports are coming up in cities across the AsiaPacific, even as the region is reeling from its economic crisis. The new airport in Kuala Lumpur was opened recently. Thailand and South Korea, although hit hard by the economic turmoil, are continuing with plans for new airports, while Taiwan, the Philippines and China are enlarging theirs over the next six years. The flurry of activity may seem out of line with the times as the number of travellers across the region has shrunk drastically since July 1997, when the high-flying economies first started faltering. IATA has cut its growth forecasts for Asia, predicting a 4.4 percent average yearly traffic growth for airports in the Asia-Pacific region, down from 7.7 percent previously. Its earlier estimate of some 60 million passengers travelling in the region between 1997 and 2001 has also been slashed by half.
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In 1997, IATA, however, noted that airport expansion plans had been under way for the past ten to 20 years, and should not be seen solely in terms of the current economic crunch. As the situation improves, traffic is expected to pick up again. It noted that ``The basic potential of Asian countries is growing F F F 4.4 percent is a decrease in forecasts but it is still a considerable growth rate'' (Straits Times, 1998i, p. 16). This is one of the reasons why many cities are going ahead with their plans for expansion, despite the predictions of a drop in traffic levels in the near term. Also, many Asian airports are now operating far beyond their capacities, resulting in bottlenecks and congested runways. For example, Beijing handled over 19 million people in 1996, 13 million more than its airport was built to cope with. Hong Kong's Kai Tak and Kuala Lumpur's Sultan Abdul Aziz Shah airports were also running on overload, handling 125 percent of their passenger capacities. The new, large airports in the region will have the capacity to handle over 100 million passengers annually. As they will be able to take more flights, the creation of new airports will stimulate air traffic growth in the region. Aside from sheer size, these new projects also have more luxurious facilities. For instance, Inchon Airport in Seoul will have a gym, an indoor golf course, a seaport and even a ``leisureport'' where fishing, yachting and gambling will be available. The new airports are seen as investments to the region. Bigger airports are necessary, as far as international travel in Asia is concerned. There is no other alternative mode of transport. By the mid-2000s, a comprehensive network of hubs will have developed in Asia and with it a global network of clusters of hubs will be in place in all three major aviation blocs of the world, viz. the USA, Europe and the Asia Pacific. The lead global airlines of the new millennium must have significant presence or access within each of these three blocs, as well as the major thoroughfares between these blocs. The world's airline or air travel networks will therefore develop into global rings connecting the three main regions' clusters of hubs. Future technological solutions and possibilities Singapore has always adopted an `òpen-skies'' policy and has concluded many open-skies agreements with many countries. The open-skies agreement signed with the USA in 1997 in particular offers tremendous growth opportunities for SIA in the longer term. SIA is now free to fly to any city in the USA, where previously it was confined to ten. It can also fly from the USA to third country destinations, like South America (fifth freedom rights). In addition, it can enter the USA from certain major hubs such as London, which were previously barred to it. SIA's expansion into the US market has not been fully realised because of existing bilateral air agreements with intermediate countries where it makes refuelling stops. It has to make a stop in North Asia or Europe for US west coast and east coast destinations, respectively. Hitherto its solution is to press for more liberal bilateral air agreements between Singapore and these
countries. Ultimately, SIA hopes that the growing number of liberal bilateral air agreements worldwide will lead to a global multilateral agreement under the World Trade Organisation. Meanwhile, in SIA's case, the next-stage solution seriously considered is to look for an aircraft that can fly non-stop to the USA, which will open up tremendous opportunities for SIA. In 2002, this will materialise. SIA would be the first airline to offer non-stop trans-Pacific flights between Southeast Asia and the USA, when it receives the new A340-500 planes from Airbus Industrie. The plane's super-long range capability would make it possible for SIA to fly non-stop to cities in North America, shaving off about 35 to 50 minutes of flight time. SIA's flight with the new aircraft is expected to be a 17-hour flight from Singapore to Los Angeles. Currently, SIA flights stop at Tokyo or Taipei before heading for Los Angeles. The flight time ranges from 17 and a quarter hours to nearly 18 hours (17 hours 50 minutes). Another non-stop destination being considered is San Francisco, which passengers can reach in about 16 and a quarter hours. Currently, it takes nearly 17 hours (16 hours 50 minutes to 17 hours 45 minutes with a transit stop in Hong Kong or Seoul). This development is significant for SIA in that it will offer convenient ``seamless'' travelling which is far more important than just time saving for SIA passengers. With this, SIA can now reach all its important destinations in Asia, Europe and North America from Singapore without going through a third country. Beyond the current conventional aircraft technologies, several exciting revolutionary aircraft and spacecraft technologies have shown some promise, and can profoundly change the nature of the airline industry and air travel, in the long term. A US government research laboratory, Lawrence Livermore National Laboratory, announced in September 1998 that is has come up with a new design for a hypersonic aircraft that can travel between any two cities in less than two hours by literally ``skipping'' across the atmosphere (Straits Times, 1998j, p. 4). The new aircraft design, dubbed ``HyperSoar,'' could fly at about 10,720km per hour, or Mach 10, and would experience far less heat build-up on its airframe than previous designs. The key to HyperSoar would be its ``skipping'' motion along the edge of the Earth's atmosphere. After ascending to roughly 43,000m, just outside the atmosphere, the aircraft would turn off its airbreathing engine and coast back to the atmospheric edge. There, it would fire its engine again quickly and ``skip'' back into space. In a news release, Livermore National Laboratory reported that `À commercial flight from the mid-western USA to Japan would require about 25 such skips to complete the one and a half hour journey'' (Straits Times, 1998j, p. 4). At the same time, a race for space as the next frontier for private transport is quietly heating up (The Sunday Times, 1998b, p. 6). The competition is,
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however, not between international superpowers, but between a handful of scrappy start-up US companies. They are vying to build space planes and rockets that would fly so cheaply, that costly government vehicles would look prohibitively expensive in comparison. Even as NASA continues to rely on its huge and complex shuttle system, costing US$400 million to US$600 million per flight, these lean and mean space entrepreneurs are developing small, reusable vehicles that could haul satellites and other cargo into orbit at bargain-basement rates. Far from seeking subsidies, these pioneering companies have openly spurned a government role. With minimal staff and capital scraped together from adventurous investors, they aim for technologies that could ferry a satellite into orbit for US$2,000 per kg or less. The current world average is at least US$14,000 per kg. Which of these concepts will survive to produce profits is uncertain, but the demand for more launchers to send private satellites into orbit has grown so large that reliable and cheap launches seem to have a bright future. The US Congress has just cleared away some of the obstacles by passing the Commercial Space Act. The lawmakers who sponsored it hope that it will boost private US-space launchers, which have already lost business to low cost competitors from France, China, Japan and India. In 1998, NASA's Daniel Goldin told Congress that in the next ten years he expects the government to turn over low Earth orbit operations to private businesses and focus the agency on research. It is unclear if this will lower NASA's spending much below the current US$13 billion per year, especially with the building of the international space station, but it would mean privatising most of space transport, says former congressman Bob Walker who was among the earliest proponents of privatising space operations. Elsewhere in the world, other players are joining in the race. Interfax, citing a Khrunichev Space Centre source, reported in September 1998, that Australia is contemplating building a space-launch site which would use Russian boosters. The Sydney-based Asia-Pacific Space Centre project envisages a new launch platform to be built on Christmas Island in the Pacific. The project, costing between US$600 million and US$900 million, is expected to be completed in 2004 or 2005. Space-based travel, when it materialises, could replace the current longrange relatively time-consuming travel between different regions of the globe. The world's space and air (aerospace) industry may thus see the development of space hubs in combination with regional networks of airports, the former for inter-regional travel, the latter for intra-regional travel. Conclusion On the eve of the new millennium, air travel and the airline industry are undergoing a profound sea change. Within the key regions of the USA, Europe and Asia Pacific, the industry is expecting either imminent shakeout or further consolidation. At the international level, there is the relentless trend towards globalisation of the industry. More and larger strategic alliances/partnerships are
been formed by key airline players wanting global reach and access for an industry too huge for any airline attempting to reach, let alone dominate. This trend towards strategic partnerships/alliances building is also to ensure survival in a globalising industry where size and strategic global networking will become more and more important factors of strategic competitive advantage. At the macro strategic level, therefore, key airline players with global vision and intent must strategise to expand their global international networks, choosing suitable strategic partners and leveraging on the competitive advantage conferred by strategic hubs. At the micro level, they will have to pay particular and constant attention to meeting the needs and demands of the more discerning and demanding traveller. Branding and service will be a key competitive advantage differentiating airlines in the new millennium.
References Asian Business (1996), ``Partnerships up in the air'', August, p. 53. Asian Business (1997a), `Àsia's most admired companies, 1997'', May, p. 24. Asian Business (1997b), ``Going global'', May, p. 22. Airline Business (1998a), ``Delta ties knot at last'', June, p. 8. Airline Business (1998b), `Àmerican to bed US rival'', June, p. 14. Asian Business Review (1996), `Àsia's great companies: why SIA is the world's most profitable airline'', December, p. 34. Business Times (1998), `Àirline industry: the good and bad of air alliances'', 20 January, p. 2. Business Traveller Asia Pacific (1997a),`` Fast-lane flyers'', October, p. 3. Business Traveller Asia Pacific (1997b), ``The cream of the crop'', October, p. 44. Business Traveller Asia Pacific (1998), `Ùp the poll once more'', October, p. 5. Donofrio, S. (1996), ``Consolidation trend'', Travel Weekly, 16 June. Financial Times (1998), `Èurope's skies freer'', 18 June, p. 16. Fortune (1994), `Àir wars over Asia'', 4 April, p. 26. Harvard Business Review (1995), ``Competing on customer service: an interview with BA's Sir Colin Marshall'', November/December, p. 100. Harvard Business School (1989), ``Singapore Airlines (A)'', 9-687-022, Rev. 3/89. Harvard Business School (1993), ``Changing the culture at BA'', 9-491-009, September 13. Southeast Asia Business World (1997), `Ùnited Airlines Launches New Customer Plan'', Business World Publishing Corporation (Philippines), 9 October, p. 22. Straits Times (1997a), ``Singapore and SIA must adapt to meet competition'', 12 July, p. 56. Straits Times (1997b), ``Changi Airport, SIA voted tops by travel magazine'', 10 September, p. 33. Straits Times (1998a), ``SIA named top airline for seventh year in a row'', 2 October, p. 35. Straits Times (1998b), ``BA to drop ethnic art tail designs'', 13 July, p. 52. Straits Times (1998c), `Èase up, BA tells àloof' stewardesses'', 7 July, p. 6. Straits Times (1998d), ``Cathay to ride out turbulence'', 13 July, p. 42. Straits Times (1998e), ``SIA to put new spin on airline cuisine'', 18 July, p. 3. Straits Times (1998f), ``No detail too small for SIA in revamp'', 12 September, p. 37. Straits Times (1998g), `ÙpF F F up F F F and away '', 5 October, p. 12.
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Straits Times (1998h), `Àirline tie-up: more flights for SIA, Lufthansa'', 3 July, p. 8. Straits Times (1998i), ``No let-up in growth of Asian airports'', 4 July, p. 16. Straits Times (1998j), ``From LA to Tokyo in two hours'', 12 September, p. 4. The Sunday Times (1997a), `Èven No. 1 must do better to stay ahead of the competition'', 24 August, p. 3. The Sunday Times (1997b), ``Non-Asian SIA girls? '', 24 August, p. 3. The Sunday Times (1997c), ``Tailor-made in-flight service to usher in new era: an interview with SIA Chairman S. Dhanabalan'', 19 October, p. 32. The Sunday Times (1998a), ``Catering to the new elite'', 19 April, p. 40. The Sunday Times (1998b), ``Space: next frontier for private transport'' , 1 November, p. 6. William Reed Ltd (1998), ``Management: the importance of service'', 10 January, p. 6.

Beyond Singapore Girl: Grand and Product/service Differentiation Strategies in The New Millennium

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Grand and product/service differentiation strategies in the new millennium

Beyond Singapore Girl

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AA 856 237 49 41 million 100,500

BA 330 255 102 41 million 60,675

Cathay Pacific 62 47 25 10 million 14,800

Qantas 145 108 32 19 million 28,900

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Air Canada 232 118 25

Lufthansa 314 300 89

SAS 164 104 34

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Table III. Rankings/ratings of leading airports

Source: Business Traveller Asia Pacific (1997b)

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