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    Case 5 Singapore Airlines-Compressed PDF

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    Tricia Marie Tumanda

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    © All Rights Reserved
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    of 12
    — Gvactunale Singapore Airlines: Aligning Strategy and Organization Loizos Heracleous, Warwick Business School Jochen Wirtz, al University of Singapore Even though the airline industry has enjoyed. rea sonable growth, it has also been plagued by overcape: ;,commoditizationsof offerings, cutthroat rivalry. ‘exacerbated by the entry of low-cost catriers and price wats, and intermitfénl pEtiéds of disastrous tinder performance) Rising end uncertain oil prices have not helped, and neither have the SARS crisis, bird ly, the Asian tsunami, and rising terrorism concerns. In 2006, the global airlines industry generated « net (oss of US$500 million, or 0.1 percent of revenues, accumulating net losses of USS42 billion between 2001 and 2006? In 2007, the sirline industry made a modest net profit of USS5.6 billion on revenues of 1188490 billion, equivalent to « mergin of less than 2 percent? The outlook for 2008 onwards remains bleak. Not surprisingly, the industry is regularly rated as one of the worst-performing industries in the Fornune Global 500 rankings. In this tough industry environment, Singapore Ajclines has consistently outperformed its competi- tors throughout its more than 35-year-long history nce its reincarnation from Malaysie~Singapore Al lines into Singapore Airlines (SIA) in 1972, SIA is th most awarded airline in the world, a recognized in: novation and service leader, and the only airline to be listed in Portunds global $0 most admired comps nies‘ it regularly outperforms competitors in terms of financial performance, and has never shown an anual los since its inception as an independent alr line Exhibits 1 and 2 show SIA%s performance for the od 2003-2008" (see also Appendixes A and B susther nancial and operating information), Since strategy professor Michael Porter's influen. 1 suggestion that differentiation and cost leader Tere Lc and papa 008, i ih ope af Pe ess eadegatneananae Mr FEDI-DE BOETE 2006-06 200 a7 Toure ship are mutually exclusive steategies and thet ar organizetion must ultimately choose where its co petitive advantage will te, stick to that choice, anc make the right investments to implement and sup here hes been fierce debate about whethe: (Gose 5» Singapore Airines: Aigning Strategy and Organization a combined cost-leadership/differentiation strategy can be achieved and sustained over the longer term. For “full service” airlines, as well as service orgeni- aations generally, delivering excellent service comes at a premium cost to the company. Singapore Ai- lines, on the other hand, has managed to deliver premium service to some of the most demanding airline customers, who have sky-high expectations, with @ surprisingly efficient level of costs. A typical ‘metric of airline costs is cents per available seat ki- lometer,(ASK),” against which flag carriers tend to have costs of 9-14 US? centé, and budget carriers 45-7.5 USi cents? Singapore Airlines’ costs per ASK were 5.8 US. cents in 2007-2008 and 5.5 U.S# cents in 2006-2007. In common with mary other organizations with 4 reputation for providing excellent service, SIA dis- plays characteristics such as top-management com- mitment to excellence, customer-focused staff and systems, and a customer-oriented culture. Accord- ing to Dr. Cheong Choong Kong, former CEO, for example, "Our passengers... are our raison détre. If SIA is successful it is largely because we have never, allowed ourselves to forget that important fact” The current SIA Chairman, in his letter to shareholders notes: “I can assure you that our customers all over the world will see and experience a suite of products and services which will continue our leadership role at the premium end of the airline industry” © Most companies make similar claims. What distinguishes SIA from them is that the values of cost-effective service excellence do not cemain in the abstract; they are enshrined in @ unique, self-reinforcing system of organizational processes and activities thet makes the values real for all employees, who in turn enact them in their customer in‘eractions and in their daily ‘work, This same system also delivers efficiency of an ‘order that SIAS competitors find very hard, if not impossible, to match, SIAS organizational activity system is based on five pillars thet support and operationalize the core competency of cost-effective service excellence. Tnose pillars are rigorous servi and development; total innovation (integrating continuous incremen- tal improvements with discontinuous innovations); roft- and cost-consciousness, which is ingrained in all employees; holistic staff development; and the reaping of strategic synergies through related diver- sificetion and world-class infrastructure, Exhibit 3 portrays these pillars. RIGOROUS SERVICE DESIGN AND DEVELOPMENT ‘Twenty-five years ago, marketing professor Lyn Shostack complained that service design and deve- lopment was usually characterized by trial and erro" Unlike manufacturing organizetions where R&D departments and product engineers would routinely be found, systematic development and testing of services, or service engineering, was not the norm. Things appear to have changed little since then. For SIA however, product design and development has always been a serious, structured issue. SIA has « Service Development department that hhones and thoroughly tests any change before it is introduced. This department undertakes research, trials, time and motion studies, mock-ups, customer reaction assessments—in fact whatever Is necessary to ensure that service innovation is supported by the right procedures. Underpinning the continuous in- novation and development is « corporate culture that accepts change a8 not just inevitable, but as a way of life. trial that fails or an implemented innovation that is removed after a few months is deemed accept: able!Tn some organizations, personal reputations can. be at stake, so pilot tests “have to work” At SIA, a failed pilot test damages no one's reputation In some organizations, service, and indeed pro- duct, innovations live beyond their useful years be- cause of political pressure or lack of investment of resources for continuous innovation and renewal. At SSIA itis expected that any innovation will acobably have a short shelf-life. One recent example is the discontinuation of FAST (Fully Automated Seam- less Travel), @ check-in process involving biometric schnol ne plar ninutes ind the while it pated a ighly « sla ‘9 drop compet Liferer eens ssor Ly rd deve, wWerort are RG soutinel esting he nor then, Fae vent sent th vefore it fi research, - castor recess sted by the inwous sltare shat asa waylof red accept tations ean Vat STA, a on ndeed pro- tl years be- vestment of renewal At il probably ple is the ated Sef g biometric Se ia aaah ticadtel mie = § * technology, where customers could get their seat on the plane and clear iramigration within one to three minutes, This process was jointly developed by SIA and the Civil Aviation Authority of Singapore, and while it worked wel, usage was lower than antici- pated as the regular channels atthe, airport are also highly efficient. ‘SlA recognizes that to sustain its differentiation, it ‘must maintain continuous improvement, and be able to drop programs or services that no longer provide competitive differentiation: According to SiAS senior management, 4 differentiate ourselves because every aitline is doing’ 4ghe same thing ... the crucial fact is that we continue to say that we want to improve. That we have the will to do so, And that every time we reach & goal, we ways say that we got to find a new mountain or hill to climb ... you must be able to give up what you love"# “These comments on the need to continually in- novate raise the issue of sustainability of compettive advantage. SIAS sustained superior performance rela- tive to fts peers shows that it has achieved this, but what is it thet mekes it so difficult to imitate SIA? Ai? ‘discussed belowyit:iseasiertoimitate fragments of ‘business system rather thanvthe'wholessystem if such a system is internally consistent and self-reinforcing, hold :ogether by robust, customer-focused processes and the glue of cultural values, it becomes almost ‘impossible to imitate “The stakes are raised for SIA, not only by its competitors but also by its customers. A company with a sky-high reputation attracts customers with sky-high expectations. SIA% research team has found that SIA attracts a disproportionetely large number of very demanding customers who expect the best “Customers adjust-their: expectations according. to the brand image! When you fy on a good brand, like SIA, your expectations are already sky-high. And if SIA gives anything that is just OK, it s just not good enough” ‘Combined with its &tisive customer feedback mechanisms SIA treats its customers’ high expect- ations as a fundamental resource for innovation ‘ideas. Weak signals are amplified. Written comments, and even verbal comments to the flight créw, are taken seriously and seported back to the relevant sections of the airline. According to Ms. Lim Suet Kwee, Senior Rank Trainer, ‘all feedback thet is boeing given by customers, it isall taken very seriously ‘more and more difficult to * aso 5» Singapore Anes: Aligning Swategy and Organization because we have to look into why there was such a particular feedback and also are there ways where ‘we can improve on that?” An additional source of intelligence is S1AS “spy fights? in which individuals, travel with competitors and report back giving detailed intelligence on competitive offerings Lastly, SIA recognizes that its competition does not just come from within the industry, As ¢ rule SIA sets its sights high, and insteed of aiming to be the best airline, its intention is to be the best service grganization, To achieve thet, SIA employs broad “Betichiarkcingymot just against its main competitors, ‘but against the best-in-class service companies: Ris important to realise that our customers) are not just comparing SIA with other airlines. They are comaparing us against many industries, and on many factors. So when they pick up a phone and call up our reservations, for examiple, they are actually making a mental comparison, maybe subconsciously, 10 the last best experience they hhad. It could be a hotel: it could be to a car rental com pany. If they had a very good experience with the hotel or car rental company and ifthe next call they make is to SIA, they will subconsciously make the comparison and say “How come youre net es good as thern?” They do not say "You have the best telephone service system: out of all the other airines I've called” Being excellent our customers, albeit subconsciously, will benchmark us against the best in almost everything. ‘The rew ball _game for SIA is not just to be the best ofthe best in the airline industry but to work at being the hest service conipany?* TOTAL INNOVATION: INTEGRATING INCREMENTAL DEVELOPMENT WITH UNANTICIPATED, DISCONTINUOUS INNOVATIONS ‘An airline has a multitude of subsystems such as re servations, catering, maintenance, in-flight services, and entertainment systems, SIA does not aim to be «lot better but just a bit better in every one of ther than its competitors. This not only means constant innovation but algo total innovation—innovation in everything, all of the time, Importantly, tis also supports the notion of cost effectiveness. Gontinu- ousaincremental: development comes at a low cost but delivers thet necessary margin of value to the customer: It is|the totality that counts. This alo means that it does not heed to be too expensive If you want to provide the bestlfood you might decide to serve lobster on short haul ‘fights between Singapore and Bangkok for example, however you might go bankrupt. The point is that, on that route, we just have to be better than our competitors in everything we do. Just a litle bit better in everything This|allows us to make a small profit from the flight to ‘enable us to innovate without pricing ourselves out of the ‘market. We-want to provide excellent and all-round value forstoney| This makes it muca harder for our competitors. ‘Therefore, in SIA, its about coming up with new things all the time. We want to be a litle bit better all the time in everything we do. Recently, SIA built a USS1 million simulator thet mingics the ture and humidity experienced in flight, so that food could be tasted under these conditions, which affect teste buds. One decision was to réduce the spices in its food. It also added Berlitz chatinels to its KrisFlyer entertainment system, so passengers can learn some of the local language of their destination Whilst cost-effective, ineremental improvements are an important basis for its competitive advantage, SIA also implements frequent major initiatives thet are firsts in its industry, beth on the ground and in the fir. One exemple is its “Outstanding Service on the Ground” program. This initiative was led by the ‘managing director, and invelved working with the many other parts of the organization with an impact on customer service, both before and efter the Aight, to ensure a seamless and efficient service. SIAS latest service excellence initiative, called “Transforming Customer Service” (TCS), involves staff in five key opeiational areas: cabin crew, engineering, ground services, flight operations, and sales support. The development program is ebout building team spirit amongst staffin the key operational areas, and is aimed at ensuring that the whole journey, from the purchase of the ticket onwards, is as pleasant and seamless as Possible for customers, both internal and external “The most recent initiative is called “Soan” for “service above all the rest” in witch all staf attend a one-day service-oriented training and conversation session with senior managers, Exhibits 4 and 5 are examples of internal posters that SIA uses to communicate such Initiptives to staff and gain commitment from them. IA employs « total innovation approach, es en ated in its “40-30-30 rule” aiming for @ holis- cops Te Exhibit @® SIAnteral Poster Sintra Poster tic approach to secvice improvement. SIA focuses 40 percentofits resources on training endinvigorating its people, 30 percent on the review of processes and procedures, and 30 percent on creating new product and service ideas. Tetdlitnovtion is: about cost- effective sorviceexcellence basedion the totality. rather than just one a8peeOF the customer experience In addition to continuous incremental innova- tions, SIMs reputation as a service innovator is also based on unanticipated, discontinuous service in ovations. SIA strives to gain a deep understanding, of trends in customers’ lifestyles, and debates their implications for the future of berter service in the ait. According to the Senior Vice President (Product and Service Most new. changes that really secure the ii effect are thosethingethar-customersneverespested')...we have our : "PRK INA St Aden: seme | ting and duct cost- ther ove- also ding heir and Product Innovation Department that continuously looks at trends and why people behave in a certain manne’, why they do certain things, And then we do a projection af thre to five years of what is going to happen... for the airing its not just about having a smother fight from A to 8. That will be taken for granted. It is relly about what are the customers’ lifestyle needs. Can you meet these ifestyle needs? Examples of innovations that have helped set STA apart from its competitors over the years include the KrisPlyer on-demand entertainment system for all classes of travel, Internet and phone check-in for all classes, and the full-size “space-bed” and onboard e-mail and Internet services for business- and first- class It was the first aitine to fly the A~380 jet, after development of the in-flight offerings in that aircraft that perpetuate its diferentiated position as a leader in its indastry. SIA bas made a clear strategic choice of being 2 leader and a follower at the same time. Bits pia? neered innovations thet have-¢;highimpact:on eus- tomer service (for example; in-fight entertainment? the widest bed in Business’clais, the World’ longest’ nonstop light-~irom Singapore to ios Angeles suites om the-A-380)! However :tssials6 4 fast follower it! areas that ate less-visible fromthe customers pot jof view: n doing so, SIA relies on proven technology shat cen be implemented swiftly and cost-effectively. ‘Forexample, SIAb reventie management’and CRM systems used technology: withswhichnits:providerst imple i out ‘smooth and cést-elféctive implemientati@h, tather than going for the latest technology available in-the market which would-not nly be much more expensive, but also-carry-a. higher implementations) ‘ko Rather than trying tobe a leader in every SIA strives to be a leader where it counts from customer’ perspective, while lso'using’tried-an: tested technology. “PROFIT-CONSCIOUSNESS” INGRAINED IN ALL EMPLOYEES Although SIA is totally focused on the customer and on continually improving service, managers and staff are well aware of the need for profit and cost- effectiveness, All staff, from top to bottom are able to Case S + Singapore Aitlines: Aigning Strategy and Orgarizaton eal well with the potentielly conflicting objectives of excellence and profit. Ths is firstly created by a cost: sand-profit consciousness, “Its drilled into us from the day we start working for SIA that if we don't make money, well be closed down. Singapore doesn't need 4 national airline. Second, the company has made a very important visionary statement that ‘We don't ‘ip ta Bethe laegest company. Welwant to be the ‘most profitable! That’s very powerful” Any proposed innovation is analyzed very care- fully in terms of the balance of expected customer benefits versus costs. Station managers and front- line staff constantly trade off passenger satisfaction against cost effectiveness—the customer has to be lighted, but in a'cost-effective manner. During the development of the A-380, there was careful con: sideration of how the cabin configuration would affect profitability. According to Mx. Sim Kim Chui vice president of product development who led the A-380 project, the ideas arising fom focus groups with frequent fiyers were prioritized and the top cones chosen for inclusion, but their implementation ‘was carried out with profitability in mind: “So its important to look at all these ideas, and we short listed the better ones... Thats important. The next thing is, of course, at the end of the day the aircraft must make money. I was reminded time and again that this aircraft is not to win awards per se... Dot’! go win the best design award and at the end of the day we don't make any money PrOfitabiity: des: not. just .come. by. controlling costssbut also: by: the ability to. charge. premium prieéiithe-true.testof differentiation. With regard to the A-380° project, even though, according to the manufacturer, the aeroplane could carry 535 passengers, the final seat count on SIAs A-380s is 471 passengers, According to Mr. Sim, “you see, the safe approach is to cram it with as many seats as possible and then you know the risks are lower, but | think it important for the positioning of Singapore Airlines that we are the premier carrier, we are not selling a commodity here. So this aircraft must be different from everybody, must offer the best, t the customer expectations, and then of course we will chacge a premium” Further, even in everyday operations, staff are mindfal of the need to reduce wastage, without com promising customer service. For example, according to Mr. Patrick Seow, Senior Rank Trainer fe fry to. minimize the nurnber of bole of wine we eed to open, by gauging the pasengers' damand jor i Torts for morte occ was fh end fh day ou eth it vay. hat se 1 do ou attempt to save costs. Through feedback that ‘yas collected from the passengers in survey forms, we find that because of he late departure ofthe fight we have 30 percent of passengers who choose not to eat and we feel that maybe-we don't need to keep 100 percent meals for very passenger According to Mr. Sim Kim Chui, itis important {o prioritize customer needs and spend oily on the’ fop-onesjand to reduce wastage without affecting ustomer service: Wits. asc ae alee ed taangr needs? If 1 have 100 dollars to spend I must spend on ‘phat is important 10 the customer. No point giving me 4 shopping ist and I ery to do too many things. So you ind SIA detberately would not spend on certain things fet acepe haere ace priority; bur ifthe custorser put as very high privity it {s where well put the money... The second isto really feduce wastage. Wastage sn the sense that what I rake way will not affect the customers in any way. So in STA prudent wastage reduction is what we do day in day out nd you'll be suprised how muck we can reduce wastage Fey en e feig oarce ny way Finally, end like many service organizations, SIA a reward system that pays bonuses according to 3€ profitability of the companygHowevenin'SIA the g same percentage is paid to everyonesand the samer mula is used throughout the company. As a result, ere is @ lot of informel peer pressure from individ is within the orgenization, and staff and.menagers appear to-be-quite willing to challenge. many cleci sions and actions if they see resources being wasttdy or money being spent inappropriately.? SIA builds team spirit within its 6,600 crew mem- bers through its “team concept” in which small teams lof 13 crew members ae formed and then fly together Jas far as possible for at least two years, This leads to the development of team spirit and social bonds |within the team that reinforces the culture of cost- cfective service excellence and the peer pressure (0 [deliver SIAS promise to customers. ACHIEVING STRATEGIC SYNERGIES THROUGH RELATED DIVERSIFICATION AND WORLD-CLASS INFRASTRUCTURE SIA utilizes related diversification to reap cost syner- gies and at the seme time control quality and enable transfer of learning, Subsidiaries serve not only as the development ground for well-rounded manage- ‘eat skills and e corporate rather than a divisional ‘outlook through job rotation, but also as sources of learning, In addition,,telated operations (such as catering, ‘irerafe niaintenance, and airport management) have healthier profit-margins than the airline business itself because competitive intensityigloveesyand-in- dustry structure is more favorable! SIA Engineering ‘Company, for example, ensures that SIA does not have to pay expensive aircraft maintenance fees to other srlines; it rather sels such services to other airlines st heelthy mergins. SLAs fleet one of the youngest in ‘the-world, enables lower maintenance costs, higher fuel efciency, and higher fight quality. SIA’ in-fight catering center both produces SIAS ovn in-flight cuisine—ensuring high quality, eliabi- lity, and responsiveness to customer feedback—but atthe same time caters for other airlines ata healthy margin. SIASSiagapore:Airport Terminal Services (services at Changi Airport, which is regularly voted as the best airport in the world, This excellent airport management and infrastructure entices passengers who are traveling on to Australia, New Zealand, or other countries in the region to-pass through Changi Airport and to choose SIA as their carrier. Changi Airport is also one of the most cost-efficlent major airports—for example, landing charges for a Boeing 747 are USS2,000, as ‘opposed to USS3,500 in Hong Kong and US87,500 at Narita.” SIA subsidiaries operate under the same man- agement philosophy and culture that emphasizes cost-effective service excellence. Even though they ate part of the group, they are quoted separately on the Singapore Stock Exchange and are subject to market discipline with very clear P&L expectations In SIA, therefore, the conventional wisdom of out- sourcing (outsource “peripheral” activities and focus ‘onwhat you do best) docs not readily apply, External suppliers would not be able to offer the value that SlAS own subsidiaries can offer to SIA. This kind of related diversification by SIA leads to strategic ne Mamet a sable ly as rage- ional 23 of ring, have din ering have other lines igher Sas siabi- —but salthy cvices hang’ irport wand gon in the hoose one of umple, 00, as 37,500 man- vasizes 1 they ely on ect to ations. sf out- focus eral ve that s kind rategic oli ra se Exhibit 6 Sits Operating Costs 2006-2008 (5 millon) Fuel cost, ansas 365% 588K 376% ITS 45 seat coms saa.y 168 16855 166 +1556 492 Depreciation 11855105, iver 98 +1500 4158 Handling charges mo 68 726 73 sia 424 Sales cons? ser 50 0s 60 wn 452 e139 ore 58 121 420 Airrate maintenance ane overhaul costs sas 49 a9 az sions 4242 Airport and ovettving charges 536148 sia 50 207 40 Rentals en leased alreratt soz 27 3s 30 36 3 Communication and information téehnology cost was. 09 sort 55 50 ther const sz 48 39583 wna 332 ‘otat tutes 1000 sostes 1000 way s97 ty nmr an a fee ‘Nase le epee ex ‘eae nga! wap lantand vba anaratn of mange alin ot aga gerry evn upas eec Sc eu areniaore cna inl ompae essen. nee setae er stomata cc ent ales es rs un etn canprnh nian ness sp nee ae Tete ecg ction pcos ened omirtnntcnincavi os eons moe Sar Sespr is mo apr 207-28 synergy benefits in terms of relicbility of key inputs, high quelity, transfer of learning, and at the same time cost effectiveness. SIAS operating costs are shown in Exhibit 6." DEVELOPING STAFF HOLISTICALLY”? According to Lim Suet Kwee, senior rank trainer and 4 senior fight stewardess at SIA, In Singavore, we always want to be the best in a lot of things, STA is no different... lot of things that we have been taught from young, from our Asian heritage. filial piely, the care and concern, hospitality. and of course the ‘ost important partis trying to do whatever we can to please the customer. And how do we do it? Sometimes, ‘peopl just wonder ‘how do you guys manage to dit with limited time and resources on a flit" and yet we manage 10 do it somehow. Call us'magicians In addition to Asian values, this attitude Is ald- ad by continuous training and development, Senior managers say that “training in SIA is almost next to Godliness?) Everyone, no matter how senior, has 2 training and development plan with clear goals. New cabin crew undergoes training for four months, longer than any other airline. This includes not only functional skilis, but also soft skills of per sonal interaction, personal poise, and the emotional stolls needed to deal with the consequences of serving very demanding passengers, According 10 Mr. Patrick Seow, senior rank trainer et the SIA ‘Training School, 4 large partion of eabin crew training is actual tered on soft skills, So you are carrect in saying that SIA cabin crew look a certain way, act a certain way, and hhave certain manners. We actually pay attention to how they should treat the passengers, how they should posi ton themselves when they come into contact with the customers. For instance, you will ee that in the aireraft environment, cabin crew always go down to the eye level of the customers [sas training of the “Singepore Gir!” is likened toh “finishing school": “The girls aze transformed frokn coming in, and by the time they come out, they look totally different. Their Geportment, the way they carry themselves .. . There’ a great transformation there” ® “In addition to such training StA also encourages and supports aczivities that might on the surface be seen as having nothing to do with service in the air Grew employees have formed groups such as the “Performing Aris Circle” staging full-length plays and musicals, the “Wine Appreciation Group” and the| “Gourmet Circle” These activities help to deve- lop camaraderie and team spirit, as well as personal lengwledge ofthe finer things in life, which feeds into the personalized and exceptional service that the crew evelopment is.cemtinuous. The increasing so- ication and higher expectations of customers are ted in the type of training that the Singapore receives: “While our Singapore Girl is our icon, were very proud of her and her achievements, ‘welcontinue to improve her skills; we continue to improve her sbility to understand appreciation of Jes and cheeses for example, or our Asian heritage the enhancement must be continuous” ‘abin crew can select refresher courses, and on age attend three to four days of such courses ¢ . Popular courses include “transactional analysis” (a founseling-type course), leedership courses, and Eufopean languages. The company is moving from a system of directing which courses cabin crew should attdnd to one of self-directed learning” in which staff responsibility for their own development. [Even before development starts, there is substan- tial effort to ensure that the company hires the right staff. For example, entry qualifications for cabin crew jlicants cover both their academic qualifications (atleast a polytechnic diploma is required, meaning that they have spent 13 years in school), as well «s phjsical attributes, The recruitment process is exten sive, involving three rounds of interviews, @ “uni test” a “water confidence” test, psychometric to 600 new cabin crew to cover sttition sates yund 10 percent, This includes both voluntary and directed attritions. Tf, for example, a Singapore Gif] becomes pregnant, she has to leave the airline, esses tteapply to join the airline, After the Singapore Girls start flying, they are carefully monitored for the first six months and are subject to 2 monthly report by the in-flight supervisor, At the end of the probationary period, 75 percent are confirmed, around 20 percent have their probation extended, and 5 percent leave, SINGAPORE AIRLINES’ STRATEGY «Singapore Airlines is positioned! asa premium carrier ‘with high levels of innovatio#and excellent levels of sétvice!Ithas made a sttategiehoice to give priority to profitability over sizg, The internal organizational practices outlined above, such as continiious people evelopment and rigorous service design, are key agpects of operationalizing and'sustaining this posi- toning and steategic-choice. ‘At the gorporate'levél, SLA follows a strategy of related diversification. The Singapore Airlines Group has 27 subsidiaries! spanning all fields related to the operation of an airline, inciuding Singapore Air- port Terminal Services, SIA Engineering Company Limited, and Singapore Airlines Cargo Pte. Lxd. Is aitiine sobsidiaries include 100-percent ownership of regional carrier Silk Air and it owns 49 percent of both budget cettiers, iger Airways and Virgin ‘Atlantic, covering the key customer segments within the Industry. According to CEO Chew Choon Seng: “We intend’ to-play-in all the segments-iSIA at the hhigh end, Silk Air on middle ground, end Tiger ‘Airways at the low end?" As part of ifsiigternational strategy, in April 2000, SIA joined Star Alliance, one of the three major air line alliances (the other two being OneWorld and SkyTeam). In the meantime, various divisions of the SIA Group have been quietly investing in China through istrategic alliances with local organizations (cargo division, alzport and engineering services) East Asia is the predominant source of revenue for SIA in terms of where tickets are'sold. Use of ffsrntetion technology is an essential feature of SIAs strategy. SIAS website is one of the most advanced and user-friendly in the industry, ‘enabling customers to check schedules, buy ticke' ‘check in, manage theit KrieFlyer accounts, find about promotions, and even select their meals for their next flight, Given that agents’ commissions can be up to 7.5 percent of total operating costs both levels ofbu non-t ee well to CE visio doin; yur! Com not F tuatin amp ticuk aizer 1k, ing 1 work on f SIA! Baro this the This serv isne ere Othe grow inte base ctisi voly of § agapore red for ronthly end of firmed, cartier evels of priority ational | people, are key) is posi ategy off $Group| Jated to} ore Air-| ‘ompany| Lid. Is) ‘mership| percent £ Viegin| s withi ene] ‘Aat the 1d Tiger sil 2000, iajor air, ond and in Chin nizations services), enue for essential xe of the industry, y tickets, ‘ind out reals for missions ing. costs Spanier {and reservations/ticketing a further 54 percent) effective use of information technology (IT) cen’ ‘Both significantly, reduce, costs-and-enhance service levels One of CEO Chew Choon Seng’s first orders ‘of business when he took over in mid-2003 was fo cut non#fuel-costs by 20 percent within three years, and outsourcing IT functions to IBM was an important part of that focus, SIA continues to focus on the customer experi ‘ence though service excellence and innovation, as ‘well as continuously striving for efficiency. According to CEO Chew Choo Seng, “The day we stop having visions or objectives to works t6, then thet is the day ‘we atrophy. I can assure you we have no intention of doing that"™ TURBULENCE ON THE HORIZON? Competitive conditions in the airline industry have rot been getting any easier. Apart from wildly fue tuating fuel“psicés and security concerts, for ex- ample, another wildcard for many airlines (and par~ ticuleriy Singapore Airlines) is the risk-of long-ratige aircraft bypassing their hubs: The Boeing 777-200 LR, launched in 2005, for example, is capable of fly- ing 17,500 kilometers—almost half way around the world. These planes can bypass hubs like Singapore ‘on flights from Europe to Australia, for example, SIA has been seeking rights to fly from Australia to Europe and the United States as a way of mitigating this tis Competitors are hot on SIAs heels, trying'To clovt the-gap in both service excellence and eficiticy. ‘This is not always. easy to-do—Malaysian -Aiclines} secvice.qualty.is high, for example, but its efficiency is nowhere near that Gf SIMs available tonne-kms per employee is 385,000, around one-third of SIAS).* Other competitors have embarked on aggressive growth while also competing on service quality. For example, Emirates has placed an order for 43 A-380 aircraft, and prices its tickets significantly lower than its main competitors. ‘The need to reduce’employee numbers at SIA gnd introduce a veriable component to. wage packages - ‘based on company profitability after the 2003 SARS” ctisis has been stressful for its industrial relations , climate. Minister Mentor Lee Kuan Yew became in- volved to resolve these issues, given the importance cof Singapore Airlines and the aviation sector to Cese 5» Shganote Atines ligring Strategy and Organization ‘Singapore's economic prosperity. SIA has also taken steps to improve the industrial relations issues. In addition, the significant delays in the delivery of the ‘A-380 increased SIA’ launch costs and have delayed «its capacity expansion plans, Lastly, che availability oF higher-paying jobs elsewhere has tempted SIA employees;'many of whom decided to take up new challenges. In 2006, the Singepore media expressed concerns regerding perceived service lapses at SIA In the SKYTRAX World Airline Awards “Airline of the Year” rankings in 2006, SLA took seventh place, down from fourth in 2005, while SIAS cabin stall were ranked fifth, down from fourth in 2005. In the 2007 rankings, however, SIA made a comeback by topping the “Airline of the Yeer” renking, and its cabin staff took second place Meanwhile, zeritcs Yend competitors complain that much of SIMS success is due to environmental factorsiand the role that the Singapore government Sit eiobabecid eaciesiownretcaliee: Aratyste note that one benefit of Temasek’s 54.5 percent stake in SIA is perceived lower debt risk by lenders and therefore dower ‘cost of borrowing (even though SIA does not need to borrow significantly, having debt to equity ratio of just 0.11 times) * The

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