Singapore Airlines used to be, in the immortal words of the soft-focus Batey-conceived campaigns, a great way to fly. However, the outbreak of Sars and the war in Iraq last year caused the airline to post its first ever quarterly loss. SIA lost S$312 million (US$184 million) in the three months to June 2003, compared to a profit of $478 million in the same period last year.
The airline responded by cutting wages and retrenching over 600 pilots, cabin staff and ground crew in an effort to cut costs. Some of those axed lost their jobs just months before getting a gratuity for completing their contract. As an icon of corporate Singapore, handling of the job cuts dominated the headlines for weeks.
The end of the Sars outbreak, together with the cost-cutting, brought a change in SIA's fortunes. The subsequent quarter, it reported a net profit of $305.8 million, up 3.6 per cent over the year before. Nevertheless, SIA ended last year as the sixth-worst performing stock in Singapore.
The quick change in fortunes caused rumblings that the airline had cut too much, too soon after the downturn. The Singapore Government stepped in and firmly took the side of the carrier's management. Senior minister Lee Kuan Yew and Lee Hsien Loong, his son and prime minister apparent, publicly warned the pilots not to go up against the Government. Many felt the Government was attempting to threaten and bully the pilots; once again, the public image of SIA took a battering.
This year, the carrier will need to manage its relationship with its pilots, while fending off unprecedented challenges to its revenue base.
No-frills airlines such as the maverick AirAsia and ValuAir, a new airline, will eat away at profits, especially at the expense of SIA's regional subsidiary SilkAir. In response, SIA has announced that it will set up its own budget airline, Tiger Airways, that will battle for share of the tourist class wallet.
SIA will have to repair its image, and fend off the challenge of low-cost carriers, for the smile to return to the face of the Singapore Girl.
VITAL SIGNS
Six months ended Six months ended
Sept 30, 2003 Sept 30, 2002
Turnover S$4,171,500,000 S$5,228,900,000
Net profit S$6,500,000 S$773,500,000
SOURCE: SIA
DIAGNOSIS
ROSALYNN TAY, Regional account director, Leo Burnett, Singapore
From the beginning, SIA has remained focused on its vision: 'a great way to fly'. It thought big and remained big, a very admirable strategy and one that has led to the achievement of global brand status. Such relentless pursuit of vision and goal has also however meant attracting close scrutiny and commentary when other aspects of the company do not meet the public's expected standards.
In the case of the airline's pilot dispute, while taking a tough stand may have been seen as somewhat autocratic (although not pleasant, SIA chose to nip the dispute in the bud quickly - enabling it to get back to business as usual, unlike Cathay Pacific in Hong Kong), the economic situation and difficulties resulting from Sars and the war in Iraq, meant most stakeholders were actually sympathetic to the airline's situation.
Ultimately, the lesson is that there is never a single best way to deal with a problem, just one that minimises any negative impact.
SIA is an effective, no-nonsense and successful company. Drawbacks of an economic, competitive and personnel nature are part of any company's journey. Growth and maturity come with time and experience, and one can only believe that remaining true to its vision, coupled with leveraging the company's history, will lead to better decision-making in the future.
ROBIN NAYAK, Deputy managing director, TBWA Singapore
I still both like and admire Singapore Airlines. Though it's become de rigueur to prophesise its doom, talk of its imminent demise is wide of the mark.
The airline industry faces two major upheavals, which are assailing it from the top and the bottom. On the macro level, the business is under assault from global terror and uncertain economic conditions. On the micro, we're told consumers are lapping up cheap budget fares on new, no-frills carriers. So, that's it then. Thank you. Good night. Sayonara.
Well no, because Singapore Airlines has something in abundance that most carriers can barely spell - a magnificent and powerful brand. The nay-sayers would have us believe that a luxury brand no longer holds currency in a business where 'cheaper' is the only religion, but what's really happening in the airline industry is not a complete overhaul of its operating model, but merely segmentation emerging in a business that has historically been shielded from any open competition.
In an increasingly global business, the Singapore Airlines brand stands ready to become the BMW or Mercedes of the air. And few can deny the success of these luxury marques despite the proliferation of cheap cars.
TREATMENT
Tay's prescription
- As air travel becomes a way of life in Asia as it is in the US, the mushrooming of budget air carriers is an inevitable part of the industry's life cycle. SIA needs to review its consumer segments and map out its opportunities, determining if the rise in budget travel trends merits harsh tactics.
- Leveraging Tiger Airways and SilkAir, to optimise routes and pricing strategy will enable market share retention and growth.
- The big challenge that lies ahead for SIA is to demonstrate that it truly is an independent company, capable of making corporate decisions that do not smack of state influence. Apron strings are hard to untie, but you have to if you're to play with the big boys.
Nayak's remedy
- The business needs to segment itself to define which consumer clusters it wants to serve and then create and define a family of different brands to serve those disparate needs.
- Singapore Airlines' brands must be kept distinct and apart - and it must ensure each one stays on the pulse of the wants and needs that drive its particular segment.
- The main Singapore Airlines brand needs to be nurtured and focused carefully to remain at the forefront of finest-in-each-class service.
Largely shaped by its transcontinental delivery, the flag carrier's brand must remain the global standard in aviation - and uncompromisingly the greatest way to fly.