Doing Business : The Little Airline That Could : Singapore Airlines is the most profitable airline in the world. The firm’s success says much about the island nation.
Why would a country which is just 16 miles long and 24 miles wide need a huge airline?
If the country is Singapore, the answer is simple: vast amounts of foreign exchange.
Singapore Airlines is the most profitable airline in the world, earning $625 million last year. Fortune magazine ranked the airline, with its sales of about $2.6 billion, the seventh largest company in Asia outside of Japan.
What’s more, the airline is now Singapore’s largest employer, with more than 20,000 workers. One of every 79 workers in the country works for the airline or one of its subsidiaries, which include a cargo handling company, a charter airline and airport services companies.
“We didn’t start out thinking of ourselves as a big airline,” the company’s Managing Director Cheong Choong Kong said in an interview. “We set out to be a successful airline by making the best use of Singapore’s strategic location.”
Although a majority of its shares are owned by the government, the airline hardly fits the image of the bloated state-run firm. Instead, it is an emblem of the qualities the island nation has striven to achieve: hard work, discipline, efficiency in the extreme.
“The management and staff are unusually committed to the success of the venture,” said a recent analysis by the Hong Kong stockbrokers Crosby Securities PTE. “This is a phenomenon which can be observed throughout Singapore, but clearly the airline has an advantage over its international competitors.”
As a result, Singapore Airlines is regularly ranked among the top two or three airlines in the world in passenger preference surveys because of its on-time record and high quality of in-flight service. It has the newest fleet of any airline, with the average age of its aircraft at just four years, 10 months. (The firm has another 22 Boeing 747-400 jumbo jets on order and has options on 21 more.)
The airline has increased its profits every year since it was founded in 1972, when it was spun off from the Malaysian airline, though this year may see the first profit slowdown in its history. Last week, Singapore Airlines reported a 12.7% drop in after-tax profits for the first six months of the year.
Bruce Darrington, of Crosby Securities, attributed this year’s profit decline to the huge fuel price increase faced by all airlines because of the situation in the Persian Gulf, a major appreciation in the value of the Singapore dollar--with no domestic flights, most of its income is earned in foreign currency--and a dip in its average load factor to 76%.
Singapore Airlines enjoys benefits that American carriers do not have, so that comparisons are not fair. Airline fares in Asia are set by governments, so there is little competition, and capacity increases only with demand.
Because Singapore is so small, the airline has no domestic routes--unlike neighbors MAS in Malaysia and Garuda in Indonesia, which are required by their respective governments to subsidize domestic fares.
Apart from the airline, the Singapore government has made the country’s Changi airport into a paradigm of efficiency, with a second terminal opening this month to double capacity and work starting later this year on a third terminal. In contrast, Hong Kong’s airport is past the saturation point, and a new airport is at least a decade away.
According to Cheong, another big marketing strategy is the recent decision to exchange shares with Delta Air Lines in the United States, to gain access to the airline’s domestic route network, and with Swissair, another airline renowned for its high standard of service.
“Swissair and Delta are a lot like us,” Cheong said. “We are expecting greater benefits of the synergy of the three airlines.” He said that where they compete, the airlines will continue to face each other head-on, but they anticipate achieving substantial savings with such things as shared maintenance facilities.
Singapore has yet to make much of an inroad into the U.S. market, flying only to Honolulu, Los Angeles and San Francisco. The next gateway that officials hope for is New York, flying by way of Amsterdam. But the U.S. government has not yet granted permission on this heavily traveled route.
The airline has recently encountered difficulties keeping trained personnel, since technical workers can earn up to $1,500 more a month in Japan. Even the “Singapore Girls” of advertising fame, who are forced to retire from cabin crew work in their mid 30s, have been increasingly dropping out after their first five-year contract to get married or take more lucrative jobs.
Singapore is also running a bit behind in the technology “war” with its competitors. Though it was the first to offer such inducements as free in-flight movies, British Airways is several months ahead on offering individual movie screens to long-haul passengers.
Singapore plans to fight back with in-flight telephones and fax machines.
