singapore international airlines

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SINGAPORE INTERNATIONAL

AIRLINES : STARTEGY WITH A SMILE


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THE INTERNATIONAL AIRLINE

INDUSTRY

y The airline industry had traditionally remainedfragmented primarily due to the limiting effects of

national and international regulations.y Deregulation, privatization, and the advent of new

technologies have started to reshape the industry on aglobal level.

yThe United States deregulated its airlines in 1978 andhad since witnessed heightened competition andaggressive jockeying for market position.


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GEOGRAPHIC REGION-WISE

SUMMARY OF KEY TRENDS

y NORTH AMERICA

The North American region in general and the United

States in particular is by far the most significant arenaof competition in the international aviation industry.

According toAir Transport World, a leading industryjournal, U.S. traffic accounted for close to 40% of

worldwide revenues and revenue passenger kilometersbetween 1997 and 1999.


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Region 1987 1997 1998 1999 2000 2001

Africa 35.9 56.2 55.2 57.4 60.3 63.5

Asia/Pacific 253.5 639.5 630.1 657.2 696.0 744.0

Europe 494.2 655.2 691.5 721.9 763.1 808.9

Middle East 44.6 76.7 77.7 80.5 84.4 89.3

North America 684.6 1020.4 1042.1 1082.7 1123.9 1175.6

Latin America 76.7 125.1 133.8 139.3 147.2 156.8

World 1589.5 2573.1 2630.4 2739.1 2874.8 3038.0

Exhibit III Projected Airline Passenger Traffic Growth

Revenue Passenger Kilometersbillions

Source: International Civil Aviation Organization.


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EUROPEy The European region was poised to grow between 5% and

6% annually between 2000 and 2001 according to ICAO(International Civil Aviation Organization) estimates.

y In 1999 this region accounted for 26% of total revenuepassenger kilometers worldwide placing it second to theNorth American market

y British Airways and Lufthansa comprised the top tier of

this market and accounted for roughly 45% of total 1999revenue passenger kilometers in the region while KLM,Iberia, Swissair, SAS, and Sabena formed the second tierwith a little over 37%.


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ASIA- PACIFIC REGIONy By 1999, traffic in the Asian region had become quite

important to the overall success of the air

transportation industry. Collectively, this regionrepresented 24% of worldwide revenue passengerkilometers.

y The ICAO estimated that the Asia-Pacific region had

grown annually by 9.7% over the last ten years. Thisupward trend was expected to continue albeit atslightly lower levels, moderating between 6%-7%until 2001.


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THE RISE OF ALLIANCESy By the late 1990s alliances between air carriers in different

parts of the world had become the norm rather than theexception.

y This arrangement gave KLM a foothold in the rapidlygrowing U.S. market and allowed Northwest to expand itshorizons in Europe.

y Today, most of the leading carriers around the world werepart of mega- alliances which had evolved to includeseveral carriers under a single alliance brand.

y While they did seem like a wonderful strategic option evento established carriers, alliances brought their own set ofthorny issues.


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HISTORY AND CULTURE OF

SINGAPOREy Singapore had witnessed bountiful growth and

become the envy of many neighboring countries as itentered the new 21st century.

y Its per capita GNP increased by a phenomenal 75%between 1990 and 1999 and currently stood at S$39,724

yAt the end of 1999, Singapore boasted a literacy rate of93%, among the highest in the region.

yAs a result of these efforts, Singapore today rankedamong the best countries in terms of human capitaland was often rated among the worlds friendliestplaces to do business.


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CONTD.y The tourism industry played a very significant role in

the overall development of the country.

yHandicapped by the small size and the lack of naturalresources, Singapore had to rely on service industriessuch as tourism and finance to generate growth.

y During its history as a British colony, Singapore

provided an important stop-off point for travelers fromEurope and Britain to the outlying colonies ofAustralia and New Zealand.


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THE COMPANYy SIA traced its roots to an organization called Malayan

Airways that offered its first commercial passenger

service in May 1947.y SIA was born in 1972 when the Malaysia Singapore

Airlines was officially split into two new airlinecompanies, SIA and Malaysian Airlines System (now

called Malaysia Airways).y The long association with the Malaysian counterpart

had proved to be quite beneficial to the fledglingcompany.


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CONTD.y The choice was actually pre-determined for SIA since

Singapore was a very small city-state with a geographic areaof only 240 square miles, smaller than New York City! Inearly 1999 SIA reached 95 destinations in 43 countries inAsia, Europe, North America, Middle East, SouthwestPacific, and Africa.

y SIA had established an enviable record both in terms of its

operational performance and its profitability history.y It was one of the few Asian airlines that had continuously

posted profits even during lean years such as the 1990seconomic downturns in Asia.


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SOFTER SIDE OF SIAy The company firmly believed that its employees were

the primary drivers of the success that it enjoyed in themarketplace.

yAs of 1999 it employed 27,400 people worldwide ofwhich roughly 11,000 worked in Singapore making SIAthe largest private sector employer in the country.

y The company established an expansive SIA Training

Center in Singapore that served as the focal point fortraining programs targeted at cabin crew, commercialstaff, flight crew, and f light operations personnel.

y


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y SIA executed a finely tuned recruitment and trainingstrategy to keep its ranks stocked with excep- tional

talent.y Most of the employees arrived at the company either

through a cadetship program that attractedgeneralists, or a specialist program geared to

functional experts in areas such as computer servicesand finance.


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y SIA launched the Singapore Girlas the embodiment ofcaring, comfortable, hospitable service. It also played

well to the oriental mystique that was then prevalentin the Western world where the company sought toestablish a footing.

y


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COMPETING IN THE NEW

MILLENIUM

y By the late 1990s, competition in the airline businesshad become decidedly global, although very few

carriers could legitimately claim to be global carriers.y SIA had already taken some important steps to fortify

its position globally. It had recently decided to join theStar Alliance, a powerful network of carriers that

included Lufthansa, United, Ansett, Air New Zealand,All Nippon Airways, South Africa Airways, Air Canada,Thai, Varig, and SAS.


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y Thai Airlines, the nearest geographical neighbor forSIA in the alliance, announced its intent to step down

from the Star Alliance since it believed that therelationship would not serve its best interests after SIAwas allowed to join.

y In balancing growth potential against the ability to

control the alliance, SIA was considering equityinvestments. It acquired an 8.3% equity stake in AirNew Zealand to cement a long partnership with theNew Zealand carrier.


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