Productivity improvements, Pillay told a recent gathering of young SIA recruits, are realised chiefly through investment in resources - whether in facilities, equipment, aircraft or people. 'But productivity is more than that. The cognoscenti talk of Total Factor Productivity, or TFP. TFP is essentially the art of working and managing the resources more smartly to achieve greater productivity than is available through just investment in those resources. It is the genius of the organisation at work.'
With competition becoming increasingly fierce, SIA is looking carefully at its operations with a view to eking out further improvements in productivity, asset utilisation and efficiency. It is the first of those, however, which has led the airline's efforts to hold costs at bay over the past full financial year.
SIA's staff productivity rose an average 8 per cent per employee during the last year on the back of a new profit-sharing agreement with unions. Signed last October and guaranteeing hefty bonuses when profits top S$500 million ($US318.7 million), the deal has been a major spur to finding improvements across the board.
Employees earned themselves an extra two and a half months salary in 1994/95 and this could rise to a maximum six months salary bonus if profits are high enough in future. 'In effect, employees have the incentive to be more productive, as this will result in higher profits for the airline which, in turn, translate into bigger bonuses for the employees,' a spokesman explains.
While the results cannot solely be attributed to the deal, productivity gains were impressive during 1994/5. Revenue per employee rose 5.2 per cent from S$449,769 to S$473,099, while capacity per employee rose 8.3 per cent and load carried per employee was up 8.6 per cent. At the same time, staff numbers increased by only 1.6 per cent to 12,557. The increase in employee numbers came mainly among cabin and technical crew to cover the 10 per cent rise in capacity.
While management has raised productivity, it has also been able to trim unit costs, down 7.6 per cent to S$0.46 per ATK last year, as capacity expansion outpaced cost increases. As a result the breakeven load factor improved 3 percentage points to 62.5 per cent.
The airline says a significant part of capital cost savings is achieved during the tendering process for new aircraft because of the stiff competition between aircraft and engine manufacturers for SIA's business.
SIA maintains a young fleet, with an average age of just over five and half years. 'Operating modern aircraft enables SIA to optimise fuel efficiency, minimise maintenance costs, and ensure sustained reliability of its flights, commensurate with high aircraft utilisation rates,' the airline says. 'With the exception of the B737-300 freighter, the entire fleet is powered by the Pratt & Whitney powerplant. This means a lower investment in spares and support facilities.'
The airline reports little or no improvement in aircraft utilisation in the past year, but the replacement of some of its A310s, which have a daily average utilisation of eight hours, by A330s or B777s on regional routes should push the utilisation rate up. The selection is due to be announced in October. The addition of the A340 will also allow the airline to develop non-stop services on long-haul international routes.
But management will have to continue to find efficiency gains as the rate of capacity growth is set to slow. In the last year traffic rose 10.3 per cent against a capacity increase of 10 per cent, helping the overall load factor to nudge up 0.3 points to 69.8 per cent. In the current year, however, overall capacity is expected to grow by only 9 per cent.
Yields are also under pressure as costs continue to rise. SIA's expenditure last year rose 1.9 per cent to US$3.62 billion, due to increases in depreciation, airport fees, and handling, maintenance and staff costs. But yields fell overall by 3.2 per cent to 73.6 cents per RTK. Most of this was blamed on a 4.8 per cent appreciation of the Singapore dollar.
Source: Airline Business
