The story behind SIA's, phenomenal success.
Paul Lewis/SINGAPORE
SINGAPORE AIRLINES (SIA) has traditionally employed a policy of thinking big. The approach, harnessed with sound financial management and backed by strong governmental support, has resulted in SIA developing into one of the world's most successful international carriers.
It underscored this in June 1994, by ordering $10 billion worth of new Boeing and Airbus Industrie aircraft, in the face of one of the deepest economic downturns in the industry's history. Fifteen months on, SIA is about to top this with another mega-order for up to 33 additional new aircraft.
SIA managing director Dr Cheong Choong Kong explains: "We don't think you can really call the future and know when the cycle will turn. There is considerable lead time in the ordering and delivery of aircraft and you have got to plan ahead."
In response to SIA's latest "Y-aircraft" requirement, U.S. and European airframe and engine manufacturers, are all beating a path to the company's Airline House headquarters, to offer their wares. At stake is a $5 billion order for 17 widebody passenger aircraft, plus a further 16 options (Flight International, 31 May-6 June, P8).
The Y-aircraft will serve as a partial replacement for SIA's fleet of 23 Airbus A310-200/300s on high-density regional routes. "We should be able to make a decision by early October," says Cheong. "It's quite a complex exercise because you have two aircraft types, the Airbus A330 and Boeing 777, and quite a few engine types."
For Airbus and Boeing, along with General Electric, Pratt & Whitney and Rolls Royce, the Y-aircraft contest promises to be as bloody as last year's battle. SIA will once again be looking to take full advantage of the depressed market to squeeze and lock-in suppliers on future pricing, delivery schedules and after-sales support.
Last year's SIA showdown ended effectively in a draw between Boeing and Airbus, with a mixed order for more 747-400s and extended-range A340-300Es. The carrier plans to phase out its older 747-200/300s before the end of the decade and standardise its long-haul fleet around the 42 747-400s and 27 A340-300Es now in service or on order.
SIA, longer-term, is understood to be examining the need for a true A310-size "W-aircraft," for use on regional routes too small for the Y-aircraft. SIA's interest in flying non-stop services between Singapore and the USA has also attracted the attention of Airbus and Boeing, eager to secure launch orders for the A340-8000 and 777-100X ultra-long-haul derivatives.
If such an aircraft were to be launched, says Cheong, "...they wouldn't be wrong" to regard SIA as a potential buyer. He notes that SIA already has existing 777 and A330 options from last year's 747/A340 orders, some of which could conceivably be converted to options for longer-range versions, if the airline should choose.
The company has traditionally relied on its own resources for fleet purchase. Given the heavy capital outlay over the next seven to eight years, however, not just on aircraft, but also on a planned fifth air-cargo terminal and second and third in-flight kitchens, it may be forced to borrow funds. "Certainly for this year, we should without any difficulty be able to fund our aircraft deliveries through internal generation of funds," says Dr Cheong.
By any other airline's standards, SIA's financial performance for the year ending 31 March was exceptional, with its net profit up by 14% to a record $917.5 million ($658.2 million). Despite this, the airline is starting to feel the effects of increasing local overheads and stronger foreign competition, particularly from lower-cost Asian carriers.
The airline is trying to counter this, with a combination of cutting cost and improving services. Measures have included moving certain company functions offshore, establishing joint-purchasing consortium DSS World Sourcing with alliance partners Delta Air Lines and Swissair, automating operations and the introducing interactive inflight-entertainment systems to all classes of seat.
Says Cheong "You have to keep good control over costs and, at the same time, maintaining a competitive edge so that people will still fly with you, even though they quite often have to pay a little premium over what others are offering."
The continued rise in the strength of the Singapore dollar, taken with the weakness of the US dollar, has given SIA added cause for concern. With tourists opting for cheaper non-Asian destinations, loads and yields in the final quarter of the last financial year were particularly badly hit.
There was "some improvement" in June and July however, says Cheong, adding that it is hoped that the drop was a "passing phenomenon and not a signal or a trend". SIA nonetheless is projecting a relatively conservative 10% growth in profit for this year as a hedge against further erosion of yields and loads.
Recent calls by the Orient Airlines Association (OAA) for member carriers to curb capacity expansion appear to have met with little support from SIA, which is planning for a 8-10% growth. "We're always for open competition," states Cheong, "so, if people want to put on capacity, it's up them to decide. We just hope that people are responsible in determining fare levels."
Source: Flight International
