Singapore Airlines: Cost leadership coupled with Premium Service

Last few years have been real tough for airline industry across the globe; increased cost impacted the whole industry in common. But there are few airlines which have shown that innovation and operational efficiency can lead in to profitable business.

Singapore Airlines is one such example which demonstrated the growth even in this worst period. SIA never reported annual loss since its inception.

SIA has combined the supposedly incompatible strategies of differentiation- which it pursues through service excellence and continuous innovation- and cost leadership.

SIA manages its two main assets- planes and people- so that its service is better than rivals and its costs are lower. The airline invests heavily in the areas of business that touch the customer in order to enhance SIA’s premium positioning. Everything behind the scene is subjected to rigorous cost control.

SIA spends more than its rivals in key areas, it follows a 4-3-3 rule of spending, 40% on training, 30% on revising processes and procedures and 30% in creating new products and services.

• Buying new aircraft: SIA replaces its fleet more frequently there by reducing the maintenance budget and improve customer experience. New aircrafts are expected to be more fuel efficient as well.
• Training: The airline invests heavily in to training and retaining its employees.
• Labor Costs: SIA staffs more crew per flight compared to its competitors, this helps in improving the customer experience and enables to provide more customized and personalized services to customers.
• Innovation: It invests in both radical and incremental innovation.

On the same way, it spends less on following things which are not directly touching customers:-
• Price Per Aircraft: It places large orders and generally pays in cash, thus reducing the purchase price of the customer.
• Fuel, maintenance and repair: SIA’s operating costs are much lower because it has newer fleet and energy efficient.
• Salaries: SIA keeps salaries lower by offering bonus up to 50% depending on SIA’s profitability. And also employs much younger crew thus keeping salaries low.
• Sales and administration: SIA doesn’t have a fancy, mid-city head quarters!! And keeps cutting the cost where ever possible.
• Back office technologies: SIA chooses to lag behind rivals in areas that don’t affect the customer experience. They quickly stop the use of technologies that customers don’t like.

This is a clear example of how pure operational efficiency, coupled with great strategy can help companies reinvent themselves.