Quotes of the Day
Late last year, three world-renowned wine experts gathered in a nondescript, windowless room at Changi Airport in Singapore. For two days, they methodically worked their way through some 400 unmarked bottles of Champagne, Chardonnay, Cabernet and Merlot from around the world, pausing only to record scores on a 20-point scale. The test was one that required not only a trained palate but also a certain imagination. The judges had already sampled wines in a pressurized room that replicates the taste-deadening conditions at 30,000 ft., so they knew to choose softer, fruitier wines. After six bottles had been chosen, their foil coverings were removed, and even the labels were judged. "The wine has to taste good. It also has to be perceived as good," said judge Anthony Dias Blue, wine and spirits editor of Bon Appetit magazine. All six of the selected wines passed the label test, and their makers were richly rewarded: the host of the contest,
Singapore Airlines (SIA), will spend $9.4 million this year on wine and spirits. And SIA is giving no thought to cutting back.
Amid a global slump for full-service airlines, with U.S. and European carriers going bankrupt and slashing staff, flights and passenger amenities, Singapore Air is flying resolutely and profitably against the wind. It is bringing its fine wines — and its lobster thermidor, its flat-opening sleeper seats and its famous Singapore Girls — to an airport near you. SIA's recent expansion to 45 U.S. flights a week is great news for the cadre of U.S. business travelers who can pay extra to fly what many consider the world's best airline. But it's a blow to the likes of American Airlines, Delta and United. How will they compete with Singapore's government-owned cocoons in the sky?
For years, Singapore Air has served both coasts of the U.S., through airports in Newark, N.J., New York City, Los Angeles and San Francisco. But in the past 18 months, it has added flights to two interior cities, Chicago and Las Vegas. And at the end of this year, it will launch the first-ever nonstop commercial flight from the U.S. to Singapore when it starts running a new Airbus 340-500 wide-body from Los Angeles. For the first time, the airline is marketing its Atlantic flights (including Chicago-Amsterdam and New York City — Frankfurt, Germany) as heavily as its Pacific ones. And for good reason: last year it was named best airline from the U.S. to Europe by Conde Nast Traveler's Business Travel Survey — the first year that it was in the running. Singapore Air has already won the magazine's coveted designation as best international airline for 14 of the past 15 years.
Rather than rest on those rankings or trim passenger amenities as its U.S. rivals are doing, Singapore Air plans to spend $100 million by June to improve its business cabins, mainly by adding beds on every long-haul plane in the fleet. Despite these investments — and unlike most of its competitors — government-backed SIA is making good money. Profit of $358 million made it the second most profitable passenger airline in the world in 2001, behind only Southwest Airlines ($511 million). For the six months ending last September, the latest period reported, profit was $443 million (at least by the unique accounting standards in Singapore).
Consistency — a trait rare in the airline industry — has been a hallmark of SIA's management. CEO Cheong Choong Kong, 61, who will leave the airline in June, has run the show for nearly two decades, having worked his way up from an assistant manager for reservations. After taking over in 1984, he moved aggressively to stretch the airline worldwide; he was the main proponent of Singapore's successful push to become the first Southeast Asian country to sign a bilateral open-skies agreement with the U.S, in 1997. This treaty lets the airline fly to any American city and has inspired similar agreements throughout Asia.
Cheong stunned the industry in 1991 when he told McDonnell Douglas that its new, much anticipated wide-body aircraft, the MD-11, did not meet SIA's long-haul performance specifications. Cheong canceled a $3.1 billion order and opted for the Airbus A340-300 instead.
The incoming CEO, Chew Choon Seng, 56, is a 30-year employee of SIA and a longtime colleague of Cheong's. He is expected to continue Cheong's course with little fanfare.
An unequaled reputation for service and luxury among the recession-resistant rich — and careful pricing that makes its economy seats just dear enough — is helping SIA gain market share in today's sluggish economy. The airline is trimming economy-class fares only on routes like Newark to Amsterdam, where it most wants to gain share.
The airline's goal is to make you forget you're flying at all. In business class, the seats not only are generous but also transform into the longest and widest lie-flat beds in the sky (with privacy screens for protection from nosy neighbors). Each passenger gets an on-demand entertainment system (no more waiting for your film choice to begin). Unlike other airlines, SIA almost never debases the value of its upper-class seats by granting free bump-ups, even to its frequent flyers.
The airline spends about $20 per passenger for food and beverages in economy, $40 in business class and $50 in first class. Industry experts estimate that this is at least 10% higher than industry averages. Dom Perignon flows in first, Piper Heidsieck in business; the ice creams in economy are Haagen-Dazs and Ben & Jerry's.
All this spending seems to work its intended magic: attracting plenty of business travelers willing to pay more than what other airlines charge. SIA says it has never suffered an unprofitable year, and its unit cost--6.4¢ a seat mile — compares favorably with that of the most efficient U.S. carrier, Southwest.
Even as overall premium-fare business travel has withered over the past year, superior service remains in strong demand on marathon flights from the U.S. and Europe to Asia. And long-haul routes are far cheaper to operate per passenger mile than, say, the Richmond, Va., to Memphis, Tenn., flight that domestic airlines provide. While profit margins for all Asian carriers are relatively high, SIA's has been 50% higher, according to an industry analyst, than Qantas' and double that of Japan Airlines.
Singapore Air was launched as an independent carrier in 1972 after separating from Malaysian-Singapore Airlines. Despite the highly regulated atmosphere of the times, it refused to play by the rules, essentially ignoring the International Air Transport Association (IATA), the governing body that ran the airline business almost as a cartel. When SIA became the first IATA carrier to serve free drinks in economy, in 1972, the group's director dismissed the Asian upstart as a "parasite."
SIA took off with some distinct advantages. First, it is the international face of Singapore Inc., the disciplined, business-oriented country and culture that is a ferocious economic competitor. "They're the Israelis of aviation," says Mark Gerchick, a former U.S. Department of Transportation official, admiringly. "They are small and smart and aggressive in pursuing their interests."
The Singaporean government owns 57% of SIA's stock (some 20% is held by money managers). And while by no accounts does it dictate the airline's strategy, the government aids SIA in many ways. Tax breaks on the carrier's aircraft help SIA maintain one of the youngest fleets of any major airline. The government helpfully paid the multibillion-dollar construction cost of Singapore's impressive Changi Airport, the airline's hub since 1981 and one of the best airports in the world.
A lack of openness raises questions about how real SIA's profits are and how fairly it plays. "The government's share is as big as a 747," says Richard Aboulafia, an industry analyst at the Teal Group, an aviation-consulting firm based in Fairfax, Va. "And it's not transparent. Maybe they're not as efficient as they claim. There is a certain science-fiction quality to their numbers." Geoff Dixon, CEO of Australia's Qantas, says, "Singapore Airlines is a government-owned and -backed carrier that does not have to play by the same rules as other airlines." Cheong dismisses the complaint, saying, "That accusation was raised by people with obvious self-interest. Our reputation is such that people know that we don't need the government's support to be where we are today."
To be sure, SIA's government backing does not translate into obvious excess. The airline's headquarters is located in a drab industrial building on Changi Airport's grounds. Its furniture looks worn enough to date to the airline's launch (and an orange color scheme reveals its 1970s sensibilities). A few years ago, data-processing operations were moved to Bombay, India, for the cost savings.
There's no doubt, though, that the government helps keep labor costs in line, in part through intimidation. There has never been a strike at SIA. In 1980, when pilots complained about pay, the country's Prime Minister threatened to fire every pilot and ground the airline, and the pilots' union was fined and shut down. A new union was formed a few months later. Today a 747 captain with 10 years' experience makes about $118,000 a year at SIA, compared with about $258,000 at a U.S. carrier. After the 9/11 attacks, the airline cut management salaries 7% to 15%.
SIA is decidedly retro in certain respects, including its celebration of what it calls the Singapore Girl, selected for her beauty, grace and youth. There are male flight attendants at SIA, but they get little attention. Until a few years ago, SIA insisted flight attendants (even married ones) who became pregnant resign. Since 1996, it has rehired some for short-haul flights. Even now, though, frequent passengers notice that the female flight attendants never seem to age. Few customers complain. "I'm 55, and so are the flight attendants on American Airlines in first class, and I appreciate their ... experience," says an American satellite-communications consultant who frequents several international airlines. But he prefers the eye candy on SIA. "It's much more fun hanging around 22-year-old girls. It makes those long flights go faster."
Nonetheless, some aviation observers are wondering whether SIA has lost some of its polish. SIA's attempts to stretch overseas through passenger-airline investments in India, the Philippines and New Zealand have turned sour. SIA took a $157 million loss on its investment in Air New Zealand. And a 49% stake in British-based Virgin Atlantic, bought in 1999 for $1.6 billion, has lost, by some estimates, almost two-thirds of its value, though many analysts think the deal will prove profitable in the long run.
The government suggested last summer that it might sell its stake in SIA. It is also considering allowing a low-fare competitor to start up at Changi. SIA executives say they could respond by converting SilkAir, their Asian regional carrier, into a low-fare airline.
SIA's global nature, until now an asset, might begin to work against it. Security concerns, which were heightened after the 9/11 attacks, became even more severe for SIA in the aftermath of the terrorist bombing in Bali, Indonesia, last October. SIA spent $5.8 million last year to install cockpit doors but won't go into any further detail on its security measures. Worsening conflicts in the Middle East could hurt the airline more than they would most of its competitors, because it has extensive routes throughout that region.
Still, many airlines have similar concerns, and few are as well equipped as SIA to respond, financially and otherwise. At a time when the industry is finding most of its economies in running fewer flights with greater numbers of passengers, Singapore Air operates one of the largest 747 passenger fleets in the world and is gearing up to introduce the double-decker 555-seat Airbus A380 in 2006. It's likely that airports around the world will follow the lead of Las Vegas, a midtier destination that is betting SIA will offer a lucrative link to the developing markets of Asia, including China.
To understand the long-term thinking and the staying power of SIA, it's worth thinking back to those wines that were chosen late last year, including a 1999 Chateau Pichon Longueville Comtesse de Lalande, a Bordeaux that retails for upwards of $130, and a 1998 Stag's Leap Wine Cellars Fay Vineyard Cabernet, an $85 Californian. Neither of them will be served on SIA's new U.S. flights this year. Instead, they will be cellared until 2005 or 2006, when they will have developed the right character for drinking.
- Sally B. Donnelly