You are here

Keeping it a great way to fly

Singapore Airlines CEO Goh Choon Phong shares SIA's blueprint for growth.

BT_20151205_NRSIA_2007217.jpg
''We now have the nimbleness, the flexibility, to adjust things if need be, even if the market changes.''

SINGAPORE Airlines is an iconic brand in aviation, not just in Singapore but the world over. Since Malaysia-Singapore Airlines split in 1972 to give way to two separate entities, the flag carrier of the little red dot has blazed a trail and solidified a reputation as an industry leader renowned for its superb service and industry-leading premium products. It has also spawned an industry of imitators. And while it's perhaps a cliche to say that imitation is the greatest form of flattery, for SIA it has become the greatest challenge.

Full-service carriers such as Emirates, Etihad Airways and Qatar Airways have - to various extents - successfully replicated the SIA "gold standard", and more rivals are narrowing the gap. While none have totally caught up, they are closing in, and fast. For example, AirlineRatings.com this week placed SIA in 5th position in overall rankings of the world's best carriers (though SIA did top the rankings for its Business Class and in-flight entertainment system).

Meanwhile, in the low-cost space, regional budget carriers such as AirAsia and Lion Air have spread their wings, wresting market share away from the group. They also compete head-on against SIA's own low-cost units, Tiger Airways and Scoot. And even as overcapacity puts pressure on yields, other challenges come in the form of currency and fuel price volatility. Also, having already disposed of some key assets such as SIA Building and SATS, the carrier has little room for huge one-off gains to keep shareholders happy. Not surprisingly, some analysts wonder if SIA's glory days are well and truly behind it.

It was amid this challenging "new normal" that Goh Choon Phong took over the hot seat in January 2011 from his predecessor, Chew Choon Seng. An engineering graduate from MIT - with three undergraduate degrees and a Masters under his belt - Mr Goh (all of 48 years old at the time) was tasked with charting the long-term growth of an iconic brand facing headwinds and turbulence on multiple fronts.

While Mr Chew had steered SIA through some very tough times, including the Sars epidemic, Mr Goh's task seems no less unenviable: positioning SIA for sustained growth at a time when competition is keenest.

Barely a year after taking over at the helm, Mr Goh and his team set out to devise a multi-pronged approach to SIA's growth, comprising a multi-brand airline portfolio, overseas hubs and investments, new ancillary revenue streams, and deeper alliances with industry partners.

Is he pleased with the progress so far? "Frankly, I'm actually quite happy," says Mr Goh, who joined the airline in 1990. While not giving details, he says most of the targets set internally have been met. "The fact that we're able to achieve some of these early results is encouraging, and something I'm personally quite pleased (with)."

An additional challenge has been the fact that all the strategies were executed in parallel. "All these are fairly fundamental changes for the organisation," he says. "We felt that there isn't really time for us to do it sequentially. Each of them can take multiple years to come to some fruition. As it is, we will only see concrete progress in every one of them after about five years."

Indeed, during the 75-minute interview, the 52-year-old appears relaxed, clad in a black suit, his shirt unbuttoned at the collar - a lot more relaxed than he seemed just over two years ago, when he unveiled his growth strategy.

He comes alive when explaining SIA's blueprint for growth, eager to discuss the bigger picture which must have seemed elusive to the market for so long.

The sheer magnitude of putting in place numerous projects to broaden and sustain SIA's revenue base - all at the same time - has been a huge challenge, he adds. And he acknowledges the doubters. "It was a legitimate concern, especially for an airline as successful as SIA," he says. "Doing whatever we've been doing for (over) 65 years or so, and to now do it so differently, all at one go. I was really concerned and so was my team."

But he credits SIA's board and its employees for supporting the strategy and cites that support as a critical factor for its execution, and success. "There's no such thing as changing a strategy, and having one person charging ahead. For it to work, the organisation - and all the people - must believe and move along with it," he says.

He reckons the plans resonated with the group's employees also because they were acutely aware that SIA could not afford to stand still as rivals gained ground. The topline and bottom line were coming under pressure from increasing competition and the vagaries of the operating environment.

One of the key pillars of Mr Goh's strategy has been to position premium carriers SIA and SilkAir as well as budget carriers Scoot and Tiger to work more closely together. Offshore, the group has set up joint ventures with Vistara in New Delhi and NokScoot in Bangkok to create new hubs. Armed with nearly S$5 billion, the group has also been on the prowl for acquisitions. It bought a 10 per cent stake in Virgin Australia in 2012, which it later boosted to nearly 23 per cent.

In addition to growing its network organically, Mr Goh has been leading SIA into forging strategic partnerships with carriers such as Lufthansa, Scandinavian Airlines, Air New Zealand, Virgin Australia and Turkish Airlines.

Over the last five years alone, SIA has roughly quadrupled its weekly codeshare sectors from 2,000 to over 8,000.

The group has also set up adjacent businesses to drive ancillary revenue, such as a flight training centre together with Airbus. But this is just the beginning, hints Mr Goh. "I don't think we should stop at the training centre."

Taken individually, each "growth engine" is a major project on its own. But taken together - and concurrently - they can ultimately pack quite a wallop, by his calculation.

But all this has also raised concerns about whether SIA could be biting off more than it could chew. No other airline has been doing as much, in so short a period, and simultaneously to boot, some industry observers note.

Mr Goh is unperturbed. "Each (strategy) serves to reinforce the competitive standing of the group as a whole," he says. Singling out its portfolio strategy as an example, he notes that the group's four carriers serve a total of 24 points in China, with some cities seeing more demand for a low-cost mode of travel, while others for a full-service product. This is more than another major carrier in the vicinity, he quips, without naming names.

In fact, its portfolio strategy is transforming SIA from a conservative single airline operator into a nimble multi-carrier player with a broad footprint in a dynamic industry. "We now have the nimbleness, the flexibility, to adjust things if need be, even if the market changes," Mr Goh says.

For example, he even foresees greater integration and network adjustments between full service carriers SIA and regional wing SilkAir with budget carriers Scoot and Tiger as market conditions change. Already, Scoot is taking over Hangzhou and Jeddah from SilkAir and SIA respectively. Meanwhile, SIA and SilkAir have started interlining onto Scoot's network in China, leveraging Scoot's fleet of widebody Boeing 787s. This kind of mixing-and-matching to market will continue, as SIA selects the best platform for each market. This could even mean SIA or SilkAir taking over services from Scoot or Tiger.

Even though cross-selling from the premium carriers onto Tiger - which operates narrowbody A320s - is trickier, as it raises the question of brand dilution, Mr Goh doesn't rule it out, pointing out that SIA already codeshares with US budget carrier JetBlue.

"I always think this is a challenge as well as an opportunity. The fact that all four carriers are based in Singapore means we have less issues when it comes to implementing connectivity."

SIA is seeking to delist Tiger and take it private, having launched an offer for the remaining 44 per cent or so that it does not already hold. The group believes the move will accelerate Tiger's turnaround and give it a better shot at long-term growth, while at the same time, strengthening the entire SIA group and the Singapore hub.

All this comes as Scoot and Tiger appear to be making progress in the trek to profitability. For Q2FY15/16, Scoot slashed its operating losses to S$2 million, from S$19 million a year ago. Meanwhile, Tiger is stemming the bleed, thanks to its restructuring efforts which included pulling the plug on loss-making ventures overseas and cutting capacity at home.

Mr Goh does not rule out an eventual merger of the two low-cost units, though he reckons it makes sense for the two carriers to operate as separate entities for now. "That (merger) is something we will evaluate when the time comes."

Not that it's ignoring its premium airline business either. To stay ahead, SIA is making hefty investments into new fuel-efficient aircraft, refurbishing lounges as well as introducing next-generation cabin products and premium economy seats.

Come 2016, SIA will start taking delivery of the Airbus A350s, dubbed a game-changer. In 2017, SIA will receive five A380s that it has on order, with all new Business seats and Suites cabins. And by 2018, the medium-range Boeing 787-10s on order will start to come in, as will the seven A350 Ultra Long Range (ULRs) for which SIA is the launch customer. The latter will enable SIA to restart non-stop flights - which it axed it 2013 - to New York and Los Angeles as well as one more as-yet-unnamed US city.

At a time when the Gulf carriers have been ramping up market share in Europe, Mr Goh reckons SIA's new A350-900s will give it more options to meet the competition head-on. "The A350s allow us to offer direct flights to secondary points in Europe because it's cost effective and much more fuel efficient," he says, adding that the 253-seater aircraft would be easier to fill than a bigger plane. "(Passengers) can go non-stop. We'll be able to capture the most premium segment of that traffic between those two points."

In short, this is a better proposition than one-stop services via Doha, Dubai, Abu Dhabi or London. SIA has already earmarked Amsterdam and Dusseldorf as the first of its A350s arrive from January onwards.

While SIA's various initiatives are now humming along in different stages of progress, he admits there have been bumps along the way. One of the most noticeable is the rocky start for NokScoot.

Thailand's failure to pass an ICAO safety audit prompted countries such as Japan, China and South Korea to prohibit new carriers from mounting scheduled services out of Thailand, although some of those restrictions have since been relaxed. This forced NokScoot - a joint venture between Scoot and Thailand-based budget airline Nok Air - to rethink its initial network.

But Mr Goh doesn't see this as a long-term impediment.

"Bangkok is a very attractive destination for budget travellers, perhaps more so than Singapore because it's lower cost. And the synergy that Singapore can have with our Bangkok hub, as well as between Scoot, NokScoot and potentially NokAir, would be immense help."

In populous South Asia, the growth of Vistara - SIA's joint venture with India's Tata - has been stymied by onerous legislation such as the 5/20 rule, which restricts carriers from launching international flights until they have amassed five years of experience and a fleet of 20 planes. But Mr Goh is hopeful that the government of Prime Minister Narendra Modi will drop the requirement under an ongoing review of its civil aviation policy.

"It's a limitation," he says. "But in the worst case, it's five years. We've been operating in India for 45 years. When we went in, we knew we had to be patient and work really hard to make it work. It's still a work in progress."

The bottom line, according to Mr Goh, is that the jigsaw pieces are falling into place, and a picture is taking shape.

Will SIA's ambitious plans pay off? Some analysts reckon it is too soon to tell.

But if history is any guide, it has shown that Asia's most admired airline has a knack for reinventing itself when the chips are down.


 

GOH CHOON PHONG

 

Chief executive officer Singapore Airlines Group

Born in 1963

1987 BSc in Computer Science & Engineering from Massachusetts Institute of Technology, MIT

1989 BSc in Management Science, MIT 1990 BSc in Cognitive Science, MIT

1990 MSc in Electrical Engineering & Computer Science, MIT

1990 Joined SIA as a Cadet Administrative Officer, held various positions over the next five years

1995 Marketing manager, Beijing

1996 General manager, Scandinavia, in Copenhagen

1997 returned to Singapore and held posts in e-commerce and route revenue

1998 Vice-president, route revenue

1999 Divisional VP, commercial technology

2000 Senior vice-president, commercial technology

2003 SVP, information technology

2004 SVP, finance

2006 President of SIA Cargo

2010 Executive VP, marketing & regions, and chairman of SilkAir

2011 Chief executive of SIA Group

2011 Member, board of governors, International Air Transport Association

2014 Director of Virgin Australia Holdings

2015 Member, board of trustees, National University of Singapore "We now have the nimbleness, the flexibility, to adjust things if need be, even if the market changes."