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18 Oct, 2012

Singapore Airlines Lists Challenges, Responses for Managing in a “Turbulent World”

imtiaz muqbil at the itb asia 2012 in Singapore

Singapore Airlines has outlined the key challenges and responses facing airline managements in a much more “volatile and turbulent world.” Mr Mak Swee Wah, Executive Vice President (Commercial), Singapore Airlines, presented this list in a session on the “Future of Tourism in Asia” organised by the National Association of Travel Agents of Singapore (NATAS) at the ITB Asia. The hall was packed with nearly 400 agents.

Speaking largely from an airline perspective, he said that challenges include the economic crisis in Europe, the fallout from last year’s tsunami and nuclear disaster in Japan and the slowing economies in China and India. In spite of that, Asia is continuing to grow and so is the travel & tourism industry, with the UNWTO forecast for one billion international travellers this year. The major problem for the airline industry is the continuing volatility in the cost of fuel which once used to be US$30 but has now gone to nearly US$100.

Outlining the changes in the aviation sector, Mr. Mak said that airlines and the regulatory atmosphere are moving towards more and more liberalisation. Although it is a very slow process, the general trend is clear. Singapore Airlines believes it is a good thing even though it will mean more capacity, more players and more competition. The opening up of the ASEAN aviation industry with the ASEAN Economic Community will create more opportunities, especially between the major city-pairs.

Low cost airlines are growing but the full services carriers have not retreated. Even SIA is continuing to grow at 4% to 5% a year which is decent rate for a large airline. Silk Air is growing even faster, thanks to its flights to India and China. A new Silk Air route to Visakhapatnam in India has been announced. The opening up of secondary cities in India and China will create even more opportunities, as will the aging populations of Asia.

The biggest growth will be from China where the sheer size of the market will continue to drive tourism, including the rising wealth and growing middle class. Then there are emerging markets, such as “flavour of the month” Myanmar. Although Silk Air is flying there, SIA also plans to start flights on 28 October.

Mr. Mak identified six major challenges facing the entire travel & tourism industry, from an airline perspective.

1. The challenge of managing in a much more volatile world. The days of “cycles” have now been replaced with charts that look like the heartbeat of a person in distress “which is how you feel when you look at the numbers.” Volatility has become more extreme due to the way the world is moving now. How to manage through the turbulent world we live in?

2. Growth will lead to a human resource crunch. There’s a lot of talk of robotics but in the service industry, the human touch is very important. Everyone in the industry is facing this crunch, especially in Singapore.

3. Infrastructure, especially aviation infrastructure. There may be a lot a aircraft flying around but there is a limit to how the capacity on the ground can cope. It’s been a common theme for many years. SIA is working with Changi airport authorities very closely on how to manage and improve things. There are plans for expansion with runways and terminals but in the meantime infrastructure pressure on the ground will remain.

4. Hotel constraints in many parts of Asia, especially emerging destinations. For example, in Yangon, where it is now almost impossible to get a room. A number of Singaporean investors built hotels there 15 years ago and now “it is payback time.”

5. Consumer needs are becoming more fickle. The Chinese market will grow but it is not one homogenous market and each segment has very peculiar needs and requirements. These also change in compressed time, literally from one month to the next. The speed of change in consumer behaviour is “quite remarkable.”

6. Technology. Yes everyone loves technology but new technology also poses challenges, for example, in terms of disintermediation threat posed to the travel agents.

How is Singapore Airlines responding? Mr. Mak cited three strategies.

1. Take a long term view and anticipate that things will improve, such as the economic crisis in Europe which now seems to be on “life-support.” This means that SIA will continue to develop and strengthen the network out of Singapore. The airline has now added a fourth daily service to the U.K., and is expanding its footprint to Australia, China and India. Scoot, its low-cost airline subsidiary, is also expanding to Australia and China.

2. Growth through partnership is critical, including working closely with the Star Alliance partners. A joint venture with SAS Scandinavian Airlines is coming up and a JV with Virgin allows SIA to reach secondary points in  Australia.

3. Continue to promote and strengthen Singapore as a destination hub and keep it relevant with constant improvement in products and services in both software and hardware. Hardware may be at best an “equaliser”, but comparing the size of aircraft seats is meaningless if it is not accompanied by something more concrete that proves to the customer how the quality of services is different, which comes mainly from the software. Hence, SIA is working hard to make its products and services both personalised and customised for both customers and the travel trade, especially using all the technology available.

His final word for travel agents: They should pretty much follow the same strategy – focus on the macro factors, take a long term view, take advantage of key emerging markets and new niche markets, rise to the challenge of personalisation and customisation of their products and services, and boost training and education to ensure delivery of services.

In conclusion, he forecast clear skies with occasional rain and some thunderstorms. But, he said, the sun will surely rise.