Starting Points: Temasek Holdings

Aug 28, 2009

Singapore Airlines Earns First Place Among Singapore Companies in the Asia 200 Survey - WSJ.com

By CRIS PRYSTAY

It's been one of the toughest years yet for Singapore Airlines. The company reported a net loss of 307.1 million Singapore dollars (US$212.5 million) for the quarter ended June 30, compared with a net profit of S$358.6 million a year earlier -- the airline's first quarterly loss in six years. Singapore Airlines carried 19% fewer passengers in June 2009 compared with the same month last year; it also carried 19% less freight. Flight schedules have been cut and some routes have been axed. The hours and pay of staff and management have been trimmed.

"This particular recession is a more severe test than any other downturn I can recall in the last 25 years," says Singapore Airlines Chief Executive Chew Choon Seng.

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Methodology: How did we go about identifying Asia's top 200 companies?

All that bad news, however, hasn't fazed the public one bit. Singapore Airlines, the world's largest airline by market capitalization, once again landed in first place as the most-admired Singapore company in the Asia 200 survey of subscribers of The Wall Street Journal Asia and other businesspeople.

The airline has been voted Singapore's top company every year since 1993, when the Asia 200 survey began. It's the only company in Asia to win its country's first-place ranking every single year. Temasek Holdings, the Singapore government's investment fund, owns 54% of Singapore Airlines

Singapore Telecommunications Ltd., Southeast Asia's largest telephone company by market capitalization, was ranked second in the survey, and United Overseas Bank placed third. This year, Singapore Airlines ranked first in most subcategories, including reputation, quality of service and products, innovation in responding to customer needs and long-term management vision. It ranked fourth, however, in the category of financial reputation, reflecting concerns about the tough environment faced by airlines world-wide.

Singapore Airlines dominates the survey each year because the company consistently delivers on its brand promise: the airline boasts top-tier service, the latest in-flight entertainment and amenities, and one of the youngest fleets in the sky. The company, meanwhile, has continued to invest in new planes and staff training throughout the global economic crisis. Singapore Airlines has 10 more A380s, 11 more A330s, 20 Boeing 787s and 20 Airbus A350s on order today. There have been no cuts in core areas of service and fleet renewal, despite continued pressure on the bottom line, says Mr. Chew.

"That's kept us in good stead," he says. "It shows we are committed to staying true to our core values, our market positioning and the identity of the company."

The average age of Singapore's fleet right now is 6 years old, which puts it way ahead of the pack. The average fleet age of airlines world-wide is 14 or 15 years, according to Corrine Png, head of regional transportation research at J.P. Morgan. "This generates customer appeal," she says. "People are excited about traveling on the newest aircraft with the best technology."

Asian airlines are widely perceived to have among the best service in the world, and within Asia, Singapore Airlines sits at the apex. "Customer service is the cornerstone of our business strategy," says Mr. Chew. Any airline can buy the same aircraft with the latest gadgets, he says. It's the operating systems and the people that set SIA apart. The airline makes optimal use of its customer-relationship management software, so staff can tell what meals, drinks or extras its regular customers prefer. Staff members receive continuing training on both technical matters and customer-service skills. "We've managed, over the years, to inculcate that into our corporate DNA," Mr. Chew says. "We've honed it so it's not just one or two flights that you get good service on; it's all flights."

Employees buy into the service mantra when they join the airline. Last year, a flight attendant named Caroline Chou noticed an Indian passenger, who suffered from sclerosis, had fallen ill on a flight from Los Angeles to Coimbatore. The plane landed for a stopover in Taipei, where Ms. Chou was due a few days off. She escorted the man and his family to a hospital, and stepped in to translate for the Mandarin-speaking doctors. Although she wasn't required to, Ms. Chou visited the family on her days off. When the family was informed the man could continue his journey only on a flight equipped with specialized medical equipment, Ms. Chou helped source the equipment and get authorization from various authorities to take the gear on board.

Providing the latest technology and attentive staff has helped make SIA the airline of choice for many business travelers. Singapore Airlines earns 60% of its revenue from business and first class; other Asian airlines earn, on average, 20% of their revenue from premium seats, according to Ms. Png.

To be sure, there is continued turbulence ahead. Mr. Chew, who has worked for the airline since 1972 and served as the CEO for six years, reckons this is the worst environment in decades, and doesn't anticipate a quick economic recovery. Past periods of economic turmoil, like the 1998 Asian economic crisis, the 2003 outbreak of SARS and even the dotcom crash, were largely regional in nature, so falling demand from one part of the world was largely offset by other regions, says Mr. Chew. This time the impact is global. The rest of the year will remain tough, and the prospect of a recovery in 2010 depends entirely on how governments around the world manage their economies and how consumers respond, says Mr. Chew.

There are some signs that while things have yet to get better, it's at least stopped getting worse. The decline in SIA's forward bookings has leveled off, which is good news. But the situation has yet to improve. The airline warned that it could post its first-ever annual loss if conditions didn't improve.

The company has moved to stem costs. Capacity has been cut by 11% for the current fiscal year by trimming routes and grounding planes. In June, the airline announced management would take a 10% pay cut, and the CEO and board pay would be cut by 20%. Pilots agreed to take one day unpaid leave a month and a salary cut equivalent to 65% of one day's salary per month. Agreements negotiated with staff unions, meanwhile, include a large variable component that links pay to the company's performance. When the company announced its quarterly loss last month, it also said that pay for 12,000 staff based in Singapore would be cut by 10% for at least three months starting Aug. 1

"Right now, our challenge is to manage our costs so we can keep our noses above water, and put us in a position to ride the upturn when things pick up," says Mr. Chew. "We also need to manage resources so we can uphold the values and the business strategy of the company."