SINGAPORE (Feb 11): It was with much fanfare on Jan 29 that Singapore Airlines launched KrisLab, its digital innovation lab. Boasting open spaces, soft carpeting and art deco lights, KrisLab serves as a workspace for employees and partners, who would hopefully generate ideas and solutions that will help SIA fight the headwinds that have been buffeting the airline group.
For decades, SIA has distinguished itself as a premium long-haul airline, far ahead of its rivals in terms of service and product. The airline dominated travel between East and West, and commanded the loyalty of business travellers. It has also been one of the most-profitable airline companies, with a record of never suffering an annual loss, a remarkable feat in a notoriously difficult business.
But over the last 10 years, the national carrier has had to battle one challenge after another. Directly after a record year of profits, in FY2008, the global financial crisis hit and corporate travel demand shrivelled. That was followed by the entry of low-cost carriers, which eroded its regional market share. Competition among the full-service carriers has also heightened, as rivals step up their game. Meanwhile, aircraft manufacturers have produced jets that can now fly farther and for longer, which threatens the hub-and-spoke model that SIA, bereft of a domestic market or hinterland that just about every other carrier enjoys, depends on.
In 2017, SIA CEO Goh Choon Phong launched a strategic review of the whole business, including its network and back-office operations. There were various evaluations to trim excesses and inefficiencies, such as food wastage and fuel burn. Since he took over in 2011, Goh has also taken steps that previous managers had resisted, namely having a budget carrier within the group, and reintroducing a premium economy cabin.
Earnings have still been volatile, but the company is pressing ahead with its efforts to gain an edge over its rivals by using technology. How will SIA’s digital efforts help it pull ahead? What will make SIA a great way to fly in the longer term?
Digital opportunity
SIA procurement department associate Stella Zuo’s idea was among the 180 suggested by staff who answered a call for innovative ideas for the group’s digital transformation.
Zuo’s idea was to push personalised messages to SIA customers overseas that will notify them of events and deals in their vicinity. Employees from other business units also helped to build the idea, and it is now still in the development stage. Along with Zuo’s idea, 11 others are getting to the proof-of-concept stage.
Meanwhile, SIA has already developed several smartphone applications for staff and employees that are aimed at improving processes and engagement. Internally, applications such as ISQ and Crew App enable employees to perform administrative functions on their phones, while World @ Your Fingertips is aimed at helping pilots better prepare for their flights, which should then make for a better flying experience for customers.
For its passengers, SIA has been working on enhancing its onboard retail services, and has expanded the scope of its loyalty programme — KrisPay — into a digital wallet that will allow air miles to be used at retailers.
Yet, SIA is not the only airline that has been ramping up efforts to improve its operations and services in the digital space. A day before KrisLab opened, Lufthansa launched its first foreign digital innovation unit, in Singapore. The German carrier has collaborated with business school INSEAD and co-working space giant WeWork to research the future of business travel, which includes a focus on the opportunities for the airline’s services offered at airports.
Meanwhile, US carrier United Airlines has relaunched an improved mobile app for its customers, offering vital services such as digital boarding passes and important notifications on flights and boarding times.
Regardless, SIA’s digital efforts should result in one significant opportunity: the potential that the large amounts of data amassed through these applications hold. How the group utilises that data might make all the difference between it and its rivals.
The magic spark
What was it that made SIA great in the past? Nitin Pangarkar, associate professor at the strategy and policy department of the National University of Singapore’s Business School, notes that SIA was a pioneer for things that people have forgotten about. “They were the first to offer free drinks; now it doesn’t really matter anymore. They also pioneered things such as a better business class and video on demand. That gave them an aura, which was good until other people copied [them].”
“SIA did the simple things really well — like not mess up your meal preference, the flight attendants will smile at you, and they will not lose your bag. But, nowadays, most airlines do it right. That’s the whole problem, you run out of room to improvise. There is a limitation to your strategy, and some of the things that gave you an edge are taken for granted now,” Pangarkar adds. And, as he observes, with its premium offerings, “there is a limit to how much you can give [for free] without increasing your costs”.
However, Aaron Wong, a management consultant, frequent flyer and founder of travel blog MileLion, believes that SIA’s service is still its competitive advantage. “There are certain small things you never notice, like the way the flight crew is trained to walk lightly at night. The [standard operating procedure is] to memorise every passenger’s name in business class. There are some things that they drill into their flight crew, which sets them apart from any other airline.”
Wong says that while SIA may not have been as lavish with its cabin product as its Gulf competitors, who have onboard showers for instance, the carrier has chosen, correctly, to focus on important aspects such as seat design. “Their business class [seats] are better than some airlines’ first class seats.” Even so, there is only so much space to stay ahead; airlines’ cabin products are getting increasingly similar. “Once you’ve gone flat, you can’t get any flatter,” Wong adds.
So why does the market seem to have turned against the airline? Wong attributes it to a few blunders SIA made last year. The first was the unbundling of the economy class product and having customers pay to select their seats in certain fare buckets. Another was charging credit card fees, which caused an outcry that led to SIA canning the move. The worst of all, Wong reckons, was the sneaky inclusion of travel insurance in the ticket-buying process, making it an opt-out rather than an opt-in option. That was also quickly undone.
In Wong’s view, what SIA needs to work on is its ground offerings, such as its airport lounges. The last upgrade to its lounges at its major hubs was completed in 2014. “No doubt, once you take off, there are few better ways to fly than with SIA, but I’m really interested to see how they improve their ground-service offering over the next five years.”
Playing catch-up
It is still not quite clear where SIA’s digital efforts will take it. But there is a consensus that, even before it starts to offer customers additional features on their mobile applications, SIA needs to get the basics right. There are limitations to what one can do on the website, for instance, which requires customers to ring up its call centre. Wong also points to the hack of KrisFlyer accounts, because the system only required a simple six-digit password. “SIA is not even at the cutting edge of digital strategy. They need to replicate others,” says Pangarkar.
“This pivot to digital, some might say, is more catch-up than surging ahead. Just look at the US airlines and the apps they have. So much stuff is automated through the app, while SIA’s [services are] still flowing through the contact centre,” says Wong.
Even the so-called customer innovations such as KrisPay are missed opportunities, Wong argues. Letting not-so-frequent flyers use their miles with retailers only loses them, once their miles are used up.
To be sure, SIA is in a difficult position — it has no domestic market and is facing tough competition on its key routes. Pangarkar acknowledges that it is hard for a company to break away from a formula that has been successful for 40 years. Despite its struggles, the airline is still winning awards and, importantly for its staff and shareholders, profitable.
SIA’s latest operational numbers in December 2018 saw the group’s passenger load factor improve 0.3ppt to 85% y-o-y. Passenger carriage or revenue passenger kilometres increased 7.2% y-o-y outpacing capacity. SIA itself saw PLF improve 1.1ppt y-o-y to 85.5%, while passenger carriage increased 6.8% y-o-y against a 5.5% increase in capacity. SIA’s 2QFY2019 results ending Sept 30 saw revenue hit $4 billion, up 5.5% y-o-y. Earnings, however, fell 80% to $56.4 million.
Only SIA and SIA Engineering saw a positive operating profit, with SIA dropping 25.7% y-o-y to $237 million, and SIAEC falling 45% y-o-y to $11 million. Scoot and SilkAir reported losses of $11 million and $3 million respectively. The increase in fuel and capacity injection outpaced revenue growth for the quarter. SIA also recognised an increase in share of losses in associated companies, mainly owing to Virgin Australia’s results, which were impacted by major accounting adjustments, de-recognising $456 million in deferred tax assets and a $122 million impairment on assets. SIA recognised a $116 million loss from Virgin Australia.
The question is if it would settle for muddling along or if it would pursue a breakthrough. “I’m not sure what the business model [of] innovation [is] going to be. But sticking to the old formula is not going to give you fab results,” says Pangarkar.
