Where Will Singapore Air Fly All Those Jets?
Until recently, Singapore Airlines Ltd. flight attendants who became pregnant were prohibited from donning the Paris-designed, body-hugging batik sarongs that have made them into international symbols. But now the airline is so desperate for its highly marketed Singapore Girls that for the first time it rehired two dozen flight attendants who had quit to have children. Even when Singapore Airlines offers higher pay, a labor crunch created by the island nation's high growth means "you can't get people," says Deputy Chairman and Chief Executive Officer Cheong Choong Kong.
Singapore Airlines' challenges go a lot further than finding enough crew members to serve the fresh-squeezed orange juice and premier cru Bordeaux that have helped it win repeated awards. Like many companies throughout Asia, Singapore Airlines is scrambling to stay competitive as a booming economy soaks up workers and raises costs. More competition is coming from regional rivals such as Malaysian Airlines System, which is expanding and slashing prices. And a strong Singapore dollar is hitting earnings because more than 80% of the airline's revenues are in weakening overseas currencies.
But odds are Southeast Asia's premier airline will manage to muscle through a difficult period by gearing up aggressively at the same time that it slashes costs. An ambitious expansion plan should see its fleet soar from 70 to 150 jets by 2004. Last November, it announced a staggering $12.7 billion order for up to 77 Boeing 777s. "It's got good management and the cleanest balance sheet in the industry," says Chin Y. Lim, an analyst at Morgan Stanley Asia in Singapore. "It's better placed than any other carrier in the region to withstand competition."
CASH HOARD. How can it find enough flights for all the new jets? The airline figures that much of the new capacity will be soaked up by the 8% to 10% annual growth expected in its Asian routes. "This is going to be where the action is for the next decade," says Cheong. Singapore Airlines' wholly owned Silk Air subsidiary is expected to break into the black this year because of soaring tourism traffic. Analysts say Singapore also may buy a piece of a second-tier Asian carrier.
The airline believes that growth in ways such as these will lead it through its current profit pressures (chart). Although still among the most profitable carriers in the world, Singapore Airlines' earnings fell 5%, to $622.3 million, in the year ended Mar. 31, because of the stiffer competition and rising costs. But thanks to the Singapore government's 54% stake, Cheong is less worried about quarterly profits than many of his rivals. In fact, he's sitting on nearly $800 million in cash, a hoard sufficient for future investments. The airline is also unique for its ability to pay cash for most of its airplanes, and is virtually free of long-term debt.
These strengths will give Cheong enough time to lower his cost structure. He has already moved data processing operations to Madras, India, in a venture with the Tata group. Cheong has outsourced many of the airline's accounting activities to Beijing, and he figures that the bulk of the routine work now done in Singapore will move to lower-cost countries. Singapore Airlines is also trying to use technology more efficiently to save on labor costs, eliminating boarding passes on many flights, for example.
As a way of escaping the squeeze on its main business, Singapore Airlines is trying to diversify by creating subsidiaries. Part of the record-setting Boeing 777 order is for the company's new leasing subsidiary, aimed at reducing its dependence on sales of its used aircraft. Moreover, it has taken minority stakes in a cargo-handling operation at Hong Kong's new airport and an engineering facility in China.
Singapore Airlines is also likely to make headway outside of Asia despite difficulties in obtaining air rights. Cheong hopes to start service to South America within the next two years, but so far he has not gotten the needed permission from South Africa to allow him to stop en route. The new, longer-range planes may help Cheong overcome some of those problems because he won't need as many refueling stops. And he is optimistic that negotiations will ultimately create freer trade in the skies. "The skies are going to be opened," he says. "It's not a question of whether, but when." Singapore Airlines is betting big that he's right.
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