Singapore Airlines CEO on Its Multi-Brand Strategy for Winning in Asia

Tuesday 15th, March 2016

As Singapore Airlines celebrates getting one step closer to reentering the U.S. market with nonstop flights it isn’t forgetting the markets that already demonstrate solid growth and demand. The Singapore Airlines Group is trying to appeal to every kind of flyer in Asia and it’s betting on success in that region before expanding to the U.S. and elsewhere.

Xerago comment: The first rule of marketing is to achieve dominant market leader status in one or more markets. It is the hardest marketing challenge in the world for a competing brand to come in and dislodge the leader. It calls for a ton of resources and very few brands across categories have either the patience or the ability to gird up for a full-fledged battle.

Singapore Airlines has built its reputation as a premium airline, an image that it has carefully cultivated and nurtured over the decades. While the US market is a Holy Grail for brands from elsewhere, it is key that Singapore Airlines not take its eyes off the ball in its core markets. This is particularly because the airline now has to contend with deep-pocketed carriers such as Emirates and Etihad which have successfully replicated Singapore Airlines’ product offering.

The Singapore Airlines Group has built a portfolio that it hopes appeals to nearly every kind of passenger — luxury, business, economy or budget — and its changing strategy in Asia highlights the growing importance of the region to global carriers.

Xerago comment: In the early nineties, the US and Europe accounted for nearly 70% of all passenger traffic. In the next twenty years, that share is expected to dip in half. The key beneficiary? The Asia-Pacific region, which by all accounts is already being projected as the single largest air travel market. Boeing estimates that a billion passengers travel each year to, from and within Asia and a hundred million new passengers come on-board every year.

Having a portfolio strategy is a good way to hedge bets. The trend has been very apparent in the hospitality sector for decades now. Airlines are a more recent entrant and the popularity of LCCs (Low Cost Carriers) in Asia has changed the dynamics of the market. How successfully can Singapore Airlines manage to erect entry barriers with its portfolio of low-cost brands? That remains a challenge.

Singapore Airlines seeks to grow its ultra long-haul routes (those longer than 12 hours) during the next few years but it isn’t slighting markets close to home. CEO Goh Choon Phong said in an interview with Skift earlier this month that the carrier has “embarked on a brand new approach and direction” and sees more opportunity with its low-cost and budget brands.

Xerago comment: It is hard not to see why low-cost and budget brands have such an enduring appeal to full-service airlines. In classical marketing theory, what a low-cost or budget carrier ought to be able to achieve is to open up the market and to attract a class of audience that has had limited exposure to air travel. That ought to translate into a high PLF (Passenger Load Factor).

However as most discount carriers discover very quickly to their chagrin, putting “seats on bums” is a huge challenge. Part of the problem is that there is over-capacity in the industry, with the result that airlines have to resort to discounting fares. When it is a race to the bottom, passengers tend to become picky to see where they can benefit the most.

If Singapore Airlines is indeed choosing to focus on its low-cost and budget arms, then it could represent a shift of strategic focus. In the long-run, such a move may impact the group’s bottomline adversely.

“While Singapore Airlines has traditionally been focusing only on full service, we’ve moved on to diversify the budget segment,” said Choon Phong during a media roundtable at Airbus headquarters in Toulouse, France to mark the delivery of the carrier’s first A350-900 aircraft. “With [SilkAir, Tigerair, Scoot and Singapore Airlines] we basically cover the full spectrum of travel whether it’s full or budget service, regional, medium or long-haul, and we’ll be able to provide the right [carrier and aircraft] for anyone wanting to travel on any sort of budget to any destination.”

Xerago comment: It is hard to miss the infectious enthusiasm behind that announcement. We have a well-considered strategy of targeting all possible options. So, what could possibly go wrong? ‘The right carrier and aircraft for anyone wanting to travel on any sort of budget to any destination’ may sound extremely egalitarian, but it is the sort of marketing thinking that seems confused and lacking in vision.

Clearly, Singapore Airlines is getting carried away by its own rhetoric. The group needs to be clear how it chooses to position itself, else it risks diluting its brand identity. Customers can, and will often compare their experiences say on Singapore Air with a Scoot experience and vent their frustrations if they encounter a negative experience.

“For example, Singapore Airlines used to fly to Nantong, China and Nantong is not quite the market where you can sustain with a full-service operation. Now, Scoot operates at Nantong and Scoot is doing very well and Scoot was able to bring that destination back to the group. China is an absolutely important market for us and the entire group serves 24 points in China,” Choon Phong said.

The carrier’s 90% stake in budget airline Tigerair and its five-year-old low-cost subsidiary Scoot points to this evolving strategy. Scoot, for example, generated in $18 million in profits during the last quarter, according Choon Phong. He also said that low-cost carriers have more than 50% market share in Southeast Asia — the highest percentage compared to any other part of the world.

Xerago comment: A look at the numbers illustrates the painful reality. In 2008, Singapore Airlines reported a $2 billion SGD profit. For the past four years, that figure has hovered at about 15-20% of that figure. Scoot, for example, is not expected to turn profitable for a couple of years longer. At what cost is Singapore Airlines going to continue to cut its nose to spite its face?

Network connectivity within Asia is one of the main philosophical pillars for Singapore Airlines, with its SilkAir subsidiary increasing its destinations in the region by more than 40% during the past five years, for example. Responding to a question about brand crossover, Choon Phong said it’s not possible to change to TigerAir if you arrive in Singapore on Singapore Airlines, for example, and this avoids brand confusion.

Xerago comment: Seems like the group is putting artificial restrictions in place to ensure that the individual brands remain in silos! We wonder how this will play out in the long-run.

The group still faces challenges in determining how to further differentiate its Tigerair and Scoot brands.

Xerago comment: Often, a strategy that makes sense from a financial or corporate sense may end up creating a marketing nightmare. Here’s another point of view that echoes exactly what we’re thinking too (

“However, as we all know, sometimes a customer can choose to travel full service or on a budget,” said Choon Phong. “On a short vacation you may choose to travel with your family on a budget but on business you travel on full service, etc. For young families with babies usually they prefer to travel on full service just to make sure everything goes better.”

Xerago comment: Just reading that assessment is exhausting! Imagine if you’re a car manufacturer and have to cater to different segments of the market. If you’re a Ford or a GM, you have been doing it for decades – and none too successfully at that. Both these brands have a dowdy, utilitarian image – which was perhaps one reason why Ford was never able to make its acquisitions of premium brands such as Jaguar work.

There is a very real risk of Singapore Airlines group diluting its brand identity and all the values that it epitomises.

Choon Phong also admitted that Singapore Airlines hasn’t been aggressive with growing its list of long-haul and ultra long-haul destinations over the past five years, but that’s about to change.

Xerago comment: Ultimately, the airline’s success will lie in how successfully it is able to fend off challenges from other regional players such as Cathay Pacific and the Arabian carriers like Emirates and Etihad. All these airlines are competing for a slice of the premium pie. Unfortunately, the only way for the airline to succeed is to hold on to its premium offering and hope to ride out conditions.

As any branding expert will tell you, it is probably easier to move a brand from a middle-market position to a more premium image but the reverse is simply a recipe for disaster. Unfortunately, some recent moves such as the decision to introduce a “premium economy” class don’t quite encourage confidence. Premium economy? Whoever came up with a definition like that!

Earlier this month the carrier took delivery of its first A350-900 aircraft and the airline will use to restart nonstop service between Singapore and New York City in 2018 and reclaim the world’s longest nonstop route. Singapore Airlines previously had nonstop service between both hubs but ended it in 2013 due to low demand and inefficiency. The carrier will launch nonstop service with the aircraft between Singapore and Amsterdam in May and later to Dusseldorf, Germany. Its ultra long-haul U.S. destinations include New York and Los Angeles and one more U.S. city yet to be announced.

Given recent volatility in global markets the carrier didn’t place firm orders for 67 other A350-900s. If demand proves weak for the U.S. market, as it did before, the aircraft could be dialed-back for shorter long-haul routes to Europe or medium-haul routes within Asia.

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