Goh Choon Phong, Singapore Airlines CEO, says the airline has addressed fundamental shifts in the aviation market with a major transformation of its own
Are you expecting 2017 to be a challenging year?
There is no doubt that 2017 will be a tough year, primarily because of overcapacity in the market. Whenever demand falls below supply it creates pressure in the market. Yields have been falling both on long-haul and regional routes.
Clearly, there has been growing competition from low-cost carriers, the Gulf carriers, and, more recently, the Chinese carriers.
We were aware of this trend six or seven years ago and we determined that there would be a structural change in the market that wouldn’t go away. We knew that we must react to the change, to go beyond our traditional focus of selling tickets in the premium sector.
What changes have you made and what changes do you intend to make over the next few years?
Over the past five or six years we have focused on creating new engines of growth for the Group in three broad areas: new traffic segments, new geographies, and new business initiatives.
With growing demand for budget travel, we decided to set up Scoot and then merge Scoot and Tigerair into a single entity. The aim was to have a selection of vehicles that would enable us to cover all segments of the market.
We can switch vehicles according to market needs and we have several examples of that happening already
There is a regional and long-haul low-fare carrier in Scoot, a regional full-service carrier in SilkAir, and, of course, a long-haul, full-service carrier in Singapore Airlines.
This is what we call our portfolio strategy, and it essentially gives us the flexibility and nimbleness that we need to adjust to demand in a highly dynamic market.
We can switch vehicles according to market needs and we have several examples of that happening already. Athens moving from Singapore Airlines to Scoot is a case in point.
From a geographical standpoint, Singapore is a relatively small market and we were seeing growth in parts of the world that we were not able to participate in.
This is why we set up Vistara in India together with Tata Sons, as well as NokScoot in Thailand with Nok Air. These joint ventures enable us to tap into new traffic flows in promising growth markets.
And to tap into new revenue sources that go beyond ticket sales, we decided to look at adjacent businesses where we still had a degree of core competency. An example of that is the Airbus Asia Training Centre for pilot training.
We set that up with Airbus about a year ago and we already have 40 clients.
It has experienced very fast growth, and we continue to explore other opportunities of this nature to develop new revenue streams.
What role is your transformation office playing in implementing these changes?
All of these developments over the past five or six years have put us in a good position and provided a strong foundation to enable us to move to the next phase of our transformation, which is now underway.
We are examining every aspect of our operations to see how we can do things differently
We have been carrying out a comprehensive review that leaves no stone unturned, cutting across all divisions of the company.
We are examining every aspect of our operations to see how we can do things differently, in network and fleet, products and services, and organisation structure, for example.
It is about identifying new revenue-generation sources for the Group. It is also about how we can improve our processes to make us more efficient, and it is about fundamentally re-basing our cost structure, going beyond the traditional ad hoc approach to cost reduction.
A dedicated Transformation Office has been set up with full-time staff. The team is leading the project and reports directly to me. There is also direct involvement from the Board.
Obviously, it is a multi-year project but already we have great feedback and some innovative ideas, and the staff are energised.
What do you think will be the wisest investments for your airline?
It is not just about saving money, of course. The airline will continue to invest in its products and services for the benefit of the customer. Our customers will always be at the centre of everything we do.
Our new A380s will also have completely revamped business class and first class products
We are buying new aircraft, which bring improved operational efficiency. The Airbus A350 is not a big aircraft but it has fantastic fuel efficiency.
It means we can operate the aircraft into smaller markets in Europe, such as Stockholm.
There will be new opportunities for growth. We ordered 67 A350-900s in total, making us the biggest customer for the aircraft.
Our new A380s will also have completely revamped business class and first class products.
These are being redesigned from scratch and we believe the seating ideas we have come up with will be very well received by our customers.
And we will continue to invest in IT systems to help our staff across all touchpoints. We want them to be able to serve customers in a personalized and proactive manner.
To do that, they need the right information at the right touchpoint. Not every touchpoint needs every available bit of data but by making the information relevant to the touchpoint we can ensure a consistent and speedy service.
We started on this path five or six years ago and we are seeing the benefits.
All this isn’t to say we are moving away from interacting with the customer. Just the opposite. We don’t want staff to be spending time searching for and validating the right information.
We want them to have the relevant information at their fingertips. That will free up more of their time to interact with the customer.
Is Star Alliance still relevant given your plans and the structural changes in the industry?
Yes, there is still value in Star Alliance. Look at the airlines with which we have chosen to develop deeper ties. They are mostly our Star Alliance partners.
The alliance is a great platform for deeper discussions. As well as the joint venture with Lufthansa, we have strong commercial cooperation with Air New Zealand and SAS. Outside of Star, we also have a deep partnership with Virgin Australia.
Why did you decide to re-integrate SIA Cargo back into the airline?
In 2001, Singapore Airlines Cargo was corporatized. At that time, about 60% of our cargo was being flown on freighters, the remainder flown in the bellyhold of passenger aircraft. The sector and the business were growing rapidly.
But the demand pattern changed. Maritime shipping became a lot cheaper relative to air freight and manufacturers adjusted their production cycles to allow for the extended transportation times.
And, even then, there was overcapacity in the market forcing yields down.
Now, about 30% of our cargo is flown on freighters with 70% in bellyhold
Again, we spotted the trend early and from a peak of 17 freighters in 2006–2007, we have reduced the fleet to just seven freighters today.
We knew it would be a structural change in the market rather than a temporary dip, and we recognised that the new passenger aircraft coming onto the market had ample bellyhold capacity.
Now, about 30% of our cargo is flown on freighters with 70% in bellyhold. So that’s more or less a complete reversal of the situation when we corporatized our cargo operations. It’s the right time to re-integrate cargo operations.
And there are other considerations too, such as not having to deal with separate AOC requirements, and the cost efficiency of consolidating the support functions.
What do you see as the positive and negative aviation trends in the Asia-Pacific region?
Asia-Pacific continues to see good traffic growth. However, there has been a significant amount of capacity coming into the market.
There is massive potential in Asia-Pacific and by 2023 it is predicted to be among the three biggest markets in the world
It is probably too early to make a call on whether demand and supply will balance out in the near future.
Having said that, of course the growth potential is something we want to tap into. It’s the reason why we went into India.
There is massive potential there and by 2023 it is predicted to be among the three biggest markets in the world.
Do the governments in developing markets understand the advantages aviation brings?
Aviation obviously desires an operating environment without unnecessary taxation. India, for example, has a fuel tax and there are some high airport charges.
It is curtailing an industry that brings enormous benefits to the economy. It doesn’t make sense.
More generally, the infrastructure issue is important. Many airports in the region are reaching saturation but we are not seeing enough forward planning to cater to the growth in a timely fashion.
You won an award in 2016 for Global Innovation. What are the ideas or technologies in aviation that excite you most?
The award was for a team effort. Innovation has always been and will always be an important aspect of Singapore Airlines. We have to try new things.
The use of data and data analytics has the potential to be truly disruptive.
We need to understand how to use it in a manner that incorporates intelligence so you have something that’s predictive and able to personalize offers to our customers.
What skills does a modern airline CEO need?
The skills needed to be an airline CEO depend on the circumstances of the particular airline. I think every airline has needed a CEO with different strengths at different times.
Everybody involved must accept the need for change and be prepared to lead that change
For Singapore Airlines right now, because of the massive structural changes I have highlighted, it was important to be willing and able to make fundamental changes.
Remember though, one person, no matter how capable, cannot bring about successful large-scale changes. That requires a team working together, from frontline staff through to the boardroom.
Everybody involved must accept the need for change and be prepared to lead that change. That is the only way to make it work and to make fundamental changes to the business.
What do you hope to achieve in your time as IATA Chairman?
There are three main areas emerging at the moment. We must ensure our efforts on the environmental front continue to be successful. And we must continue to improve airlines’ operating efficiency.
We also need to look closely at what else we can do to make flying a more seamless experience for our customers.