Beyond Singapore

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Journal of Management DevelopmVol. 19 No. 6, 2000, pp. 515-

# MCB University Press, 0262-1

Beyond Singapore GirlGrand and product/service differentiation

strategies in the new millenniumDaniel Chan

Deputy Head of Department/Group Head,Republic of Singapore Air Force, Singapore

Keywords Airlines, Singapore, Brands, Differentiation, Strategy, Globalization

Abstract Takes a strategic journey into the future of the airline industry and air travel. Thestrategic trends and profound changes that are sweeping through the world airline industry andair travel currently, as well as into the next millennium, are analysed. So too are the responses ofthe lead airlines that are leading the charge in shaping as well as responding to these changes,

which will present new opportunities, threats and challenges to airlines with global aspirationsoperating on the world stage. Singapore Airlines was analysed with British Airways and United

Airlines as the leading European and US comparison airlines, respectively, for comparative andbenchmarking purposes.

IntroductionIn this research paper, one is taken on a strategic journey into the future of theairline industry and air travel. In deciding upon a suitable candidate to ``go onsuch a journey and tell the story'', both the successful and enduring track recordsas well as the articulated and demonstrated visions of all leading proponents areconsidered. Singapore Airlines (SIA) was finally chosen with British Airways

(BA) and United Airlines (UAL) as the leading European and US comparisonairlines, respectively, for comparative and benchmarking purposes.

SIAWhy SIA? SIA is widely considered by those in the airline industry, travellersas well as its competitors, as one of the very best airlines in the world, judgingfrom the numerous industry awards it has won. It is arguably Singapore's andAsia's best-known company, and rated consistently as Asia's ``most admiredcompany'' (Asian Business, 1997a, p. 24). According to the Business Traveller

Asia Pacific, SIA has become ``the standard by which all other internationalairlines are judged'' (Business Traveller Asia Pacific, 1997a, p. 3). SIA also

consistently leads the airline industry in profitability and rides through ` roughand turbulent'' times much better than most of its rivals. It has had acontinuous profit track record since it took to the skies more than 25 years ago,a track record almost unheard of in the brutally cyclical airline industry (Asian

Business Review, 1996, p. 34).Its smiling, willowy flight stewardess, outfitted in tight batik sarong kebaya

designed by renowned fashion house Pierre Balmain, and marketed as theSingapore Girl, is now a well-known international service icon. In 1994, the yearshe celebrated her 21st birthday, the Singapore Girl became the first

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commercial figure to be displayed at the famed Madame Tussaud's Museum inLondon. Madame Tussaud's had unveiled the waxwork of the SIA's globalmarketing and service icon that year to reflect the ever-growing popularity ofinternational travel.

In an era marked increasingly by competitive rankings, SIA has been votedregularly by both the airline industry and travellers alike as one of the bestairlines in the world. It is the winner of more industry awards than any otherairline. The New York-based Conde Nast Traveller magazine, for example, in1997 named SIA The Best Airline for the ninth time in ten years in themagazine's annual Readers' Choice Awards Poll. Conde Nast Traveller, amonthly magazine with a circulation of more than 800,000 worldwide, handsout yearly awards to airlines, hotels, cruise lines and others in the travelindustry. In 1997, to mark the tenth anniversary of the awards, it also presentedits first-ever Hall of Fame awards to four individuals, ``who over the decade,have put a particular stamp on the best in modern travel.'' Winning the Hall ofFame award in the airlines category was CEO of SIA, Cheong Choong Kong,who was honoured for ` a decade of outstanding leadership and fortransforming the standards of in-flight service in the 1980s'' (Straits Times,1997b, p. 33).

1997 also saw SIA winning The World's Best Airline for the fourth yearrunning in the Zagat Airline Survey. A major consumer survey company in theUSA, Zagat surveyed 10,000 frequent travellers to rate 61 major air carriers. In1994, the leading US aviation magazine, Air Transport World, named SIA ``theWorld's No. 1 Airline over the last two decades'' (Fortune, 1994, p. 26).

Accolades for SIA also came in from Europe. At the 7th Espace Voyages

Professionnels (Business Travel Fair) in Paris in October 1997, SIA wasannounced the Top Airline in the only business travel survey, BarometreVoyages d'Affaires, in the long-haul category. In the UK-based 1997 ExecutiveTravelmagazine awards, SIA swept the Airline of the Year, Best Airline to theFar East, Best Long Haul Airline, Best Ground Check-in Staff and Best AirportLounges awards. SIA also bagged the top award in the inaugural Conde NastTraveller1998 UK Readers' Travel Awards.

Closer to home in the Asia-Pacific, 1998 marks the seventh straight year inwhich SIA has walked away with the overall Best Airlines Award in theBusiness Travel Asia-Pacific Awards (Straits Times, 1998a, p. 35).

Comparison and benchmark airlines: BA and UALBA, Europe's biggest airline, is now widely regarded as a top European as wellas global airline. In 1990, Air Transport Worldselected BA as the winner of itsPassenger Service Award. After suffering through years of poor marketperceptions during the 1970s and earlier, BA, through the 1980s, had improvedits financial strength, persuaded its workforce of the paramount importance ofcustomer service, and improved its perception in the market.

In less than a decade, BA had lifted itself out of bankruptcy to become one ofthe world's most respected airlines. The financial crisis of 1981 and the drive to


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prepare itself for privatisation had given BA a focus that led to many changes.After its privatisation in 1987, BA made globalisation a major thrust. In early1988, BA finally beat Scandinavian Airlines System (SAS) to acquire BritishCaledonian. In December 1989, BA concluded a deal with Sabena Airlinesthrough which it secured a 20 percent stake in the Belgian carrier. All in all, themoves bolstered BA's global power and prepared it for what analysts expectedto be a post-1992 European marketplace in which only the strongest carrierswould survive.

Into the 1990s, BA had to deal with the difficult challenge of how to maintainits momentum and recapture a focus that would allow it to meet newchallenges. In looking for a new focus, BA management dealt with theseemingly unattractive need of trying to get its staff to identify with an issue asglamourless as cost-cutting. Yet, without increasing the value placed onproductivity and profits, while maintaining or increasing the value placed oncustomer service, BA's continued success in an increasingly competitive globalmarketplace could not be guaranteed.

By 1997, BA had been turned around dramatically, from an overall deficit of544 million for 1983 to a pre-tax profit of 640 million announced in May 1997(Straits Times, 1997a, p. 56). In 1997, it again relaunched itself and unveiled anew corporate identity. Its new global identity represented a major makeoverand rebranding of itself, involving the use of more than 50 different imagesfrom every continent. It was, however, hit by some controversy over itsdecision to scrap the ``Union Jack'' livery on its aircraft tails in order to give it amore global airline image. It provoked a domestic storm in the UK and incurredthe wrath and public rebuke of former UK Prime Minister Margaret Thatcher,

who draped the tailfin of a model at the design launch. Lady Thatcherharangued BA over the design at a function in October 1997. ` We fly the Britishflag, not these awful things you are putting on the tail,'' she was quoted assaying (Straits Times, 1998b, p. 52).

In 1997, BA also completed a major customer service review and revamp,and invested 4.5 million to set up its ``customer analysis and retention system''(acronym CARESS), in order to enhance its customer retention and satisfaction(William Reed, 1998).

In 1998, in preparation for the new millennium, BA embarked on yet anothermajor initiative a massive training programme for its cabin crews, with theaim to make them ``less British'' and ``more informal'' in the latest stage of the

company's attempts to market itself as a global airline. Its 15,000 strong,mainly female staff were sent on courses designed to help them drop some ofthe British reserve (for which the airline is well-known), and to ``bring out theirpersonalities.'' This was in response to feedback and a research survey of itsforeign passengers, which showed that BA hostesses were perceived to be toostuffy and tended to be too aloof. The courses would encourage the cabin crewto make more eye contact, give friendly taps on the shoulder and spend moretime crouching beside passengers (Straits Times, 1998c, p. 6). However, justlike its decision to drop the Union Jack livery from its plane, this latest initiative


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also met with some resistance from its cabin crews. The impetus for thischange from its traditional national sense of formality is driven by BA'sexpectation that less than 20 percent of its customers will be British by the year2000 (Straits Times, 1998c, p. 6).

UAL, the world's and USA's largest airline, has always been one of the costleaders in the industry. However, following one of the most comprehensivestudies of US air travel (both domestic and international) ever undertaken inthe USA, UAL in 1997 unveiled a new customer-driven initiative that is set torevolutionise the US airline industry and air travel in the next five to ten years(Southeast Asia Business World, 1997, p. 22). Among other things, it launched anew strategy and marketing campaign called ``Rising'' to replace its 30-year old``Friendly skies'' slogan.

The study, commissioned by UAL, was conducted by the strategyconsultant The Cambridge Group, headquartered in Chicago, together with UKcompany MSB (Managing the Service Business). The study took nearly ninemonths to complete and included both qualitative and quantitative primaryresearch consisting of more than 50 focus groups with customers in eightcountries, more than a dozen focus groups with UAL employees and a series ofinterviews with key travel agencies, corporate accounts and suppliers. Thestudy also included a quantitative survey of more than 1,800 customersdesigned to uncover the underlying motivations of travellers (Southeast Asia

Business World, 1997, p. 22).Using the study's findings as a blueprint for improvements, UAL developed

its customer satisfaction philosophy (CSP), a new customer-driven initiative onwhich all current and future service improvements, employee training and

communications will be centred. UAL hopes its new service philosophy willdifferentiate it from its competitors, motivate employees to better service, andachieve better than average industry growth and revenues. The CSP was alsothe driving force behind the new ``Rising'' marketing campaign, and representsa multiyear commitment to significantly improve customer service (Southeast

Asia Business World, 1997, p. 22).The ``Rising'' marketing campaign was based on the marketing research of

the CSP in which UAL have invested since completing the study. In retiring itsfamiliar slogan in 1997, UAL CEO, Greenwald said:

The ``Friendly skies'' will always be a cherished part of our heritage and our history, butUAL's future is ``Rising''. Our research found that, while customers like air travel to be

friendly, it is even more important to them that air travel be made professional (SoutheastAsia Business World, 1997, p. 22).

With this, UAL has taken on the mantle of service leadership in the airlineindustry in the USA.

Strategic challenge No. 1: product/service differentiationAirlines in the new millennium have to tackle two key strategic challenges:that of grand strategy as well as product/service differentiation. We willcover the latter first. A quiet but sure sea change is transforming the nature of


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air travel, driven by the changing needs and demands of the individualtraveller and modern travel, in a fast globalising industry fuelled byincreased international trade, travel and tourism. To be sure, the need to becustomer-driven is not something new in the airline industry. The keydifference this time round is that it is sweeping across the industry globally,including the US air travel market, which has up to now seen itself more as atransportation than a service industry. This markedly pronounced servicenature of the airline industry is set to become a key challenge for all majorairline players. These airlines, if they are to succeed in the new millennium,will have not only to think in grand strategy terms, but also to producewinning product/service differentiation strategies that can deliver superiorcustomer-driven service.

Product/service differentiation strategy

SIA and BA have long been widely acknowledged within the industry as theindustry's strategic benchmark airlines, as well as the industry leaders andinnovators of service branding as a source of strategic competitive advantage.``New kid on the block'', UAL, with its 1997 CSP and ``Rising'' campaigns, has,however, served notice of its intention to take on or join this small club ofbranded top airlines.

The product/service differentiation visions and strategies of SIA, BA andUAL, as they prepare for the new millennium, provide interesting contrast andcomparison insights and lessons on product/service differentiation for theindustry as a whole.

SIA comes immediately to mind when one thinks of branding and service in

the airline industry. A recent sampling of views from competitor airlinescontinues to attest to its image in the market:

A highly recognisable product (David Turnbull, Cathay Pacific CEO, Straits Times, 1998d,p. 42).

SIA is a world-class airline and we respect it greatly. It is still very competitive. Other carriersare always interested in what SIA is doing (Ian Gay, Regional General Manager of Qantas-BAAlliance, The Sunday Times, 1997a, p. 33).

SIA is an airline that sets trends, is profitable and well-managed, and takes a personal interestin its passengers (Mike Simon, Emirates Head of Communications, The Sunday Times, 1997a,p. 3).

Indeed, its Singapore Girl has become the airline industry's icon of service andSIA one of the industry's strategic benchmarks.

SIA is strategically positioned in the premium service, quality and valuemarket segment of the international airline industry. Service is the raison d'etreof SIA, and at the heart of its service reputation is the Singapore Girl. Since thelate 1980s, SIA has always held the view that: ``The airline industry is, by itsvery nature, a service industry. In a free market, the success or failure of anindividual airline is largely dictated by the quality of the service it provides''(Harvard Business School, 1989).


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The Singapore Girl idea proved to be a powerful strategy. Although, therewere some initial protests in the West, its acceptability in recent years haschanged quite appreciably. In 1997, an analyst with Goldman Sachs noted that:` Her popularity in the West is such it would be quite risky for SIA to attempt tochange the image at a time when people there are getting used to her'' (TheSunday Times, 1997b, p. 3). SIA's market research up to 1997 indicates thataround the world the Singapore Girl remains a very positive marketing icon,and that ``She evokes the very best in Asian charm and hospitality'' (TheSunday Times, 1997b, p. 3).

Many other airlines have their own catchy slogans and advertisement lines,but none has been able to capture the imagination to the extent that SIA hadwith its Singapore Girl and its other slogans.

Singapore Girl has given SIA an enduring competitive advantage. More than25 years on since its first introduction to the world, the Singapore Girl, far frombeing a fashionable passing fad, has become even more popular andentrenched. It is an extraordinary and singular success story for an airlineproduct/service differentiation strategy. No other airline can boast of such aproduct/service differentiation strategy that has lasted for more than 25 years,and still shows no signs of letting up.

SIA's new product/service innovations for the new millenniumThree major innovative service ideas were announced by SIA in July,September and October 1998: the introduction of gourmet cuisine in-flightdining, SIA's $500 million cabin revamp, and the launch of its new FrequentFlyer Programme, KrisFlyer, respectively.

Very soon, when you fly with SIA, the cabin attendants will not comearound just offering: ``Chicken or fish, sir?'' Instead, the choice may be betweenvinegared cucumber with barbecued eel or green tea noodles and smokedchicken salad. With this, SIA plans to make in-flight dining even for itseconomy class a new experience. First-class passengers will get gourmet dishessuch as Buddha-jumps-over-the-wall soup and miso-flavoured grilled salmontrout. These and 30 other signature dishes have been concocted by a panel ofseven culinary experts engaged by SIA to put a new spin on airline food, a longtime bane of travellers, which will set a new benchmark in in-flight cuisine. SIAhopes that with this it can further differentiate itself from its rivals.

The airline introduced its panel of seven culinary experts and launched the

World Gourmet Cuisine in July 1998 (Straits Times, 1998e, p. 3). Passengersflying out of Singapore will be the first to try the cuisine, which will beintroduced by the end of 1998. The panelists engaged by SIA include chefGeorges Blance from Vonnas, France, of three stars merit in the famous

Michelin Guide, restaurateur David Burke of the Park Avenue cafe in NewYork, and Japanese food expert Yoshihiro Murata of Kyoto. The other expertsare Sydney-based restaurateur Dietmar Sawyere, who won the SavoyCompany's Best Young Chef award in 1982, and chef and consultant PeterKnipp of Singapore, known for launching the fusion cuisine in Doc Cheng's


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restaurant at the Raffles Hotel. Food columnist William Mark, a consultant tothe Hong Kong Tourist Association, and Fred Ferretti, a leading food critic ofNew York, are also on the panel.

According to Mr Knipp, the panel took over six months of collecting recipesof signature dishes from the chefs, cooking them, tasting them, and makingthem in-flight-ready, before they were finally satisfied. Preparations includedchecking whether the dishes would stand the rigours of refrigeration and re-heating. The panel will train chefs from catering kitchens in the key sectors towhich SIA flies. The panelists will also make quality checks periodically. SIAindicated that there will be more perks to come, such as, ``in the future, first-class passengers can even pre-order a lobster thermidor before their flight''(Straits Times, 1998e, p. 3).

The $500 million cabin revamp covered details from custom-built seats tocashmere blankets. According to SIA, ``no detail was considered too small forSIA'', with the airline planning the upgrading two years ago (Straits Times,1998f, p. 37). In total, 4,000 passengers from all classes were surveyed. Thepassengers were from a cross-section of flights, including those to London, NewYork, Los Angeles, Sydney, Mumbai and Hong Kong. The survey found thatpeople wanted comfort, privacy and the experience that SIA offered. A team of100 consultants, designers and builders then got down to work.

SIA said that intense competition meant that it could not just come up withsmall changes. So the airline started from scratch when it came to redesigningthe first-class cabins, which now come with an ambience of a mini-suite in aluxurious hotel. James Parks Associates, which designed the Orient Express,designed the suites. The pampering begins even on the ground. A porter and

staff member will greet first-class passengers as they alight from their car, taketheir luggage and check in for them. The passengers wait in a special lounge atChangi Airport, just 15 steps away from immigration. Business-classpassengers get better seats too. These are wider and can recline further.Economy-class passengers on all flights will get free flow of champagne anindustry first.

KrisFlyer, SIA's new frequent flyer programme, announced in October 1998,will be launched on 1 February 1999, and will now include all classes of travel.

In 1997, SIA revealed that it has to gear up for ``a new era of heightenedcompetition where tailor-made in-flight service, for the increasingly demandingpassenger, will be the norm'' (The Sunday Times, 1997c, p. 32). On SIA's future

direction and strategy to cope with the new competition, it noted that:``Basically, it has to be service, and better service. Others have learned thatwhat differentiates one airline from another is service. They have wised up to itand have also starting improving their service. The challenge is therefore tokeep ahead of the pack'' (The Sunday Times, 1997c, p. 32). On how SIA intendsto keep ahead, it noted that: ``The crew will have to be equipped to meet thespecial needs of passengers. They would have to be F F F We are constantlyreviewing procedures and training methods F F F so that when people fly, SIAwill be the preferred airline'' (The Sunday Times, 1997c, p. 32).


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As the bulk of its clientele are non-Singaporeans, SIA crews are now beingprepared to be conversant with and to make announcements in the languagesof the countries to which it flies.

This customer-focused service strategy has served SIA well, and hadenabled it to withstand and overcome the competition posed even by domesticderegulation battle-hardened US airlines such as UAL in the 1990s. Asianairlines, long known for their service, and led notably by SIA, have alwaysspearheaded the charge in competing not just on the basis of costs and prices,but also on differentiating themselves on premium-quality service. It was SIAthat had most successfully converted this into an enduring competitiveadvantage.

Product/service differentiation strategy comparison of SIA with BAand UALSIA's product/service differentiation strategy focuses primarily not onreducing costs, but on enhancing quality or service and preventing customerproblems from arising. SIA has succeeded most uniquely with this type ofstrategy in the airline industry, a strategy commonly employed in servicebusinesses that command premium prices, with high margins, in businesses inwhich there is a high degree of repeat business, with word-of-mouth praise bycustomers as a most important channel of marketing.

An airline could be conservative in its promises regarding service excellenceto keep customer expectations from becoming too high. High expectations,some would argue, increase the potential for customer dissatisfaction.However, the SIA's experience has been a very different one. In any case, SIA

had never aspired to be just any ordinary good airline, but a top-notch airline.SIA could be said to be the very first airline in the industry to have succeeded indeveloping such a powerful and enduring image of quality service that hasresulted in its acquiring a sustainable competitive advantage. Its ability tosustain this advantage, even as its competitors seek to develop comparableservice capability, has been buttressed by the fact that it was the first to earnand attain the quality-service position and image in the market and incustomers' minds.

SIA's strategy to differentiate itself on the basis of superior customerservice, also saw it successfully generating a vision of service excellencethroughout the organisation. Such an organisation-wide energising vision

of service excellence is a powerful source of competitive advantage in topclass service organisations. Such a strength can be the bedrock of a qualityand service quality sustainable competitive advantage. A serviceorganisation that does not have a shared vision and culture of serviceexcellence will have a tough task acquiring it, as it cannot be bought. Itmust be built, as in SIA's case.

In SIA's case, setting exceptionally high customer service standardsgenerated a positive spirit and culture that had many spillover results.Customer service went beyond the mechanics involved in efficiently providing


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a service onboard. Pride, zeal, and motivation were some of the positive servicehallmarks that flowed from the shared vision and culture of service excellence,and the results were impressive. Unlike robots or machines, where differencesin performance are largely rooted in technical specifications, human beings aresubject to major performance variation. The SIA's vision and culture that holdexceptionally high customer service standards as a strategic objective to beattained were a most important factor accounting for the exceptionalperformance of SIA.

Sustaining a competitive advantage based on service and quality is possible,but requires unrelenting effort on the part of an organisation to continuallyimprove service. Only then can high service and quality standards be attainedand sustained. This was clearly achieved in SIA's case.

BA, on the other hand, has taken a very different product/servicedifferentiation strategy and approach for their brand and service strategy. Inits chequered and colourful history, BA has seen its fair share of ups anddowns. As an industry innovator and leader, BA has always relied on, and hasbeen very active in, introducing new and innovative ideas every few years,some of which were perceived by some to be too revolutionary.

In the case of SIA, SIA has capitalised and continues to capitalise on anenduring and intrinsic competitive strength founded upon an idea that isintrinsically Asian the familiar Singapore Girl to sustain a product/servicedifferentiation strategy that has spanned over 25 years and still shows no signsof letting up. SIA's market research up to 1997 affirmed that around the worldthe Singapore Girl remains a very positive marketing icon (The Sunday Times,1997b, p. 3).

In contrast to SIA's Singapore Girl strategy, BA's strategy is marked by therelentless drive to introduce regular and major updates or changes and, in someinstances, rather revolutionary changes. In April 1983, BA introduced a widelypublicised global marketing campaign to boost its corporate image worldwide.The campaign included the well-known 90-second Manhattan Landing TVadvertisement created by the Saatchi & Saatchi (S & S) advertising agency.The results of research following implementation showed increases in unaidedawareness and recall of BA in almost all markets, especially the USA. Thecampaign improved consumer recognition of BA's size and passenger volume.BA's image also improved as a modern, progressive company performingbetter than it had in the past. However, recall of its slogan ``The world's

favourite airline'', was poor. Negative perceptions of BA, especially regardingpoor customer service, were not corrected. Research results suggested that thecampaign did not convey any feeling of warmth or caring. In response, for1984-1985, BA developed a follow-up advertisement to Manhattan Landingcalled Lunar Landing. The 1983-1984 campaign was subsequently re-rationalised as the first part of a multi-stage programme to rebuild BA's imagewith the Manhattan Landing advertisement designed as an attention-grabber.As part of the overall image programme, BA began changing the livery on itsentire fleet in 1984 (Harvard Business School, 1993).


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In 1995, in referring to its brand and service strategy, BA chairman Sir ColinMarshall made the point that ``service brands, like packaged-goods brands,need to be periodically refreshed to reinforce the message that the customer isreceiving superior value for money'' (Harvard Business Review, 1995). He wenton to add that refreshing a service is also a way to make sure that youperiodically reassess how the value you think you are delivering compares withthe value customers think you are delivering. In outlining BA's strategy, hemade the following point that: ``When we began, I thought the wear-out factorfor a service brand was somewhere in the five-year range. Now I am prettyconvinced that five years is about the maximum that you can go withoutrefreshing the brand'' (Harvard Business Review, 1995).

In elaborating its service brand philosophy, BA pointed out that refreshing aservice brand so the customer will really recognize the change requiressomething major (Harvard Business Review, 1995). This is unlike consumer

products, where refreshing the brand may only require different labelling. Itcannot be something superficial such as changing the colour of the menus. Asan example, when BA relaunched its Club Europe service in 1995, it includedsome of the best short-haul cuisine found anywhere in the world (to meet theneeds of the numerous culinary cultures across Europe) and added nine newairport lounges throughout Europe. In addition, BA wanted to create the mostergonomic short-haul seat around, a telephone check-in service, and a valet-parking service. According to BA, it was not competitive pressure thatcompelled it to do so. BA did it because it wanted to stay ahead so that it couldcontinue to win premium customers. As far as BA is concerned, refreshing its

brand also might include a complete revamp of in-flight entertainment. Forexample, when BA refreshed its World Traveller (economy class) brand in1994, it completely overhauled the audio and video channels. Since then BA islooking at interactive video services for its new Boeing 777s.

Major global airlines like BA and SIA have constantly striven to deliversuperior service and to meet the needs of their largely and increasingly moreinternational clientele of travellers. US airlines are now realising the need to doso.

Compared to non-US airlines like SIA or BA, most of the major US airlineshave not been very innovative or creative as far as branding and service are

concerned. The flying experience in the USA today is pretty ghastly byinternational standards. According to BA's extensive research conducted withUSAir (when the two were alliance partners), there were already very strongindications that many people in the USA were willing to pay a premium inorder not to be treated ``like cattle'' (Harvard Business Review, 1995). They wantto be respected and rewarded for their business and not just with frequent-flyermiles, which have become a commodity, a price of entry into the market. Thereis therefore the immense potential of revolutionising the US airline industryand creating an entirely new market segment of the industry. USAir has begun


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to implement this strategy with its new Business Select Service. UAL, longknown for its cost leadership in the world airline industry, has, however, takenover the mantle of service leadership in the US airline industry.

In a study commissioned by UAL in 1997 and conducted by strategyconsultancy The Cambridge Group, headquartered in Chicago, together withUK company MSB (Managing the Service Business), service has emerged as akey concern that must be addressed. The 1997 UAL study, one of the mostcomprehensive studies of US domestic and international air travel everundertaken, took nearly nine months to be completed, and included bothqualitative and quantitative primary research. Based upon the findings andrecommendations of the study, UAL has unveiled a new customer-driveninitiative that is set to revolutionalise the US airline industry and air travel inthe next five to ten years. If this succeeds, UAL could well join the ranks of SIAand BA in the club of ` branded'' airlines.

There are two facets to the business equation: costs and revenues. In the USairline industry, the focus has always tended to be on the former. Any businessthat focuses on one at the expense of the other is going to pay very heavily. Theairline industry is no exception. However, lead airlines like BA or SIA havebeen able to compete against cost-efficient airlines without undermining thebrand/service strategy on which their airlines have been built.

There are therefore different strategies on how one can compete in the airlinemass-market service business. One, the traditional US approach, is to think ofthe business as merely performing a function transporting people from point Ato point B on time and at the lowest possible price. This is the commodity mind-set, thinking of an airline as the bus of the skies. Another strategy to compete,

exemplified by SIA and BA, is to go beyond the function and compete on thebasis of providing an experience, and to make the process of flying from pointA to point B as comfortable and pleasant as possible. The thrust of such astrategy is that anyone can fly airplanes, but few organisations can excel inserving people. And because it is a competence that is hard to build, it is alsohard for competitors to copy or match.

The airline industry in the USA since its inception has always been a``commodity'' rather than a service industry. However, by 1998, there were clearindications that this is set to change, with a market segment within the USAclearly evolving into a service oriented market. This is in direct response tochanges in the US marketplace and society.

A new elite in the USA is emerging. This new class of the wealthy haslifestyles and habits different from those of the rich in earlier times. These,which include investment bankers, corporation lawyers, entrepreneurs, real-estate developers and entertainment moguls of today's business andprofessional elites, are in constant motion. They work and play on the run andare money-rich but time-poor. Rather than spend a fortune on fox hunts or longcruises, they spend a lot on what they need. These ranks of America's affluentare growing and the marketplace is responding creating superior spaces andservices for them (The Sunday Times, 1998a, p. 40).


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The economic impact of this on the US airline industry is that US airlines areearning more and more from these passengers in their domestic first andbusiness class seats than before. First and business class seats now account formore than 22 percent of US airlines' domestic passenger revenue, up from 9.5percent in 1987, according to the Air Transport Association (The SundayTimes, 1998a, p. 40). The result is that US airlines are expanding theiraccommodation for these travellers in the business and first classes with biggercabin seats and more flight attendants in service.

Strategic developments of the industryAt the international level, the past few years have seen the relentless trendtowards globalisation of the airline industry and the formation of greater andmore comprehensive airline strategic alliances/partnerships worldwide.Further industry consolidation within the three key geographical regions of theworld, viz. the USA, Europe and the Asia Pacific, are also in the offing.Collectively, these developments will precipitate the global consolidation of theindustry with the spectre of the emergence of global airline consortia/alliancesin the new millennium a distinct possibility. Building strategic alliances/partnerships has become necessary for airlines to stay competitive and gainaccess to a global market too huge for any existing airline to reach let alonedominate. They facilitate access and reach to a globalising industry. They areviewed by airlines as necessary and have become the fast-growing area ofcompetitive advantage since 1993 (Asian Business, 1997b, p. 22). Virtuallyevery major airline is involved in some kind of alliance/partnership or another.Some are in as many as 30 alliance/partnership, including linking up with two

directly competing rivals at the same time.The trend towards increasing airline alliance/partnerships is now evident.According to a survey conducted by Airline Business in 1997, there were onlyten such airline alliances in 1983. Three years later, in 1986, this number grewto 52. By the middle of 1997, the number has, however, proliferated to 363(Business Times, 1998, p. 2).

In terms of size, scope and scale, alliances are also increasing. Besides equityswaps, code-sharing, selling seats on each other's flights, many alliances nowinclude joint marketing, pooling of frequent flyer programmes as well asmutual access to airlines' airport lounges. In 1997, the largest ever alliance, theStar Alliance, was formed by the six partner airlines of UAL, Lufthansa, SAS,

Air Canada, Thai Airways and Varig (of Brazil). Its ranks are set to include AirNew Zealand and Ansett Australia. ANA, in addition, also indicated itsintention to join the alliance by October 1999. Star's formation was followed in1998 by the formation of Oneworld, a marketing alliance of American Airlines(AA), BA, Canadian Airlines, Cathay Pacific and Qantas. The global presenceand significance of both Star and Oneworld is depicted in Tables I and II.

Preceding these two major developments was the high profile BA and AAproposed alliance, first announced in 1996. Their intention and plans to marrytheir services across the Atlantic has attracted great attention and generated


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much interest from the outset. It saw BA dumping an earlier alliance forgedwith USAir for the AA deal. BA has since sold off its 24.6 percent shareholdingin USAir and ended an extensive operating alliance linking their networks. Thedeal is still under scrutiny and is being examined by US, UK and EU regulatoryauthorities.

The BA and AA alliance does not involve an equity swap, but aims tocombine operations on all transatlantic flights. According to the proposal, BAand AA will pool resources and possibly collaborate on pricing. At the heart ofthe deal is a code-sharing and schedule co-ordination arrangement. Code-

sharing, which is now very common in the airline industry, is often used toexpand the number of flights offered at only a low incremental cost. Byproviding access to each other's flight codes, two airlines can quickly increasethe number of flights they offer to customers/travellers, without having tonegotiate for extra airport slots. For example, with such code-sharing, if oneairline with weekly flights from City A to City B teams up with another with atwice-weekly service, sharing flight codes will enable both airlines to selltickets on each other's flights. As a result, both will be able to offer three flightsa week. Negotiating for extra airport slots, on the other hand, can be a difficult

CanadianAirlines AA BA

CathayPacific Qantas

Fleet size 131 856 330 62 145

Destinations 135 237 255 47 108

Countries 13 49 102 25 32

Passengers per year 11 million 41 million 41 million 10 million 19 million

Number of employees 16,111 100,500 60,675 14,800 28,900

Notes: Oneworld total: number of planes: 1,524; number of passengers: 122 million

Source: Straits Times (1998g, p. 12)Table

The Oneworld Allian

UAL Air Canada Varig Lufthansa SASThai

Airways

Fleet size 582 232 87 314 164 76

Destinations 140 118 71 300 104 72

Countries 28 25 23 89 34 37

Passengers peryear 84.1 million 16.5 million 9.9 million 41.4 million 20.8 million 13 million

Number ofemployees 94,178 24,000 17,812 57,391 22,500 14,800

Notes: Star Alliance total: number of planes: 1,455; number of passengers: 185.7 million

Source: Straits Times (1998g, p. 12)Table

The Star Allian


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and tricky business. There is, moreover, no guarantee of certain success. Forexample, Heathrow Airport in London is one of the most tightly controlledairports in the world. The lion's share of airport slots and terminal space issecured by BA. Historical precedence is the main criterion in the apportioningprocess. This, which is often referred to in the airline industry as ``grandfather'srights'', results in incumbent carriers currently ``entrenched'' or operating themost flights at an airport having the greatest advantage. Newcomers virtuallyhave little chance unless they have something else to trade with.

Alliances like Star, Oneworld and the proposed BA and AA alliance, willherald in a new era of strategic airline alliances/partnerships building, besidesthe obvious fact that such alliances will pose formidable threats to otherairlines not in such alliances. The Star Alliance, with its total of 1,455 planesand 185.7 million passengers, and Oneworld, with its total of 1,524 planes and122 million passengers appear to be the frontrunners of the truly global airlineconsortia to come.

Even tie-ups between two major airlines have significant implications for theentire industry. The BA and AA alliance, for instance, is highly significant inthat between them they control between 60 percent and 70 percent of thetransatlantic traffic. With this alliance, they will be able to give customers/travellers an unprecedented choice of transatlantic flights a choice otherairlines would find it hard to match.

From an industry-wide strategic perspective, key alliance developmentssuch as those of Star, Oneworld, or the BA-AA Alliance types have severalsignificant industry-wide implications. The first pertains to the co-ordination ofthe participating airlines' schedules to offer flights onwards to final

destinations beyond their common connecting legs between two partnerairlines. In the case of the BA and AA alliance, the common connecting leg isthe transatlantic leg. AA will be able to offer tickets on BA's network acrossEurope and onwards from London to destinations in Asia, such as Hong Kong,Singapore, etc. BA, on the other hand, will have access to hundreds of domesticUS flights that it is not able to provide under current regulations. In total, it isestimated that the two airlines could offer around 36,000 different routes. Thedirect threat that this will pose to other world airlines is obvious.

Second, although such alliances, if allowed to go through, will spawn greatercompetition and threat against other world airlines, it could be argued that non-participating airlines could potentially derive benefits, albeit indirectly and

further downstream. For instance, on the BA and AA alliance, the potentialbenefits to other world airlines, particularly Asian airlines with aspirations tobe major global airline players, could in fact be very great. This is becausethese Asian airlines present as obvious and necessary players to be courted byUS and European carriers with global dominance, vision and intent. Thereforethey can become key beneficiaries of such developments without having to paythe high and costly ` start-up'' costs for bringing this about, as can be seen fromthe current BA and AA alliance experience, which is still mired in protractedlegal and regulatory battles. Therefore, in contrast to the spontaneous ``cry-


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foul'' responses from US and UK airlines such as Virgin Atlantic Airways,USAir (the ``jilted'' partner), Continental Airlines and TWA, Asian airlines haveremained tight-lipped, reacted cautiously and have kept their cards close totheir chests. Their response will ultimately depend on how the final act willunfold.

Finally, if such alliances go ahead they may come together with specificcompetition provisions. Taking the case of the BA and AA alliance again as anexample, there may be the potential that, if the US, UK and EU authorities doallow the deal to go ahead, concessions or compensation for the BA and AAdomination of transatlantic routes at the outset of the deal could be arranged bythe opening-up of their airports as well as transatlantic skies to greatercompetition. SIA, an Asian airline with global vision and intent, for example,could potentially benefit, and would certainly take advantage of, suchopportunities. In June 1996, while in London to attend the signing ceremony forSIA's purchase of Rolls-Royce engines, SIA's CEO, Dr Cheong Choong Kong, tookthe opportunity to drive home the point to the UK government. In a speech atwhich the British deputy prime minister and trade minister, Mr Michael Heseltine,was present, he was quoted as saying: ``One possible way of restoring the balanceis to open the skies above the USA and the UK, not only to American and Britishcarriers, but also to airlines from third countries. SIA has been trying for manyyears to obtain transatlantic traffic rights from London, and we hope that ourrequest will finally be considered more favourably'' (Asian Business, 1996, p. 53).

All these alliance developments will precipitate further globalisation,deregulation and more ``open skies'', leading the industry a major step nearer tothe proliferation of global ` white-tail'' airlines, without individual brand

identities envisaged by some airline chiefs (Asian Business, 1997b, p. 22).SIA has always been in the forefront of strategic alliance/partnershipsbuilding. It has been pushing for increases in its intercontinental routes formany years now. To help expand its network of flights, it has code-sharingagreements with about 20 airlines, including key partnerships with DeltaAirlines and Swissair. SIA, Delta Airlines and Swissair are partners of theGlobal Excellence Alliance, each holding 5 percent equity stakes in the othertwo.

SIA's strategy thus far has been not to limit its possibilities to joining bigalliances such as Star or Oneworld. Although it is poised and can join Star, itappears to be weaving a virtual global alliance, centred upon itself, with strong

global/regional players, before making the next move. In this way, it cancollaborate rather than compete directly with as many strong players aspossible for mutual benefits.

In 1998, SIA completed a strategic tie-up with Lufthansa. With this, SIA hassecured a new strategic European gateway/hub in its international network,while Lufthansa will now have a strategic gateway in South East Asia. SIApassengers travelling between Singapore and Frankfurt now have more flightsfrom which to choose. According to the memorandum of understanding signedbetween SIA and Lufthansa, each airline has increased its frequency on the


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route from seven to ten a week, and passengers with an SIA or Lufthansa ticketcan travel on flights by either airline. Passengers who carry on beyondFrankfurt to New York's JFK International Airport can also enjoy this sharingarrangement. SIA said that its passengers can switch to Lufthansa's flightsbetween Frankfurt and destinations within Germany and throughout Europe inthe near future. Similarly, Lufthansa passengers can do the same for SIAflights between Singapore and destinations in Asia and Australasia. Besideshaving a wider range of flights, passengers can also enjoy seamless throughcheck-in service. This means that those who need to connect to another SIA orLufthansa flight need only check in once. Eligible passengers can also useeither airline's airport lounges. Lufthansa has moved from Terminal 1 toTerminal 2 to be with SIA at the Changi International Airport. SIA will movefrom Hall C to Hall B at Frankfurt Rhein-Main Airport at a later date.According to SIA: ``This will firmly establish the Singapore-Frankfurt route as

the premier trunk route between continental Europe and South East Asia.''(Straits Times, 1998h, p. 8). Lufthansa, on the other hand, noted that: ``Bycapitalising on each other's synergies and combined resources, both airlineswill continue to work closely together to enhance our customer services,including additional destinations, better connecting times and sharedamenities'' (Straits Times, 1998h, p. 8). The memorandum of understanding,signed in November 1997, is an expansion of a long-standing commercialrelationship between both airlines, which began in September 1989, when theyinitiated a freighter service between Singapore and Frankfurt.

On the Pacific end, SIA has also developed a code-sharing arrangement withAA, which will allow it access to US cities from its Pacific entry gateways such

as San Francisco, Los Angeles, and as far East as New York City.For its access to Australasia, SIA has developed an alliance with Air New

Zealand, Ansett Australia and Ansett International. The four-partner alliancecame into effect in August 1998 and serves more than 200 cities in 47 countries.It is the largest international partnership of airlines based in the Asia Pacific.

In October 1998, SIA announced its intention to form a strategic alliancewith SAS which would come into effect on 1 April 1999. The tie-up will allowSIA to offer efficient connections to and from destinations in Denmark, Norwayand Sweden via Copenhagen, and similarly to and from destinations acrossSAS's extensive European network, including the Baltics. Earlier, SIA

announced that it will take a stake in China Airlines, and also re-affirmed itsinterest in taking a stake in Thai Airways.BA, the other airline besides SIA widely considered an industry leader in

strategic alliance/partnership building, on its part has acquired a 25 percentstake in Qantas for its access to the Australasia market. Both BA and Qantasnow have a joint marketing and operating arrangement in South East Asia.However, Qantas's base in Australia is just too far away from the Asia Pacificregion to be really useful to BA. BA has long hoped to find a strong partner inAsia to build on its global vision and reach, but has not had the opportunities


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world's largest airline network, improving the competitive position of bothcarriers'' ( Airline Business, 1998a, p. 8). Delta and UAL estimate that theirimproved competitive position will reap an additional US$600 million annuallythat will benefit each partner equally. The UAL-Delta alliance will control some32 percent of total US airline traffic, while that of AA-US Airways andContinental-Northwest account for 25 percent and 17 percent, respectively(Airline Business, 1998b, p. 14).

In Europe, with the full deregulation of the airline industry more or lesscompleted this year, we are witnessing the emergence of a new competitivescenario triggered by incumbent powerful airlines consolidating their positionsand expanding their operations, and new carriers starting up services with agold-rush urgency. The scene is reminiscent of the US experience when the USdomestic market was deregulated. Already the substantial increase in linksbetween large carriers and smaller airlines have led to the observation that ``the

point may soon come where few such small airlines will remain entirelyindependent of a national carrier'' (Financial Times, 1998, p. 16). Previousexperience of the airline industry worldwide over the past 20 years ofderegulation suggests the prospects of an eventual shake-out of the industryand the subsequent consolidation by the strongest of players in the Europeanscene.

In the Asia Pacific, after a year-long slump in the Asian air travel market,brought on by the Asian financial turmoil and economic meltdown since July1997, many Asian airlines are now struggling to adapt to this unprecedentedcrisis which they can do little about, with some fighting just to survive.

Falls in Asian currencies have had a major impact on the airlines. Withtypically about 80 percent of carriers' costs denominated in US dollars, the fallsin Asian currencies have badly affected many airlines. Many carriers haveslashed costs by selling planes, retrenching staff and dropping routes. Somecarriers have also resorted to diverting airplanes to routes that will generateincome in US dollars. However, this has not necessarily translated to moretraffic. Fare-cutting has also cut into the airlines' profit margins.

In June 1998, the crisis in Asian skies claimed its first victim, Indonesiandomestic airline, Sempati. The rupiah had depreciated more than 80 percentagainst the US dollar over the past year. The Indonesian National Air Carriers

Association had also issued dire warnings that further collapses could follow.Indonesia's flag carrier, Garuda International, has announced plans to returnall its leased aircraft. The airline has a foreign debt of about US$200 million, ofwhich half is already due. There have been calls for Indonesian airlines to poolresources and combine domestic routes.

Philippines Airlines (PAL) and Korean Air are both selling planes. PAL'spresident Jose Antonio Garcia warned that closing down was an option forPAL as the airline sacked striking pilots and abandoned most of itsinternational routes in June 1998. The extent of Asia's woes can be best


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highlighted by the reported loss in August 1998 of HK$175 million for CathayPacific in the first half of 1998 the first time Cathay Pacific has lost money inits 50-year history.

The current crisis could create opportunities for the strongest players in theAsian market including Northwest Airlines, UAL, SIA and JAL to pick upsome cheap planes or expand their presence through acquisitions and alliances.With simply too many airlines for the existing competitive regime, thesestrongest carriers will benefit eventually from their rivals' cutbacks. Aconsolidation is therefore in the offing.

While traffic growth in Asia is now expected to be flat or even fall for 1999and possibly the following year, aviation experts still believe the region'seconomies will rebound, and the region will regain its position as the world'sfastest-growing market, possibly by year 2001 or 2002.

Strategic challenge No. 2: grand strategy at the global levelWhat do all these foregoing developments and changes regionally andinternationally point to? How are the airlines responding, and how should theyrespond strategically? The consensus in the airline industry seems to be thatboth competition and collaboration will soon be inevitable in all parts of theworld.

We can already see some of the major pieces of the strategic jigsaw puzzlefalling into place. Beside the macro view, it is useful to take an airline-centricperspective of what is happening. For example, SIA: it now has Lufthansa, SASand Swissair as strategic European partners, Delta and UAL as strategic USpartners, and Air New Zealand, Ansett Australia and Ansett International as

its strategic Australasia partners. Within Asia, SIA has also reported that itwill take a stake in China Airlines, and has indicated an interest in ThaiAirways.

In BA's case, in addition to its partners in Oneworld, it has AA as itsstrategic US partner, and Qantas as its strategic Australasian partner. ForLufthansa, besides the Star Alliance, it has SIA and JAL as its strategic Asianpartners, and UAL as its strategic US partner. For JAL, there is Lufthansa,KLM and AA as strategic partners.

From the point of view of US airlines like UAL, AA, Delta and Northwest,besides their strategic domestic partners, they also have strategic partners inSIA, BA, JAL, Lufthansa, KLM, etc., as the case may be.

A strategic picture is therefore emerging in which strong regional giantsare not only becoming stronger, but are also teaming up globally to formlarger and more formidable global partnerships/alliances. By the early 2000s,the process may converge into a state of a small number of strong andstrategically-networked global partnerships/alliances. Underpinning this isthe strong international wave of global mergers and acquisitions that haveswept through key global industries like financial services, informationtechnology, telecommunications, car manufacturing, shipping, etc., in recenttimes.


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The formation of such strong and strategic global airline partnerships/alliances will result in competition being elevated up to the highest levels. Thismeans that size will be of strategic significance, and will be used as a strategicweapon. With global consolidation occurring on a grand scale, only a smallnumber of consortia/alliances, each comprising lead airlines from all keyregions of the world, would ultimately supply most of the world's air transportdemand. These global consortia/alliances will wield considerable power, highlydifferentiating themselves, expanding their clientele base and market share.Faced with the competitive challenges among themselves, they will betransformed into lean and sleek marketing and strategy led powerhouses.

Competition among the small set of global players will keep the airlineindustry lean and efficient. Old style cartels are unlikely to return, but incertain respects the degree of control that these global players will be able toexert over their markets will show some resemblance to this. These globalplayers, drawing from the experiences of the past, will not rock the status quothey have so established, knowing how this can be mutually destructive anddisastrous.

One of the key challenges for these global players will be to offer andcompete on the basis of consistency/compatibility of products, servicestandards, and operational integrity throughout their global/strategic network.Oneworld appears better placed than Star to meet this challenge. A largelyAnglo-Saxon set-up, tackling this from an overall alliance perspective, wouldbe less complicated, compared to Star's less homogeneous multi-culturalcorporate set-up. However, Star's relative weakness in this becomes a relativestrength compared to Oneworld, in meeting the key challenge of developing an

intercultural corporate and service culture to service its internationalintercultural clientele and markets.The age of ``expedient and efficient seamless global air travel'' may soon

become a reality with the dovetailing of route networks, flight schedules andcode-sharing among the participating partners. Costs can be lowered andgrowth and revenue enhanced in these strategic arrangements. There is alsoimmense scope for invention, innovation and pushing out the competitivefrontiers in strategy, marketing and operations. Technological developmentcan also be spurred, from the introduction of new large or more advancedaircraft to implementation of more sophisticated and advanced ground-handling systems, including their integration globally among partner airlines.

Information technology can also be exploited in a cost-effective manner toderive greater competitive advantage.

The strategic competitive advantage of global networks and hubsKey to strategic global networking is the role played by strategic hubs. Thereare two fundamental methods of flight planning or organisation: point-to-pointand hub-and-spoke. Point-to-point involves flights directly connecting atraveller's origin and destination. For four cities in a network, point-to-pointrequires six roundtrips to offer complete service. A hub-and-spoke system, on


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the other hand, requires only three roundtrips for a network of four cities. Asthe number of cities in a network increases, there is a dramatic reduction in therequired number of aircraft. For a system of 25 cities, point-to-point requires300 roundtrips while hub-and-spoke requires only 24. Hub-and-spoke systemtherefore dramatically reduces the number of flights for coverage. Airlines canchannel the net excess capacity by offering increased frequency, move aircraftto tap new markets, or they can use bigger planes to increase efficiencyresulting in lower costs.

The hub-and-spoke system became the predominant way of organising travelafter deregulation in the USA some 20 years ago. Today it has developed toinclude the way air travel is being organised and run internationally. This is notsurprising considering the number of cities involved in international air travel.

Over the years, a combination of factors has led to the rise of several distinctstrategic aviation hubs in the various key regions of the world. These strategichubs include Singapore, Hong Kong, Tokyo and Sydney in the Asia Pacificregion; London, Paris, Frankfurt, Zurich and Amsterdam in Europe; and SanFrancisco, Los Angeles, New York and Chicago in the USA. These strategichubs share several common characteristics. First, they are inevitably the homebases of lead airlines on the world stage. These include SIA, Cathay Pacific,JAL and Qantas in Asia Pacific; BA, Air France, Lufthansa, Swissair and KLMin Europe; and UAL, Delta, Northwest and AA in the USA. Second, in themajority of cases, they command premium strategic locations within theirrespective regions. Finally, they boast of aviation/airport infrastructure thatprovide commensurate world-class services and support to their national flag/` home'' carriers and other airlines.

Table III summarises the rankings/ratings of some of the world's leadingairports.Strategic hubs increasingly will play strategic roles in the competitive

advantage of their respective national/``home'' airlines. With strategic alliances/partnerships on a global basis gathering pace and importance in strategiccompetitive advantage, airlines with and access to major strategic hubcompetitive advantage will become more and more attractive partners. Theycan better dictate the terms for joining strategic partnerships/alliances and arelikely to have more and better choices of partners/alliances.

Aviation hubs/airports in the West were generally developed much earlierthan those in Asian cities. In Europe, the key strategic hubs are London,

Frankfurt, Paris, Amsterdam, Zurich and Copenhagen. London, Paris andFrankfurt command strategic gateway locations into Europe either from theUSA or Asia Pacific. Those not endowed with such premium gateway locationscompensate with superior aviation/airport infrastructure, facilities or services.Amsterdam, Copenhagen and Zurich, which are in this category, have beenranked consistently second, third and fourth best airports in the world,respectively, in the past three years from 1995 to 1997. In the USA, the keystrategic hubs are San Francisco and Los Angeles in the West, and New Yorkand Chicago in the East. All four airports were ranked within the Top 30 in


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1997. In contrast, the development of a comparable network of aviation hubs/airports in Asia is much more recent, and it is in Asia that we will see the mostchanges and developments in the years to come, as it catches up with the West.

By virtue of their strategic locations and their current dominant positions,Tokyo, Hong Kong and Singapore are strategic hubs that can further dominatethe air travel scene in Asia in the new millennium.

Tokyo's Narita Airport suffers from severe congestion as well as trafficoverload. Expansion of its airport capacity is therefore a logical consequence.However, although the need for expansion of Narita Airport was wellrecognised, the Japanese government had been frustrated by the efforts ofmilitant environmental groups blocking all efforts so far in expanding NaritaAirport. Finally, a new US$14 billion airport on a man-made island near Osakahad to be built instead.

Strategically, from Hong Kong, one can reach half of the world's population

within a four-hour flight. However, Kai Tak Airport in Hong Kong is just ascongested and overloaded as Narita Airport. Expansion of airport capacity inHong Kong was a logical and pressing necessity. The US$21 billion project toexpand airport capacity that included a new airport and connecting roads to beconstructed was, however, hampered by squabbling over costs and bitterwrangling between the Chinese government and Hong Kong's UK overseers.As a result, Hong Kong's new airport, Chek Lap Kok could not be ready in timefor the colony's return to the People's Republic of China in 1997. It wascompleted in mid-1998 instead.

Airport 1995 1996 1997

Singapore 1 1 1

Hong Kong 26 24 20Tokyo Narita 31 27 26

Bangkok 24 28 25

Frankfurt 8 6 14

Amsterdam 2 2 2

Zurich 4 4 4

Paris CdC 19 17 19

London Heathrow 12 13 12

Sydney 9 9 9

San Francisco 15 14 13

Los Angeles 27 25 23

New York JFK 32 36 29

Vancouver 18 20 5Melbourne 7 7 8

Copenhagen 3 3 3

Chicago O'Hare 11 15 10

Osaka Kansai 6 5 6

Source: Business Traveller Asia Pacific (1997b)

Table III.Rankings/ratings ofleading airports


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The same strategic case can be made for Singapore, the third strategicaviation hub of Asia. It sits at the aviation crossroads of Asia. Travellers fromSouth Asia and South East Asia use the island-city as a gateway for trips toand from North East Asia, North America or Europe. Travellers from NorthEast Asia funnel through this city-state en-route to and from Australia or NewZealand. Australians and New Zealanders pass through it on their way to andfrom Europe or North America.

Changi Airport is home to SIA. It is the world's best airport, judging by thenumber of awards it has consistently won year after year. Clean, cool anduncluttered even at its busiest, Singapore's Changi Airport stands in markedcontrast to other airports in the region where crowds throng check-in andimmigration counters, where lounges are a heaving mass of humanity, and air-conditioning has all but given up the ghost. Most of Asia's industrialisingeconomies had placed properties and cars before customer-friendlyinfrastructure. Now with their weakened currencies, stock markets andeconomies, some grand improvement plans may have to be deferred.

Changi Airport's supremacy looks set to be unchallenged for now and up tothe mid-2000s. Only Hong Kong's Chep Lap Kok Airport looks capable ofmounting any serious challenge. However, even before Chep Lap Kok Airportwas completed and opened, Changi Airport had already announced plans in anext-stage bid to move further ahead. In 1997, the next-stage expansion plansfor Changi Airport were announced. Plans for the new Terminal 3 had in factbeen brought forward by a couple of years. With this, Changi Airport hopes tomaintain and even further increase the lead it has over the other airports.

In 1998, for the seventh year running, both Changi Airport and SIA were

voted the best airport and airline in the world, respectively, by BusinessTraveller Asia Pacific, which noted that ``the well-oiled and much-enviedtravel partnership of SIA and Changi Airport is something the likes of BA andHeathrow, Lufthansa and Frankfurt, Air France and CdG, and KLM andSchiphol would love to emulate but just cannot seem to get it right'' (BusinessTraveller Asia Pacific, 1998, p. 5).

Elsewhere throughout Asia a next wave challenge is, however, beinglaunched. There is no let-up in the growth and development of other Asianairports. New and bigger airports are coming up in cities across the Asia-Pacific, even as the region is reeling from its economic crisis. The new airport inKuala Lumpur was opened recently. Thailand and South Korea, although hit

hard by the economic turmoil, are continuing with plans for new airports, whileTaiwan, the Philippines and China are enlarging theirs over the next six years.The flurry of activity may seem out of line with the times as the number oftravellers across the region has shrunk drastically since July 1997, when thehigh-flying economies first started faltering. IATA has cut its growth forecastsfor Asia, predicting a 4.4 percent average yearly traffic growth for airports inthe Asia-Pacific region, down from 7.7 percent previously. Its earlier estimate ofsome 60 million passengers travelling in the region between 1997 and 2001 hasalso been slashed by half.


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In 1997, IATA, however, noted that airport expansion plans had been underway for the past ten to 20 years, and should not be seen solely in terms of thecurrent economic crunch. As the situation improves, traffic is expected to pickup again. It noted that `The basic potential of Asian countries is growing F F F 4.4percent is a decrease in forecasts but it is still a considerable growth rate''(Straits Times, 1998i, p. 16). This is one of the reasons why many cities aregoing ahead with their plans for expansion, despite the predictions of a drop intraffic levels in the near term. Also, many Asian airports are now operating farbeyond their capacities, resulting in bottlenecks and congested runways. Forexample, Beijing handled over 19 million people in 1996, 13 million more thanits airport was built to cope with. Hong Kong's Kai Tak and Kuala Lumpur'sSultan Abdul Aziz Shah airports were also running on overload, handling 125percent of their passenger capacities.

The new, large airports in the region will have the capacity to handle over

100 million passengers annually. As they will be able to take more flights, thecreation of new airports will stimulate air traffic growth in the region. Asidefrom sheer size, these new projects also have more luxurious facilities. Forinstance, Inchon Airport in Seoul will have a gym, an indoor golf course, aseaport and even a ``leisureport'' where fishing, yachting and gambling will beavailable. The new airports are seen as investments to the region. Biggerairports are necessary, as far as international travel in Asia is concerned. Thereis no other alternative mode of transport.

By the mid-2000s, a comprehensive network of hubs will have developed inAsia and with it a global network of clusters of hubs will be in place in all threemajor aviation blocs of the world, viz. the USA, Europe and the Asia Pacific.The lead global airlines of the new millennium must have significant presenceor access within each of these three blocs, as well as the major thoroughfaresbetween these blocs. The world's airline or air travel networks will thereforedevelop into global rings connecting the three main regions' clusters of hubs.

Future technological solutions and possibilitiesSingapore has always adopted an ` open-skies'' policy and has concluded manyopen-skies agreements with many countries. The open-skies agreement signedwith the USA in 1997 in particular offers tremendous growth opportunities forSIA in the longer term. SIA is now free to fly to any city in the USA, where

previously it was confined to ten.It can also fly from the USA to third country destinations, like SouthAmerica (fifth freedom rights). In addition, it can enter the USA from certainmajor hubs such as London, which were previously barred to it.

SIA's expansion into the US market has not been fully realised because ofexisting bilateral air agreements with intermediate countries where it makesrefuelling stops. It has to make a stop in North Asia or Europe for US westcoast and east coast destinations, respectively. Hitherto its solution is to pressfor more liberal bilateral air agreements between Singapore and these


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countries. Ultimately, SIA hopes that the growing number of liberal bilateralair agreements worldwide will lead to a global multilateral agreement underthe World Trade Organisation.

Meanwhile, in SIA's case, the next-stage solution seriously considered is tolook for an aircraft that can fly non-stop to the USA, which will open uptremendous opportunities for SIA. In 2002, this will materialise. SIA would bethe first airline to offer non-stop trans-Pacific flights between Southeast Asiaand the USA, when it receives the new A340-500 planes from Airbus Industrie.

The plane's super-long range capability would make it possible for SIA tofly non-stop to cities in North America, shaving off about 35 to 50 minutes offlight time. SIA's flight with the new aircraft is expected to be a 17-hour flightfrom Singapore to Los Angeles. Currently, SIA flights stop at Tokyo or Taipeibefore heading for Los Angeles. The flight time ranges from 17 and a quarterhours to nearly 18 hours (17 hours 50 minutes).

Another non-stop destination being considered is San Francisco, whichpassengers can reach in about 16 and a quarter hours. Currently, it takes nearly17 hours (16 hours 50 minutes to 17 hours 45 minutes with a transit stop inHong Kong or Seoul).

This development is significant for SIA in that it will offer convenient``seamless'' travelling which is far more important than just time saving for SIApassengers. With this, SIA can now reach all its important destinations in Asia,Europe and North America from Singapore without going through a thirdcountry.

Beyond the current conventional aircraft technologies, several excitingrevolutionary aircraft and spacecraft technologies have shown some promise,

and can profoundly change the nature of the airline industry and air travel, inthe long term.A US government research laboratory, Lawrence Livermore National

Laboratory, announced in September 1998 that is has come up with a newdesign for a hypersonic aircraft that can travel between any two cities in lessthan two hours by literally ``skipping'' across the atmosphere (Straits Times,1998j, p. 4).

The new aircraft design, dubbed ``HyperSoar,'' could fly at about 10,720kmper hour, or Mach 10, and would experience far less heat build-up on itsairframe than previous designs. The key to HyperSoar would be its ``skipping''motion along the edge of the Earth's atmosphere. After ascending to roughly

43,000m, just outside the atmosphere, the aircraft would turn off its air-breathing engine and coast back to the atmospheric edge. There, it would fireits engine again quickly and ` skip'' back into space.

In a news release, Livermore National Laboratory reported that ` Acommercial flight from the mid-western USA to Japan would require about 25such skips to complete the one and a half hour journey'' (Straits Times, 1998j,p. 4).

At the same time, a race for space as the next frontier for private transport isquietly heating up (The Sunday Times, 1998b, p. 6). The competition is,


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however, not between international superpowers, but between a handful ofscrappy start-up US companies. They are vying to build space planes androckets that would fly so cheaply, that costly government vehicles would lookprohibitively expensive in comparison. Even as NASA continues to rely on itshuge and complex shuttle system, costing US$400 million to US$600 millionper flight, these lean and mean space entrepreneurs are developing small,reusable vehicles that could haul satellites and other cargo into orbit atbargain-basement rates. Far from seeking subsidies, these pioneeringcompanies have openly spurned a government role. With minimal staff andcapital scraped together from adventurous investors, they aim for technologiesthat could ferry a satellite into orbit for US$2,000 per kg or less. The currentworld average is at least US$14,000 per kg. Which of these concepts willsurvive to produce profits is uncertain, but the demand for more launchers tosend private satellites into orbit has grown so large that reliable and cheaplaunches seem to have a bright future. The US Congress has just cleared awaysome of the obstacles by passing the Commercial Space Act. The lawmakerswho sponsored it hope that it will boost private US-space launchers, whichhave already lost business to low cost competitors from France, China, Japanand India. In 1998, NASA's Daniel Goldin told Congress that in the next tenyears he expects the government to turn over low Earth orbit operations toprivate businesses and focus the agency on research. It is unclear if this willlower NASA's spending much below the current US$13 billion per year,especially with the building of the international space station, but it wouldmean privatising most of space transport, says former congressman BobWalker who was among the earliest proponents of privatising space

operations.Elsewhere in the world, other players are joining in the race. Interfax, citinga Khrunichev Space Centre source, reported in September 1998, that Australiais contemplating building a space-launch site which would use Russianboosters. The Sydney-based Asia-Pacific Space Centre project envisages a newlaunch platform to be built on Christmas Island in the Pacific. The project,costing between US$600 million and US$900 million, is expected to becompleted in 2004 or 2005.

Space-based travel, when it materialises, could replace the current long-range relatively time-consuming travel between different regions of the globe.The world's space and air (aerospace) industry may thus see the development

of space hubs in combination with regional networks of airports, the former forinter-regional travel, the latter for intra-regional travel.

ConclusionOn the eve of the new millennium, air travel and the airline industry areundergoing a profound sea change. Within the key regions of the USA, Europeand Asia Pacific, the industry is expecting either imminent shakeout or furtherconsolidation. At the international level, there is the relentless trend towardsglobalisation of the industry. More and larger strategic alliances/partnerships are


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been formed by key airline players wanting global reach and access for anindustry too huge for any airline attempting to reach, let alone dominate. Thistrend towards strategic partnerships/alliances building is also to ensure survivalin a globalising industry where size and strategic global networking will becomemore and more important factors of strategic competitive advantage. At themacro strategic level, therefore, key airline players with global vision and intentmust strategise to expand their global international networks, choosing suitablestrategic partners and leveraging on the competitive advantage conferred bystrategic hubs. At the micro level, they will have to pay particular and constantattention to meeting the needs and demands of the more discerning anddemanding traveller. Branding and service will be a key competitive advantagedifferentiating airlines in the new millennium.

References

Asian Business (1996), `Partnerships up in the air'', August, p. 53.Asian Business (1997a), Àsia's most admired companies, 1997'', May, p. 24.

Asian Business (1997b), ` Going global'', May, p. 22.

Airline Business (1998a), ``Delta ties knot at last'', June, p. 8.

Airline Business (1998b), `Àmerican to bed US rival'', June, p. 14.

Asian Business Review (1996), `Àsia's great companies: why SIA is the world's most profitableairline'', December, p. 34.

Business Times (1998), Àirline industry: the good and bad of air alliances'', 20 January, p. 2.

Business Traveller Asia Pacific (1997a), ` Fast-lane flyers'', October, p. 3.

Business Traveller Asia Pacific (1997b), ``The cream of the crop'', October, p. 44.

Business Traveller Asia Pacific (1998), ` Up the poll once more'', October, p. 5.

Donofrio, S. (1996), ``Consolidation trend'', Travel Weekly, 16 June.

Financial Times (1998), ` Europe's skies freer'', 18 June, p. 16.

Fortune (1994), ` Air wars over Asia'', 4 April, p. 26.

Harvard Business Review (1995), ``Competing on customer service: an interview with BA's SirColin Marshall'', November/December, p. 100.

Harvard Business School (1989), ``Singapore Airlines (A)'', 9-687-022, Rev. 3/89.

Harvard Business School (1993), `Changing the culture at BA'', 9-491-009, September 13.

Southeast Asia Business World(1997), `Ùnited Airlines Launches New Customer Plan'', BusinessWorld Publishing Corporation (Philippines), 9 October, p. 22.

Straits Times (1997a), ``Singapore and SIA must adapt to meet competition'', 12 July, p. 56.

Straits Times (1997b), ` Changi Airport, SIA voted tops by travel magazine'', 10 September, p. 33.

Straits Times (1998a), ``SIA named top airline for seventh year in a row'', 2 October, p. 35.

Straits Times (1998b), ` BA to drop ethnic art tail designs'', 13 July, p. 52.

Straits Times (1998c), Èase up, BA tells àloof' stewardesses'', 7 July, p. 6.

Straits Times (1998d), ``Cathay to ride out turbulence'', 13 July, p. 42.

Straits Times (1998e), ``SIA to put new spin on airline cuisine'', 18 July, p. 3.

Straits Times (1998f), `No detail too small for SIA in revamp'', 12 September, p. 37.

Straits Times (1998g), `ÙpF F F up F F F and away '', 5 October, p. 12.


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Straits Times (1998h), ` Airline tie-up: more flights for SIA, Lufthansa'', 3 July, p. 8.

Straits Times (1998i), ``No let-up in growth of Asian airports'', 4 July, p. 16.

Straits Times (1998j), ``From LA to Tokyo in two hours'', 12 September, p. 4.

The Sunday Times (1997a), ``Even No. 1 must do better to stay ahead of the competition'', 24August, p. 3.

The Sunday Times (1997b), ` Non-Asian SIA girls? '', 24 August, p. 3.

The Sunday Times (1997c), ``Tailor-made in-flight service to usher in new era: an interview withSIA Chairman S. Dhanabalan'', 19 October, p. 32.

The Sunday Times (1998a), ``Catering to the new elite'', 19 April, p. 40.

The Sunday Times (1998b), ` Space: next frontier for private transport'' , 1 November, p. 6.

William Reed Ltd (1998), `Management: the importance of service'', 10 January, p. 6.

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