CASE: IB-34 DATE: 03/08/04

SINGAPORE AIRLINES: GLOBAL CHALLENGES

Our long-term aim is to be a group of airlines linked through common equity holdings. There are political difficulties, a whole range of difficulties. But it is a necessity because in the long term, we dont see any alternative for the airline company to grow, unless we reduce our reliance on revenues derived from operating out of a single base, Singapore. We still think there are lots of opportunities in the airline and in related businesses and we do not need to get out of this basic business. But if you stay with the airline business, in order to grow we will have to have ownership of other carriers, or we have to start airlines in other places. Dr. Cheong Choong Kong, Deputy Chairman and CEO 1

In March 2002, Singapore Airlines (SIA), recognized internationally for quality, profitability and management, was faced with the most difficult operating conditions it had ever had to face. Dr. Cheong Choong Kong, deputy chairman and CEO, gazed out his office window at the activity at Changi International Airport. He considered how he and his management committee would respond to the forces of globalization, regulatory adjustment, and the impact of terrorist attacks in America on the airline and the industry. Dr. Cheongs management committee was made up of long-time airline people including senior executive vice presidents Mr. Chew Choon Seng (administration) and Mr. Michael J N Tan (commercial), and relative newcomers: Mr. Bey Soo Khiang, executive vice president (technical) and Mr. Loh Meng See, senior vice president human resources. Their challenge: to position the airline for continued growth in a globalizing industry while maintaining the airlines loss-free record. SINGAPORE AIRLINES SIA was distinguished from other international airlines by its local context. Singapores small population and country size meant that, from the beginning, SIA had had to build a preference for the airline among foreign travelers over their own national carriers. In 2002, SIA carried over 15 million passengers on a route network that covered 91 destinations in 40 countries.

All quotations in this case, unless otherwise attributed, are from the authors interviews in March 2002.

Margot Sutherland prepared this case jointly with Professor Bruce McKern as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 2003 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: cwo@gsb.stanford.edu or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of the Stanford Graduate School of Business.

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Taking into account its alliance partners, SIAs service extended to 119 destinations in 41 countries (Exhibits 1 and 2). Since 1972, when the airline became a separate airline from the former Malaysia-Singapore Airline, SIAs management had successfully differentiated the airline from its competitors through its focus on top quality service (Exhibit 3). Joseph Pillay, the airline's chairman since its formation until 1996, described the airlines objective: SIAs goal from the outset was to offer superior service in every area, at competitive prices, while yielding a surplus to finance expansion and modernization, and to provide a satisfactory return to shareholders. All this while keeping employees satisfied, happy and motivated.2 The airline provided a standard of in-flight service that was admired worldwide. The Singapore Girl, recognized across the globe as an icon for service excellence, was part and parcel of a product offering made possible through a long chain of strategies, initiatives, and disciplined execution. Mr. Pillay: The SIA Girls high standard of service in the air inspired passengers to believe, correctly, that the airline excelled in all other departments that supported the quality cabin service, that is flight-deck competence, fleet maintenance and ground services.3 In 2002, Dr. Cheong credited SIAs historic focus on consistency for the airlines success: Through consistency we evolve a culture, and we reinforce that culture of customer awareness and care for the customer. We are consistent even in the matter of change we are always introducing new things into our product and into our service. An example of consistency is our advertising. We havent gone the way of other airlines in playing around with our logo, our colors, or the Pierre Balmain uniform.4 It works and its the same consistent message of good service, quality service, care for the passenger and, from the early 1980s on, technology. Using technology to serve the passenger. Technology in the form of the most modern fleet, the youngest fleet. Technology in the use of IT. Technology in the cabin with our in-flight entertainment system. Dr. Cheong, Mr. Tan and Mr. Chew were key factors in SIAs consistent approach, having guided the airline through turbulent times in earlier decades. In 2002, with a solid grounding in the airlines past, they set their sights on positioning SIA for the future. Mr. Tan: We are moving towards being, not just an international airline, but a global airline. Consolidations are taking place in the commercial aviation industry. It is
2

Speech by Mr. J Y Pillay, Chairman of Singapore Exchange Limited, at The Right Angle Seminar Rising above the crowd Maintaining your presence in a rough marketplace, Friday, March 15, 2002, p. 4. 3 Ibid., p. 6. 4 Pierre Balmain was the French couturier who designed the Singapore Airlines Girl sarong uniform in 1972.

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no longer adequate to be just where you are or what you were in the past. You have to look to the future. Of course the past is pretty important for us, and we have kept our focus on how the industry and market are developing. The new regulatory system is clearly one of liberalization. Dr. Cheong described SIAs strategy for dealing with the risks of global diversification: If you want to pursue your long-term objective of diversifying your streams of revenue and owning other airlines, youve got to take a risk. And if you take those risks on one or two occasions you are going to get hurt. The most important thing is that you dont bet the shop. You dont come close to betting the shop. So that if something happens, we are hurt, but we are never in any danger. Newcomers Loh and Bey outlined specific challenges the airline was facing in 2002: Growth: We used to grow about 20% a year 20 years ago, and about 15 years ago in the mid teens. And as we mature, we grow at 6 to 8%. So, how do we continue to get high growth? Acquisition is one of the strategies. But, we cant expect to get that kind of high rate of growth by simply acquiring any airline. We must be looking for airlines that are firstly in the growth stage, as we were, say 20 years ago. That kind of airline must have a very good product, in terms of sustainability, and good management. So in a sense we are trying to look for what we were like 20 years ago, and to invest in that airline so that, with a strong management, we dont have to be distracted or divert a lot of our managerial focus and attention on the acquired airline. Then we can focus on our own organic growth. So in that way we are not compromising or taking away anything from ourselves. (Bey) Managing Alliances: When you get into investment situations with your alliance or equity partners, how do you deal with partners that are so different from your own company? For example, Virgin,5 its a totally different relationship that you have to manage. Its very new. How do you get more people to be familiar with dealing with alliance and equity partners? Because of growing numbers and working with people coming from different cultures and backgrounds, we have to find better ways to manage these relationships. So we have a new division, Alliance and Partnerships, just to cater to those relationship issues that we want to get involved with. (Loh) Product Decisions [The terrorist attacks of] 9/11 require us to think about our service classes: first class, business class, two classes, three classes, two-and-one-half classes! What

Virgin Atlantic, in which SIA had acquired a 49% stake for S$1.6 billion in December, 1999.

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is it going to be? We still have to think about it. It may not stay three classes forever. (Loh) Globalization: The nature of flying is different now. In some instances, we havent realized that we are a global airline and we operated as though we were still a regional airline. Our systems were arranged to support regional operations rather than global ones, for example. We now realize the need for the company to review all aspects of operations and for the organizational structure to support a global airline. (Loh) Managing Discontinuous Change: The need for us to respond quickly is greater now. Its not what is happening, its how you respond to what is happening 90% of the time. Your response to it is going to make the material difference. So we need more agility, greater flexibility, and yet how do we communicate within the more complex organization? In the past, we could all go into a room and discuss it and that was it. So all this has changed and we have to respond to it, because we are an international company. These things are 24x7. These are the issues that we have to prepare ourselves for. (Loh) The International Airline Industry (IAI)6 The IAI was a service industry that provided various classes of passenger travel and freight transport. The industrys products were perishable and costs varied significantly between competitors. Counter-intuitively, substantial scale economies did not exist in the IAI (Exhibit 4). While larger aircraft had lower costs per passenger than smaller aircraft at the same load factor, economies of scale for a given aircraft on city-pair routes were quickly exhausted at moderate flight frequencies and even economies of scale within a single firm were exhausted shortly beyond a minimum efficient scale of five aircraft.7 As a result, competitive advantage in the IAI came from other areas. The differences between airlines which contributed to cost and profitability included the average stage length, with longer stages being generally more economical in cost per available tonne kilometer (ATK, a measure of capacity); the age of the aircraft fleet, with newer aircraft being more fuel-efficient to operate, but carrying heavier capital charges than older planes; the configuration of the route structure, including optimum use of hubs to collect passengers efficiently; the ability to provide passengers with connections to domestic services; access to low-priced fuel (size conferred bargaining power with suppliers); salary costs and, finally, distribution expenses. The quality of an airlines passenger service was a function of many factors, safety being first and foremost but rarely used for competitive advantage. Instead, quality measures such as
This section has been adapted from: R. Bruce McKern, Evolving Strategies in the International Airline Industry, Technical Report No. 77, Stanford Graduate School of Business, August 1990. 7 L.J. White, Economies of scale and the question of natural monopoly in the airline industry, Journal of Law and Commerce, pg. 44, 1979 and C.C. Finlay and P.J. Forsyth, Competitiveness in internationally traded services: the case of air transport, Canberra and Kuala Lumpur, Asean-Australia Working Paper No. 10, Australia National University, 1984.
6

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food, sleeping accommodations, cleanliness, on-time record, convenience of schedules and routes, and in-flight and ground service were important differentiators. Competitive strength in the industry depended on a few major factors. In the long run, competitive strength was based on control of costs and protection of the revenue stream, which depended on reputation, load factor and the mix of fare types. Although most carriers in the IAI provided a full range of fare classes, some degree of differentiation existed, especially in first and business classes. The choice of strategy was important, but airlines differed greatly in their ability to execute. The major variables were: personnel cost and efficiency, fuel efficiency and aircraft of appropriate capacity, yield management, configuration of the international network and traffic drawing power (benefiting from access to domestic feeder flights). SIA: Origins and Independence8 In pre-war Asia, Singapore was a critical geographical link in the chain of airports joining Europe with Australia, New Zealand and the European colonies in Southeast Asia. SIAs origins date back to 1936, when Malayan Airways (MA) was founded, and to 1947, when MA was reconstituted after the Japanese occupation. MA was a small regional airline that served Singapore, Kuala Lumpur, Ipoh and Penang. Initially controlled by the British Overseas Airways Corporation (BOAC was a predecessor to British Airways) and Qantas Airways, the airline quickly expanded to serve growing demand for air service within the British colonies as well as the rest of the region: Thailand, Indonesia, Burma and Indochina. In 1957 the airline was reorganized to reflect the new independence of its constituents, the governments of Singapore, Brunei, Malaya, Sarawak and British Borneo (the last three of which formed the Malaysian Federation). Following Singapores separation from Malaysia in 1965, the airlines equity and aircraft registrations were divided equally between the two governments, and it was renamed MalaysiaSingapore Airlines (MSA). Rapid international route expansion then ensued as the company expanded beyond its previous role as a purely regional carrier. Fourteen new destinations were added in Europe, the Middle East, and Asia between 1966 and 1969. The expansion in the route network brought to the fore differences in the national priorities of the airlines two owners; Singapore pushed for international connections and business while Malaysia wanted to concentrate primarily on developing domestic service between far flung members of its political Federation. In 1971, Malaysia and Singapore announced an agreement to form two separate flag carriers, and this became reality at the end of 1972, giving rise to Singapore Airlines. At its launch in 1972, the new national flag carrier had a modest fleet of 10 aircraft, a staff of 6,000, a route network spanning 22 cities in 18 countries and no domestic market to monopolize for profit. Nor could the fledgling airline rely on government bailouts: SIAs government shareholder made it clear from the outset that the airline had been set up to provide services and economic benefits, not prestige. Mr. Pillay credited this policy for SIAs success:

This section has been adapted from Singapore Airlines in the 90s, GSB No. S-IB-8, Rev. 6/92.

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One great advantage that SIA enjoyed was that the authorities were scrupulous in observing a hands-off policy. They did what every far-sighted government should do, in the way of creating an efficient infrastructure, negotiating traffic rights, preserving labor peace, and so forth. But there was no interference with SIA, and no subsidies. SIAs guiding imperative was that nobody owed us a living. Call it confidence, pride, hubris or whatever. We were determined to take on the competition entirely on our own.9 Looking back, Mr. Chew credited the dissolution of the Federation of Malaysia in 1965 and the withdrawal of British troops in the early 1970s with creating in the airlines employees an attitude that enabled them to overcome the difficulties of both the region and the airline, since both SIA and Singapore were left with few resources (Exhibit 5). Mr. Chew believed that the resilient, self-sufficient attitude engendered in the tiny islands people shaped SIAs culture: Once the British decided to pull up their roots from Asia, the economic outlook for Singapore was dire. We benefited from a very far-sighted government and very visionary political leadership that gave the sense to all that we could pull ourselves up. Not for Singapore to go to the World Bank or the UN asking for Third World aid. We were going to find our own place in the sun, and we knew nobody owed us anything. So that sense of identity and understanding is very deep rooted here. And gratifyingly, people who join the airline either buy in or very soon after they quit. I think that most human beings in the world, if they dont have an easy option, accept that the world doesnt owe them a living. You make your own living. So, you want to join this business? This business is a service business. We transport people, we make the travel convenient, comfortable, reliable and a pleasant experience. For our employees, we ask them to do so and to smile! When people need help, help them, dont walk away! At the end of the day, the service culture is very fundamental. Growth and Privatization Growth at SIA was rapid. SIAs network of destination cities jumped from 22 destinations in 18 countries in 1972 to 57 cities in 37 countries in 1989 and, in 2001, to 119 cities in 41 countries. Increases in revenue and profit growth were equally dramatic. From 1972-73 to 1983-84, SIAs revenue increased eight-fold from S$340 million to S$2.7 billion, an average annual growth rate of 21%. Revenue growth slowed to 8.5% per annum in the late 1980s. In 1985, as part of a privatization program to improve the efficiency of profitable state-owned companies, the Singapore government reduced its holding to 63% through floating shares on the Singapore stock market, sold stock to employees, and made private share placements overseas. In the following years the government further reduced its holdings to 56% and increased the foreign ownership maximum to 27.5%. Profitability increased in the 1980s from S$96 million in fiscal 1983-84 to almost S$1 billion in fiscal 1989. Revenue growth slowed again through the 1990s to 7.5% per annum. In the mid9

J Y Pillay, op. cit., p. 4.

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90s, SIA was challenged by the Asian economic crisis, along with all the airlines in the Asia Pacific region. Across Asia, the currency turmoil and business slowdown caused a steep decline in passenger traffic. Also, tourists were deterred from visiting Southeast Asia by smoke haze from burning forests in Indonesia. The recession, which coincided with capacity increases by many airlines in the region, caused air traffic in the Asia Pacific to decline by 7.6% in 1998 from 1997 levels.10 SIA dealt with the impact on yields and capacity by shifting capacity to European, U.S., Australasian and Indian routes less affected by the crisis and by deferring the delivery of aircraft to better match capacity with demand. Wages were frozen and rolled back one wage increment.11 Dr. Cheong described SIAs ability to control staff cost: Because of the structure of our wages a lot of it is variable, so that if we have no profits, we have no bonuses we are able to save a lot of money. Now that is an example of everybody pulling in the same direction. Not only management, but the workers right down the line. When they see a problem they cooperate. You can see what is happening in other places where, despite the problems, there are strikes and disagreements with the unions. Now this is not to say that Ive an easy time with the unions, but the most important difference is that we have never gone to a strike. We have bitter disagreements. We even end up in industrial arbitration court, but a strike, I think to both parties, to management and unions, is unimaginable. Somehow we know that we will reach resolution. At the same time that SIA dealt with the problems in Asia, management kept their focus on positioning the carrier to compete in the future when air traffic resumed projected growth trends (Figure 1.0). By 2000, the company had emerged from the Asian economic crisis positioned to reap the benefits of global scale and scope, having made investments in product upgrades, established orders for new aircraft and developed several alliances. Having regularly received many awards for excellence, SIA was ranked as the worlds most admired airline in Fortune magazines annual survey for the first time in October 2000 (Exhibit 3). The achievement was tarnished later in the same month when pilot error caused Flight 006 to taxi down a closed runway in Taipei and collide with construction equipment. The tragedy ended the airlines accident free record.12 By the end of fiscal year 2000/01, profits had rebounded from the Asian crisis (Exhibits 6 and 7). SIAs operating profit after tax reached S$1,339 million, but late in the year, the slowdown in the U.S. economy and a downturn in the global electronics sector dampened demand for air traffic. For the nine months leading up to September 2001, freight traffic for the Asia Pacific region fell

Figure quoted from Boeing 1999 report in Tae Hoon Oum and Chunyan Yu, Shaping Air Transport in Asia Pacific, Ashgate Publishing Company, Vermont, 2000, p. 201. 11 The rollback was stopped when the airlines situation improved. 12 Taiwans Aviation Safety Council report on the SQ006 accident cited loss of pilot situational awareness. Singapores Ministry of Transport concluded that the accident was a failure of the aviation system, the result of a combination of contributory factors, with airport deficiencies playing a sizeable role. Frances Fiorino, SIA Flight 006 Viewed as Aviation System Failure, Aviation Week & Space Technology, New York, May 6, 2002, vol.156, issue 18, p. 42-43.

10

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by 8.5% from the previous year. Passenger traffic was slightly more resilient, growing 2.8% for the first six months of 2001.13
Figure 1.0: SIA Revenue and Expenditure Growth and Increase in Distance Flown and Destination Cities

10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
19 8 19 0/8 8 1 19 1/8 8 2 19 2/8 83 3 19 /8 84 4 19 /8 8 5 19 5/8 8 6 19 6/8 8 7 19 7/8 8 8 19 8/8 8 9 19 9/9 90 0 19 /9 91 1 19 /9 9 2 19 2/9 9 3 19 3/9 9 4 19 4/9 9 5 19 5/9 9 6 19 6/9 97 7 19 /9 9 8 19 8/9 9 9 20 9/0 00 0 /0 1

400 350 300 250 200 150 100 50 0

Distance flown (million km) Total revenue ($ million) September 11, 2001

Destination cities (no.) Total expenditure ($ million)

On September 11, 2001, a difficult year turned into a crisis when terrorists hijacked four American planes and used them as missiles in attacks on the World Trade Center and the Pentagon. Mr. Bey: One would not imagine ten years ago that I could be watching the destruction of the twin towers live, literally as it is happening in New York. And in the meantime the impact just worked itself overnight into the system. The next day you see passengers and cargo loads drop across the Pacific and Atlantic. (Exhibit 8) In the aftermath of 9/11, decisions were reassessed and a plan was developed to ride out the most difficult times the airline had ever encountered. SIA worked to control costs and maintain service quality while insurance premiums escalated and load factors fell. In response to falling load factors, especially on routes to the U.S., services were reduced, or suspended altogether. SIA suspended services to Pakistan in late September, and services to Kota Kinabalu and Kuching in Malaysia, as well as services to Macau, in October. In January 2002, SIA suspended SIAs three-times-weekly Singapore-Amsterdam-Chicago service.
13

Geoffrey Thomas, Wanted: Another Asian miracle, Air Transport World, January 2002, vol. 39, issue 1, p. 35.

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All but the most essential projects were deferred or cancelled. SIA kept the development of new service amenities, the Raffles Class (Business Class) SpaceBed, an innovative seat which reclined to become a bed and the installation of a new inflight entertainment system with audio and video on demand, on track. Delivery dates for ten A340-500, five B777s and one B747-400 freighter aircraft were deferred. The company credited the efforts put in by SIAs staff for the airlines ability to overcome the turbulence created by 9/11 as the traveling public opted to reduce air travel. The board and senior management volunteered a reduction in wages and directors fees. Managers accepted salary reductions of between 7 and 15 percent. All other staff followed suit, agreeing to wage cuts of 2.5 to 5 percent. Staff recruitment was put on hold and 114 trainees undergoing cabin crew training were released. By March 2002, SIA had restored nearly all of the services it had suspended after 9/11 and had increased services to points in Australia and China. Dr. Cheongs management team, having weathered the immediate crisis, was able to focus once again on the long-term strategy, which was to become a global company. Related Businesses Over the years, SIA had broadened the scope of its activities. In 2001, there were 25 subsidiaries in the SIA Group (Exhibit 9). Primary among them were Singapore Airport Terminal Services Group (SATS), SIA Engineering Company (SIAEC) and SilkAir (SIAs regional airline) which, in fiscal year 2001, contributed 10%, 6.6% and 1% respectively to the Groups profit after tax, while airline operations contributed 81.9% (Exhibits 10 and 11). The airline employed 14,744 in 2000/01, and the subsidiaries employed another 14,370 people. Singapore Airport Terminal Services Group (SATS) SATS was an airport ground handling agent with over 50 years of experience. SATS provided services for 48 scheduled airlines operating through Changi Airport. Services included airport services, catering, security services, aircraft maintenance services, and flight operations and crew administration. SilkAir SilkAir (originally named Tradewinds) was established by SIA in 1975 as the tour and travel arm of Singapore Airlines. The regional airline commenced service in 1989, and in 2001 had a fleet of nine aircraft (five A320-200s and four A319-100s), linking 18 cities in 8 Asian countries (Exhibit 1). SIA Engineering Company (SIAEC) SIAEC was formed in 1992 from the engineering division of SIA. The company, which operated out of facilities at Changi Airport, provided engineering services to over 60 airlines and 30 aviation companies. In 2001 SIAEC announced a plan to invest S$90 million for two new hangars at Changi to house the new A380 aircraft, planned to enter service in 2006. Following SIAs strategy of being in the forefront of new developments and technology, SIAECs objective

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was to reinforce its position as the regions leading maintenance, repair and overhaul facility for aircraft, using new technologies. In 2001, the SIA Group made significant steps toward its goal of becoming a global group of airline and airline-related companies.14 Initial public offerings of SIAEC and SATS were made and each company listed 13% of its shares on the Singapore Exchange. SIA Cargo was incorporated as an independent subsidiary in July 2001 and embarked on a new project, New Global Cargo, with Lufthansa and SAS Cargo in order to provide seamless carriage of airfreight throughout their combined cargo network. Mr. Bey: By spinning off the subsidiaries, we want to decentralize the decision-making process so that the subsidiaries have more autonomy and can maintain responsiveness. We want them to exploit the use of the assets to third party customers otherwise, they are comfortable just having the airline as their main customer. To date, the subsidiary arrangement has resulted in a more arms-length approach in the way we deal with each other. There are still transfer pricing issues to be resolved. It all derives from the way we grew from being a small airline to a medium-sized airline. When you are small, people work very well together and colleagues are happy to do things for each other. But a medium-sized company cant support that. You have to be well-structured and well-organized and meet all the key performance targets. Thats creating a bit of a problem. Alliances and Equity Partnerships Global Excellence Alliance In 1989, SIA pioneered one of the first alliances in the industry, the Global Excellence Alliance (GEC), with Delta Airlines of the U.S. and Swissair. Dr. Cheong: The raison dtre of alliances was to circumvent regulatory barriers. Thats how alliances really started. Take a European airline, for example. It doesnt have the pick-up rights to fly a passenger, say from New York to Los Angeles. Thats called cabotage,15 thats confined, thats reserved for U.S. carriers. So, to circumvent that we could have an agreement with a U.S. carrier and, through code sharing, we could have, in a vicarious fashion, access to the whole U.S. domestic network. It benefits both parties to the alliance because the U.S. partner can then have access to the European network, through its European partner. Thats how it started. Of course, it was particularly of interest to SIA. The alliance bound the three airlines together through small cross-equity stakes of 5% (Delta) and 2% (Swissair). The airlines planned to benefit from increased sales as a result of coordinated schedules, savings from coordinated aircraft purchases, additional savings and increased flexibility from sharing ground-handling facilities and exchanging cabin crews and
14 15

Singapore Airlines Annual Report 99/00, p. 10. Cabotage: the right to carry traffic between two points in a foreign country (Exhibit 12).

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finally, savings from sharing sales and checking office costs. The alliance was complemented by a 1991 agreement between Singapore and the U.S. to allow SIA to fly across the Atlantic to four U.S. destinations, enabling SIA to offer around-the-world service (but not allowing cabotage inside the U.S.). By 1992, the airlines of the GEC had united their computer systems and passengers could make, confirm or change reservations at any ticket office run by one of the three partners. Passages To further extend SIAs marketing reach, in 1993 the airline joined with Cathay Pacific and Malaysia Airlines to launch Passages, a joint frequent flier program for business and first class passengers. In 1998/99, SIA expanded Passages to customers on all classes and renamed the program KrisFlyer. SIA and Australia: Ansett and Qantas SIA had an interest in obtaining a stake in an Australian airline to extend its reach and garner a larger share of traffic along the Kangaroo Route, from Australia and New Zealand, through Singapore and on to Europe. Ansett Airlines was an attractive potential partner, as it shared the Australian domestic market with Qantas (after Qantas acquired the government-owned domestic carrier, Australian Airlines in 1992). SIA tried to secure a stake in Ansett in 1991 and Qantas in 1994, without success. Alliance agreements proved to be easier to negotiate and in July of 1997, Air New Zealand (ANZ), Ansett and SIA signed a tripartite alliance agreement. In March of 1999, SIA bid US$250 million for a 50 percent stake of Ansett which, at that time, was owned by News Corp. SIA was unsuccessful in its bid because Air New Zealand, the other 50 percent owner of Ansett, exercised a pre-emptive right to buy the News Corp. stake, blocking SIAs bid. ANZ bought News Corp.s stake for US$340 million in February 2000. Investment in Air New Zealand After ANZ bought News Corp.s stake in Ansett, SIA turned its attention to ANZ and in April 2000, SIA completed the purchase of a 25% stake in ANZ, the maximum percentage that a single foreign airline could own under the New Zealand governments regulations. In September 2001, with Ansett seriously failing, ANZ put the carrier in administration.16 In October of 2001, SIAs stake in ANZ was reduced to 6.47% following a recapitalization package in which the New Zealand government invested NZ$885 million in ANZ.17 Lufthansa In November 1997, SIA had announced a new strategic alliance with Lufthansa and the simultaneous dissolution of the GEC. The GEC alliance was dissolved because the three partners had different aspirations. Delta had problems with its cost structure and was focused on growing in the U.S., rather than engaging more deeply with SIA. Swissair was distracted by the integration process within the EU. The new alliance with Lufthansa was an expansion of a commercial relationship that began when joint freighter services were introduced in 1989. The
For a chronology of the airlines demise, see: Geoffrey Thomas, Recipe for disaster , Air Transport World, November 2001 vol. 38, issue 11, p.50-58., 17 The investment in ANZ was divided into new ordinary shares and new convertible preference shares. If the new convertible preference shares were subsequently converted into ordinary shares, SIAs equity interest in ANZ would fall to 4.5%.
16

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agreement included Lufthansas use of Changi Airport as their hub for Southeast Asian and Australasian traffic and SIAs use of Frankfurt as its hub for continental Europe. Alliances with SAS, United, Air New Zealand, Ansett and Air Canada followed. Star Alliance In 1999, SIA set a new strategic direction: to become a key member of a global group of airline and airline-related companies. A cornerstone of the strategy was laid in October 1999 when SIA announced it would join the Star Alliance, founded in 1996 by Lufthansa, United, Thai Airways, Air Canada and SAS. SIAs objective was to provide customers with a wider range of seamless travel options on a global scale and the ability to accrue frequent flyer benefits on many more flights. Acquisition of Virgin Atlantic In December 1999, SIA announced the purchase of a 49% stake for S$1.6 billion in Virgin Atlantic, the holding company of Virgin Atlantic Airways, a private, unallied British airline. The deal gave Singapore Airlines indirect participation in traffic between London Heathrow airport and the U.S. Mr. Bey: We looked for an airline similar to the SIA of the 60s or 70s where management was strong, the airline had a good product, and there is potential for high growth. Virgin is one of the airlines that fits this profile, besides Air New Zealand or Ansett. On top of that, Virgin has a network across the Atlantic that complements our own network. The purchase gave SIA a flying start as it seeks to become a global group of airline and airlinerelated businesses in the new century.18 In October 2001, SIA and Virgin launched their first codeshare service between London and Singapore. (See Table 1.0 for a summary of SIAs alliance and equity partners.) In addition to these opportunities, SIA considered equity participation in Air India, Taiwans China Airlines, South African Airways (SAA), Cambodias Royal Air Cambodge and Thai Airways International, but later decided against making these investments. SIA had several criteria that had to be met before it expanded through acquisition. The target partner had to be a good airline with strong management and a route network that complemented SIAs route network. In addition, the target needed to be poised to mature at a high growth rate, if provided with the capital for expansion. Finally, Singapore Airlines had to be well-perceived in the targets local political environment, which required SIA to have a good understanding of who the players were and how they were likely react to a bid from SIA. The management committee needed to ascertain what the targets home governments criteria were likely to be and whether or not SIA would be able to acquire meaningful management control. Concerns for both parties included the percent of the domestic market the acquired airline might command, the optimal degree of foreign ownership the government would allow, the impact of the acquired carrier on the market share of the countrys national carriers and the growth prospects of the acquisition target. Dr. Cheong commented on SIAs experience in attempting acquisitions:
18

Singapore Airlines Annual Report 99/00, p. 10.

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What we have learned is that we should try to ensure that we have as much influence as possible before we buy in. But that is a hard thing to do. If you are too dogmatic about that, you will never be able to take an equity stake, because in many cases you just cant do it. They wont let you in. And therefore its a matter of risk. Global Scale and Scope By March 2002, SIA had emerged from the industry crisis positioned to reap the benefits of global scale and scope. As the Star Alliances 11th member, SIA offered travelers access to a global network, more travel options, seamless check-in, joint fare products, harmonized timetables to minimize inconvenience for connecting flights, access to 894 airports in 119 countries, access to over 500 lounges, frequent flyer miles on any member airline, world-wide recognition of status priority reservation, standby and priority boarding for Star Alliance Gold members, priority baggage handling for Gold members and first and business class travelers, and the most flexible round the world fares.
1.0: SIAs Alliance and Equity Partners Year Countries served (Countries served when alliance partners are included) 40 (41) Cities served (Cities served when alliance partners are included) 91 (119) New Alliance Partners New Equity Partners

00/01

Star Alliance: Air Canada Air New Zealand Ansett Group ANA All Nippon Airways Australian Airlines Group British Midland Lufthansa Mexicana SAS Thai United Varig United Airlines, SAS Lufthansa Tripartite alliance with Air New Zealand (ANZ) and Ansett, Dissolution of Global Excellence Alliance Global Excellence Alliance

25% Air New Zealand

99/00 98/99 97/98

42 (42) 42 41

92 (118) 110 77

49% Virgin Atlantic

89/90

37

57

5% Delta, 2% Swissair

A central question for SIA was how alliances would evolve in the future. Dr. Cheong and his management committee questioned the degree to which alliances would remain rooted in

Singapore Airlines IB-34

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national companies and to what degree there would be cross-equity ownership and cross-border consolidation of airlines. Industry observers wondered whether alliances represented the ultimate evolution of the industry or simply a stepping stone to another form of organization. Fleet Development Aggressive and continual fleet expansion had been an integral part of SIAs corporate goals since 1972 when the company acquired two Boeing 747s, and became the first Asian airline outside Japan to operate the long-haul, large-capacity aircraft. By 1977, SIAs fleet had expanded to seven B747s, three B-727s, ten B-707s and five B-737s, with four DC-10s on order. In 1978, SIA placed the largest single order ever made by an airline at that date, US$1 billion for a package of ten new B747s and four B727s. A year later, six Airbus A300s were ordered. Early expansion weighed heavily on the companys balance sheet. The debt to equity ratio topped 4:1 during the late 1970s, a very risky course if new passengers did not fill the new planes flying on new routes. However, SIA management pursued a strategy that filled the planes and generated profits, a strategy not popular with most airlines in the Asia Pacific region in the 1970s, which were heavily subsidized by their governments. Mr. Pillay described the competitive environment: A subsidized entity is, almost by definition, a flaccid, supine organization. SIA, therefore, did not really have to face severe competition until the authorities in more and more countries got religion, the religion of the market economy. A great advantage SIA enjoyed three decades ago was the ability to cock-a-snook19 at the competition. The major carriers in the industry, together with their campfollowers, suffered from a self-imposed constraint, through IATA, the International Air Transport Association, to offer uniform standards of service and fixed tariffs.20 Not being a member of IATA, SIA led the way in pioneering quality innovations in the cabin, allied to flexible pricing in the marketplace.21 In September 2000, SIA was once again poised to extend the airlines reach and capacity and placed orders for 25 super jumbo A380-800 aircraft (10 firm, 15 on option) for US$8.6 billion. SIA planned to be the first airline to launch the A380 for travel on high-density routes to London, Los Angeles, New York, San Francisco and Sydney between 2006 and 2011, replacing B747-400s. The A380, with a range of 8000 nautical miles, could use the same airport slots as the B747-400, seat up to 555 passengers (resulting in a 30% increase in capacity) and provide lower unit costs, as long as the airline had sufficient demand for the aircraft. Mr. Tan described how SIA planned to take advantage of the larger cabin of the A380: We will create something special for the passenger, something innovative. SIA planned to have an exceptional first class on the A380 and business and economy classes, and was considering a super economy class for the aircraft.

Cock-a-snook is a gesture of derision and contempt. The International Air Transport Association (IATA), founded in 1945, set fares for international routes. IATAs decisions were subject to government veto. 21 J Y Pillay, op. cit., p.5.
20

19

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In October 2000, SIA placed orders for six B747-400s (seating between 416 and 524 passengers). These planes could be delivered configured as either passenger or freighter aircraft at SIAs option and had a range of 8,400 miles. In February 2001, the airline placed orders for twenty B777-200 aircraft (10 firm, 10 on option) to replace the companys A310-300s (seating 220 passengers) that were used on regional routes, and to cater for growth. The B777-200 seated between 288 (in a three-class configuration) and 323 (in a two-class configuration) passengers and had a range of 5,210 nautical miles, while the extended range (ER) version of the aircraft cruised up to 7,730 nautical miles.22 Finally, SIA planned to put the A340-500, which seated up to 250 passengers, into service in late 2003 or early in 2004. With a range of 8,650 nautical miles, the aircraft could fly further than any other aircraft, enabling non-stop flights from Southeast Asia to the U.S. SIA planned to introduce the aircraft on the Singapore-Los Angeles route. To create comfort for passengers on this flight, SIA intended to divide the aircraft into two classes, super-business and supereconomy, reduce the number of economy seats across the aircraft from 8 to 7, and lengthen the seat pitch from 33 inches to 37 inches. With the more spacious configuration, the aircraft would accommodate 190 passengers. Mr. Tan described the rationale behind SIAs adoption of the A340-500: Right now, we are constrained by other countries withholding fifth freedom rights.23 We do not want to depend on others giving us traffic rights enroute to the U.S., so instead, we have decided to offer this point-to-point service. If we still continue the same way, the traditional way, of one stop to the U.S., then we will not have provided an improvement in service. Other airlines will still be operating the traditional way, with one stop, whereas we will open a new market, and when you open a new market you can also get a more effective way of marketing traffic beyond Singapore. You will soon have only one stop for going from North America, beyond Singapore, and onto other southeast Asian cities and the subcontinent of India. In March 2002, SIAs operating fleet, excluding freighters, consisted of 93 aircraft with a further 42 on order and 52 on option (Exhibit 13). The average fleet age was 69 months (Exhibit 14). Yet, the airline had begun to feel pressure from competitors. Mr. Tan: Our competitors also operate the 747 and the 777. Even the Chinese airlines have all brand new aircraft. Of course not many airlines will be able to buy the A380, the next generation super jumbo. I think there are only six airlines so far that have committed themselves to the A380. Regular investment in new aircraft provided SIA with both operational and commercial advantages. New planes were less expensive to maintain and more efficient, resulting in savings
SIA also operated the B777-300 which seated 332 passengers in a three-class configuration. At the Chicago Convention in 1944, world wide agreement on five freedoms of the air, international aviations equivalent to the rules of the road, was achieved. The fifth freedom is the right to land in another country and deplane or board passengers going to or coming from a third country (Exhibit 12).
23 22

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in fuel and operating costs. Newer planes with fewer unforeseen maintenance problems had better records for safety and on-time performance and also provided strong motivation for pilots, who wanted to fly the latest technology. From a commercial perspective, new generation aircraft incorporated substantial advances in passenger comfort and safety. These included more comfortable seats, greater leg room and headroom, advanced audio and video services and better ventilation and temperature control. Newer aircraft were faster and had longer ranges. Being the first to place orders for new aircraft ensured that SIA would be among the first to put them into service, creating a substantial advantage over competitors farther back in the order queue. It also meant greater negotiating clout with the aircraft vendors. SIA preferred to own aircraft outright, claiming that excess capacity could be disposed of expeditiously if a rapid downturn occurred within the economy.24 SIA was active in the used-aircraft market, having sold off over 69 of its older aircraft for more than US$1.69 billion in the previous two decades.25 Product Innovation SIA had been a leader from the beginning in providing in-flight service and comfort and strove to make air travel enjoyable for passengers. The airline had been among the first to provide free in-flight drinks and entertainment and continually repositioned its first, business and economy class, setting new standards of comfort, entertainment and food quality for passengers. In 1998/99, the airline introduced a S$500 million product upgrade across all three classes of travel. The upgrade was the end result of two years of research and planning and featured new seats, refurbished cabins and a complete overhaul of in-flight service. In first class, the upgrade provided travelers with a new seat, the SkySuite, on B747-400s. The seat converted into a fully reclining bed, complete with duvet. The additional room for the SkySuite was achieved by reducing seating in the first class cabin from 16 to 12. To allow passengers to have their meals when they wanted during the flight, SIA created restaurantstyle service in first class. In Raffles class, SIA introduced the Ultimo seat which offered an extended seat pitch of 52 inches. Economy class seats included adjustable footrests and head rests. The in-flight entertainment system, Krisworld, offered all passengers 22 video and 12 audio channels as well as Nintendo games. In 1999/00, SIA upgraded the in-flight entertainment system in First and Raffles class. The upgraded system, dubbed Wisemen, provided audio-video on demand and offered passengers 25 movies, 50 short features, computer games, and 50 audio CD choices. To make check-in simple for passengers, SIA launched Mobile Services in 2000/01, allowing passengers to obtain flight information anywhere anytime using WAP phones and personal digital assistants. SIA considered product innovation extremely important. Mr. Tan: We are really dedicated to product innovation. We have a department that looks at nothing but new products, new services, and new types of services. We are driving towards inculcating a very strong innovation culture throughout the
24 Daniel Chan, The story of Singapore Airlines and the Singapore Girl, Journal of Management Development, Vol. 19 No. 6, 2000, pp. 466. 25 Ibid., p. 467.

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company. We have established cross-divisional teams in a program we call Futureworks. Selected people, people who like to think of things differently, who are able to think out of the box meet in four or five groups of 15 every three or four months and spend about three days thinking about and debating what new things the customer and the market are looking for. And they come up with specific proposals. Our goal is not just to get results, but to inculcate this strong innovative culture throughout the company. That is a continuous process. In 2002, SIA was on the verge of introducing a new business class product for long-haul operations called the SpaceBed, the biggest business class seat in the world and the result of a US$100 million development process. The SpaceBed reclined to 8 degrees from horizontal. Forty-two B747-400 and B777-200ER aircraft serving Europe and on routes from Singapore to the U.S. were to be outfitted with the SpaceBed in 2002.26 Mr. Tan: Why do we call it SpaceBed? Space, because in terms of space, it is going to be very spacious. Space also because it is futuristic. I think it is going to be more spacious than any business class product today, including the British Airways product. Branding the product enables SIA to better differentiate it from other airlines. SIAs objective in introducing the SpaceBed was to attract new customers to the airline. Yet, Mr. Tan was aware that some of the airlines first class passengers would find the new business class product adequate for their needs from the standpoints of both price and comfort. Route Network and Marketing Initiatives SIAs route network formed a starburst pattern, with spokes radiating out from Singapore to global destinations (Exhibit 1). SIA marketed the entire network, including codeshare partners flights. For example, SIA marketed its own fourteen flights to Frankfurt, as well as seven Lufthansa flights on the same route. Although the majority of travel on SIA was purchased in East Asia (56 percent), revenue by route was divided more evenly across major routes (Exhibit 15). The regional forecast for growth within the Far East was robust (Exhibit 16), with the annual average growth rate estimated at 6.9 percent for the period 2000 to 2004. This exceeded estimated growth rates in all other areas of the globe (Exhibits 17 and 18). SIA reviewed development of the airlines network continuously, and launched targeted marketing initiatives in concert with the Singapore Tourism Board and destination tourist offices. Promotional initiatives included the Singapore Spectacular (1997) to boost traffic from six European markets, the Singapore Stopover Splendour (1998), and the Bali Spectacular and Lombok Spectacular (1998) which tapped tourist markets in the U.S., Scandinavia, Spain and the Philippines.

26

Singapore Airlines Annual Report 00/01, p.14.

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In 1999/00 and 2000/01, SIA sponsored events in Singapore to draw traffic to the tiny island state. These included the Singapore Airlines International Cup and the Singapore International Jazz Festival. To boost and promote tourist traffic to the Philippines, Australia, Indonesia, and Macau, SIA signed memoranda of understanding with regional tourist destinations. Infrastructure Development From the early days of the airline, SIA benefited from the Singapore governments support for infrastructure development. Changi International Airport, built in 1975 by the Singapore government, had become a major hub in the Asia Pacific region (Exhibit 19). In 2001, the airport served 63 international airlines, handled 28.6 million passengers and provided more than 3,300 flights to and from 145 cities in 50 countries.27 The airport originally cost over S$1 billion, about 25% of which was invested by SIA for its own facilities. In 1999 an extension of Terminal One was completed to allow the airport to handle more and bigger aircraft. In 2001, the construction of Terminal Three was under way with a target completion date of 2006. The third terminal, estimated to cost S$1.5 billion, was planned to increase Changis handling capacity to 64 million passengers annually and meet the regions needs until the year 2020, including new gates for the A380. Yet, in 2001, SIA had to consider how new, longer range aircraft would affect the airports position in international networks. Dr. Cheong: Singapore will always be a very important hub for us. But we dont want to put all our eggs in one basket. Also, as technology improves and as aircraft are able to fly longer distances without stopping, sixth freedoming28 through Singapore may become a little more difficult. If you want to persuade somebody to fly from A to B through Singapore, when he can fly directly on the national airline A to B, youve got to discount to make it more attractive. We are helped by our reputation, but theres a limit to that. You still have to sell cheaper yet you have a higher cost because its much more expensive flying A to B via Singapore than directly. So in the long run, as the airline gets bigger and bigger, its going to get more and more difficult. In order to grow we need other operations based elsewhere. There is no way we can expect to grow even at say 6 to 8% much less the double digit growth that we have been used to by continuing the way we have been doing things, basing all our operations on one airline based solely out of Singapore, with just one hub. Open Markets and Open Skies In parallel with Singapores national policy, SIA had been committed to the principles of open and free markets from the airlines outset, eschewing IATA until 1990 because of IATAs restrictive practices. SIA advocated the most liberal exchange of traffic rights possible.
27 The figures quoted are from December 2000 from the Ministry of Information Communication and the Arts, Changi Airport, http://www.mita.gov.sg/bkscga.htm, (June 21, 2002). 28 The right to carry traffic between two foreign countries via the home country (Exhibit 12).

Singapore Airlines IB-34

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The Singaporean government, along with SIA, welcomed the U.S. effort to promote their open skies initiative in the early 1990s. The aim of U.S. negotiators was to enable[d] the competitive U.S. airline industry to meet the growing demand for international air services. 29 U.S. legislators hoped the agreements would result in lower prices and more service options for consumers worldwide. In 1997, Singapore entered into the first open skies agreement between the U.S. and an Asian country. The agreement gave SIA open access to the U.S. market with no limits on the number of destinations, or the frequency of service. In addition, the agreement provided for unlimited beyond traffic (fifth freedom rights).30 The agreement restricted cabotage rights, reserving for domestic carriers the sole right to carry traffic between any two points within the U.S. With the entry of the A340-500 into SIAs fleet in 2003, SIA would be in a position to benefit from the open skies agreement for the first time. The long range of the aircraft would enable SIA to offer direct flights to the U.S. from Singapore. The Los Angeles-Singapore route, for example, would take 18 hours flying time. Distribution Channels In the years leading up to 2001, the Internet was integrated by the airlines into their distribution channels. The result was the proliferation of means for customers to gather information and prices and book air travel: through travel agents who connected to a customer reservation system (CRS), through Internet sites which connected customers directly to a CRS, or through airlinespecific booking sites (Exhibit 20). Asian Customer Reservation System: ABACUS In 1988, SIA and Cathay Pacific created ABACUS, an Asian CRS headquartered in Singapore, to broaden and control its distribution channels. Cathay and SIA were soon joined by 9 other Asian Pacific airlines in ABACUS International Holdings, which collectively held 65% of the CRS, and later SABRE, the American Airlines CRS, took a 35% equity stake. In 1999 ABACUS launched the Alliance Manager product. The product, to be used by both Star and oneworld, was designed specifically to meet the requirements of airline alliances, and to provide a service for travel agent subscribers that gave them fast and simple access to information about routes operated by members of the alliances. The product provided city pair availability and schedules of all flights operated by alliance carriers. Travel agents keyed in simple entries into the system to obtain alliance-specific displays. The product ensured that alliance partners products were easily recognized, booked and serviced as well as differentiated from others products to promote brand loyalty and maximize their screen presence to travel agents. Mr. Per Wehlander, Star Alliance CRS Harmonization project manager:

Fact Sheet: Multilateral Open Skies Aviation Agreement, Office of the Press Secretary, the White House, Bandar Seri Bagawan, Brunei, November 15, 2000, http://www.state.gov/www/issues/economic/001115_fswh_apec_skies.html, (June 27, 2002). 30 The right to pick up traffic in a second country and carry it to a third country.

29

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The Star Alliance exists to make the consumer travel experience seamless to any of our 720 destinations in more than 112 countries. The ABACUS Alliance Manager gives us the visibility we need to ensure we meet our goal of delivering convenient and rewarding global travel access.31 ABACUS provided travel services from 316 airlines, 52,000 hotel properties and 50 car rental companies. Abacus connected about 10 percent as many computer terminals at travel agencies as SABRE, the American CRS and customer reservation system pioneer.32 Kriscom and Krismax II Bookings made by travel agents went through ABACUS, or other CRSs, which in turn, linked up with Kriscom, SIAs in-house system, which also handled yield management for SIA. In 2001, SIA invested S$20 million in Krismax II, a new yield management and forecasting system, planned to go live in 2002. The system was designed to help SIA match seat capacity with customer demand by waitlisting customers in one market while seats allocated to other markets remain unsold. Travel Exchange Asia In 2000/01, ABACUS introduced a new Internet travel service, Travel Exchange Asia, which enabled customers to make bookings directly over the Internet, without the assistance of a travel agent. SQ-eTravel SIA took advantage of the Internet to get closer to its web-savvy customers and, in 1999, developed its own Internet booking site, SQ-eTravel. Passengers could book flights on SIA, order special meals, view seating plans and book preferred seats. The Internet offered advantages to both the airline and its customers. For the airline, it offered savings in marketing and distribution costs, allowing it to make up-to-date information on flights available electronically. For customers, the Internet facilitated access to information, allowing them to find the best-priced flights. By 2001, SQ-eTravel had 66 stations around the world and 19,646 bookings were made over the Internet. A Standard of In-flight Service Even Other Airlines Talk About33 Shortly after the split with MSA in 1972, SIA decided upon a product and service differentiation strategy based on in-flight service. The strategy built on the Asian tradition of gentle and courteous service and positioned the airline in the premium service, quality and value market segment of the international airline industry. At the heart of SIAs service reputation was the Singapore Girl, the idealized version of the SIA cabin attendant. The icon was recognized worldwide for delivering a standard of in-flight service even other airlines talk about. The

Press release, Abacus International, No. 22: 7 September 1999, http://www.abacus.com.sg/abacus_press_release_no22-99.htm (March 7, 2002). 32 In 2001, Cheong completed his second year as chairman for ABACUS International, a two-year term beginning 1 July 1999. Press release, Abacus International, No. 18: 1 July 1999, http://www.abacus.com.sg/abacus_press_release_no18-99.htm, (March 7, 2001). 33 From SIAs advertising campaign.

31

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Singapore Girl was the centerpiece in SIAs marketing strategy. She was the central feature of advertisements, where she was portrayed in a number of settings (Exhibit 21). In the air, the cabin crew attended to the small things that most airlines did not emphasize, such as rapid response to call buttons and frequent cleaning and stocking of the washrooms. High service quality standards were applied to economy, first and business class passengers. Cabin service, provided by Singapore Girls and SIA cabin stewards, evolved with customers and their needs. Mr. Tan: We have had to adapt to new demands in terms of service, technology, and the skills of our cabin crew. Todays customer is well-versed in aviation matters, economics, and IT. Customers are well-traveled, they know what they like. They know their wines, they know their food. They are very versatile people. We cant have the same cabin crew that we did 20 years ago now. Today, our cabin crew are, firstly, better educated. Where in earlier years, our cabin crew had a junior or middle school education, they now have a diploma or a university education, or at least a good high school grade. In response to the changes we have seen in our customers, the Singapore Airlines Girl, our cabin crew image, has evolved. She is still very young and caring, and she still possesses that mystical personality that we are able to capture in our advertising strategy, but we are now looking for a person who can easily mix with different cultures, different age groups, and a person who is well traveled and experienced. That is the SIA girl. But, deep in her, the service style, the caring personality, remain intact. SIA translated the advertising image of the Singapore Girl into reality through a rigorous process of recruitment and training. Recruitment of female cabin crew was highly selective. SIA invested time in selecting, training, supervising and guiding the cabin crew. Female applicants had to make it through a very selective three-stage interview process that included a social function. Cabin crew retired after 25 years of service. The majority of the cabin crew in 2001 were Singaporean or Malaysian, but between 10 and 15 percent of the cabin crew came from Japan, India, Indonesia, Taiwan and the PRC. Mr. Chew: We have traditionally depended on Singapore and Malaysia as sources for our crew. And then, very early on, we started recruiting Japanese staff as well for their linguistic skills in order to cater to the Japanese market, and we developed from there. As the Korean market grew, we took on Korean women, and for flights to mainland China, we engaged mainland Chinese to speak authentic Mandarin and certain dialects. The broadening of our recruitment area to India and Indonesia was more because of the labor market. As economies boomed, we were finding it hard to attract the right people from our traditional sources, to get sufficient numbers of the quality that we needed, so we broadened the catchment area.

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New challenges were experienced by the airline in inculcating international hires with the Singapore Girl service culture and SIAs corporate culture. Training, a continuous process at SIA, succeeded in leaving its mark and, within two years, the new hires were well adapted to the service culture. Training began with four months of focused courses on technical, functional and soft skills and was continued annually with one to two refresher courses. The goal of SIAs training program was to enable the cabin crew to provide gracious service reflecting warmth and friendliness, while maintaining an image of authority and confidence in the passengers minds. Training encompassed safety, beauty tips, discussions of gourmet food and fine wines and the art of conversation. Training the cabin crew in the soft skills required for a global customer base had special subtleties. Mr. Tan: Our people have to be very adaptive and able to size up a situation, which is why cross-cultural training is extremely important. It is very challenging to serve the global customer. What is acceptable to the Japanese is not acceptable to someone else and vice versa. When our staff are talking to a person, they are servicing the customer. If they talk to say, an American, they must look straight at him. But if they talk to a Japanese man, they do not look at him, because the culture requires more deferential behavior. Stewards were hired under similarly competitive conditions but as regular, not contract, employees and retired after 25 years of service. With promotion, the retirement age was 55. Generally, the cabin crew was two-thirds female. SIAs ratio of cabin crew to seats, 1:22, was the highest in the world and well above the industry average.34 The high ratio allowed the crew to give more individual attention to passengers. Cabin crew belonged to the SIA staff union. Engineers, pilots and other disciplines belonged to their own specific unions. In discussing the Singapore Girls terms of engagement with SIA, Mr. Chew said: I think the people who are in the front line with us, by and large, relative to the rest of the country and to the region, are more than fairly rewarded. So they value the vocation, they dont see it as demeaning. I guess that the advantage for us is that we live in a part of the world where you can just stick your head up and see the less attractive alternatives around you. And accept that, restrictions and all, this works. Its a place where you can bring up your family, where you can have a reasonably high standard of living and the security is stable. So our people respond to it. They dont take things for granted. Even the young ones with their different values. This is not to say that the lines may not shift. At some point in time, people may rail against having to wear uniforms and want more freedom to choose their work styles or other issues. But at this point in time there is no manifestation of that. The service standards at SIA went beyond the mechanics of providing high quality service in the air, permeating the entire organization. On the ground, the airline measured the time between aircraft landing and the moment the first and last bags were loaded onto the conveyer belt to

34

Daniel Chan, op. cit., p. 464.

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monitor performance. At check-in, SIA provided information to passengers on the weather at their destination and on new SIA products, as well as providing candy for children. Training, with an emphasis on service, was a top priority for all SIA staff. The company operated a Management Development Center and offered courses for different divisions of the airline. Training costs amounted to 10.9% of total payroll costs for the airline in 2000/01. Customer Feedback SIA put a great deal of importance on listening to customers needs and asked for regular feedback in surveys. Dr. Cheong: We monitor customer feedback numbers of complaints, compliments, all kinds of ratios and we analyze the different types of complaints. If we see a trend which is going the wrong way everybody pays attention. A lot of questions are asked. We act very quickly. So we subscribe not only to industry surveys, we also conduct our own surveys. In addition, all communications to the airline, both complimentary and negative, were answered. Mr. Tan: And I get to read complaint letters. And I get complaints on the phone and I answer them. So, I am not sitting in an ivory tower. I must know what is happening on the ground, what the customer is thinking of us, what the problems are that we really need to resolve. There were many channels for SIA customers to provide feedback to the airline. Customers communicated directly to the airline via letters and faxes sent to the Head Office in Singapore or to overseas offices; through comment forms distributed by all frontline staff (ground staff and cabin crew) which were then routed to Customer Affairs; and more and more frequently, through SAA Feedback, a customer feedback email address on SIAs web site. SIA ground staff and cabin crew also reported customer feedback through defined channels. Ground staff prepared telex reports on customer concerns and incidents. The cabin crew prepared Voyage Reports to communicate the feedback they received from customers regarding the product and services and customer concerns. Both reports were then sent to the departments concerned and Customer Affairs for attention or information. The Customer Affairs department routed feedback to the operating departments and staff concerned, and sometimes to the training department, depending on the nature of the customers feedback. Matters pertaining to specific departments were sent to the departmental head to act upon. If a specific staff member received feedback, inclusive of compliments, the comments were delivered to the staff member by the department head. If an issue was of interest to an entire department, it was distributed via a department newsletter, lotus notes, or at a departmental meeting. If an issue was of interest to all SIA staff members worldwide, it was highlighted in TCS in Action, which was distributed with Outlook, the company newsletter.

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The airline received both complimentary and critical feedback. compliments received by the airline:

Below are examples of

I would like to bring to your attention the professionalism of a member of your staff mentioned above (Albert Tiong). Mr Tiong was very helpful in getting my flight to Sydney from Singapore as my flight from Mumbai was delayed considerably, and I missed my flight connection from Singapore to Sydney. If it were not for Mr Tiongs prompt and professional help, you would have had a passenger whose further trip would not have been as pleasant. Mr Yung showed true professionalism and good example of representation of a company.

I wish to record my experience on SQ319/25 January, seat 12A. On the flight, I was looked after perfectly by the cabin crew, in particular Stewardess Chong Le Sze. After disembarking, I found that I had lost my wallet, containing cash for stay in Singapore, and more troublesome, my credit cards, etc. Miss Chong noticed me in distress in the terminal building, and gave me tremendous help and support at a trying time, even though she was off-duty, and presumably on her way home. Two of her colleagues, whose names I did not record also stayed on to help. This incident showed, to me, a friendly, caring attitude far beyond the call of duty, and did more to raise SIA higher in my esteem than anything I could imagine. And, lastly, examples of critical feedback: In Feb 2002, I had booked myself and my friend Charles Gordon onto flight SQ319 from London Heathrow to Singapore, departing at 2050 hours on 24 December 2002. On the morning of the flight, I checked on your website to see if there was any delay on the flight and discovered that the flight had been moved from 2050 hours to 1825 hours. I quickly contacted one of your offices to confirm that this was correct and that our names were down as passengers for that particular flight. I had no communication whatsoever from Singapore Airlines that this flight had been moved and was annoyed that your company had not done so. I was very concerned with the consequence that we could have easily missed the flight.

The standard of care from all the cabin staff has been superb, one could not ask for more. The choice of wines and the starters have been excellent. It was only the main course of salmon on the homeward journey and the first meal out of London on 27 December that was disappointing. Being offered a carefully prepared whole delicious mango as a fruit choice, was a first in my flying experience. The seats/beds are comfortable if a little challenging to work.

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Empowerment of Customer-facing Personnel In 2001, SIA began to empower its customer-facing personnel to make more decisions to serve the customer better. Mr. Tan: Our people start out, you see, with the attitude I want to provide perfect service. But you can never provide perfect service, zero defects, because there are other extenuating circumstances. Sometimes things are outside your control, weather or aircraft delayed at airports for technical reasons. So, the cabin crew and front line people at the airport are empowered to make decisions. You see, mistakes are made, passengers are inconvenienced. I think the true quality of any company is shown in how you respond to problems. Things can and will go wrong, but how you respond to them makes the difference between a good company and one that is not a good company. You say, oh, nothing I can do, sorry, sorry, sorry. Sorry becomes so common that it is meaningless. So we empower them. SIA exercised this policy when it pioneered the introduction of a new in-flight entertainment system in 1998 and encountered problems operating the system. Mr. Tan: When the system was not working we gave passengers gift vouchers of $50 on the spot, in the aircraft, if we couldnt find the passenger an empty seat with a functional system. We did this because we had offered them a specific service and it wasnt right for one passenger to be enjoying a movie while another couldnt because we were still chasing the bugs out of the system. So we empowered the cabin crew to make that decision. Compensation and Motivation Compensation at SIA was made up of a basic salary plus a bonus based on the airlines profit. Profit thresholds were in place, and if the threshold wasnt met, no bonus was distributed. Dr. Cheong described the compensation system at SIA: Last year, for example, our employees got about 6 months of the basic wage as a bonus. The bonus depends upon profit. So, we have a virtuous circle. If we make good profits they get good bonuses. They are motivated to do better and the airline continues to make a profit. SIAs track record motivated employees to deliver a high standard of performance. Dr. Cheong: Another motivator for our employees is the airlines reputation. The more awards we win, the prouder our people are. And if somebody wants to do something that harms the overall image, they get pounced upon by their peers. This is evident, for example, in our cabin service and among our cabin crew. Its not just a matter of the training or the manuals. I dont think we are that different. We spend a bit

Singapore Airlines IB-34

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more time on training, perhaps. But its more the culture. Over the years, people are proud of that reputation. Cost Management SIA, like Singapore in general, was able during its early years to compete in international markets in part by capitalizing on the countrys low-cost, high quality labor. Most serious competitors on international routes were based in OECD countries, so having flight crews and most operational overhead based in Singapore was a source of significant cost advantage. However, by the mid-1980s, the countrys economic success and rising standard of living had eroded much of that advantage. Rapidly rising wages and a domestic labor shortage forced SIA to focus on productivity improvements. During the 1980s, revenues increased almost 250 percent, network size doubled, and passengers carried increased 75 percent. SIA group employment, however, rose only 14 percent.35 This resulted not only in one of the lowest crew-related cost ratios in the international airline industry, but also one of the highest revenue per employee ratios as well. This advantage was carried forward into the early 1990s when SIAs position as the lowest cost carrier in the international airline industry was rivaled only by Korean Air. In order of cost competitiveness, from best to worst, SIA was followed by Continental, Thai, Northwest, Cathay, United, American, Delta, and Qantas, with the European and Japanese carriers lagging far behind. (Exhibit 4).36 In the decade between 1991/92 and 2000/01, SIAs staff productivity continued to improve: staff strength increased only 25 percent while capacity per employee doubled, revenue per employee increased by 41% and value added per employee increased by 30% (Exhibits 22 and 23). While staff costs comprised about 16 percent of SIAs expenditures, fuel made up 21 percent of costs in 2000/01. The airlines profitability was heavily dependent on fuel price and usage. A change in fuel productivity of one percent would affect annual fuel costs by S$19 million (Exhibit 24). To take advantage of the Internet to reduce aircraft maintenance costs, which constituted 6% of expenditures in 2000/01, SIA joined with 12 airlines to launch Aeroxchange, a business-tobusiness e-commerce exchange that offered a comprehensive selection of aircraft technical parts and services over the Internet, in addition to general business supplies. Finally, to become more cost efficient, increase productivity and improve decision making, SIA embarked on a multi-million dollar effort to consolidate the Groups disparate computer systems into one common e-business platform in 2001. Mr. Bey: The enterprise resource planning system we are implementing now is the result of the need for a fully integrated, single information system across the whole network. We want to have information available as quickly and accurately as
35 36

SIA Annual Report, 1989, p.62. Tae Hoon Oum and Chunyan Yu, Winning Airlines: Productivity and Cost Competitiveness of the Worlds Major Airlines, Kluwer Academic Publishers, Massachusetts, 1998, p. 161.

Singapore Airlines IB-34

p. 27

possible across the network. This stems really from the reality today of what I call a shortened decision cycle. In todays world, where changes are very rapid, when the environment changes, the market changes. How do you respond to change? If you cannot respond quickly enough, then you are left behind. And our desire is really to be even better than that to be able to anticipate the change and to mitigate all the negative effects of change. The only way to do that is to have information that is accurate, responsive and available. Then you can make sensible decisions, informed decisions. Organizational Challenges and Information Technology Changes to the organizational structure were brought on by advances in information technology and proceeded the enterprise resource planning implementation. Mr. Bey: The changes in information technology, in terms of the impact on the way we do business, have caused us to reassess how we organize ourselves and how we should do business within the Information Technology (IT) division. We did that organizational restructuring two years ago. It was a major restructuring the kinds of people and skills sets we need is a major follow-on issue. Now we are integrating computer systems across all functions. Its a quantum jump. We have formed a commercial technology division which plans the airlines IT architecture, working very closely with the business people. The division determines what systems we need and works together with the IT division, which provides the technical expertise. The goal is to have a single view of the customer throughout the whole organization, so that wherever you are, you have that information. The commercial technology division establishes the business needs and implements the requisite technology on the marketing side. We are in the process of putting mirror images in place in engineering, in flight operations, in cabin crew, in all the business units. So that the business people who are up to date with technology can work out the information technology needs. That way, the customer needs are clearly articulated in terms of business needs. Then, the IT division takes the plan and masterminds it in terms of information technology architecture. The IT people also act as project managers, and bring all the necessary people together to design and build the systems. Management Recruitment, Development and Appraisal SIA had high academic standards for new recruits and looked for the best people, wherever they could be found. Dr. Cheong: Ive always said that if we want to be the best in the world, then we have to have the best people in the world working for us. Its just arrogant to think that the best people can only be found in Singapore. We are a country of only 4 million.

Singapore Airlines IB-34

p. 28

So in the last few years we recruited, among others, a chief information officer from Australia, for example. At the lower levels, at the vice president levels and senior manager levels, we have people working for us from Australia, from America, from the UK and other parts of Europe. SIAs training program for developing promising managers from the regional offices required managers to spend 5 years in the regional office before being moved to Singapore for 3 to 4 years. After working in Singapore, managers were posted internationally. SIA executives were expected to be versatile and understand the fundamental issues of each area of the airlines operations. To achieve this, SIA had an active policy of rotating senior management so that none remained in one area for their whole career. Mr. Chew Choon Seng was a prime example: Ive been in this company now for over 30 years, but of those 30 years I have worked overseas for more than half. Although I have an engineering background, in most of my stays overseas Ive been doing sales and marketing and some operations. I did stints in head office doing strategic planning. A few years back I took over the portfolio for finance. Likewise, many of my colleagues have rotated throughout the airline. SIA used a regular and thorough system of appraisal for senior staff. Staff were evaluated on their intellectual capacity, drive, leadership and relationship skills. The company used 360degree reviews to confirm a managers acceptance by peers and superiors. Reviews focused on a staff persons results-orientation and achievement. In addition to management, the companys board of directors took an active interest in the career development of future leaders of the company and succession planning. Finally, SIA structured careers to ensure mobility across functional areas to identify people with high potential for developing cross-functional skills. Mr. Loh Meng See: To be promoted as a manager you must have gone through a very stringent process. In fact, when we conduct an exercise to appraise we gather almost all the senior vice presidents together to give an opinion, to work towards consensus. Which means that when someone is considered he must be quite an all-rounder. He must be seen to be someone who is very, very good. That rigor has been helpful. Its a purely meritocratic, very objective system. Its based only on the performance of the individual and his or her potential. The other thing is, of course, the way in which it is done means that there is general acceptance of the individual. So once hes made it, there is no doubt whatsoever. Management Systems Dr. Cheong, Mr. Tan, Mr. Chew, Mr. Loh and Mr. Bey described SIAs management system as collegial, one where there was a very free flow of ideas and information until a decision was reached. Dr. Cheong:

Singapore Airlines IB-34

p. 29

There could be a lot of discussion, a lot of debate, but once a decision is made we move very fast, because everybody is involved in the discussion at the top. Everybody has bought into it. Communications at the highest level of the company were facilitated by a shared culture. Mr. Chew: We have the advantage that first of all, all of us are in this little piece of the world called Singapore. We grew up in the same environment. We have the same value systems in corporate Singapore at large. So there are many things in which communication is not needed. In Singapore integrity and honesty are givens. At the same time, the management team recognized the need for change within the culture and had sought new blood from outside the company. Dr. Cheong: Until a few years back, ours was quite a monolithic culture. Less diversified. Promotions were all from within, and it created a very strong culture. Everybody knew everybody else. Everybody knew what the core values are, what weve got to do. It has its advantages. In a crisis everybody knows what to do and you dont have to explain. We recognize that while that kind of culture has strengths it also has its dangers. You could have blind spots and you need somebody who is not inbred to be able to see some of these blind spots or, alternatively, opportunities. Now over the last few years we have recruited from outside the company at all levels, even at the most senior levels. Mr. Bey Soo Khiang was chief of the armed forces. Mr. Loh Meng See was taken from outside. We recruited as the chief financial officer somebody from outside. He served two years in finance and is now VP in charge of West Asia and Africa. So weve been doing that over the last few years. And we will see more of this. Yet, more cultural change was needed. Mr. Loh: Of course what we are hoping, what Im hoping, is not just the intellect, but other qualities become important as well. High risk takers, maybe a few mavericks, a few prima donnas to upset things a little and add to the color and to the depth and diversity of the organization. So my job is to create an environment where there is some tension and some competition and we can get the best ideas out of the group of people we have. I think one of the dangers with large organizations is the danger of cloning. To me, that is a weakness. I believe that diversity, in the new world that we are operating in, is going to make us better because chances are we will be better able to adapt. In the new operating environment, it is all about sheer adaptability, and we want people to be able to adapt. We are trying to find a way to create that capability.

Singapore Airlines IB-34

p. 30

Future Challenges Mr. Bey: This is a high growth company wanting to grow. Our organization has grown organically from small to medium size in terms of scope, and from one that operated totally as a single company to one that has subsidiaries a different kind of business to some extent. The subsidiaries were spun off because they are very different businesses compared to the passenger business. The other complication we face arises from the global airline business itself, which involves cross-cultural issues as well as governance issues for many different countries. Organizationally we have not been set up for that and right now we are evolving to try to cope with it. Part of the reason we are changing only now is that we have always wanted to remain very lean; any fat was considered wastage. When you want to prepare for the future, you have to invest in a bit of fat. That is kind of taboo around here, which is a good culture to have. But that leads to these kinds of problems. In a small company, the decision making process is confined to a few people in a very flat organizational structure, without much hierarchy. But now, as SIA grows, we cannot afford to grow that way anymore. The other tension we feel is to make sure that we do not become too hierarchical, too bureaucratic such that we cannot respond to changes that are taking place in the outside world. Changing Pilots: 2003 Dr. Cheong turned away from the window. During his 29 years in the company, the last 19 spent in the most senior executive positions culminating in managing director and then CEO, he had been able to draw upon his long experience at the airline to meet new challenges. Looking forward, he was confident in the abilities of Mr. Bey, Mr. Tan, Mr. Chew and Mr. Loh to respond to the forces of globalization, regulatory adjustment, and economic shocks: I have no fear about [management] succession. Certainly for my succession, I have no fear about that at all. There are enough candidates, and even after that, we have enough people at the next level. Dr. Cheong planned to step down as CEO in June of 2003. Until that time, he would be focused on achieving continued growth in a complex and exciting industry that was facing the challenges of globalization, before he passed the controls to his successor, Mr. Chew Choon Seng. Under Mr. Chews direction, the management committee would navigate into the next decade. The airlines continuing challenges would stretch SIAs people far beyond the demands of its previous history. Was the companys strategy right for the more turbulent times ahead, and was the organization durable and flexible enough to ensure its success?

Singapore Airlines IB-34

p. 31

Exhibit 1 Singapore Airlines Route Map*

* March 2002

Singapore Airlines IB-34

p. 32

Exhibit 2 SIA Ten-Year Charts

Company Revenue and Expenditure
10,000 10,000.

Company Profit Before and After Tax

1,800 1800

8,000

8,000

1,500

1500

$ Million

$ Million

$ Million

6,000

6,000

1,200

1200

4,000

4,000

900

900

2,000

2,000

600

600

Total revenue*

Total expenditure*

Profit before tax

Profit after tax

Passenger and Cargo Carried

Revenue Passenger - km (Million) 80,000 60,000 40,000 20,000 0 2000-01 2000-01 1999-00 1998-99 1997-98 1997-98 1996-97 1995-96 1995-96 1994-95 1993-94 1993-94 1992-93 1991-92 1991-92 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Cargo Tonne - km (Million)
Passenger Number (Thousand)
16,000

Passenger and Cargo Carried

Cargo Tonne (Thousand)

1,100 14,000 12,000 10,000 8,000 6,000 950 800 650 500 350 200.

Revenue Passenger-km (million) Cargo Tonne-km (Million)

Passengers Number

Cargo Tonne

$ Million

2000-01 1999-00 1999-00 1998-99 1998-99 1997-98 1996-97 1995-96 1995-96 1994-95 1994-95 1993-94 1993-94 1992-93 1991-92

1992-93 1992-93 1991-92 1991-92

1996-97 1995-96 1995-96 1994-95 1993-94

1998-99 1998-99 1997-98

2000-01 1999-00

2000-01 2000-01 1999-00 1999-00 1998-99 1998-99 1997-98 1997-98 1996-97 1996-97 1995-96 1995-96 1994-95 1994-95 1993-94 1993-94 1992-93 1992-93 1991-92 1991-92

Singapore Airlines IB-34

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Exhibit 3 SIA International Award Winner (2000 - 2002)

April 2000 Asian Wall Street Journal and CNBC Asia (Hong Kong) Asian Travel Survey Most Preferred Airline May 2000 Travel Trade Gazette (Singapore) TTG Travel Awards 2000 Best Airline (Overall), Best Asian Airline Air Cargo News International (UK) Cargo Airline of the Year Awards Best Airline to Australasia, Best Airline to Far East August 2000 Travel Bulletin (UK) Travel Bulletin 2000 Awards Top Asia/Pacific Airline September 2000 Conde Nast Traveller (UK) 2000 Readers Travel Awards Worlds Best Long-Haul Airline (Leisure) DBS/Trade Development Board (Singapore) DBS-TDB Millennium Trade Award TravelAsia (Singapore) TravelAsia Breakthrough Awards 2000 Airline of the Year Business Traveller Asia/Pacific (Hong Kong) Business Traveller Asia/Pacific 2000 Annual Travel Awards - Best International Airline and first in 8 other categories October 2000 Business Traveller (UK) Business Traveller Awards 2000 Best Long-Haul Airline Common Wealth Magazine (Taiwan) The Most Admired Company 2000 Awards Winner - Airline Industry Category Conde Nast Traveler (US) 2000 Readers Travel Awards Worlds Best Airline Fortune Magazine (US) List of Worlds Most Admired Companies Winner - Airline Category National Travel Industry (Australia) National Travel Industry Awards Airline of the Year November 2000 Korea Herald (Korea) Readers Best Brands of 2000 Best Brand (Foreign Airline Category) Scottish Passenger Agents Association (UK) Annual Travel Awards 2000 Best Foreign Airline December 2000 Asia Travel Tips (Thailand) 2000 Premier Travel Award for Excellence Best Airline in the World Asiamoney Magazine (Hong Kong) Best Managed Company of the Decade Business Traveler International (US) Best in Business Travel Winners 2000 Best Overall Airline and first in four other categories Financial Times (UK) Worlds Most Respected Companies Survey Winner Transport Company Category Reisrevue Magazine (Netherlands) Dutch Travel Industry Awards Best Scheduled Airline January 2001 Business Traveller (Germany) Travel Awards 2000 Best International Airline and first in two other categories Travel Inside Magazine (Switzerland) Travel Star Award 2000 Best Airline Travel Weekly Magazine (UK) Golden Globe Awards 2000 Best Airline to Asia February 2001 Official Airline Guide (UK) OAG Airline of the Year Awards Best Europe-Far East/Australasia Airline and first in three other categories TravelCom Magazine (Taiwan) Gold List Best Airline

Singapore Airlines IB-34

p. 34

Exhibit 3 (continued)
March 2001 CargoNews Asia Magazine (Hong Kong) 15th Asian Freight Industry Awards Best Global Air Cargo Carrier Best Air Cargo Carrier (Asia) Travel Frontier Magazine (Japan) Readers Airline Rankings Votes Best Airline Zagat Survey (US) 5th Survey of International Airlines Worlds Best International Airline operating to and from the US Globo Magazine (Germany) Travel Awards 2000 Best Scheduled Airline Korea Productivity Center (Korea) National Consumer Satisfaction Index Survey Best Service (International Airline Service Category) May 2001 Business Travel Poll (UK) Business Travel Poll Overall Quality of Service First Class Service Business Class Service Short-Haul Flights (Under 4 hours) Long-Haul Flights (Over 4 hours) June 2001 Aviation Week and Space Technology (US) Best Managed Companies Awards Best Managed Global Carrier Investor Relations Magazine (Hong Kong) Asia Awards Best Investor Relations, Best Corporate Governance Best Crisis Management FinanceAsia Magazine (Hong Kong) Best Managed Company, Most Committed to Shareholder Value, Best in Investor Relations Motor Show Magazine (Italy) Miligore Compagnia Aerea Per Lestremo Oriente (Best Airline Company for Far East for 2001) Guardian/Observer Travel (UK) Guardian/Observer Travel Awards Best Leisure Airline July 2001 TravelWeekly East Magazine (Singapore) Innovator Awards 2001 Best Innovator Worth Magazine (US) Readers Choice Survey Top Rated Airline Travel & Leisure Magazine (US) Worlds Best Awards Best Foreign Airline September 2001 Business Traveller (Hong Kong) Asia-Pacific 2001 Readers Survey Best Airline in the World and first in 5 other categories TIME Inc Asia (Hong Kong) Readers Travel Choice Awards Preferred Airline Most Popular Airline Frequent Flyer Programme Wanderlust Magazine (UK) Travel Awards Winner of the Top Airline Category Australian National Travel Industry Awards (Australia) Airline of the Year Award October 2001 Conde Nast Traveler (US) Business Travel Awards Best Transpacific Carrier Derniere Heure (Belgium) Best Airline Nouvelle Gazette (Belgium) Most Appreciated Airline Business Traveller (UK) Readers Poll Awards Best Long Haul Airline November 2001 Business Traveler International (US) Travel Awards Best Overall Airline and first in three other categories Scottish Passenger Agents Association Awards (UK) Best Foreign Airline Travel Magazine (Belgium) Best Long Haul Airline Altroconsumo (Italy) Top Airline The Korea Herald Survey of favourite products and services Top in Airline Category

Singapore Airlines IB-34

p. 35

Exhibit 3 (continued)
December 2001 Far Eastern Economic Review (Hong Kong) Review 2001 Number One Singapore-based Company Financial Times (UK) Survey of Worlds Most Respected Companies Top 50 List Philippines Department of Tourism 2001 Kalakbay Award for International Airline of the Year Conde Nast Traveler (US) 2001 Readers Choice Awards Best International Airline Institute of Customer Service (UK) Voted number one for customer service January 2002 Travel Weekly (UK) 2002 Travel Weekly Globe Awards Best Airline to Asia
Irish Travel Trade News Annual Awards Best Airline to Asia/Pacific Rim

Recommend Magazine (US) 2001 Readers Choice Awards Hottest Selling Airline - Asia/Pacific Travel Com Magazine (Taiwan) Gold List Awards 2002 Best Airline February 2002 Business Traveller (Germany) Travel Awards Best Airline on Intercontinental Routes Best in Friendliness Best in Cabin Outfit Best in Service CIO Asia Magazine (Singapore) CIO Award Winner March 2002 Fortune Magazine (US) List of Global Most Admired Companies Top 50 List Winner - Airline Category

Singapore Airlines IB-34

p. 36

Exhibit 4: Composition of Operating Costs, Selected Carriers, 2001

HK$M % 5,313 7,629 3,993 975 539 0.00 Handling charges 1,586 5,112 3,234 1794 30,175 11,827 0.12824 USD/ATK Euros M 1,038 1,675 429 187 593 222 465 515 211 214 153 137 309 535 6,683 12,978 0.8858 USD/ATK 2.3 2.0 4.6 8.0 100 3.2 3.2 7.7 7.0 3.3 8.9 2.8 6.4 25.1 0.13 Employee costs 0.03 Depreciation and amortization 0.01 Aircraft operating lease costs 0.05 Selling costs 0.02 Handling charges, catering and other operating costs 0.04 Landing fees and en route charges 0.04 Accommodation, ground equipment 0.02 costs and currency differences 0.02 Engineering and other aircraft costs 0.01 0.01 0.02 0.04 0.51 Total operating expenses Available Tonne Kilometers (ATK) in millions $0.45 1 GBP = 1.45100 USD 8,898 25,196 1.45100 USD/ATK $0.53 100 0.37 739 662 15.5 0.08 Fuel and oil costs % $0.33 1 SGD = 0.54028 USD Euros/ATK British Airways (Group) ) Expenditures Available Tonne Kilometers (ATK) 100 2.55 Total operating expenses 5.9 0.15 Other costs 10.7 0.27 Aircraft maintenance and overhaul costs 16.9 0.43 Landing, parking and overflying charges 5.3 0.13 Inflight meal and other passenger costs 891 520 498 483 470 8,246 18,034 0.54028
H

Cathay (Group) Expenditures 17.6 25.3 13.2 3.2 1.8 0.05 Sales costs 926 0.08 Rentals on lease of aircraft 289 3.5 11.2 10.8 6.3 6.0 5.9 5.7 100 0.34 Depreciation charges 1,055 12.8 0.65 Staff costs 1,347 16.3 0.45 Fuel costs 1,767 21.4

HK$/ATK

SIA (Company) Expenditures

$M

SG$/ATK 0.10 0.07 0.06 0.02 0.05 0.05 0.03 0.03 0.03 0.03 0.454*

Fuel

Staff

Aircraft depreciation and operating leases

Other depreciation and operating leases

Commissions

Inflight service and passenger expences

Landing, parking and route expenses

Aircraft maintenance

Other

Total operating expenses

Available Tonne Kilometers (ATK)

1 HKD = 0.12824 USD

USD/ATK % 1,102 2,376 715 221 1,135 1,303 645 12.38 26.70 8.04 2.48 12.76 14.64 7.25 0.00 8.31 7.44

$0.25
6UF

KLM (Group) ) Expenditures

Fuel

0.05 0.09 0.03 0.01 0.05 0.05 0.03 0.00 0.03 0.03

Staff

Depreciation

Operational aircraft lease expenses

Commercial costs

Third party-handling costs

Materials and consumables

Landing fees and navigation charges

Cost of housing, vehicles and inventories

Commercial cooperation

Ad hoc and short-term aircraft/truck rentals

Hired personnel

Other operating expenses

Work by third parties

Total operating expenses

Available Tonne Kilometers (ATK) in millions

1 Euro = 0.88580 USD

Singapore Airlines IB-34

p. 37

Exhibit 4: Composition of Operating Costs, Selected Carriers, 2001 (continued)

Northwest (Airline) Baht M 29,583 13,894 18,534 14,996 14,273 1,737 4 11,646 8,069 1,701 2,508 116,945 8,490 0.02263 USD/ATK 100.0 13.77 Total operating expenses Available Seat Miles (ASM)** in millions $0.31 Operating Expense per Total ASM **Excludes cargo ton miles 2.1 0.30 10,773 98,356 USD/ASM $0.98 100.00 0.98 1.5 0.20 6.9 0.95 10.0 1.37 Other 0.0 0.00 Aircraft rentals 1.5 0.20 Commissions 12.2 1.68 Other rentals and leanding fees 12.8 1.77 Aircraft maintenance materials and repairs 15.8 2.18 Depreciation and amortization 690 669 533 500 447 2,244 11.9 1.64 Aircraft fuel and taxes 1,727 25.3 3.48 Salaries, wages and benefits 3,963 % Baht/ATK Expenditures US$ M % 36.79 16.03 6.40 6.21 4.95 4.64 4.15 20.83 $/ASM 0.04 0.02 0.01 0.01 0.01 0.00 0.00 0.02

Thai (Group)

Expenditures

Flight operations

Maintenance and overhaul

Ground operations

Passenger services

Marketing

Administration and general

Remuneration to board of directors

Lease of aircraft and spare parts

Depreciation of aircraft

Depreciation of other fixed assets

Other activities

Total operating expenses

Available Tonne Kilometers (ATK) in millions

1 Thai Baht = 0.02263 USD

* Due to adjustments for airline expenditure due to internal accounting.

Source: Compiled from annual reports.

Singapore Airlines IB-34

p. 38

Exhibit 5 Singapore: Key Economic Indicators

1965 Population (MM) Domestic Economy GNP (S$ millions) GDP (S$ millions) GDP by Sector (S$ millions) Manufacturing Financial services Business services Transport and communications Construction Utilities Consumer Price Index (Nov.97-Oct.98=100) Balance of Payments Exports of goods fob (US$ millions) Imports of goods fob (US$ millions) (US$ m) Current-account balance (US$ millions(US$ m) Foreign-exchange reserves excl gold (US$ bn) Domestic Exports (S$ millions) Re-exports (S$ millions) Total Exports (S$ millions) Imports (S$ millions) S$:U.S.$ Exchange Rate Tourism Arrivals (Thousands) Hotel Rooms (Number) Hotel Occupancy Rate (%) Education % of population aged 15+ who were literate % of persons aged 18+ who were university graduates % of persons aged 18+ who were polytechnic graduates Comparative Per Capita GDP (2000, $U.S. at PPP)) Singapore 27,347 Hong Kong 27,814 Thailand 7,273 Philippines 3,770 Malaysia 7,945 Australia 25,900 92% 22% 35% Switzerland 29,876 93% 22% 36% 1965 0.316 1,134 1990 5,322.90 22,408 1995 7,136.50 26,322 62,754 32,452 95,206 109,806 98,473 69,042 167,515 176,314 126,010 123,786 13,898 76.8 103,589 72,683 176,272 185,183 1.41 1996 7,292.40 27,604 125,746 124,628 16,912 71.3 107,535 78,077 185,613 196,605 1.49 1997 7,197.90 27,313 110,591 95,780 21,025 74.9 105,918 77,846 183,763 169,864 1.67 1998 6,242.20 27,412 115,639 104,337 21,254 76.8 116,325 77,965 194,290 188,142 1.70 1999 6,958.20 27,542 75% 138,930 127,531 21,821 80.1 135,938 101,888 237,826 232,175 1.72 2000 7,691.30 28,212 83%** 1990 85.2 29,215 15,507 15,901 14,233 8,863 1,958 1995 96.7 30,637 14,905 18,332 14,768 11,304 2,373 1996 98.0 32,339 18,113 19,911 15,804 13,382 2,960 1997 100.0 32,532 18,459 18,806 15,733 12,886 2,698 1998 99.7 35,623 19,868 18,358 16,651 11,198 2,406 1999 99.8 42,122 20,314 20,901 17,986 9,684 2,715 2000 101.1 3,266 3,043 68,288 66,464 121,351 102,859 130,232 110,699 149,827 120,140 146,043 120,207 153,469 127,250 169,597 139,840 1.9 1990 3.05 1995 3.53 1996 3.67 1997 3.79 1998 3.92 1999 3.95 2000 4.02

*Re-exports: All goods which are exported in the same form as they have been imported without any transformation. Repacking, sorting or grading, marking and the like are not considered as undergoing the process of transformation. ** Preliminary Compiled from: Statistics Singapore, June 2001. http://www.singstat.gov.sg/STATS/yoslist.html, October 2001, Country Report, Economist Intelligence Unit, Datastream, Ministry of Trade and Industry, Singapore, "Singapore in Brief 2001," Singapore Department of Statistics, http://www.singstat.gov.sg, and Singapore Airlines in the 90s, GSB No. S-IB-8, Rev. 6/92.

Singapore Airlines IB-34

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Exhibit 6 SIA Profit and Loss Accounts For Financial Years Ended 31, March 2000, 2001 (in S$ million)
The Group 2000-2001 1999-2000 9,823.0 8,834.1 128.3 184.7 9,951.3 9,018.8 The Company 2000-2001 1999-2000 9,116.7 8,200.7 113.0 140.6 9,229.7 8,341.3

REVENUE Other income TOTAL REVENUE EXPENDITURE Staff costs Fuel costs Depreciation Rentals on lease of aircraft Commission and incentives Crew expenses Handling charges Aircraft maintenance and overhaul costs In-flight meals Landing, parking and overflying charges Material costs Advertising and sales costs Other passenger costs Company accommodation and utilities Other operating expenses

2,093.4 1,790.9 1,145.1 289.1 698.6 102.1 455.0 304.9 235.1 507.7 231.4 174.1 116.1 132.3 328.8 8,604.6 1,346.7 (37.5) 181.3 27.0 81.7 1,599.2 305.5 1,904.7 (317.4) 1,587.3 (38.0)

1,853.5 1,229.4 1,205.3 242.1 649.6 99.8 465.0 409.9 224.0 494.6 198.2 175.3 135.6 121.9 345.8 7,850.0 1,168.8 (28.8) 98.4 21.0 33.2 1,292.6 171.3 1,463.9 (296.5) 1,167.4 (3.6)

1,347.0 1,766.5 1,054.8 289.0 694.4 102.6 891.0 483.0 404.9 497.5 231.1 114.6 88.8 281.1 8,246.3 983.4 (44.4) 165.6 59.8 1,164.4 442.8 1,607.2 (267.5) 1,339.7 -

1,201.9 1.210.0 1,117.9 228.6 645.3 99.8 838.5 521.3 384.8 484.2 220.1 134.3 84.3 314.9 7,485.9 855.4 (38.0) 85.8 198.4 1,101.6 539.9 1,641.5 (374.4) 1,267.1 -

OPERATING PROFIT Interest on borrowings Surplus on disposal of aircraft, spares and spare engines Dividends from subsidiary and associated companies, gross Share of profits of joint venture companies Share of profits of associated companies PROFIT BEFORE EXCEPTIONAL ITEMS Exceptional items PROFIT BEFORE TAXATION Provision for taxation PROFIT AFTER TAXATION Minority interests PROFIT ATTRIBUTABLE TO SHAREHOLDERS BASIC EARNINGS PER SHARE (CENTS) DILUTED EARNINGS PER SHARE (CENTS)
Source: SIA Annual Report

1,549.3 126.5 126.5

1,163.8 91.4 91.4

1,339.7 109.4 109.3

1,267.1 99.5 99.5

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Exhibit 7 SIA Balance Sheets at 31 March 2000, 2001 (in S$ million)

The Group 2001 SHARE CAPITAL Authorized Issued and fully paid RESERVES Distributable General reserve Foreign currency translation reserve Non-distributable Share premium Capital redemption reserve Capital reserve Special non-distributable reserve 6.000.0 1,220.2 2000 6,000.0 1,250.5 The Company 2001 2000 6,000.0 1,220.2 6,000.0 1,250.5

8,031.0 40.8 447.2 62.3 6.9 1,800.0 10,388.2 11,608.4 186.1 1,357.4 795.5 13,947.4

7,390.6 30.3 447.2 32.0 6.9 1,800.0 9,707.0 10,957.5 19.6 1,167.0 566.5 12,710.6

8,477.4 447.2 62.3 1,800.0 10,786.9 12,007.1 1,050.6 592.1 13,649.8

7,931.0 447.2 32.0 1,800.0 10,210.2 11,460.7 872.5 561.8 12,895.0

SHARE CAPTIAL AND RESERVES MINORITY INTERESTS DEFERRED ACCOUNTS LONG-TERM LIABILITIES

Represented by: FIXED ASSETS Aircraft, spares and spare engines Land and buildings Others SUBSIDIARY COMPANIES Investment in subsidiary companies Amount owing by subsidiary companies

8,938.8 942.6 2,981.6 12,863.0 715.4 239.0 556.0 1,244.8 54.4 511.4 455.6 1,272.3 3,538.5

9,279.5 854.0 1,748.5 11,882.0 305.7 188.2 537.8 1,178.1 56.7 711.6 415.7 1,142.1 3,504.2

8,582.8 401.1 2,477.8 11,461.7 307.2 159.9 467.1 2,099.4 107.9 467.3 1,082.4 26.5 455.6 867.0 2,431.5

8,995.6 423.0 1,204.3 10,622.9 307.2 551.9 859.1 1,668.1 107.9 463.1 1,054.2 28.4 415.7 944.2 2,442.5

ASSOCIATED COMPANIES JOINT VENTURE COMPANEIS LONG-TERM INVESTMENTS CURRENT ASSETS Trade debtors Stocks Investments Section 44 tax prepayments Cash and bank balances Less: CURRENT LIABILITIES Loans repayable within one year Bank overdrafts unsecured Trade creditors Sales in advance of carriage Provision for taxation Proposed final dividend, less tax NET CURRENT LIABILITIES
Source: SIA Annual Report FY 00/01

0.6 27.4 2,622.6 853.7 276.0 184.2 3,964.5 (426.0) 13,947.4

15.6 49.2 2,293.5 786.1 376.6 186.3 3,707.3 (203.1) 12,710.6

25.9 2,093.4 840.5 241.1 184.2 3,385.1 (953.6) 13,649.8

43.7 1,937.3 775.0 326.3 186.3 3,268.6 (826.1) 12,895.0

Singapore Airlines IB-34

p. 41

Exhibit 8 Impact of Terrorist Attacks on Load Factors for Passengers and Cargo at SIA

Passenger Load Factor 85

80.7
80 % 75 70 65 60

76.3

2000/01
2001
75 73.1

73.2

Apr May Jun

Jul Aug Sep Oct Nov Dec Jan Feb Mar

Cargo Load Factor 74 72 70 68 66 64 62 60 58 72.1 68.7 67.8 63.9

2000/01
68.3

2001

Apr May Jun

Jul

Aug Sep Oct Nov Dec Jan Feb Mar

Singapore Airlines IB-34

p. 42

Exhibit 9 Singapore Airlines Group Corporate Structure at March 2001

100% 100% Tradewinds Tours & Travel Private Limited 100% SH Tours Ltd. 5% Abacus Travel Systems Pte Ltd 100% SIAEC Services Pte Ltd 48% Eagle Services Asia Private Limited 20% PT Purosani Sri Persada 20% PT Pantai Indah Tateli 50% Singapore Aero Engine Services Pte Ltd. 49% Combustor Airmotive Services Pte Ltd 49% PWA International Ltd 49% Fuel Accessory Service Technologies Pte Ltd 47.1% Pan Asia Pacific Aviation Services Limited 40% Messier Services Asia Pte Ltd 30% Rohr Aero-Services Asia Pte Ltd 29% .Asian Surface Technologies Pte Ltd 24.5% Asian Compressor Technology Services Company Ltd 24.5% Turbine Coating Services Pte Ltd 50% International Engine Component Overhaul Pte Ltd 51% Singapore Jamco Private Ltd 1% Eagle Services Asia Private Limited 100% 100% 49% 49% 40% 40% 35% 100% 100% SATS Catering Pte Ltd SATS Airport Services Pte Ltd SATSSecurity Services Private Limtied Aero Laundry & Linen Services Private Limited Asia-Pacific Star Pte Ltd. Servair SATS Holding Company Pte. Ltd Aviserv Ltd Beijing Airport Inflight Kitchen Limited Beijing Aviation Ground Services Company Ltd Maldives Inflight Catering Private Limited 30% Tan Son Nhat Cargo Services Ltd 30% Taj-Madras Flight Kitchen Private Limited 24.5% Asia Airfreight Terminal Company Ltd 24% Singapore Airport Duty-Free Emporium (Private) Limited 20% MacroAsia-Eurest Catering Services

Singapore Airlines Limited

87% Singapore Airport Terminal Services Limited

100% SilkAir (Singapore) Private Limited

56% Abacus Travel Systems Pte Ltd

87% SIA Engineering Company Limited

100% Singapore Airlines Cargo Private Limited

100% SIA Properties (Pte) Ltd

100% Singapore Flying College Pte Ltd

100%Star Kingdom Investment Limited

100%Sing-Bi Funds Private Limited

100%Auspice Limited

100%Singapore Airlines (Mauritius) Ltd.

100%SIA Mauritius Ltd

100%Singapore Aviation and General Insurance Company (Pte) Ltd

76%Singapore Airport Duty-Free Emporium (Private) Limited

51%Cargo Community Network Pte Ltd

51%Aviation Software Development Consultancy India Ltd.

50%Service Quality (SQ) Centre Pte Ltd

49% Virgin Atlantic Limited

35.5% Singapore Aircraft Leasing Enterprise Pte Ltd

25% Air New Zealand Limited

21% Asia Leasing Limited

20% Evergreen Air Cargo Services Corporation

20% Ritz-Carlton, Millenia Singapore Properties Private Limited

Singapore Airlines IB-34

p. 43

Exhibit 10 Singapore Airlines Group Profit after Tax 2000/01 ($ millions) Airline operations Airport terminal services Engineering services SilkAir and Other Less inter-segment transactions Group Profit After Tax
Source: SIA Annual Report

% 81.9% 10.0% 6.6% 1.5%

1434 175 116 26 1751 164 1587

Exhibit 11 SIA Company Revenue Composition 2000/01

Cargo (22.5%) Cargo (22.9%) Mail (0.4%) Excess baggage (0.3%) Non-scheduled service and incidental (4.5%) Passenger (72.3%) Passenger (71.4%) Mail (0.5%) Excess baggage (0.4%) Non-scheduled service and incidental (4.8%)

1999/00

Passenger Cargo Mail Excess baggage

2000/01 $M % 6.672 72.3 2.079 22.5 36 0.4 29 0.3 8,816 95.5 414 9.230 4.5 100.0

1999/00 Change $M % % 5.957 71.4 +12.0 1.909 22.9 + 8.9 41 0.5 -11.4 35 0.4 -18.5 7,942 95.2 + 11.0 399 8,341 4.8 100.0 + 3.5 +10.7

Non-scheduled service and incidental Total revenue Source: SIA Annual Report

Singapore Airlines IB-34

p. 44

Exhibit 12 The Five Freedoms of the Air and Additional Freedoms

Additional Freedoms:
6. 7. 8. The right to carry traffic between two foreign countries via home country. The right to carry traffic from one country to another country without going through the home country. Cabotage: The right to carry traffic between two points within a foreign country.

Adapted from: R. Bruce McKern, Evolving Strategies in the International Airline Industry, Technical Report No. 77, Stanford Graduate School of Business, August 1990.

Singapore Airlines IB-34

p. 45

Exhibit 13: SIAs Fleet: Composition (March 2002)

Passenger Seats

A380-800 B747-400

B777-200

B777-200ER A340-300 A340-500

A310-300

Range (nautical miles)

Aircraft B747-400 B747-400 Freighter B777-200 A310-300 A340-300 A340-500 A380-800 Total

In Operation 39 11

Range (nautical miles) 7260 7260

On Firm Order 0 0

On Option 9 -

33 12 8 92
(excluding freighters)

5210 5200 7400 8650 8000

*25 2 5
To enter service 2002

**23 5 15 52

10
To enter service Q1 2006

42
(excluding freighters)

* Excludes 2 aircraft assigned to Singapore Aircraft Leasing Enterprise. ** Excludes 10 aircraft assigned to Singapore Aircraft Leasing Enterprise. Compiled from company reports.

Singapore Airlines IB-34

p. 46

Exhibit 14 SIAs Fleet Age

200 160 Age (Months) 120 80 40 0 92 93 94 95 96 97 98 99 00 01 200 160 120 80 40 0

31 March SIA Industry Wide

Singapore Airlines IB-34

p. 47

Exhibit 15 SIA Company Route Performance

Revenue by Area of Original Sale (Note 1) $ million) 2000-01 1999-00

Revenue (Note 2) $ million

2000-01 1999-00

By Route Region Overall Load Factor %

2000-01 1999-00

Passenger Seat Factor %

2000-01 1999-00

East Asia Americas Europe South West Pacific West Asia and Africa System wide Non-scheduled services and incidental revenue

4,927 844 1,503 842 700 8,816

4,449 761 1,334 766 632 7,942

2,784 2,079 1,871 1,175 907 8,816

2,453 1,903 1,674 1,090 822 7,942

65.7 71.7 78.2 70.7 70.0 72.0

65.2 72.6 75.3 70.6 67.8 71.2

72.8 79.4 78.8 77.0 74.7 76.8

71.2 79.1 74.7 75.6 72.4 74.9

399 414 9,230 8,341 Note 1: Revenue by area of original sale is defined as revenue originating in the area in which the sale is made Note 2: Revenue by route region is defined as revenue derived from a route originating from Singapore with its final destination in countries covered by the region and vice versa. For example, revenue from SIN-HKGSFO-HKG-SIN route is classified under Americas region. Source: SIA Annual Report

Singapore Airlines IB-34

p. 48

Exhibit 16 Regional Outlook 2000-2004 Passenger Forecast Within the Far East
1999 2000(f) 2001(f) 2002(f) 2003(f) 2004(f) AAGR (Actual) Forecast Annual Growth Rate (%) North East Asia-North East Asia North East Asia-South East Asia North East Asia-South Asia South East Asia-South East Asia South East Asia-South Asia South Asia-South Asia TOTAL 9.6 6.8 7.8 5.2 7.8 8.5 5.4 7.3 7.5 7.2 7.4 6.8 7.6 5.1 7.2 7.6 7.3 7.3 6.1 7.4 5.3 7.2 6.9 6.0 6.5 6.1 6.8 5.1 6.4 6.6 5.8 7.1 5.9 6.3 5.4 6.2 7.1 6.8 6.7 6.5 7.3 5.2 6.9

Source: IATAs October 2000 Passenger Forecast

Singapore Airlines IB-34

p. 49

Exhibit 17 Major Inter/Intra-Regional Growth Rates Forecast Annual Average Growth Rates 2000-2004

Notes: The bold figure in the box represents the forecast AAGR on the specified route area for the period 2000-2004

Source: IATA Passenger Forecast 2000-2004

Singapore Airlines IB-34

p. 50

Exhibit 18 Forecast International and Domestic Passengers Numbers for Scheduled Air Travel
1999 2000 2001 2002 2003 2004 0 200
489 521 550 581 611 643 1,069 1,124 1,168 1,214 1,262 1,308

400

600

800 1,000 1,200 Passengers (Millions)

1,400

1,600

1,800 2,000

International
Source: IATAs October 2000 Passenger Forecast

Domestic

Singapore Airlines IB-34

p. 51

Exhibit 19 Top Six Asia Pacific Airports January to March 2001

In passengers World Ranking 6 14 18 20 24 27 In cargo World Ranking 3 4 6 10 16 20

Airport Tokyo (Haneda) Seoul Bangkok Hong Kong Singapore Tokyo (Narita)

Passengers (000,000) 13.75 8.61 8.13 7.99 7.04 6.74

% change 1.90 0.50 7.20 6.50 3.90 5.10

Airport Hong Kong Tokyo (Narita) Seoul Singapore Taipei Osaka

Metric Tonnes (000,000) 0.489 0.427 0.412 0.382 0.293 0.219

% change 2.00 7.10 3.10 -3.40 6.20 2.80

Source: Airports Council International

Singapore Airlines IB-34

p. 52

Exhibit 20 Selected Travel Distribution Systems in 2001

ABACUS x Offered travel services from 316 airlines, 52,000 hotel properties and 50 car rental companies
x Linked 23,300 terminals at
C C C TA C TA C C C Airlines TA C C Hotel & Leisure C Car C TA C C C C TA C C C C C C C C C C

9000 subscribers in 20 countries across the Asia- C C Pacific region

x 65% owned by Abacus
C

SQ-e Travel SIA

International Holdings*, 35% owned by SABRE

x Strategic alliance with

SIAs Booking Web Site: SQ-eTravel x Passengers could C book flights and order special C meals, view realtime seating plans, book preferred C seating x 66 stations around the world x 19,646 bookings made in 00/01 over the Internet.

SABRE (1998) and with INFINI (1990)

x Established 1988

C C C C C TA TA

C C C

Strategic Alliance

Infini
C C C TA TA

SABRE System
x Offered travel services

C C C

from 440 airlines, 47,000 hotel properties, 50 car rental companies, tour operators, rails and ferry companies
x Linked 210,000 computer
C

C C C TA

TA

TA

C C C

terminals at travel agencies in 112 countries and in airports

x Sent 270 million

Airlines C C C C C C TA C C C C C C C C C C TA C TA C TA Car Rental Rail Hotels Cruise Lines

messages/day to a data center in Tulsa, OK

x Processed 8544

Tour Operators

messages/second
x Booked $75 billion in

INFINI x Offered travel services to the Japanese market x Linked over 10,000 terminals x Booked $45 million in travel in 2000 x 60% owned by ANA, 40% owned by Abacas x Established 1990

travel/year
x Established 1955 as

TA C C

American Airlines Customer Reservation System

x Internet site

Travelocity.com connected directly to customers (business and consumer) *Abacus International Holdings: All Nippon Airways Garuda Indonesia Royal Brunei Airlines

Cathay Pacific Airways Hong Kong Dragon Airlines SilkAir

China Airlines Malaysia Airlines Singapore Airlines Legend: TA: Travel Agent

EVA Airways Philippine Airlines

Adapted from Speeding Tickets: Internet Distribution and the Travel Industry, GSB No. EC-34.

C: Customer

Singapore Airlines IB-34

p. 53

Exhibit 21 The Singapore Girl

Singapore Airlines IB-34

p. 54

Exhibit 21 The Singapore Girl (continued)

Singapore Airlines IB-34

p. 55

Exhibit 22 SIA Ten-Year Statistical Record

2000-01 ($ million) ($ million) ($ million) ($ million) ($ million) ($ million) ($ million) 9,229.7 8,246.3 983.4 1,607.2 1,339.7 2,968.2 2,777.7 8,341.3 7,485.9 855.4 1,641.5 1,267.1 2,816.5 3,303.7 7,212.7 6,616.5 596.2 882.3 813.7 2,859.1 1,850.4 7,077.3 6,284.0 793.3 1,032.3 919.5 2,846.8 1,934.0 6,637.6 5,953.8 683.8 933.8 901.8 2,163.8 2,365.9 6,361.0 5,575.6 785.4 903.3 875.9 1,779.2 1,395.1 6,044.5 5,205.5 839.0 950.5 939.0 1,942.3 1,790.7 5,655.6 5,111.3 544.3 733.0 722.6 1,695.5 1,835.4 76.0 49.8 65.5 73.6 46.0 62.5 69.7 43.6 62.6 66.5 43.8 65.9 67.2 43.8 65.2 63.7 42.6 66.9 66.0 43.7 66.2 67.9 45.4 66.9 (cts/ltk) (cts/ctk) (%) 5,279.4 4,602.3 677.1 794.2 741.1 1,366.4 1,619.0 81.3 50.6 62.2 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 5,228.9 4,318.0 910.9 1,085.2 920.7 1,604.7 1,620.2 90.8 54.9 60.5

Financial Total revenue* Total expenditure* Operating profit Profit before tax Profit after tax Internally generated cash flow+ Capital disbursement

Yield Unit cost Breakeven load factor

Fleet Aircraft Average age (no.) (months) 93 70 92 62 89 57 86 62 80 63 71 68

66 60

64 60

57 61

48 61

Production Destination cities Distance flown Time flown (no.) (million km) (hours) 119 334.8 414,232 118 317.7 394,224 110 298.4 371,181 77 274.2 345,715 77 251.8 325,085 13,501.1 73,507.3 6,203.9 14,533.9 77,219.3 6,908.6 15,651.8 83,191.7 7,403.6 16,917.2 87,728.3 8,244.4 18,034.0 92,648.0 8,876.1 (million tonne-km) (million seat-km) (million tonne-km)

77 228.5 294,880 12,481.3 68,529.4 5,585.1

75 205.9 264,096 11,167.3 64,074.0 4,773.6

73 188.8 241,346 10,155.6 59,290.4 4,231.3

70 165.0 211,435 8,982.3 53,077.6 3,630.0

67 142.3 180,744 7,624.4 47,454.3 2,898.3

Overall capacity Passenger capacity Cargo capacity

Traffic Passengers carried Passengers carried Passenger seat factor (000) (million pax-km) (%) 15,002 71,118.4 76.8 13,782 65,718.4 74.9 12,777 60,299.9 72.5 768.5 4,919.1 66.4 106.6 10,765.5 68.6 905.1 5,668.2 68.8 107.2 12,038.4 71.2 975.4 6,075.2 68.4 92.4 12,985.3 72.0 (million kg) (million tonne-km) (%) (million tonne-km) (million tonne-km) (%) 11,957 54,441.2 70.5 735.9 4,760.9 68.9 98.2 10,037.6 69.1

12,022 54,692.5 74.4 674.2 4,249.4 68.5 99.2 9,512.0 70.5

11,057 50,045.4 73.0 603.8 3,820.1 68.4 89.4 8,662.0 69.4

10,082 45,414.2 70.9 550.5 3,389.4 71.0 72.7 7,789.3 69.8

9,468 42,328.3 71.4 483.4 2,973.4 70.3 64.3 7,058.8 69.5

8,640 37,860.6 71.3 399.1 2,411.5 66.4 55.2 6,086.3 67.8

8,131 34,893.5 73.5 342.8 1,954.8 67.4 55.0 5,331.2 69.6

Cargo carried Cargo carried Cargo load factor Mail carried

Overall load carried Overall load factor

Staff Average strength Capacity per employee Load carried per employee Revenue per employee Value added per employee (tonne-km) (tonne-km) ($) ($) 14,254 1,265,189 910,993 647,516 284,369

13,720 1,233,032 877,434 607,966 291,494

13,690 1,143,302 786,377 526,859 228,254

13,506 1,076,107 743,196 524,012 236,828

13,258 1,018,336 717,454 500,649 221,044

12,966 962,618 668,055 490,591 210,319

12,557 889,329 620,315 481,365 215,091

12,363 821,451 570,962 457,462 195,276

11,990 749,149 507,615 440,317 187,690

11,418 667,753 466,912 457,952 218,199

* Total revenue and expenditure were restated for 1999-00 and prior years to comply with Statement of Accounting standard (SAS) 1 [Presentation of Financial Statements] which became effective for financial year commencing on or after 1 January 2000. Accordingly, total revenue now includes interest income (which was previously shown in expenditure as an offset against interest expense), and total expenditure has been adjusted to exclude interest income, and interest on borrowings which is disclosed separately after operating profit. + Internally generated cash flow comprises cash generated from operations, dividends from subsidiaries and associated companies, and proceeds from sale of aircraft and other fixed assets.

Singapore Airlines IB-34

p. 56

Exhibit 23 SIA Staff Strength and Productivity 2000-01 Category Senior staff (administrative and higher ranking officers) Technical crew Cabin crew Other ground staff Location Singapore Africa and rest of Asia Europe South West Pacific Americas 1999-00 % Change

1,304 1,589 6,436 4,925 14,254 11,282 1,618 603 419 332 14,254

1,247 1,504 6,075 4,894 13,720 10,081 1,594 585 408 332 13,720

+ 4.6 + 5.7 + 5.9 + 0.7 + 3.9 + 4.5 + 1.5 + 3.0 + 2.6 + 3.9

Source: SIA Annual Reports

Singapore Airlines IB-34

p. 57

Exhibit 24 SIA (Airline) Expenditure Composition

$M 953 1,134 1,082
change

Expenditures Fuel Costs Staff Costs Depreciation charges Rentals on lease of aircraft Sales costs Handling charges Inflight meal and other passenger c Landing, parking and overflying cha Aircraft maintenance and overhaul c Other costs % 14.6 17.4 16.6 11.8 12.0 7.5 6.8 7.8 5.6 100.0 26.9 7.8 3.3 37.3 12.8 6.8 6.4 9.3 2.0 92.5 13.2 722 11.6 716 11.5 445 7.2 404 6.5 472 7.6 243 3.9 6,214 100 6.2 9.7 9.6 9.8 8.3 49.2 5.0 665 678 448 365 483 233 5,866 $M % change 1,065 17.1 -10.5 1,174 18.9 -3.5 973 15.7 11.2 $M 1,005 1,091 898 767 785 488 443 511 363 6,526

$M % $/ATK $M change 1,767 21.4 0.10 1,210 16.2 46 1,347 16.3 0.07 1,202 16.1 12.1 1,055 12.8 0.06 1,118 14.9 -5.6 289 3.5 0.02 229 3.1 26.4 926 11.2 0.05 866 11.5 6.9 891 10.8 0.05 839 11.2 6.3 520 6.3 0.03 519 6.9 0.1 498 6.0 0.03 484 6.5 2.7 483 5.9 0.03 521 7.0 -7.3 470 5.8 0.03 498 6.6 -5.3 8,246 100.1 0.454* 7,486 99.9 10.2

% 17.1 18.6 15.3 0.0 11.3 11.6 7.6 6.2 8.2 4.0 100

Note 1: Sales costs include commission and incentives payable, frequent flyer programme costs and advertising expenses. Note 2: Other costs include departmental expenses, crew expenses, aircraft license insurance, hire of aircraft and equipment, company accommodation costs, communication expenses, provisions for dimunition in value of investments, net interst receiveable and loss on exchange. Note 3: Values in Singapore dollars. * Due to adjustments for airline expenditure due to internal accounting.

Singapore Airlines IB-34

p. 58

Appendix A The Worlds Top 25 Airlines

In RPKs
Rank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Airline United American Delta Northwest British Airways Continental Air France Japan Airlines Lufthansa US Airways Singapore Southwest Qantas All Nippon KLM Cathay Pacific Air Canada TWA Thai Intl Alitalia Korean Air Iberia Malaysia Swissair America West No. of RPKs (000,000) Rank 204,235 187,600 173, 486 127, 317 118,890 103,235 91,801 88,999 88,606 75,728 70,795 67,924 67,486 62,592 60,327 47,153 57,374 43,791 42,395 41,433 40,532 40,049 37,939 34,246 30,753 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

In operating revenue
Airline AMR Corp. UAL Corp. Delta FedEx JAL Group Lufthansa Group British Airways Northwest Air France Group All Nippon Group Swissair Group Continental US Airways Air Canada KLM Southwest Qantas Alitalia Group Singapore SAS Group Cathay Pacific Iberia TWA Airborne Express Korean Air

In operating profit
Airline

In net profit
Op. profit (000) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Airline Delta AMR Corp. Singapore Cathay Pacific Southwest Lufthansa Group FedEx Air France Group Continental JAL Group All Nippon Qantas SAS Group Northwest British Airways Lufthansa Cargo Iberia Emirates Thai Intl China Airlines Atlas Finnair* Atlantic Southeast KLM China Southern Net profit (000) $828,000 813,000 742,221 641,691 625,224 605,424 519,322 369,933 342,000 324,722 318,000 312,035 295,000 256,000 213,900 200,256 157,287 114,736 113,656 89,205 85,259 77,941 74,806 67,660 60,647

Op. revenue (000) Rank $19,703,000 19,352,000 16,741,000 15,596,508 13,487,000 13,356,240 13,230,428 11,415,000 10,790,000 10,129,000 10,076,424 9,899,000 9,248,000 6,197,795 6,115,752 5,649,560 5,486,847 5,146,000 5,113,254 5,054,000 4,426,194 3,793,348 3,584,638 3,275,950 3,089,272 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Delta $1,637,000 AMR Corp. 1,381,000 Southwest 1,021,145 FedEx 999,353 Lufthansa Group 914,727 Continental 684,000 Cathay Pacific 678,103 UAL Corp. 654,000 All Nippon Group 651,000 JAL Group 622,500 Northwest 569,000 Singapore 544,804 British Airways 541,880 Qantas 491,761 Swissair Group 374,397 SAS Group 325,000 Air France Group 307,000 KLM 243,400 Atlas 232, 704 Air Canada 176,260 China Airlines 144,914 China Southern 142,810 Emirates 121,488 Varig 116,964 Atlantic Southeast 116,570

In passengers
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Airline Delta American United Southwest US Airways Northwest All Nippon Continental Lufthansa Air France British Airways Japan Airlines Alitalia TWA Iberia Japan Air System* Pass. (000) 105,723 86,280 84,521 63,678 60,636 58,722 49,887 46,896 41,300 39,204 38,261 33,857 26,697 26,392 24,543 20,836 19,954 18,038 17,655 16,800 16,561 16,234 14,874 14,238 13,525 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

In FTKs
Airline FedEx Lufthansa Cargo Korean Air UPS Singapore Air France Japan Airlines British Airways China Airlines Cathay Pacific KLM Cargolux United Northwest EVA American Delta Asiana Malaysia Airlines Martinair Nippon Cargo* Swissair Thai Intl Polar Air China FTKs (000) 11,388,657 7,666,000 6,573,000 6,336,400 6,020,319 4,979,630 4,607,013 4,563,970 4,133,557 4,108,239 3,964,270 3,812,837 3,693,774 3,651,460 3,558,248 3,328,800 2,673,260 2,598,273 2,559,164 2,355,500 2,162,895 1,935,610 1,714,488 1,658,572 1,650,883

In employees
Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Airline United American Delta Lufthansa Group Air France British Airways Northwest Continental US Airways Air Canada KLM Qantas Southwest Iberia Thai Intl Saudi Arabian Malaysia Airlines Pakistan Alitalia Indian TWA SAS Swissair EgyptAir Japan Airlines

In fleet size
No. of employees Rank Airline 101,814 101,199 80,390 69,523 59,000 54,030 53,889 53,400 45,833 45,000 30,159 30,000 29,274 26,814 24,148 24,000 21,687 20,800 20,770 20,607 20,136 20,000 19,100 18,000 17,793 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 25 American FedEx Delta United Northwest US Airways Continental Southwest British Airways American Eagle Lufthansa Air Canada UPS Air France TWA Japan Airlines Continental Express America West Iberia SAS Alitalia All Nippon Saudi Arabian Comair Aeroflot Russian Atlantic Southeast No. of air craft 717 662 605 604 429 418 372 344 288 261 243 242 239 231 186 171 166 164 159 155 146 140 126 121 112 112

17 America West 18 Thai Intl 19 Air Canada 20 China Southern 21 22 23 24 25

Malaysia Airlines KLM Singapore Swissair Alaska

Source: Adapted from The World Airline Report, Air Transport World, July 2001, p.54. Note: ATWs source: direct airline reports. Financial data are for carriers most recent financial year as of 2001. *Partial.

Singapore Airlines IB-34

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Appendix B: Terminology of the Airline Business

Revenue Passenger Kilometers (RPK): The way passenger traffic is measured: one passenger carried one kilometer. Traffic and RPKs are synonymous and the terms are used interchangeably. The presumption is that the passenger paid for the trip, thus the use of the word "Revenue". Some passengers dont pay, such as those using frequent flier miles, but they are counted the same way. Available Seat Kilometers (ASK): This is the definition of passenger capacity, and it is one seat flown one kilometer, whether or not it is occupied by a passenger. Computed as the product of seat capacity times distance flown. Available Tonne Kilometers (ATK): Overall capacity measured in tonnes available for the carriage of passengers, cargo and mail on route stage multiplied by the route distance. Revenue Tonne Kilometers (RTK) Traffic volume measured in load tonnes from the carriage of passengers, cargo and mail on route stages multiplied by route distance. Load Factor: Load factor is the percentage of RPKs to ASKs and is a key measurement of how efficiently the airline is utilizing its capacity. In general, higher is better but there is a limit beyond which the airline will turn away, or spill, passengers to its competitors and not have seats available for last minute business travelers who are prepared to pay the highest fares for that seat. Since the real objective is to maximize revenue, not seat occupancy, the optimum load factor becomes the highest that can be obtained while spilling as few passengers as possible. Once an airplane leaves the airport gate, empty seats represent inventory lost forever so the art of inventory management is one of balancing the perishable nature of the seat against the desire to have last minute product available for the premium buyer. Sophisticated yield-management software is used to optimize the load factor . Yield: The amount of passenger revenue received for each RPK. It is a weighted average price and is expressed in cents. Yield does not represent the price paid by anyone, just the average amount paid by all passengers and measures only passenger revenue, not cargo revenue. Unit Cost or Cost per ASK (CASK): The cost of producing one ASK, expressed in cents. It is derived by dividing total operating expenses by total ASKs. Breakeven Load Factor: Determined by dividing total operating costs by total revenue and multiplying the load factor required for revenue to equal costs by the quotient. For example, if revenue is $100 and costs are $90 the quotient is 0.9. Assuming the load factor is 60%, the breakeven is 54% (60 times 0.9). A short form of this is to multiply the load factor by the operating ratio. Operating Ratio: Most industries describe earnings before such non-operating factors as interest on debt, currency gains or losses and income taxes, as the operating profit margin. Airlines use 1 minus this ratio and call it the operating ratio; thus a 10% operating profit margin becomes, in airline terms, a 90% operating ratio. Freight Tonne Kilometer (FTK): The way cargo traffic is measured: one tonne flown one kilometer.
Compiled from Edmund S. Greenslet, The Airline Monitor Group, Airlines 101- A Brief History of the Airline and Commercial Aircraft Industries, http://www.airlinemonitor.com/ (November 6, 2002) and R. Bruce McKern, Evolving Strategies in the International Airline Industry, Technical Report No. 77, Stanford Graduate School of Business, August 1990.