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Singapore Airlines fights to reinvent
itself
By Tony Sitathan
SINGAPORE - Early-warning bells were ringing
that Singapore Airlines (SIA), considered one of the
premier airlines in the world, has hit some rough
turbulence even before it made public on May 21 its
financial results for the year ended March 31.
SIA has been a Singapore success story from the
beginning. Its growth has mirrored the phenomenal growth
of the island state. It has impressed the world with its
double-digit growth rates and diverse portfolio of
international destinations, and it houses a world-class
infrastructure, Changi International Airport.
Known as the winged ambassador of Singapore, SIA
has kept the spotlight on the city-state, earning praise
for its "Singapore Girl" icon that is synonymous with
world-class in-flight service. It has been ranked
consistently as one of the top three airlines in the
world in terms of customer satisfaction, passenger load,
cargo bookings and profitability for more than three
years in a row.
But all that is changing. Ever
since the September 11, 2001, terrorist incidents in the
United States, the entire airline industry has been
turned topsy-turvy. Several airlines were declared
bankrupt, while the insurance risk premium for the
airline industry doubled overnight. No airline was
spared, including SIA. And events took another dive with
the start of the Iraq war and the global health scare in
the form of the deadly severe acute respiratory syndrome
(SARS) epidemic that in effect put a lid on traveling to
SARS-hit Asian destinations, including Singapore.
Singapore Airlines deputy chairman and chief
executive officer Dr Cheong Choong Kong summed up the
situation when the financial results for the year were
released last week. "The financial year began
depressingly. With little more than a month left, the
first quarter [April-June] will almost certainly show a
loss," he predicted. He also pointed out that this
particular crisis was the airline's worst ever. And as
SARS recedes, SIA can expect a gradual return to
normalcy. "But until that happens SIA will continue to
work strenuously to reduce costs," he added. Analysts
have predicted that SIA's losses could mount to S$1
billion (US$579,000) for this financial year.
Although the financial results for last year
ending March 31 were less than stellar, the SIA Group
did manage to book shareholder profits at above S$1
billion. This was due to a tax writeback of S$278
million and a reduction in the corporate tax rates to 22
percent. Without these adjustments, shareholder profits
would have been lower at S$787 million, which is still
an increase of 24.6 percent over the previous year.
However, the Group's operating profit dropped
22.4 percent or nearly S$208 million to S$717 million as
compared with the previous year. That is probably a good
gauge of what is to come, with operating profits
expected be trimmed further once the full effects of
SARS are calculated for the current financial year.
That is what is causing sleepless nights for the
top management in SIA, which is considering several
cost-reduction measures, including layoffs. So far pay
cuts of between 22.5 and 27.5 percent have been
announced for management. It also wants all staff to
agree to a 15 percent pay cut and pilots to take a
larger 22.5 percent pay reduction. Cabin crew earlier
agreed to take a seven-day unpaid leave every two months
until next March to save costs.
The frequency of
flights has also been dropped to balance the drastic
reductions in passenger flights. There are plans to cut
99 more flights a week on top of the 199 reductions that
were announced earlier. Routes to unpopular destinations
have been temporarily suspended. A customer
representative officer for Singapore Airport Terminals
(SATS) called Changi Airport a "virtual ghost town",
indicating that very few passengers were seen traveling
when the SARS epidemic started.
A clear signal
for an impending wage reform came from Lim Boon Heng,
minister without portfolio and secretary general of the
National Trades Union Congress, when he addressed
members of the Air Transport Executive Staff Union
(AESU). He said SIA has to respond to international
competition, which will get more intense, by managing
its costs, and wage reform is one such method, no matter
how painful.
While most of the unions agree in
principle with the demands of SIA to remain competitive
while lowering overhead, union leaders from AESU, the
SIA Staff Union and the SIA Engineering Company
Engineers and Executives Union want wage cuts to be seen
only as temporary measures and not permanent. "Once the
airline industry is back to normal and traffic picks up,
we expect things to return to normal, including our
year-end bonuses and allowances," said a committee
member from the SIA Engineering Company Engineers and
Executives Union.
However, the Air Line Pilots
Association Singapore (ALPA-S) is at loggerheads with
SIA and does not want any further workload reductions
for its 1,600 pilots. It maintains that with the
reduction in flights, most of the pilots are already
feeling the pinch, as almost 25 percent of their pay
comes from flight allowances.
SIA stipulated
earlier that it wanted pilots to take 10-12 days of
no-pay leave every two months. ALPA-S countered that
should push come to shove, it wants SIA first to
terminate its 120 overseas-based pilots who have been
employed by an overseas-based subsidiary of SIA. It said
SIA had an obligation first to save the jobs of its
locally based employees rather than overseas-employed
pilots who work only for a subsidiary. The pilots
association was also bitter that these overseas-based
pilots are paid higher by almost 20 percent, have fixed
duty rosters planned six months in advance, and have the
privilege of not doing any standby duty.
SIA has
countered that the locally based pilots are trying to
take advantage of the situation. It said it makes no
difference between its overseas-based pilots and its
locally employed pilots. So far several pilots from Silk
Air, SIA's subsidiary, have had their contracts
terminated, since its regional Asian routes were
canceled.
Although the wage restraints and
layoffs are seen as a bitter pill to the employees of
SIA, it must also be noted that when times were good,
many of them received more than three-month bonuses and
enjoyed better salary packages than their counterparts
in other Asian airlines.
Perhaps SIA can also take a leaf from Southwest Airlines in the United States, which came near to Chapter 11 bankruptcy but emerged as one of the most cost-competitive and profitable airlines operating in the United States. How did it do that? Talking heart-to-heart and promising greater employee ownership and returns gets the message across, in most cases. Dangling the carrot instead of using the stick can be a better way to resolve worker disputes.
(Copyright 2003 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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