Premium economy: Singapore Airlines catches up, at last

Courtesy Reuters

Courtesy Reuters

JOHNNY come lately. Was it pride or misplaced hope that took Singapore Airlines (SIA) that long to finally decide it would introduce – or, rather, re-introduce – premium economy in its fleet? The Singapore flag carrier announced last week it would offer the sub-class next year as part of a S$347 million (US$325 million) cabin retrofitting project. Many major airlines including regional rivals Cathay Pacific, Qantas and Japan Airlines are already offering this sub-class of travel, and judging by the increased popularity of the product across the industry, it will be to SIA’s disadvantage not to follow suit.

But, of course, for an airline with the reputation for top-rate service, it is never too late. There is no doubt that SIA will be able to offer a product to match the best in the industry as it plays catching up – that may even pose some threat to airlines such as Qantas on the kangaroo route – and any further delay could mean a heftier opportunity cost. In a post published last month, Aspire Aviation heralded the forthcoming announcement by SIA as not surprising, as one cannot ignore the the reality of the aviation landscape, granting that it is normal to change course to stay in the competition even if it means having to swallow one’s words spilled all too often to the contrary. (See The times they are a-changing: Singapore Airlines may re-introduce executive economy, Apr 4, 2014)

It was a gamble that SIA was not prepared to risk, going down that road, as it continud to bank on the return of the upmarket traffic to its pre-2009 level. However, while the premium economy product can swing the door both ways – trade-up from coach vs trade-down from business – Cathay for one has shown that its business model is working and it continues to expand and enhance the product. What started out as a long-haul offering has caught on with even regional travellers.

It looks like SIA’s entry into the premium economy market is attributable to the push more than the pull factor. Notwithstanding having made the decision, the airline remains cautious. SIA executive vice-president (Commercial) Mak Swee Wah stressed that the initiative would not dilute the airline’s branding, the obvious reference to the elitist upper class image and reputation, and was quick to add that SIA would also be upgrading its front-end product. Of the premium economy decision, Mr Mak said: “It’s something that we have been watching and reviewing for a couple of years… I think the market has matured in a way and it is ripe for us to embark on this now.” This is not quite reminiscent of the days when the airline used to be the leader in innovation. Even more uncharacteristic is that reference to a “mature” market.

So, SIA has been “pushed” forward. Its performance continues to be lacklustre as it posted a plunge in Q4 profit of 60 per cent. Net profit was S$27 million compared to S$68.3 million a year ago. Yield declined for the third straight year. This latest result could be the trigger for an overdue strategic change. Continuing to blame the high fuel price, floundering in an uncertain global economy and lacking a concrete counter-competitive move in the face of aggression by rival airlines will not help. At the low end, SIA feels the pressure from regional and low-cost carriers; its own mix of SilkAir/Scoot/Tigerair regional and budget operations is similarly challenged. At the high end, Middle east carriers in particular, such as Emirates, ETD Airways and Qatar Airways, have raised the ante.

SIA has waited too long. It must by now have a pretty good feel of how the aviation market has settled, noting the persistent weakness in high-end demand. SIA too cannot ignore the emerging premium economy trend, and it has seen how rival Cathay and other airlines have benefited from the introduction of the sub-class. Without offering a similar product, SIA risks losing both potential downgraders and upgraders to the competition. With such an offering, it may recover some lost business that has switched in its absence. More than that, the rising middle class in the populous countries of China, India and Indonesia offers a new market potential that SIA is well positioned to take advantage of, an opportunity in time that it will be ill-advised to miss, considering how the business is continually shifting.

This article first appeared in Aspire Aviation.

About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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