Singapore Airlines selects cost leadership business strategy

Of late, many full service airlines are tottering at the seams due to humongous cost structure weighing them down. Fixed cost apart running cost also has emerged as bricks around their necks. Keeping head straight as a profit making company amidst competitive environment is herculean task. But Singapore Airlines tell us a different story: success via cost leadership 

In the foregone days assessing the health of an airline was limited to the key ratio of cost per flight hour. As the cost structure has major divisions of fixed and variable the tendency towards controlling fixed cost was considered as strategic focus. A break-even point was arrived at and every fixed cost was listed out and the largest amongst these were put under nicroscope for vetting.

Lease rental or loan amortization in case of ownership of the plane along with maintenance, refurbishing, airport and hanger cost, insurance premium, staff cost other than the crew are collated and marked as important elements to be controlled. By increasing or decreasing flight hours this cost can be leveraged. The ideal is to bring the breakeven point fairly at low level so that during sluggish demand airlines could still survive. 

Variable cost on the other hand change in proportion to the use of aircraft per se along with the number pf passengers the plane carries. Flight maintenance, fuel cost, crew cost, in-flight catering, landing cost and supply and use of consumables vary a lot. In fact, the human cost of flying is around one third of the total variable cost and fuel might range between 17 to 20% that too depending on the price fluctuation at a given time.

Theoretically it is possible to reduce fixed cost marginally and variable cost fairly. However, in practice, it cannot be done and what the airlines needed was a ratio that spotlights the effectiveness of the cost incurred in running the flight per se. To do that airlines have identified a suitable ratio in the form of cost per seat occupied. Put it other way cost per passenger. Both notional fixed cost of the aircraft while in flight and the full variable cost of flying are added and the total is divided by the seats occupied or passengers flown. 

Singapore airlines has had major success in using this ratio, and her cost per seat, is the lowest among full service airlines. What is surprising is that this cost per seat braces what the budget airlines are experiencing in their own itinerary. There is more to it than meets the eye. Singapore Airlines record the lowest cost per seat not only in long-haul flights but also in short regional travel as well.

How this super profit is made possible? To the amazement of analysts, Singapore Airlines outlines her business strategy as cost leadership in fixed and running cost. Two arms of this business strategy are worth noting. First arm is the creation of value where the company rightly identifies the needs of international travellers and offer the best and unique service to these sophisticated travellers which in turn becomes the normal standards in every flight.

The second arm is delivering value by synchronizing input and output in a cost effective manner. Inputs by skilled and well trained staff who deliver customer focused service during the flight is supplemented by catering in-flight of such international standard that makes one time fliers to become frequent fliers. More than anything else, every aspect of value delivery is kept strictly in line with overall cost effectiveness. 

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail:   cosmicgems@gmail.com

Blog:   Business Strategist