Singapore Airlines: Customer Service Innovation

Singapore Airlines: Customer Service Innovation

I recommend that Singapore Airlines (SIA) do launch the spacebed project

The decision should be taken because:

1. Superior customer service is how SIA differentiate itself among the competitors. To keep “Even-rising customer expectations”, they need to fulfill their commitment and show their devotion to customer service innovation/branding
2. SIA has already invested millions for R&D, they will lose those for nothing if they stop
3. SIA will be able to compete against BA with this project implementation and won’t lose more customer to the competitor
4. Financial analysis shows reasonable return with alternatives taken into consideration

The factors that have impact on the final decision are as follows:

1. Financial status difficulty – background issue, can be mitigated via alternatives.

1. Ongoing cost of on-broad innovation and investment of $14 billions in new aircraft, which led to the first bank loan in SIA history
2. Labor cost kept increasing in 1990s

1. Market uncertainty – industry environment, can be overcome via alternatives

1. 911 incident impact on general air transportation industry
2. High competitive climate with more low-price challengers

1. Spacebed decision (In response to BA’s business class new service) – cost scenario analysis

1. Install cost of US$ 100 million
2. Apply in 45 aircraft
3. Raffle class seats reduced from 58 to 50
4. Project already announced

We list all the cost impact out for analysis on different scenario about Spacebed project as follows:

Calculation on total revenue/cost with this 45 aircraft:

Scenario 1: drop the project = no change on current operation

Assume $1000 ticket price, 75% passenger seat factor, annual flight number as 120, 48% margin

Total Revenue for Raffle class will be ~$235M

Contribution margin will be ~$113M

Scenario 2: Keep the project, seat factor is down due to market, ticket price and margin increase

Assume $1100 ticket price, 90% passenger seat factor, annual flight number as 120, 50% margin

Total Revenue for Raffle class will be ~$267M

Contribution margin will be ~$134M

Scenario 3: Keep the project, perfect condition

Assume $1100 ticket price, 100% passenger seat factor, annual flight number as 120, 50% margin

Total Revenue for Raffle class will be ~$297M