The rise of Emirates, Etihad, and Qatar Airways in the Middle East (collectively referred to as “ME3”) has been absolutely dramatic. How should other full-service carriers respond? This study takes a look at how one carrier, Singapore Airlines, has responded and may offer clues to how others may choose to respond. Facing ME3’s ascent in service quality and rapid capacity expansion, Singapore Airlines stuck to its niche as a premium carrier and refrained from tit-for-tat type competition. It managed to command a fare premium in select markets even in the presence of ME3, but had to sacrifice growth in its passenger count. This offers valuable lessons for other full-service carriers.
Fan, T. (2018), "Strategic Response from Singapore Airlines to the Rapid Expansion of Global, Full-service Hub Carriers in the Middle East", Airline Economics in Asia (Advances in Airline Economics, Vol. 7), Emerald Publishing Limited, pp. 33-60. https://doi.org/10.1108/S2212-160920180000007004Download as .RIS
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In the 1990s, when airlines in Europe and the Far East were eliminating fuel stops for their flights across Eurasia, Middle East-based airlines began to slowly take up the void left by these airlines to link Europe and the Far East to their homes. Increasingly liberal air service agreements starting at that time also laid the foundations for the expansive networks of these Middle East-based airlines later on. To be certain, these airlines when they first began were a far cry from the globe-trotting giants today – inflicting significant competitive pressure on other full-service airlines in Europe and the Far East. This study aims to offer a glimpse at the competitive might of three of the largest Middle East airlines: Emirates, Etihad, and Qatar Airways until the mid-2010s, and uses Singapore Airlines as an example to examine how a full-service airline responded to their threats.
Emirates as a Dubai-based airline was created in 1985, shortly after the Emirate of Dubai split from the then-multinational Gulf Air, which continued for a time to be run jointly by the governments of Bahrain, Qatar, Abu Dhabi, and Oman. In the next two decades, the governments of Qatar, Abu Dhabi, and Oman left Gulf Air one after another to start their own respective airlines headquartered in their respective capital cities, namely Qatar Airways, Etihad Airways, and Oman Air.
Emirates was reportedly mandated at the outset to operate with no outright government subsidies and began with a rather modest network initially with wet-leased aircraft: with flights to South Asia in the first year, then a nonstop service from Dubai to London Gatwick and a separate service to Frankfurt with a stop in Istanbul in the second year (Flight International, 1987). With a heavy emphasis on marketing and in-flight service, Emirates managed to capture about half of the market share for its service to London and Frankfurt within a year of its launch. Meanwhile, Gulf Air stopped its own Dubai–London nonstop service a month prior to Emirates’ own service and saw its own profit nose-dive in the next two years. In other words, Emirates initially saw competitors headquartered in the same (Middle East) region as its arch rivals.
For many years, Emirates’ growth has been steady. For example, pages from its schedules in late 1995, reproduced in Table 1 and Fig. 1, showed that it operated multistop flights to both Europe and Asia Pacific. At this time, four of its 21 weekly service from Dubai to London (Heathrow and Gatwick combined) made an intermediate stop in Abu Dhabi. Four of the 17 weekly nonstop flights from Dubai to London originated from Abu Dhabi. Clearly, Emirates was at that time keen to cater to traffic between London and Abu Dhabi on its Dubai–London service. Likewise, its service to Singapore was routed in different manners: Dubai–Male–Singapore, Dubai–Singapore–Ho Chi Minh City, Dubai–Colombo–Singapore, as well as Dubai–Colombo–Singapore–Jakarta. The inclusion of many nonstop flight sectors outside of its home base of Dubai reflected an emphasis on the so-called fifth freedom traffic, based on the international convention of traffic freedoms. The measured pace of expansion by Emirates was consistent with that of any other for-profit carrier elsewhere in the world (Fan, Tan, & Geng, 2014).
|All Flights to/from Britain|
|EK003||15||Abu Dhabi–Dubai–London Heathrow|
|EK004||47||London Heathrow–Dubai–Abu Dhabi|
|EK005||3||Dubai–Abu Dhabi–London Heathrow|
|EK006||3||London Heathrow–Abu Dhabi–Dubai|
|EK007||36||Abu Dhabi–Dubai–London Gatwick|
|EK008||25||London Gatwick–Dubai–Abu Dhabi|
|EK009||147||Dubai–Abu Dhabi–London Gatwick|
|EK010||147||London Gatwick–Abu Dhabi–Dubai|
|All Flights to/from Southeast Asia|
|EK072||16||Dubai–Ho Chi Minh City–Singapore|
|EK073||16||Singapore – Ho Chi Minh City – Dubai|
Source: https://airline-memorabilia.blogspot.sg/2014/12/emirates-19951996.html. Downloaded on August 30, 2017.
Note: D = every day of the week; 13 = every Monday and Wednesday; 2 = every Tuesday, etc.
Fast forward to 2015, Emirates’ route network, as shown in Fig. 2, served many more cities and continents than in 1995. More importantly, it was much more streamlined compared with that of 1995, clearly targeting passengers who made flight connections in Dubai (instead of the “fifth freedom flights”). The rest of the timetable in early 2015 showed that Emirates no longer made stopovers in Abu Dhabi for its Dubai–London service, and only one out of five daily services between Dubai and Singapore made an en route stop in Colombo. The nonstop service between Dubai and many destinations facilitated connecting itineraries with Dubai as a global connecting hub. Emirates continued to serve many flight segments between the Far East and Australia, even as it also offered nonstop service to these Australian cities. The route networks of Qatar Airways and Etihad were similarly expansive in 2015, serving many cities in the Americas as well as Australasia and scheduling flight times to provide speedy connections in Doha for passengers crisscrossing the continents.
Beyond Emirates, Etihad, and Qatar Airways, there were other airlines in the region which also catered to passengers crisscrossing the Eurasian landmass. For instance, full-service Turkish Airlines timed its flights from the Far East to land in Istanbul in the early morning, allowing passengers speedy transfers to many of its morning flights to the rest of Europe. However, Turkish Airlines as of 2015 did not fly to Australasia, limiting its full scope of service vis-à-vis the ME3. Full-service Oman Air similarly had a more skeletal route network to only several cities in Europe and the Far East. FlyDubai was another scheduled airline based in Dubai operated independently of Emirates, but as of 2015 only maintained a schedule to regional destinations as far as Czechia, formerly the Czech Republic in Europe, and Bangladesh in the Far East. FlyDubai operated only single-aisle aircraft while Emirates operated only twin-aisle aircraft. As such, this chapter focuses on the competitive threat posed by the three largest Middle East airlines: Emirates, Etihad, and Qatar Airways – referred to as “ME3” in short. As a comparison, the route network of Singapore Airlines in 2015 is shown in Fig. 3.
The significant rise of ME3 in recent years can be objectively measured by the number of passengers served by them over the years, as shown in Fig. 4. In 2004/2005, only Emirates and Qatar Airways of the ME3 were operational, carrying a combined 17.1 million passengers, about the same as Singapore Airlines. Fast forward to 2015/2016, Qatar Airways alone carried 26.7 million passengers, which is more than Singapore Airlines’ 19.0 million. ME3 altogether carried a total of 96.0 million passengers in 2015/16, representing a cumulative average growth rate of 17%, compared with a paltry 1.6% for Singapore Airlines. In 2014, the number of passengers (70 million) flying out of Dubai, home of Emirates, surpassed that of London Heathrow (Critchlow, 2015).
Meanwhile, many competitors claimed that the rise of ME3 led to significant losses in their companies (e.g., Dresner, Eroglu, Hofer, Mendez, & Tan, 2015). Both Thai Airways and Malaysia Airlines saw tremendous growth in capacity by ME3 to their home countries but little in their own schedule, resulting in losses in both companies for years (Jittapong, 2014; Kedmey, 2014; Nguyen, 2015). For travelers based in the home countries of these Southeast Asian carriers, ME3 offered frequent flights both westward to many points in Europe and Africa and to some points in Australasia – a compelling alternative to their respective flag carriers. Lufthansa in Europe claimed that its Frankfurt hub lost almost a third of its market share on routes between Europe and Asia in a decade since 2005 (Carey, 2015). Several major US carriers claimed that the growth of ME3 had begun to threaten the viability of the entire US airline industry (Critchlow, 2015).
To examine how ME3’s competitors can respond, the next section looks at the geographic advantages of their headquarters, followed by evidence of their strategy and how a traditional, full-service carrier like Singapore Airlines can respond.
2. ME3’s Location Advantages
The current stage of mostly bilateral relations on air service agreements across long distances means that it is generally difficult for a carrier to set up a large connecting hub outside of its home country. Based on this, the Middle East airlines have important competitive advantages over other airlines in using their home bases as connecting hubs.
First, the Middle East is situated in the crossroad of multiple intercontinental traffic flows in the world, such as between many slot-constrained airports in Europe to the Indian subcontinent, between the Indian subcontinent to Africa, and partly between Europe and sub-Saharan Africa. For these traffic flows, the ability of ME3 to offer frequent service to these destinations means that it can afford multiple daily connecting service between many cities in these regions, many of which previously could only afford multiple weekly direct services. The multiple daily connecting services are generally favored by business travelers as their wait time for the next scheduled flight is typically much shorter than the increased duration in their trip brought on by a connection in the Middle East.
The obscure beginning of the ME3 let other governments drop their guard in granting them generally liberal third- and fourth freedoms air traffic rights since the 1990s. Airlines using their respective third- and fourth freedoms to provide connecting itineraries for travelers originating from and destined to a country other than their home countries is nothing new – this has been exploited for years by airlines with small home markets, including KLM Royal Dutch Airlines (Carey, 2015). What is new and powerful is that these traffic rights are coupled with how central the Middle East is to a number of intercontinental traffic flows.
To appreciate the centrality of ME3 in serving these traffic flows, Table 2 shows the distances between different city pairs representing these traffic flows. The first table shows the distances (in kilometers) for sample routes in the Europe–Far East and Europe–Australasia corridors. Making a flight connection in Dubai does not require a significant detour compared with a theoretical nonstop service in the city pairs shown and is certainly competitive compared with connecting in Singapore or Hong Kong. For example, for the London–Perth market, stopping over in Dubai requires a total of 14,577 km in flight distance, only 0.5% longer than the theoretical nonstop service. Stopping over in Singapore or Hong Kong for the same route would add 2.0% or 8.0%, respectively, in terms of the total distance flown. The second table shows that making a flight connection in Dubai also makes sense for at least part of the traffic between North America and Southeast Asia, North America and Australasia, and between the Far East and Africa. For example, stopping over in Dubai for the Jakarta – New York City route requires a total of 17,566 km in flight distance, only 8.6% longer than a theoretical nonstop service, compared with a 7.3% or 0.3% longer distance if stopping over in Singapore or Hong Kong, respectively.
|Via Hong Kong||17,019||15,654||12,533||11,704|
|Jakarta–New York||Chennai–San Francisco||Perth–New York||Beijing–Johannesburg|
|Via Hong Kong||16,235||14,864||18,999||12,658|
Note: Distance for Singapore–New York (JFK) includes a stopover in Frankfurt as part of Singapore Airlines’ regular scheduled flight.
Since making a flight connection in the Middle East requires a minimal detour for much intercontinental traffic flow, carriers based in that region are well positioned to operate mega-hubs for these multiple traffic flows. This can be facilitated by coordinating schedules such that flights from many cities arrive and depart at similar times. This helps airlines better aggregate traffic to/from its cities served, in turn, allowing higher frequencies to be deployed to these cities (Adler, 2001; Gillen & Morrison, 2005; Gillen, Oum, & Tretheway, 1990; Hansen, 1990).
Second, the location of the Middle East confers carriers based there additional advantages over both European and Far Eastern carriers in serving the Europe–Far East corridor. Most of Europe is within eight hours’ flight time from the Middle East, allowing Middle East carriers to use just one aeroplane to provide a daily rotation to most cities in Europe as part of its connecting service to the Far East without many detours. In contrast, a nonstop flight between Europe and the Far East, including Southeast Asia, takes about 12 hours – the most efficient scheduling still requires a minimum of three aeroplanes to provide two daily nonstop flights between Europe and the Far East. As a comparison, an airline based in the Far East would need six aeroplanes to provide four daily nonstop flights – linking four European cities with its home base. Another airline based in the Middle East can use these six aeroplanes to provide a daily service linking three European cities with its home base and a daily service linking another three cities in the Far East: providing a daily connection service to nine city pairs across Eurasia. This certainly gives Middle-East carriers a competitive advantage over other airlines based in the Far East in its frequent service linking Europe with the Far East. Likewise, Middle East carriers also have a competitive advantage over European carriers like KLM Royal Dutch Airlines in serving many smaller cities in the Far East. This means that the location of the Middle East halfway between Europe and the Far East allows Middle East carriers better resource utilization to access as many cities as possible in both Europe and the Far East, compared with carriers based in the Far East and Europe, respectively.
In serving the Europe–Australasian corridor, Middle Eastern carriers also have competitive advantages over their European, Far Eastern (specifically Southeast Asian) and Australasian counterparts. Unlike their Australasian counterparts, Middle East carriers can reach all of Europe nonstop. Unlike their European counterparts, Middle East carriers can reach all of the Far East and much of Australasia nonstop. This means that geography confers a much competitive advantage to Middle East carriers to either their Australasian or European counterparts.
Compared with carriers based in South-east Asia (the part of Asia where Singapore Airlines is home), competitive advantages for the Middle East carriers may be less obvious: the former can reach all of the Far East and Australasia nonstop with many cities within an eight-hour flight while the latter can reach all of Europe nonstop with many cities within an eight-hour flight. Applying the notion of a company’s sphere of influence (Gimeno, 1999) – a geographic or product space where the specific company can exert much influence, Middle East carriers can claim Europe and the Middle East as their immediate “sphere of influence” because of its proximity to both regions (i.e., where frequent direct flights can be operated to many destinations there) in the Europe–Australasia corridor, while Far Eastern carriers can claim Australasia and their immediate region in the Far East as theirs. For a carrier in Southeast Asia like Singapore Airlines, the Southeast Asian region is the most applicable in the Europe–Australasian or Europe–Southeast Asia corridor.
To assess whether it is better to have Europe and the Middle East as a carrier’s immediate “sphere of influence,” or to have Southeast Asia and Australasia as its “sphere of influence,” two metrics can be collected: the sum of gross domestic product (GDP) from the countries in the sphere of influence, and the population from countries where the GDP per capita is more than US$10,000. The former metric shows the sheer economic might of a particular region, while the latter pinpoints the size of the population of that region that would most likely use air transport services annually. Boeing (2015, p. 22) shows that on average, countries with USD $10,000 in GDP per capita take about one trip per person annually by air.
Table 3 lists the regions, countries, and territories within the respective “sphere of influence” of Middle East versus South East Asian carriers. The countries and territories within the sphere of a Middle East airline generated just less than 23 trillion USD in GDP in 2014, while those within the sphere of a South East Asian airline generated just over 5 trillion USD in the same year. In other words, the former was more than four times the amount of the latter. The economic might in the region where Middle East carriers dominate is simply several times that of the region for South East Asian carriers: The latter is no match.
|“Sphere of Influence,” Middle East Carriers||“Sphere of Influence,” Southeast Asia Carriers|
|Places||GDP Billions USD||Places||GDP Billions USD|
|Saudi Arabia||746||Chinese Taipei||530|
|United Arab Emirates||399||Singapore||308|
Table 4 counts the population of individual countries and territories with more than USD $10,000 in GDP per capita within the respective “spheres of influence” of Middle East versus South East Asian carriers. The population count for this criterion for Middle East carriers was 622 million, compared with just 71 million for South East Asian carriers: The former was almost 9 times that of the latter. Even if the populous countries of Thailand and Indonesia were to be included for South East Asian carriers (these two countries had GDP per capita well below USD $10,000), the population count for the latter would only increase to 430 million – only two-thirds of the population count within the sphere of influence of Middle East carriers. In other words, the population count from countries that likely see their resident travel by air at least once a year was far greater within the sphere of influence of Middle East carriers than South East Asian carriers.
|“Sphere of Influence,” Middle East Carriers||“Sphere of Influence,” Southeast Asia Carriers|
Note: Thailand had a GDP/capita of ~US$6000, with 67.0 million in population; Indonesia had a GDP/capita of ~US$4000, with 250.0 million in population.
As a result, with respect to the Europe–Australasia traffic corridor, Middle East carriers beat South East Asian ones in terms of the breadth of the market they can respectively dominate. Taken this together with our earlier analysis on the amount of route detour that connecting in the Middle East versus South East Asia entails, Middle East carriers have much more competitive advantage than Southeast Asian ones. The preceding discussion on the advantages of Middle East carriers is summarized in Table 5. As such, Middle East carriers can enjoy much greater economies of scale than their Southeast Asian counterparts; the latter needed to find their competitive strength somewhere else.
|Traffic Corridor||Middle Eastern over European Carriers||Middle Eastern over Far Eastern Carriers||Middle Eastern over Australasian Carriers|
|Europe–Far East||Can reach Far East nonstop in ~8 hrs, one aeroplane for a daily rotation||Can reach Europe nonstop in ~8 hrs, one aeroplane for a daily rotation||Can reach Europe nonstop|
|Europe–Australasia||Can reach most Australasia nonstop||Closer to Europe – an area with more economic activities and travelers||Can fly nonstop to Europe – an area with more economic activities and travelers|
Note that the preceding comparison focused on the Europe–Australasia traffic corridor, where both Middle East and South East Asian carriers ought to be more competitive than their European or Australasian counterparts. There are other traffic corridors, such as Southeast Asia – North America, and North East Asia – South Africa, where both sets of carriers compete with each other.
3. Competing on Quality
The previous section shows that airlines based in South East Asia are no match for their counterparts based in the Middle East because of the latter’s advantage using their home bases as connecting hubs for much intercontinental traffic flow. This means that airlines based in South East Asia must compete in other ways, such as in product quality where they compete head-on with Middle East airlines, and in geographic scope – expanding to markets out of reach for the Middle East airlines. How Singapore Airlines pursued both objectives is described next.
3.1. Service Features
Since its inception, Singapore Airlines has focused on surpassing its competitors in its service. Reputedly, it has received the most awards among the world’s airlines (Lee, 2016). As such, it has been easier for Singapore Airlines to maintain its differentiated product positions to compete with Middle East Airlines.
Over time, Emirates, Qatar Airways, and, later, Etihad Airways all worked hard on providing sterling services, developing new “headline-grabbing” service features to win over the customers of other more established full-service carriers. For instance, Emirates has since 2002 at the latest offered complimentary chauffeur drive for passengers in first and business classes (initially at limited cities only). Since 2003, Emirates began the “Suite” concept in first class, allowing passengers to cocoon within their own Suite with a set of shoulder-height doors. On the A380 aircraft, Emirates installed a shower suite for its first class passengers to use in the air. Late-comer Etihad Airways installed two Residence Suites on its A380 aircraft, furnishing the Suite passengers with a living room, a full-size bed as well as a private bathroom with shower. Qatar Airways pioneered to extend on-demand dining to passengers both first and business classes (on-demand dining has been previously reserved to first-class passengers on other airlines). All three ME3 carriers had a social area for their first and business customers on board the A380 aircraft with a bar and sofa. Emirates’ first-class seats offered a personal minibar at the touch of the fingertips and featured a similar personal minibar in business class on the A380.
In contrast to the ME3, Singapore Airlines’ moves have been more measured: no showers on board and no personal minibars at all. The most trend-setting move for the latter in recent years was its use of the 1-2-1 seating layout in its long-haul business class in 2006 – offering what it claimed to be the world’s widest business-class seats that could fold to provide horizontally flatbeds. These seats were gradually installed across most of Singapore Airlines’ long-haul fleet, on the A380, the Boeing 777-300ER as well as some other 777 variants. While the ME3, along with airlines elsewhere in the world, subsequently imitated Singapore Airlines’ 1-2-1o, they arguably featured this configuration less consistently in their fleet in the Europe–Far East and Europe–Australasia corridors. For instance, passengers in business class on Emirates’ Boeing 777 aircraft, which flew to many destinations in Europe, Asia, and Australasia, faced a 2-3-2 layout, with the seat in bed mode being inclined rather than horizontally flat. Passengers in business class on Qatar Airways’ Airbus 330 aircraft had a 2-2-2 layout, with the seat in bed mode being inclined rather than horizontally flat.
In other words, Singapore Airlines’ strategy in providing quality premium cabin features has been to feature fewer ostentatious features than the ME3, but focus on two features treasured by its premium passengers: a seat that turns into a horizontally flatbed and direct access to the aisle. This allowed passengers in first and business class to take a restful sleep on its long-haul service without interruption by an intermediate stop – something that travelers on the ME3 along the Europe–Far East corridor would be harder to achieve because of the required flight connection midway in their journey. The focus on passenger comfort was also evident in the ratio of washrooms on board to the number of seats in business class. For instance, Fig. 5 compares the seating configurations for the Boeing 777-300ER aircraft, commonly used for intercontinental routes, for both Singapore Airlines and Emirates. There were 42 seats in business class for both airlines in these long-haul configurations. There were three washrooms dedicated for passengers in business class on Singapore Airlines while there were only two such washrooms on Emirates. Beyond these important features, Singapore Airlines also allows passengers in business class to select their main course prior to departure.
In economy class, the ME3 along with Singapore Airlines boast their vast on-demand entertainment systems. Interestingly, here is where Singapore Airlines has had a strong start in establishing quality and where the ME3 are at this writing providing a denser seating configuration on the Boeing 777 aircraft – an important workhorse for many flights in the Europe–Southeast Asia and Europe–Australasia corridors. Emirates has for years packed 10 seats abreast in economy on its Boeing 777, and its fellows Etihad and Qatar Airways had announced plan to do follow suit by 2015. Singapore Airlines, however, is still staying the course with its nine-abreast seating configuration in the 777 as of press time, giving it a slight competitive edge for long-haul flights.
Fig. 5 shows the seat configuration of Emirates and Singapore Airlines for the identical Boeing 777-300ER. The cabin section between Doors 3 and 5 of the aircraft was fitted with a total of 228 for Singapore Airlines and 254 for Emirates. This means that Emirates’ 10-abreast configuration in economy class accommodates about (254/228-1 =) 11% more passengers than Singapore Airlines in a comparable amount of cabin space. These additional seats can be used to offer lower prices for the ME3 than Singapore Airlines. Moreover, the entire economy class (add another 50 seats just in front of/above Door 3) at Emirates’ 777-300ER in this configuration is served by only six washrooms – the same number for use in Singapore Airlines’ less crowded cabin.
Between business and economy classes, Singapore Airlines began installing a small premium economy cabin on some markets in 2016. However, because this new cabin is relatively small, and none of the ME3 had installed it as of 2015, this cabin was not reviewed as a basis of comparison across these carriers. Table 6 compares the service features across the ME3 and Singapore Airlines in the different classes. In short, Singapore Airlines did not compete head-on with the ME3 in terms of headline-grabbing service features and chosen to focus on several key items.
|Emirates||Etihad||Qatar Airways||Singapore Airlines|
|First class or suites|
|On board showers||On A380||On A380||No||No|
|Horizontally flatbeds||On A380||Widebody||Widebody||Yes|
|Mini-bar in seat||Yes||Yes||No||No|
|Guaranteed aisle access||Yes||Yes||Yes||Yes|
|Dine on demand||No||Yes||Yes||No|
|Book main course preflight||No||No||No||Yes|
|Skytrax star rating||4.5||4||5||5|
|Business Class (Long Haul)|
|Horizontally flatbeds||On A380||Widebody||Yes||Mostly|
|Minibar in seat||On A380||No||No||No|
|Guaranteed aisle access||On A380||Widebody||Widebody||Mostly|
|Dine on demand||No||Yes||Yes||No|
|Book entrée in advance||No||No||No||Yes|
|Skytrax star rating||4||4||5||4.5|
|Calf rest available||available||available||available||Yes|
|Book entrée in advance||Yes|
|In-seat electricity socket||Yes|
|On-demand audio visual||Yes|
|Amenity kit provided||Yes|
|In-seat electricity socket||Yes||Yes||Yes||Mostly|
|On-demand audio visual||Yes||Yes||Yes||Mostly|
|Amenity kit provided||Yes||Yes||Yes||Yes|
|Seat width||~17″||~17″||18.2″ (to 17″)||~18″|
|Skytrax star rating||3.5||4||5||4|
Notes: On A380 – only on the A380 aircraft. Widebody – only on widebody aircraft. Mostly – on most intercontinental services. Etihad and Qatar Airways operate narrow-body aircraft to certain destinations in Europe and Southeast Asia. Etihad and Qatar Airways’ ratings were just prior to their selective withdrawal in 2014. Company websites.
To examine the extent to which cabin features are reflected in the prices, a small fare survey on select routes in the Europe–Southeast Asia and Europe–Australasia corridors was conducted. In mid-April 2015, all-inclusive return fares for one passenger departing on Wednesdays and returning the next Tuesdays, starting in two weeks in late April, as well as in the second week of May, June, July, August, September, and October were sampled from skyscanner.com – a meta-website linked to individual airline sites – for travel originating in both ends of the routes using the same carrier-operated flights in all flight sectors. Unfortunately, only the prices were available, and not the market share as the itinerary typically involves multiple flight sectors and can also be booked online.
In total, eleven markets in these corridors were surveyed: five featuring daily or near-daily nonstops between Europe (London UK, Paris, Frankfurt, Milan, Zurich) and South East Asia, four other featuring near-daily service by European carriers where Singapore would be a logical connecting point (Jakarta–Paris, Jakarta–Amsterdam, Denpasar–Amsterdam, Kuala Lumpur–Frankfurt), plus two ultralong routes of Sydney (Australia)–London (UK) and Singapore–New York (added because of ME3’s increasing popularity). In particular, the lowest return fare for a carrier offering a connecting itinerary involving no more than one 4-hour wait during flight connection in each direction was surveyed. Because the first class was not consistently offered on all flights in our sampled markets, only business and economy return airfares were surveyed. In total, 251 carrier–route combinations and 1,103 price observations were included. Details of the econometric tests are shown in the study by Fan and Lingblad (2016). In aggregate, Singapore Airlines was confirmed to be charging significantly higher prices in both business and economy classes than the ME3. However, the price premium was not directly attributable to journey times or specific cabin features. To better understand the price differences, prices for specific markets are shown and discussed in the following section.
If a particular market is perfectly competitive, all carriers would offer exactly the same prices for similar itineraries as their profit-maximizing move. In the absence of temporary promotions, differences in carriers’ prices can be interpreted as their different pricing power. Fig. 6 shows the prices (median prices among the several observations for each carrier are shown) for the Amsterdam–Jakarta–Amsterdam market – the carriers surveyed required exactly one stop in both directions. Originating from the Netherlands, it was expected that the price offered by KLM Royal Dutch Airlines would be the highest (and KLM provided the same-plane service on this route via Kuala Lumpur), and indeed, it was in business class and was the second highest in economy. KLM operated a one-stop service in this market via Kuala Lumpur. In business, Singapore Airlines with its connecting service via Singapore was able to command the second highest price after KLM, and about SGD $1000 above the next highest price offered by Qatar Airways’ connecting service via Doha. In other words, Singapore Airlines had a larger marketing power, i.e., a more differentiated position, in this market. The same, however, cannot be said for Singapore Airlines in economy class, as its price was in the middle of those of the ME3.
Fig. 7 shows the prices of the Jakarta–Amsterdam–Jakarta market. Here, Singapore Airlines commanded the highest prices in both business and economy classes, indicative of its pricing power and differentiated position in Indonesia. Note that the pricing premium of KLM over the ME3 disappeared in this market, in contrast to the Amsterdam-originated market.
Fig. 8 shows the prices of the Frankfurt–Kuala Lumpur–Frankfurt market. In both business and economy classes, Singapore Airlines also commanded the highest price, quite some distance away from the next competitor and the ME3 – evidence to Singapore Airlines’ pricing power in this market. However, in the Kuala Lumpur–Frankfurt–Kuala Lumpur market, as shown in Fig. 9, Singapore Airlines was unable to command a sizable premium from the ME3 and certainly was not able to price high relative to several other competitors. With Kuala Lumpur less than one hour’s flight time from Singapore, it was rather shocking to see Singapore Airlines not able to command a price premium in this market. Cathay Pacific was able to command a significant premium for the Malaysia-originating market. The much higher premium Singapore Airlines could command in trips originating from Frankfurt might be due to both Singapore Airlines and Lufthansa the German Airline being part of the same Star Alliance – enabling German residents to earn points in Lufthansa’ loyalty program while flying Singapore Airlines. Malaysia Airlines offered nonstop service in this market, and Lufthansa offered a one-stop service via Bangkok.
On a longer route, Fig. 10 shows the prices for the Sydney–London (UK) – Sydney itinerary. British Airways and Qantas operated one-stop service in this market; other carriers required a change of flight. In business class, Singapore Airlines was able to command the second highest price for this itinerary, just next to Qantas with the home-country advantage. Singapore Airlines was also able to charge a small premium above the ME3. In economy class, however, Singapore Airlines was not able to command any price premium at all compared to the ME3, and had to offer a lower price than newcomer China Southern in this market.
These price surveys showed that in several markets Singapore Airlines was able to command a price premium next to the home-country carrier – an important feat itself. However, it was only able to price in a premium over the ME3 in some markets and classes, and certainly not uniformly.
For intra-Asia flights, Fig. 11 shows an extreme example of the Shanghai (Pudong)–Singapore–Shanghai (Pudong) prices, where the ME3 were unable to compete because of their lack of traffic rights on this market. Here, not only did Singapore Airlines charge a significant premium over the other competitors (only Singapore Airlines and China Eastern offered nonstop service in this market), its economy-class ticket was priced almost the same as a business-class ticket on rival carriers that included the “home-country” carrier of Shanghai-based China Eastern. This is certainly testament to Singapore Airlines’ image as a premium carrier. As a result, the revenue per passenger for Singapore Airlines has been consistently higher than the corresponding statistics for the ME3, as shown in Fig. 12.
3.3. Other Strengths of Singapore Airlines
Offering premium products and charging high prices alone was not sufficient for any airline to survive. Effectively marketing and selling seat inventory in a timely manner were needed to ensure the financial sustainability of Singapore Airlines’ model. Moreover, Singapore Airlines has also been busy adding frequency to offer more choices of connection timing. For instance, from 2005 to 2015, Singapore Airlines increased its frequency to European destinations from 69 per week to 84 per week, and to its Australasian destinations from 106 to 146 per week according to the Official Airline Guide. In this period, Singapore Airlines has also marginally increased the number of European destinations from 9 to 11, but this paled in comparison with Emirates, which increased its European destinations from 14 to 35, and to Qatar Airways, which doubled its European destinations from 12 to 25 in the same period.
4. Lessons from Singapore Airlines
There are at least several lessons Singapore Airlines experience in countering the ME3 can offer to other airlines facing similar competitive pressure from the ME3.
First, based on the sheer scale of the ME3’s capacity expansion and their determination to wow the traveling public with top-notch service features, it was best to avoid direct, all-out competition with other more resource-constrained airlines. Singapore Airlines showed that strategic restraint can be exercised: let them take the top spot but secure one’s advantages in important areas. This meant that as Singapore Airlines continued to compete in quality with the ME3, it has been careful not to engage in tit-for-tat in view of the latter’s quest to boast certain attention-grabbing service features. For instance, Singapore Airlines did not offer complimentary limousine service for its first and business-class passengers as Emirates or Etihad, nor did it install a shower in its first class on the A380. However, it did reinforce its advantages in long flight segments between Europe and the Far East (instead of two medium segments on ME3 for flights between Europe and the Far East) by installing seats that turn into horizontally flatbeds in both first and business classes.
A review of the prices surveyed earlier showed that the ME3 tended to charge lower prices in both business and economy classes compared with other airlines on many of the markets surveyed. It was certainly a sizable temptation for other airlines to want to match the prices offered by the ME3, which Singapore Airlines also had to do for markets where it lacked much pricing power. However, wherever possible, Singapore Airlines charged higher prices to capture more value of its product offering. This was also part of Singapore Airlines’ strategic restraint: avoid competing for head-on with the more resource-rich ME3.
Second, it is important for any carrier to find its own space without the competitive pressure for the resource-rich and rapidly expanding ME3, consistent with Fan’s (2010) notion of what constitutes an arch competitor. Pursuing a similar quality orientation as the resource-rich ME3 meant that the focal airline, like Singapore Airlines, must be able to tolerate slower growth rates compared with the ME3 – simply because no other carriers around the world could afford to spend as much and as quickly as the ME3 to build up their presence worldwide. This was a necessary trade-off for airlines wishing to maintain a similar strategic position as a differentiator in this industry.
Third, it was important to keep searching for one’s niche to avoid competition from resource-rich rivals like the ME3. For Singapore Airlines, entrenching its competitive advantage from geographic areas without the ME3’s competition, as demonstrated by the Shanghai–Singapore–Shanghai market, allowed it to charge even higher premiums for its service. It also continued to strengthen its position by increasing both the flight frequency to existing destinations and the number of destinations altogether. For firms that lacked Singapore Airlines’ reputation and continued drive for quality, other competitive positions are possible. For instance, China Southern was featured in a number of markets surveyed and offered very competitive prices. If China Southern had lower costs to begin with, then offering such low prices may be sufficiently profitable for it. As well, Norwegian offered a budget long-haul product in fuel-efficient aircraft and was able to at least sustain operations on routes that the ME3 were present, such as between Scandinavia in northern Europe and Thailand in South-East Asia.
Fourth, the price surveys earlier generally showed a wide gap between prices in business class and in economy class. In many of the markets surveyed, the median business-class airfare was four times that of the median economy class airfare. This meant that a separate cabin between the two might have some demand, as British Airways and Cathay Pacific had discovered with their premium economy offering. Singapore Airlines had since 2015 rolled out its version of premium economy, hoping to capture some willingness to pay beyond economy class but not quite at the business-class level.
Fifth, Singapore Airlines likely surmised that at least some travelers who had chosen the ME3 over it might have done so because of ME3’s lower prices. To capture those passengers who chose the ME3 for their competitive prices alone, Singapore Airlines started a budget operating unit called Scoot to start offering nonstop service between Europe and Southeast Asia and between South-East Asia and Australasia. While this venture had been slow to start service to Europe, it has the potential to lure back a sizable portion of price-sensitive but carrier-neutral travelers. Similarly, International Airline Group – parent of British Airways – planned to start a long-haul budget carrier based in Spain to attract this group of travelers.
Several Middle East carriers have established strong presence in the Europe–Australasia and Europe–South-East Asia corridors, mounting significant competition to full-service carriers in South-East Asia. Singapore Airlines has not been immune from the competitive pressure from the ME3, but has been able to keep enhancing its quality offering while exercising strategic restraint. This strategy had its trade-off: while Singapore Airlines was able to command high prices in selective markets, its overall growth in passenger volume has been stagnant over the past decade and a half, while the passenger volume at ME3 grew at much higher pace.
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- Chapter 1 Introduction and Overview
- Chapter 2 Low-cost Carriers in the Japanese Aviation Market
- Chapter 3 Strategic Response from Singapore Airlines to the Rapid Expansion of Global, Full-service Hub Carriers in the Middle East
- Chapter 4 Market Development and Aviation Liberalization in Central Asia
- Chapter 5 Airline Deregulation, Market Competition, and Impact of High-speed Rail on Airlines in China
- Chapter 6 Air Transport and High-speed Rail Interactions in China: Review on Impacts of Low-cost Carriers, Rail Speed, and Modal Integration
- Chapter 7 Regulatory Changes in International Air Transport and Their Impact on Tourism Development in Asia Pacific
- Chapter 8 The Effect of Levels of Air Service Availability on Inbound tourism demand from Asia to Australia
- Chapter 9 Service Quality, Passenger Expectations and Profitability in the Chinese Airline Industry
- Chapter 10 The Impact of Outsourcing on Airlines’ Performance: Empirical Evidence from Asia and Countries in the Pacific
- Chapter 11 Total-factor Output Efficiencies of ASEAN Airports
- Chapter 12 The Changing Dynamics and Roles of New Zealand’s Airports: An Overview
- Chapter 13 Analyses of Risk-sharing Contract of Airport and Airline Vertical Relationship: Bargaining and Agency Analyses