News analysis

It pays to tread carefully when changes affect customers

Singapore Airlines (SIA) is not known for making impulsive decisions.

So when SIA and SilkAir said yesterday that they were tweaking their fare structures and rules, they would have done so after extensive predictive analysis, with one aim in mind: to boost revenues.

For the consumer, the changes with effect from Jan 20 may seem complicated. They cover advance seat selection, frequent flyer programme mileage accrual rates, baggage allowance, and change and refund flexibility rules.

Three fare categories - Lite, Standard and Flexi - will be introduced. Customers will have three seat types to choose from: standard, forward zone seats which refer to those near the doors, and extra legroom seats (previously known as preferred seats) which are near emergency exits, for example.

There will also be changes to cancellation and fare refund policies, to discourage customers from cancelling at the last minute.

What does it all mean for travellers? For some, charges will go up but for others, they may not. Some will have to pay to select seats in advance but families travelling with young children are exempted. Some can look to more mileage from flights, others will find it more challenging to accumulate miles.


The competition is intense with airlines continuing to add capacity to grow market share. As it continues to battle tough rivalry, SIA needs to keep, not alienate, its customers. ST PHOTO: LIM YAOHUI

At the risk of oversimplifying the changes, it would appear that SIA customers who buy the cheapest, most discounted tickets, will have to pay more - for example, a US$5 (S$6.70) charge per sector, to pick any seat before the flight is ready for online check-in. Premium customers, on the other hand, can expect better benefits, for example, more miles for their flights.

For SIA, the changes are sound. Premium customers account for at least about 40 per cent of total revenues although they occupy only about a quarter of the total number of seats.

The changes made to seat selection and cancellation policies are also expected to be positive for revenues, said UOB Kay Hian's aviation analyst K. Ajith. "If you look at it from the company's perspective, the changes are a step in the right direction. The fact is that air fares are at their lowest in about a decade and have not kept pace with inflation. Airlines must find ways to boost revenues," he said.

With airlines continuing to add capacity to grow market share, intensifying competition to fill all the extra seats has led to falling fares and profits for many full-service airlines, including SIA and Cathay Pacific. For SIA, yields are at their lowest since the 2008 global financial crisis.

To be fair, SIA is not the only one making more passengers pay for choosing seats. Gulf carrier Emirates charges a fee of between US$15 and US$35 for advance selection of a standard seat in economy class. SIA is imposing a minimum US$5 fee for each flight sector.

 
 

It is true that SIA fares tend to be higher than those of other airlines. The airline is constantly upgrading its products and services, for example getting the new Airbus A-380 that features brand new seats and other cabin interiors. But other carriers are also investing in product and other upgrades.

There is no doubt that SIA has to reel in costs, cut expenditure, and increase profits and yields. Indeed, it has embarked on a three-year turnaround plan to review work processes and operations company-wide. It has also taken steps to broaden its portfolio in the last few years, including entering the low-cost market with the setting-up of Scoot, which launched its first flight in 2012.

When it comes to the customer, though, the airline must tread carefully or risk tarnishing its premium image. Cut a bun here or a muffin there and it may be accused of trying to cut costs. Make customers pay for this and that and some will say SIA is turning into a budget airline.

As it continues to battle tough rivals, SIA needs to keep, not alienate, its customers.

A version of this article appeared in the print edition of The Straits Times on December 16, 2017, with the headline 'It pays to tread carefully when changes affect customers'. Print Edition | Subscribe