These two points of differentiation—service and low costs—are the twin elements of SIA’s repeatable model. It maintains service levels through recruitment procedures, intense training, and a well-developed culture, all combined with regular innovation, such as offering on-demand entertainment in all classes. It maintains low costs through measures such as rigorous standardization, low maintenance costs and outsourcing of ticketing, payroll and other non-core activities. The two interlocking forms of differentiation propel the company’s success. Its cost position without the service levels would substantially reduce loyalty and load factors. Its service without the cost advantage would compromise its ability to outearn and outinvest competitors.
Specific decisions at SIA reinforce both elements of the repeatable model. Consider the fact that the airline maintains a fleet of relatively new aircraft, less than half the average age of planes in the industry. Two business school professors explain the effect in a Harvard Business Review report on SIA:
This triggers a virtuous cycle. Because mechanical failures are rare, fewer takeoffs are delayed, more arrivals are on time, and fewer flights are canceled. New planes are more fuel efficient and need less repair and maintenance… repairs accounted for 4% of SIA’s total costs compared with 5.9% for United Air Lines and 4.8% for American Airlines. SIA’s aircraft spend more time in the air: 13 hours, on average, per day versus the industry average of 11.3 hours. And, of course, customers like newer planes better.
It’s an unusual dual strategy. But it ensures repeatability, since SIA can expand into new geographic markets, add new flights and amenities and create innovations that reinforce the model. And it works: SIA has been profitable in every year since its founding in 1972. Between 1995 and 2009 SIA delivered annual total shareholder return of 9%.