Boom Towns

31 August 2008 (Last Updated August 31st, 2008 18:30)

Many airlines are cutting routes and pruning back on luxuries, but not Singapore Airlines. Regional vice-president, Americas WK Lim and Houston airport system director Richard Vacar explain why the time was right to add a new service joining Houston and Moscow.

Boom Towns

Back in December 2007, Singapore Airlines unveiled its plans for the launch of four weekly non-stop flights from Houston to Moscow, with continuing service to Singapore scheduled to begin on 20 March 2008. The move makes Houston the sixth gateway in the carrier's North American network, joining Los Angeles, San Francisco, Newark, New York (JFK) and Vancouver.

The new Singapore Airlines flight is the first nonstop service connecting Houston and Moscow. Its aim is to present a convenient new travel option for the oil, natural gas and corporate markets to Russia, as well as a link to the carrier's extensive network of flight connections throughout Asia for corporate and leisure travellers alike.

"Several months later, while the aviation industry faces formidable challenges, we're encouraged by the results and performance of the route so far," says WK Lim, regional vice-president, Americas for Singapore Airlines. "Our planning process is a long and rigorous one. We were monitoring the market conditions, which change frequently, and we felt it was a good time to introduce the route. Before the launch, if you wanted to get to Asia from Houston you had to hop onto an interline carrier and use one of the east- or west-coast services."

"Singapore Airlines has launched four weekly non-stop flights from Houston to Moscow."

For some carriers, the business class only approach hasn't worked well. Silverjet, which was offering a service between London and Newark (New Jersey) closed its operations in May, citing fuel prices and lack of capital as reasons. Two other carriers offering all-premium seating, Eos Airlines and MAXjet Airways, also went out of business in the past few months. On marathon flights of more than 15 hours, margins are squeezed – a passenger on a 15-hour flight uses more fuel for each mile of the trip than someone on an eight-hour trip, but the airfare per mile generally doesn't rise proportionally. Only when fuel is cheap and traffic strong can airlines absorb the difference.

Living in luxury

Lim says that Singapore Airlines' philosophy has always focused on the premium market. The company's many accolades, including being named world's best international route airline by the readers of Condé Nast Traveller magazine for 19 of the past 20 years, suggest that it takes this philosophy seriously. The company has become world renowned for innovation and attentive in-flight service, and this is evident in the new route.

The many luxuries offered on Singapore Airlines flights show how the carrier attracts high-end travellers. As Richard Vacar, director of Houston Airport System, points out, a focus on quality and attention to detail is critical to any service looking to pitch itself at corporate customers. "If you don't provide extra comfort, you'll see your passenger yield drop. The premiums will go to the airlines that do."

Singapore Airlines' Lim admits that Houston's relative industrial strength is key to the route's popularity. 'Houston represents opportunities for growth in corporate travel because it's the first time we've been able to extend passenger service to Texas," he says. "It's the fourth-largest city in the US, with strong foundations for corporate business – not just in oil and gas, but also in technology."

Revenue from routes

The new routes have made their mark, with Singapore Airlines enjoying significant passenger growth while other airlines are cutting back. Comparing June 2007 and June 2008 the airline saw a 9.3% increase in capacity. "We're putting in more seats and flying more passengers at a time, when big chunks of the airline industry are doing the opposite," explains Lim.

"Between June 2007 and June 2008 the airline saw a 9.3% increase in capacity."

However, there's no guarantee that demand from these fliers will keep up, as Asia's developing economies are set to expand at the slowest pace in five years due to easing US growth and accelerating inflation, according to the Asian Development Bank. Singapore Airlines gets 40% of revenue from business-class passengers. The price of jet fuel has risen by more than 75% year on year and the strains on financial markets have not abated, with CEO Chew Choon Seng commenting in June that the airline may eventually have to cut overall capacity.

There's another reason why now is a good time to introduce the Houston-Moscow-Singapore link, however. Singapore Airlines has been operating its newest Boeing 777-300 extended range aircraft on the route in a three-class configuration (eight first-class, 42 business-class and 228 economy-class seats). It is this choice of aircraft, according to Vacar, that has made the route practical. "The key is getting the right airplanes. You usually spend years with carriers, working it all out, getting them interested and proving the economic case for a new service.

"But a significant factor in launching this route was the availability of long-range aircraft, more of which are coming online every day. Incidentally, we're keeping an eye out for the 787 when that materialises. And the dynamic will change again when the A380s come along."

It seems that Houston's expansion plans are unlikely to end with the Moscow-Singapore link. Vacar is keen on introducing additional long-distance routes to other growth areas. 'We've identified certain hotspots, including the Middle East, because of the oil relationship. We are also looking at China – the Pacific Rim in particular – and parts of South America.'

"40% of Singapore Airlines' revenue is from business-class passengers."

Adaptability

As for Lim's plans, he stresses that Singapore Airlines is 'focused on the launch of our LA non-stop, all business class services'. The older airlines have had a hard time perfecting this long-haul model but, as Lim points out, his firm expanded the trend of all business class travel from the US to Asia for the first time with the launch of the services from Newark this summer. That was followed in August with the introduction of the LA to Singapore non-stop route.

Attentiveness and a focus on adapting quickly to customer needs, he says, have been the airline's strengths. "We used to operate a two-class configuration. Now we're right-sizing the demand for business class.

"We used to have 64 seats on this service but we're adding another 36, which isn't a huge increase, but we believe in monitoring the customer response closely and working to match demand."