Service is more prominent than ever. With more than 80% of jobs in the United States related to the service industry, quality of service is impossible to ignore. However, most companies struggle to strike a balance between service quality and cost with some notable exceptions. Known for both impeccable service and cost-effective strategies, Singapore Airlines and Southwest Airlines have discovered the secret to keeping customers happy with a sustainable cost structure.
Two weeks ago, Singapore Airlines (SIA) announced a new savings offer: Flight Pass. Defined as “a personalized pass at a fixed fare for future travel,” [i] Flight Pass is designed for frequent fliers. This bundling deal allows customers to purchase flight tickets in advance for a fixed fee without having to choose the date or destination of travel. The savings, personalization, and flexibility of this offer provides customers with yet another reason to travel with the reputable airline.
Equipped with the World’s Best Airline Cabin Crew of 2021, [ii] SIA consistently ranks as one of the best airlines for its service quality. Not only do they impress with service, but “SIA is also one of the industry’s most cost-effective operators.” [iii] With service being such an important aspect of job and industry growth, balancing service and cost are increasingly necessary. One such method that SIA employs is the dual strategy of focusing on differentiation and cost leadership. While many companies may give up the quality of their service in favor of cost-effective methods, SIA does both. [iv] By employing continuous innovation and using both standardization and personalization, the airline company is able to maintain their low-cost strategies. Flight Pass is one such example of this strategy. Allowing customers the satisfaction of personalizing their own flight experience as well as incentivizing frequent fliers to purchase flights without knowing where they plan to travel is innovative and intriguing.
Differentiation and cost-effective strategies are often difficult to balance and can result in damaging price wars or unsustainable attempts at differentiating products and services. In most cases, this dual strategy seems impossible: “Few enterprises have executed a dual strategy profitably; indeed, management experts such as Michael Porter argue that it’s impossible to do so for a sustained period since dual strategies entail contradictory investments and organizational processes. Yet pursuing dual strategies is becoming an imperative.” [v] With service excellence, continuous-innovation, and cost leadership, SIA does, in fact, manage the dual strategy effectively.
After the airline industry suffered particularly hard from the COVID-19 pandemic, SIA is taking advantage of new technologies to improve customer traveling experience, broadening its portfolio to create new revenue sources, and continuing their focus on employee education with Singapore Airlines Academy. While passenger travel decreased 97.5%, SIA Cargo reported a 39% revenue increase. [vi] The value of customer relationship management goes beyond simply providing customers with a service. In this case, SIA utilized resources to transport vaccines and medical equipment globally.
Part of SIA’s plan to achieve success in the future involves financial sustainability through “focus on driving innovation to deliver cost efficiencies without compromising on the customer experience.” [vii]
While SIA continues to work towards recovery, Southwest Airlines made an impressive rebound. Ranked as the second-best low-cost airline in 2021, [viii] Southwest has managed to rebound from “its first annual loss – $3.1 billion – since 1972” during the COVID-19 pandemic. [ix] Like SIA, Southwest is known for customer service.
Similar to SIA’s Flight Pass, Southwest offers a credit card option for frequent flyers called Southwest Rapid Rewards. After recently announcing a “new co-brand loyalty agreement with Chase,” [x] Southwest Rapid Rewards presents customers with rewards on purchases to incentivize future flying. [xi] Flight Pass and Rapid Rewards are part of growth strategies designed to attract new customers and excite existing customers with flight purchasing rewards. These rewards loyalty programs and their ensuing marketing campaigns are great ways to boost customer satisfaction and retention and, in turn, revenue and profit growth.
Despite Southwest being considered one of the best low-cost airlines and SIA recognized for as having the World’s Best First Class, [xii] both airlines use one of the same strategies: competitive pricing. Pricing decisions have to be made with consideration to a firm’s offerings, branding, service approaches, and supply chain, among other factors. Focus on employee training and retention allow SIA and Southwest to have the service excellence they are known for. Their low-costs, rewards programs, and strategic offerings such as SIA’s Flight Pass and Southwest’s Chase credit card differentiate these airlines from their competitors. Because of their management practices and strategies, Singapore Airlines and Southwest Airlines are able to have both cost-efficiency and high quality of service.
Questions Marketing Managers would consider:
- How does service quality differentiate Singapore Airlines and Southwest Airlines from their competitors?
- Why do you think some companies chose cost-effective strategies over the quality of their products and services? What is the importance of balancing cost and service?
- What are some strategies managers can implement to improve customer satisfaction and customer loyalty?
References
[i] Singapore Airlines. (2021). “Flight pass.” https://www.singaporeair.com/en_UK/sg/plan-travel/packages/flight-pass/
[ii] Singapore Airlines. (2021). “Flying with us.” https://www.singaporeair.com/en_UK/us/flying-withus/
[iii] Heracleous, L., & Wirtz, J. (July-August 2010). “The Globe: Singapore Airlines’ Balancing Act.” Harvard Business Review. https://hbr.org/2010/07/the-globe-singapore-airlines-balancing-act
[iv] Heracleous, L., & Wirtz, J. (July-August 2010). “The Globe: Singapore Airlines’ Balancing Act.” Harvard Business Review. https://hbr.org/2010/07/the-globe-singapore-airlines-balancing-act
[v] Heracleous, L., & Wirtz, J. (July-August 2010). “The Globe: Singapore Airlines’ Balancing Act.” Harvard Business Review. https://hbr.org/2010/07/the-globe-singapore-airlines-balancing-act
[vi] Singapore Airlines Group. (March 2021). “Annual Report FY2020/21.” https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/annualreport2021.pdf
[vii] Singapore Airlines Group. (March 2021). “Annual Report FY2020/21.” https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/annualreport2021.pdf
[viii] The City Paper Staff. (October 4, 2021). “Pandemic shuffles Skytrak’s 2021 World’s Best Airlines ranking.” The City Paper Bogotá. https://thecitypaperbogota.com/business/pandemic-shuffles-skytraxs-2021-worlds-best-airlines-ranking/28136
[ix] Huddleston Jr., T. (October 2, 2021). “These are the world’s best economy and low-cost airlines, according to 13 million travelers.” CNBC. https://www.cnbc.com/2021/10/02/airasia-southwest-are-worlds-best-low-cost-airlines-skytrax-survey.html
[x] Chen, E., & Schulz, B. (December 9, 2021). “Southwest Airlines to introduce new fare category with perks customers will ‘happily pay’ for.” USA TODAY. https://www.usatoday.com/story/travel/airline-news/2021/12/08/southwest-airlines-introducing-new-fare-class-next-year/6433274001/
[xi] Gravier, E. (December 8, 2021). “The Southwest 100k welcome bonus is over–here’s the new welcome offer.” CNBC. https://www.cnbc.com/select/chase-updates-southwest-rapid-rewards-welcome-offer/
[xii] The City Paper Staff. (October 4, 2021). “Pandemic shuffles Skytrak’s 2021 World’s Best Airlines ranking.” The City Paper Bogotá. https://thecitypaperbogota.com/business/pandemic-shuffles-skytraxs-2021-worlds-best-airlines-ranking/28136
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