From a great way to fly, Singapore Airlines (SIA) is evolving into a new way to fly.

The transformation over the last decade which has seen the national carrier recently take steps that are not typically associated with a premium airline - such as charging for seats - has got some customers asking what it is up to.

Two recent developments have galvanised discussions.

Last month, SIA said that from Jan 20, some travellers will have to pay to pick a seat in advance, as part of new fare rules.

So far, those affected are economy-class travellers who used to be able to choose for free.

From Jan 20, those going economy who have bought the cheapest discounted seats will have to fork out a minimum of US$5 (S$6.70) per flight sector.

Advance seat selection will still be available at no charge for families with children 12 years old and below.

Those affected who do not wish to pay the fee can pick whatever seats are left when check-in opens, typically up to 48 hours before a flight.

Customers in economy 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 the emergency exits, for example.

Before this, only exit-row seats came at a cost of between US$25 and US$120 per flight sector.

The new rules do not affect PPS (Priority Passenger Service) Club members, and some KrisFlyer Elite Gold and KrisFlyer Elite Silver members.

The tweaks will also see a reclassification of fare types in economy and business class to Lite, Standard and Flexi.

Then SIA said last week that it would impose a credit card fee, also from Jan 20, on bookings made by some travellers departing from Singapore.

The charge - 1.3 per cent of the total fare amount, capped at $50 - was to apply to those who buy its cheapest Economy Lite tickets, the airline said.

Even as the news was sinking in, SIA said a day later, without giving any reasons, that it had decided not to go ahead with the credit card fee.

Key questions are being asked: Why the U-turn? Why is SIA charging extra fees for basic things like selecting seats, and even contemplating slapping on a credit card surcharge fee, a move associated in Singapore with small merchants selling things at steep discounts.

What does it mean for travellers?

How will all this impact a premium brand that has been built over decades?



ST ILLUSTRATION: MIEL



CHANGING WINDS

The challenges SIA faces have been talked about repeatedly over the years: stiff competition from premium and budget airlines, an overcapacity of seats in the market that has brought fares down, and consistently low yields.

Other contributing factors have included high fuel and other costs.

SIA has responded in several ways, the most significant being the launch of budget carrier Scoot in 2012 to give the group a presence in the medium-and long-haul low-cost market.

In a sector that SIA, with its higher costs, is ill equipped to compete in, the need for Scoot is clear.

What is not always so clear is the role that each carrier plays within the group and the thinking behind SIA's recent pricing policy and fare changes, which have a direct impact on its customers and image.

By stripping out items that used to be part of the fare and making customers pay a fee if they want it - for example, a preferred seat - SIA appears to be going the budget way; in other words, the Scoot way.

Related Story SIA U-turns on credit card fee for tickets issued in Singapore

One can assume that the intention is to offer customers more fare layers and options so that SIA can then afford to lower its lowest fare to attract a broader base of travellers, including those who usually fly budget.

This is especially so for flights during lull periods when planes are not always easy to fill and even during busy times such as school holidays, when fares are typically higher even on budget carriers.

Some research, however, throws up examples of how SIA competes even in the low end of the economy market.

A Singapore-Melbourne flight in April now costs about $800 on SIA, more or less the same as on budget carrier Jetstar, once meals and checked bags are included.

Singapore-London (Heathrow) on SIA during the same month costs about $1,200, while low-cost carrier Norwegian, which recently started flying between London's Gatwick and Singapore, charges just over $900.

The gap of less than $300 looks narrow enough for some travellers who may not mind paying extra for a better quality of in-flight service and products on a 14-hour flight.

"Unbundling", which allows firms to charge for specific items, not only allows for a bigger customer base but also makes total sense from the revenue management perspective, financial experts say.

This is especially so in the competitive aviation business, with airlines in the region making an average of just US$5.50 for every passenger flown.

GETTING THE NUMBERS RIGHT

Fare classes and pricing strategies that used to work in the past are becoming less relevant tools in the airline business, said Ms Corrine Png, chief executive of Crucial Perspective which focuses on Asian transport equity research.

"Given the highly competitive aviation market, adopting a smarter and more dynamic pricing strategy is definitely the way to go forward, as it enables SIA to cast its net wider to cater to a larger passenger base, both premium luxury and budget-conscious travellers, depending on their different needs and what they value and are willing to pay for," she said.

Professor Jochen Wirtz, vice-dean of graduate studies at NUS Business School, who has co-authored two books and several academic articles on SIA, said that while there are many ways to allocate a scarce resource, including giving it away for free, charging a fee to those who want it most is the economically correct way.

Whether customers perceive it to be fair or not is another matter, he said.

The principle of charging for seats and other services is no different from airlines charging a higher fare for flights during peak seasons, which is a widely accepted practice, he said.

Many other full-service airlines, especially in Europe and the United States, have adopted similar practices over the years, charging not just for seats but also checked bags.

For airlines that have not done so, in particular those from the Middle East and several other Asian carriers, it is just a matter of time before they do.

"If they don't, they will lose out," Prof Wirtz said.

A CAUTIOUS APPROACH

Even as SIA feels the pressure to unbundle services to increase plane loads and maximise revenues, the airline knows well that it must move cautiously or risk hurting the premium image that has taken the company decades to build.

This explains why the move to differentiate its products and services has been limited to only the economy segment, and even then, SIA has opted to move slowly and carefully.

The airline is also unlikely to go as far as charging for checked bags, food, blankets and other items, even as it thinks of new ways to boost ancillary revenue.

Singapore Management University Assistant Professor Terence Fan, who specialises in transport, said: "SIA is trying to walk a fine line between completely alienating this group of customers and slightly nudging them to pay a little more."

The airline must be careful not to cross the line, which could then also create confusion among customers about the different roles and markets that SIA and Scoot serve.

Temasek Polytechnic aviation management and services senior lecturer Gary Ho said: "When a customer picks a premium brand, he does not expect to be nickel-and-dimed...

"When customers choose SIA, they know they are choosing a premium airline and, certainly, they do not expect SIA to behave like Scoot."

Even as it pursues a portfolio strategy to corner all segments of the air travel market, SIA must be mindful to maintain a clear brand distinction between full-service premium and budget, especially on routes that both SIA and Scoot serve.

A good way to do this is to maintain a high level of in-flight service and to constantly upgrade aircraft cabin products across all classes.

As SIA evolves to survive in a new world, it must always remain a great way to fly.