SilkAir is an airline that currently operates short and medium haul routes across 11 countries to 33 destinations in Asia. A wholly owned subsidiary of Singapore Airlines (SIA), it serves as SIA’s regional wing.
Background
SilkAir’s origins lie in the formation in 1975 of Tradewinds, SIA’s holiday tour wholesaling and marketing arm. In February 1989, Tradewinds started airline operations, leasing two McDonnell Douglas MD-87 aircraft from SIA. It flew to holiday destinations in Pattaya, Phuket, Hatyai, Tioman and Kuantan, later adding business destinations like Phnom Penh, Jakarta and Yangon. By 1990, Tradewinds had revenues of S$105 million and in 1992 had 38 services on its schedule.
The addition of business routes prompted a change in the airline’s name to SilkAir in April 1992. Tradewinds’ Tours and Travel division was restructured into a subsidiary of SilkAir but retained its name. The change incurred marketing and rebranding costs of around S$3 million, with the name SilkAir created by United States-based airline corporate identity specialist Landor Associates.
At the time of its rebranding, SilkAir had three Boeing B737-300 jets, and planned to expand its fleet with a S$166 million aircraft acquisition exercise. The airline also launched a new executive class, and introduced new routes to Vientiane and Cebu, and added new destinations in China and Indonesia, totaling 14 destinations by 1993.
Business years 1992-2003
The airline’s first year under the SilkAir mantle saw a 68% percent increase in passenger traffic, which went from 291,304 passengers in financial year 1991-1992 to 489,476 in 1992-1993. Its load capacity and mileage flown also rose. However, SilkAir ran into profitability issues from 1994. To reduce operating costs, it replaced two Airbus A310 aircraft with B737s. The airline also dropped unprofitable routes and launched new ones. These measures helped to stem losses in 1996. Despite still being unprofitable, SilkAir continued to increase its passenger capacity by an average of 30% from 1990 and by March 1997 flew to 22 destinations in eight countries.
In 1997, SilkAir purchased eight Airbus aircraft to replace its Boeing 737s and to renew and expand its fleet. The Asian economic crisis in 1998 affected its expansion plans, however, and SilkAir paced delivery of its new aircraft to five by 1998 and the rest by 2001. The airline’s load factors were maintained at about 60%, but there were lower yields from fares. Indonesian operations, which made up around 30% of SilkAir’s network and ticket sales, were particularly affected.
The adverse economic situation for SilkAir and its parent SIA continued over the next few years, with global air-travel falling due to the economic slowdown, the terror attacks of 11 September 2001 in the United States and the Severe Acute Respiratory Syndrome (SARS) crisis in 2002. In January 2002, SIA and SilkAir pilots agreed to wage cuts of between 2.5% to 7%. Despite this, the airline announced expansion plans in June 2002, including a move to increase its fleet, double its investment in tourism and market development, increase its services to destinations in India and China, and boost its charter business. At the end of 2002, the company announced the purchase of four Airbus 320s and two 319s, which took its fleet to 15 aircraft. SilkAir had also introduced new routes to cities in India, China, Thailand and Macau. For the financial year 2002-2003, it registered a profit of S$31.6 million.
MI 185 crash
On 19 December 1997, SilkAir flight MI 185 crashed into the Musi river near the Indonesian city of Palembang. All 104 passengers onboard were killed, and official investigations did not turn up a definitive cause for the crash. A civil suit by family members of six crash victims citing negligence on the part of SilkAir was dismissed by Singapore’s High Court in 2001. SilkAir paid out compensation of between US$140,000 to US$200,000 per victim.
Competition from budget airlines
In 2003, facing competition from budget airlines like AirAsia and ValuAir, SilkAir’s parent company SIA publicly contemplated turning SilkAir into a budget carrier but eventually decided against it. That year also saw another round of wage cuts for SilkAir’s 70 pilots of up to 16.5%. Pilots’ salaries were restored to nearly their previous levels under a new collective agreement agreed in January 2004.
SilkAir’s response to the competition was to run fare promotions and travel fairs, invest in marketing to differentiate itself from budget carriers, upgrade in-flight service and cut operational costs with the target of S$10 million in savings annually. It changed its stewardesses’ outfits in 2004 – while the first outfits under Tradewinds were designed by Celia Loe and the second by Balenciaga in 1993, the new uniforms were created by SilkAir crew member Vianha Rohim. The airline’s in-flight entertainment system was also updated with new features.
These measures brought SilkAir’s then highest-ever passenger traffic figures of more than 1 million passengers by March 2005, driving a profit of over S$20 million. In 2004 it received a number of awards, including Best Regional Airline (Asia and China) from TTG Asia and TTG China magazine, and ranked as the leading Asian carrier in the Leisure Travel– Short Haul category in the Conde Nast Traveler Readers’ Travel Awards. The strong showings continued, with record quarterly and monthly passenger traffic levels in 2005.
In December 2006, the company signed a S$2 billion deal to acquire 11 Airbus planes, with an option for nine more. It was SilkAir’s first aircraft order in 10 years and the largest single capital investment in its history.
By March 2007, Silkair’s profit for the financial year before reached S$30m on a turnover of S$415 million. It had carried 1.56 million passengers, an increase on the previous year. This boom period came under the stewardship of Mike Barclay, who was the company’s CEO from 2004 to 2007. As of 2010, SilkAir operated a fleet of 17 aircraft – 11 Airbus A320-200s and six A319-100s.
Author
Alvin Chua
References
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SIA expects SilkAir to make first profit (1996, June 14). The Straits Times. Retrieved February 16, 2011, from NewspaperSG.
SilkAir, hit by regional crisis, defers expansion (1998, September 25). Business Times. Retrieved May 28, 2010, from Factiva.
SilkAir to buy six Airbus jets for $587m. (2002, October 5). The Straits Times. Retrieved February 16, 2011, from NewspaperSG.
SilkAir to buy up to 10 jets to meet travel demand. (2008, March 28). TODAY. Retrieved February 16, 2011, from NewspaperSG.
Siow, L. S. (2002, October 5). SilkAir in US$328m plane deal. Business Times. Retrieved May 28, 2010, from Factiva.
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(Call no.: RSING 959.57003 SIN - [HIS])
Sreenivasan, V. (2003, December 11). Low-fare dogfight looms for SIA, Silkair. Business Times. Retrieved May 28, 2010, from Factiva.
Sreenivasan, V. (2005, January 13). Silkair flew 110,000 passengers in Dec. Business Times. Retrieved May 28, 2010, from Factiva.
Tradewinds to transfer tour business to unit after adopting new name (1992, March 13). Business Times. Retrieved May 28, 2010, from Factiva.
Yap, S-Y. (2005, April 13). Record 1m passengers flew SilkAir. The Straits Times. Retrieved February 16, 2011, from NewspaperSG.
The information in this article is valid as at 2010 and correct as far as we are able to ascertain from our sources. It is not intended to be an exhaustive or complete history of the subject. Please contact the Library for further reading materials on the topic.
