Brother Eddie Chew, President, SIASU
Brother Mohd Hussain Kassim, General Secretary, SIASU
Delegates, Ladies and Gentlemen:
First of all, let me extend my congratulations to SIASU for conducting a smooth election of delegates and of the Executive Council. The past few years have been a difficult one for the Singapore Airlines group, and therefore a difficult one for the employees of SIA. SIASU members have decided to place their trust in experienced hands.
The next few years will be difficult ones for SIA. Established network carriers are being challenged by new airlines. Technology is changing the network structures, and the travel market may be differentiating. Low cost and low frills carriers provide a competitive business model to challenge the established network carriers. These developments will test SIA’s skills to maintain its position as the leading premium carrier in the world.
Since its inception, SIA has been able to grow its business – delivering premium service from a low cost base. Over time, this low cost base has changed as wages in Singapore rise, accelerated by the appreciation of the Singapore dollar. Innovations in service no longer fetch additional premium in fares. Therefore SIA has to restructure its cost base.
SIA has consistently adopted the strategy of using newer planes that use less fuel, and hedged against sharp changes in fuel prices. It has also astutely acquired aircraft at competitive prices, lowering capital costs. The low gearing of the company also means that it incurs low financing costs.
At the same time, SIA has maximized revenue, by offering a premium service, as well as raising load factors by commercial alliances, such as code sharing and through the Star Alliance.
Recently, SIA has had to look harder at manpower costs.
Let us take a lesson from the cycles that civil aviation has gone through in other countries, to use it as a mirror to look at ourselves.
US airlines typically grow into big airlines. Then new start-ups appear on the scene. These start-ups seem to be more competitive, putting the established airlines under tremendous pressure. The established airlines then go through painful restructuring, survive for a few more years, and finally go under. The new airlines then grow, filling the space of the defunct carriers. Then they, in turn, are put under pressure by new start-ups. The cycle is repeated.
Why is this so? One of the key reasons is the seniority-based wage system prevalent in the airline industry. Pilots and cabin crew are paid higher wages if they have served longer. They also have a rule that if there is any redundancy, staff are retrenched by the “last-in-first-out” principle, not by performance! Therefore the result is that the established carriers carry a higher wage bill than the start-ups. The difference can be very substantial. A quick scan of the wage share of operating costs of US airlines reveal that wages make up between 25% to almost 40% of total operating costs. That is quite a range, and explains why new start-ups are profitable while the established (or “legacy”) carriers suffer huge losses.
Yes, it is true that the business model of low-cost carriers contributes to the plight of the established carriers. Their low fares make it impossible for established carriers to raise their fares. But we are also witnessing the older low-cost carriers coming under pressure from new start-ups, suggesting that they too are suffering from the same structural wage cost problem.
Now, let us look at SIA. Fortunately the wage bill takes up a lower share of total operating costs than US airlines – about 20%. However, the wage system is seniority-based also. So there is a structural wage problem too. It means that wage restructuring is absolutely necessary for the airline to remain competitive. Pilots and cabin crew make up 61% of employees and account for 64% of wages. Obviously it is meaningless to restructure the wages of SIA employees if the wage system for pilots and cabin crew remain intact. We must also note that any increase in any of the components of wages of pilots and cabin crew will have a bigger impact on the wage bill than increases elsewhere.
Let’s take a closer look at the figures.
Cabin crew make up 47% of employees, but account for 30% of the wage bill. The pilots make up 14% of employees, but account for 34% of the wage bill. I understand that the wage bill of pilots in network airlines is about one-third of the total wage bill. So the proportion in SIA is about the same as the industry. Certainly, the pilots possess essential skills that fetch a premium. But if we need to restructure the wage package, it has to be done for all categories of employees. Leaving out a group that accounts for a large part of the wage bill will be unfair, and of much less effect for the airline.
What is it that should be achieved in restructuring wages? Is it a cut in wages? SIA is not in the precarious position of the US carriers that are asking their unions to agree to sharp wage cuts. What SIA needs is a wage structure that will enable the airline to price its seats competitively, but reward its employees fairly.
Take a look at what PSA has done. It has kept fixed wages down. There was a cut in the fixed monthly wages of the higher income earners in PSA, but no cut in the fixed monthly wages of the lower income. This allowed PSA to price its box handling rates competitively. The result is higher volumes of cargo moved, leading to higher revenue and higher surpluses. The variable payments that PSA employees get then go up. Under the restructured wage package, PSA employees are going to take home more than before.
SIA and its union should work out a wage package along similar lines. With competitive prices, load factors can rise, leading to higher revenue and profits, and therefore higher bonuses for employees. Overall, what employees take home each year can be higher.
This is the challenge that the Executive Council has before it. I expect that strong leadership in SIASU will show the way forward. With the right wage structure, I believe your members will take home more.
Next, let me turn briefly to an issue that is before the union movement in general. It is about ageing leadership. Who will lead our unions in the future? Our union leaders have served members very well, but younger ones must be found to take over.
Indeed, the day I was elected Secretary-General of the NTUC, I recognized that one of my key responsibilities is to find a successor. It is not easy. However, I am glad that we have found Lim Swee Say to be suitable. He will be coming back to NTUC soon, and I can sleep soundly knowing that in a couple of years or so, he will lead the union movement.
But it is not only leadership renewal at the NTUC that is important. Likewise it is necessary for union leaders to find their successors. This is a responsibility that you have, that you owe your members. Your key leaders are approaching the retirement age.
Let us identify younger members who have the ability, and give them opportunities to show what they can do while the old guard is still around. Some of the unions are doing so, and involving the younger ones in different activities to let them gain experience. For NTUC activities, we are consciously including younger union leaders.
I hope that in 3 years’ time, we will have a core of younger union leaders that will take on the mantle of senior leadership for the next decade.
What about those who have served all these years? Do we let them fade away? Some may indeed prefer to fade away. However, we should maintain our regard for them, and use their talents in other areas. This is something on my mind, and I hope that after discussion, we will be able to find ways of helping unionists into active and fulfilling retirement.
