Tiger CEO: Difficult to differentiate with IT

newsmaker Affable and accommodating, Tony Davis looks nothing like the head of an up-and-coming budget airline trying to carve a niche in the aggressive aviation industry in Asia Pacific. However, he is also the man who once told the region's other low-cost carriers that their business model was wrong.

Davis had to withstand severe criticism for his comments, but despite the pressure, the president and group chief executive of Tiger Aviation--the holding company of Tiger Airways--made sure his low-cost airline kept to his belief that customers do not expect to pay for frills when flying budget, especially on short-haul flights.

Tiger Airways might just have proved its doubters wrong. It just celebrated five years of operation--during that time, the company expanded its base beyond Singapore to Australia, and opened its route to include a total of 11 markets within the Asia-Pacific region.

Speaking to ZDNet Asia last week on the sidelines of the Global Leaders Series event organized by The American Chamber of Commerce in Singapore, Davis shared why differentiating with IT is a challenge within the aviation industry, and discussed how innovation has kept the company's costs low.

Q: How would you describe your business philosophy?
Davis: I subscribe to Sam Walton's (founder of Wal-Mart) philosophy that says "cost is king".

What I learned while I was in Europe was that customers are not willing to pay extra for the bells and whistles that are features of conventional airline services. At the end of the day, people simply want from their airline a cheap fare, getting them to their destination on time, and having their suitcase arrive the same time as them. Beyond these, they are not willing to pay for more...especially for short journeys. So by removing the discretionary stuff [such as in-flight meals and entertainment], we are able to bring down costs.

I've come to recognize that if the price is low enough, you will be surprised at what people will do.

Can you elaborate on what you're trying to achieve with Tiger Airways?
To some extent, I would say that we are on a journey of educating customers in the region that there are advantages to planning and booking their flights early. Yes, we are offering very low fares, but not every seat will be cheap, so it depends on how early they book their seats.

I would also like to see the price of our flights get as close to free as possible. Look at how movie theaters operate: There are fixed operating costs in that there are seats to be filled regardless of demand, which is similar to us, and the way these operators make money is through merchandise sales like popcorn and drinks, rather than the selling of seats.

One of the innovative ways we have introduced is selling advertising space on our overhead baggage compartment. After all, if people have to be in a flight for a few hours, you will definitely have a captive audience. We are also the first airline with free uniforms after striking a deal with Giordano, which sponsored our flight crew's outfits in exchange for marketing activities with us.

Is Tiger Airways able to employ IT to differentiate itself in the industry?
I think the IT side is still a bit of a challenge. Take the systems that we use to make bookings. Most of the other airlines use the same system, and the core platform is similar for all, so it's difficult to differentiate when we're using a standard system.

However, in terms of selling seats, 96 percent of our seats are sold online; compared with conventional airlines, this number is very, very high. We have also made the user interface of our Web site simple enough so people can book their own tickets. As more people become their own travel agents, we not only do not have to pay travel agents to make bookings, customers are also printing their own e-tickets, which helps lower our costs even further.

Would cloud computing be an area you would be interested in adopting to reduce backend costs?
I don't think so because the aviation infrastructure is so rigid. But we are always open to new ideas.

One of the differences between low-cost carriers and traditional airlines is that we are willing to look at new ideas and at different ways of doing things. The challenge is to maintain a balance between trying to make sure we innovate to keep up with technology and adopting a wait-and-see approach to see if costs of the new technology would drop.

Compared with other low-cost airlines in the region, Tiger Airways has one of the smaller fleets around. Why?
Our growth can be described as gradual and methodical, rather than aggressive. We grow our fleet more conservatively than the other airlines because we want to make sure that we can fulfill the things we have set out to do. This way, we can make better decisions.

If we have too many airplanes, and there aren't enough things to do, we might not make as good a decision. I think this is important as we continue to grow our business.

Furthermore, keeping to a single model fleet of A320s means there are reduced complexities; our homogenous training and maintenance result in lower costs than if we maintained several aircraft models.

Would you embark on a project similar to AirAsia's long-haul flight to London?
I think it's unnecessary. There's so much more we can do with the current short-haul model that there's no need to consider changing it.

We are far away from exhausting opportunities with the short-haul model. Now that we are done with growing the framework of our business, it's time to add more capacity to the model. I think the focus right now is definitely on Walton's school of economics, which says: "You just keep doing the same thing over and over again." Don't deviate from the plan and, in turn, you will get the economies of scale and efficiencies that convert to lower prices for customers.

Where do you see Tiger Airways in five years' time?
That's a difficult question. What I can say is that our first five years have been a success and we're confident going forward. We've made a big aircraft order with Airbus in 2007 and we will have 70 aircraft within the next five years. This means we're a very big company and we're flying millions of people.

I think intra-regional tourism is going to take off, and Singapore will be a key destination for leisure activities. We're confident about Asia as a market, and I think liberalization in Asia is inevitable. So being in the region right now with our business model is a good opportunity for us.

[As for differentiating with IT by then,] I think technology, inevitably, is playing a big role in what we do. As an industry, we tend to lag behind the cutting edge, but we are way ahead of where we were 10 to 15 years ago.