SIA cancels plan to charge credit card fees for flights departing from Singapore

SIA cancels plan to charge credit card fees for flights departing from Singapore

SINGAPORE: Singapore Airlines (SIA) has cancelled its plan to charge credit card fees for flights departing from Singapore booked under certain classes, amid a backlash from customers over the move. 

In a sales circular issued to its sales agents and business partners on Thursday (Jan 4), the national carrier said it has decided not to proceed with the implementation of the fee "following a further review". 

SIA circular
The sales circular issued by Singapore Airlines to its business partners on Jan 4, 2017.

Just a day earlier, SIA had issued a circular stating that it would start charging the fee from Jan 20 onwards for selected booking classes.

The 1.3 per cent fee would be based on the total cost of the booking, capped at a maximum charge of S$50 per passenger, and would apply to tickets issued under the airline's soon-to-be-launched Economy Lite category.

SIA had said that the non-refundable fees were to recover "costs relating to the acceptance of credit cards". 

When asked about why it decided to review its plan to impose a credit card fee, SIA declined to comment further. 

Currently, SIA charges credit card service fees for flights departing from Australia, Belgium, Netherlands, New Zealand and United Kingdom. The fees vary for each country.

Full-service airlines that currently impose a credit card surcharge in some markets include Emirates and Air France. 

Mr Terence Fan, associate professor of Strategic Management (Education) at Singapore Management University, said the plan to impose credit card fees could have been a way for SIA to effect a disguised increase in price and increase profit.

“Because the airline industry is so competitive these days, the profit that we're talking about is often just a few per cent of an airline's revenue. If an airline can find a way to increase the revenue by 1.3 per cent, then the increase in profit can increase by almost the same amount, everything else being constant. For SIA, that would be a sizable amount," Mr Fan said. 

“These charges help SIA earn more revenues from their otherwise advertised prices."

SIA is currently undergoing a three-year transformation plan aimed at helping it reclaim market leadership. It said in its latest earnings briefing two months ago that it continues to face headwinds from competitors in key markets.

"To be fair, in select markets, the selective drop in SIA's prices relative to its competitors in the past few years would have been bigger than these incremental charges," he said.

"From SIA's perspective, instituting these charges lets it offer competitive headline prices for customers to comparison-shop."

Meanwhile, Mr Amitava Chattopadhyay, a marketing professor at INSEAD, said the fiasco is unlikely to have much impact on the national carrier's brand name.

"Given that they have one, introduced this 1.3 per cent surcharge and withdrawn it, there really isn't much they can do to further ameliorate the situation. In fact, I don’t think this will have any lasting impact on the brand name," he said. 

However, Mr Chattopadhyay added that SIA could have avoided the backlash by consulting its customers first.

“The best way to do that is by asking customers as to what they would find the most reasonable. They could do customer interviews, run a questionnaire or experiment on certain routes by, for example, increasing the surcharge fee by a small amount and see what it does to demand."

Meanwhile, Mr Lars Voedisch, principal consultant and managing director of PRecious Communications, said that while SIA should be applauded for making a "very swift correction", the carrier should have also released an official statement and apology.

"An apology is important as the public actually is quite forgiving as long as they are convinced by the sincerity of a brand in adjusting their course."

He added that SIA likely underestimated the amount of backlash it would get from the proposed credit card surcharge, as well as the possible impact on their reputation as a premium brand.

As a result, it "quickly rowed back as the long-term damage this could do to the brand would most likely outweigh the possible revenue generated from that initiative multiple times", he said.

Additional reporting by Brandon Tanoto

Source: CNA/am