SATS: Blueprint to Connect, Feed Asia Takes Off

SATS President and CEO Alexander Charles Hungate. Photo: Company

Flamenco music, diverse cultures, and multi-ethnic cuisines are experiences that leave Alex Hungate spellbound.

"When I first heard flamenco music, it captured my imagination and triggered something in my soul," said the President and Chief Executive Officer of Singapore-listed SATS Ltd.

Hungate, who learnt to play the classical guitar at an early age, has since switched to the flamenco guitar, with its bright, percussive sounds and punchy tonality.

"It helps me destress when I lose myself in the music," he added.

The 49-year-old's fascination with flamenco is matched by his palate. "I am passionate about food and will eat anything," he grinned.

"I especially enjoy creative combinations and fusion cuisine. The wok is my favourite vessel - it's a fundamentally creative place, and anything can happen in it!"

SATS now caters for 47 airlines, and produces more than 26 million airline meals in Singapore a year. Photo: youtube.comThis dovetails with SATS' vision of feeding and connecting Asia. Its businesses include airline and institutional catering, food distribution and logistics, aviation laundry, airfreight handling, baggage and ramp handling, passenger services and lounge management, as well as aviation security, and cruise centre management.

It has a presence in 45 airports and 12 countries across Asia and the Middle East.

SATS, which listed on Singapore Exchange in May 2000, has a market capitalisation of S$4.7 billion. It is a constituent stock of the benchmark Straits Times Index (STI), with a weighting of 1.12%. Singapore's state-owned investment firm Temasek Holdings Pte is a majority shareholder, owning more than 43% of the company.

Hungate is confident that the new technologies he and his team are implementing are bearing fruit.

"These new technologies have already improved our productivity and service levels, and when you start improving both productivity and service at the same time, there is an immediate impact on margins, returns and growth in profitability," he noted.

"And that's what you've seen in SATS over the last three years."

With rising labour costs in its key markets of Singapore, Hong Kong, and a few cities in China, it was critical for SATS to transform the way it delivered services, and deploy more capital to enhance productivity.

"We realised that unless we did that, no matter how much volume growth there was in the market in terms of food and air travel, we would never be able to translate that growth into bottom-line growth," Hungate pointed out.

"So we deliberately set out to redesign job processes - replacing manual roles with automation, and for those manual tasks we could not automate, we created more dynamic rostering for people, so they could spend their time more productively," he added.

SATS' automated cultery washing system. Photo: Company.In its massive, centralised kitchens, SATS has upgraded its cutlery washing system to include large-scale, automated ultrasonic dishwashers - each about the size of a room - that use eco-friendly technologies to wash and polish cutlery.

"These are more energy-efficient, labour-efficient, and use less detergent, which is also better for our environment," Hungate said.

By investing capital in the short term, SATS has replaced staff operating expenses on its profit and loss statement with depreciation on the balance sheet.

"As volumes increase in the industry - and they are, as SATS is exposed to very fast-growing trends in aviation and food - we get better operating leverage, and that means more of the growth in the Asian markets will drop down to our bottom line. You can see that in our food business, as well as our cargo and gateway services," he added.

One example is the SATS Coolport facility, a highly automated, temperature-sensitive perishables handling centre in Changi Airport with an estimated annual operating capacity of 250,000 tonnes.

"We have few staff in SATS Coolport, but those who are there are highly qualified and highly certified, and the volume of perishable cargo they can handle per head is also much higher than in a less automated facility," Hungate noted.

"And that means that as the volume of perishables increases - which is happening as people want fresh food from Japan or pharmaceuticals manufactured in India - SATS will be able to ride on those growth trends without having to employ more staff."

SATS' success in applying technologies to reduce its dependence on labour is evident in its margins and return on equity ratio.

"Over the last three years, our margins have gone from high, single-digit to almost 13%, while our ROE has improved correspondingly - from 11% a few years ago to 15% now," Hungate said.

"We're able to give our shareholders better returns for the capital we've invested, we're able to pay our staff more as they have upskilled themselves into more technically oriented jobs, and we're able to continue to sustain our business, in an environment where labour shortages will get more and more acute, not just in Singapore but also the region."

SATS centralised kitchen. Photo: Company.SATS' competitive edge in food solutions lies in its scale and know-how, Hungate said. 

"Not only do we have the industrialised capability to manufacture fresh, quality food, we also run these centralised kitchens better than anyone else because of our R&D capability - we combine those capital-intensive, large-scale facilities with a very cosmopolitan culinary expertise, developed by the hundreds of chefs we employ, who have different ethnic backgrounds and skills to create authentic tastes," he added.

That capability allows SATS to pursue a fast-expanding segment in the market - demand for high-quality, safe meals across emerging Asia.

In January, SATS set up a joint venture with Wilmar to build a central kitchen in Shanghai, and plans to extend this to other cities in China.

In terms of connecting Asia, SATS' competitive strength stems from its ability to facilitate seamless movement of people and goods through its extensive regional network.

"Because we operate in so many airports, we can create that connectivity for the passenger and make a big difference to the journey, not only in the physical world, but also in the digital, because many journeys begin and end digitally, such as in the use of online boarding passes," Hungate said.

The second aspect of connecting involves airfreight, as well as meeting the increased demands of e-commerce, and SATS is well-placed to tap burgeoning growth of online shopping in the region.

"Asia is the biggest e-commerce market in the world, and is also the fastest-growing. Last year, the value of e-commerce in this region overtook the value of e-commerce in North America," he pointed out.

The need to deliver goods purchased online in a timely manner - if e-commerce is to have any chance of competing with brick-and-mortar retail stores - suggests the need for airfreight.

"We are the cargo terminal operator in many airports across Asia, and we see opportunities to provide other services that can facilitate the growth of the e-commerce market here."

SATS is constructing a new highly automated facility - the SATS eCommerce AirHub - to boost consignment handling capabilities, which includes airmail and parcels, for itself as well as Singapore Post Ltd.

"The facility will be able to handle all of our existing volumes, plus volumes from SingPost today, and times four in the future, without employing any more people - that's a great example of what we mean by operating leverage," Hungate said.

SATS' staff would take on higher value-added roles, controlling the IT system that runs the automated facility, which was built in Germany and is being assembled in Changi.

"This would do good things for our people, as we would be able to pay them more, and they would be able to chart a career path in the company," he said.

"It would also be great for our customers, as this would make Singapore an effective e-commerce centre, and eventually secure its position as a logistics hub in Southeast Asia. Last but not least, once the volumes come through in the facility, we would have improving margins and improving returns, which would benefit our shareholders."

At SATS, it's all about service excellence - "the passion to delight" your customers, Hungate said.

It's also about continual self-improvement.

Hungate sees the company as an organisation of learning for all who pass through its doors. Values he upholds include the ability to adapt, take risks, experiment, and capitalise on opportunities that arise.

"I would encourage everyone to continue to learn. I don't believe that in today's fast-moving environment, any company can survive unless it is constantly learning and pushing itself to learn, so it can innovate continuously," he said.

Don't shy away from failures, as they play an important role in the education process. "The more failures you suffer - as long as you don't repeat the same mistakes - the better it is, as they will help you learn and adapt more quickly," he added.

"I want every single one of my people - my children as well as my staff - to constantly challenge and improve themselves," said the father of two daughters, aged 18 and 12, and a son, 15.

And this is his five-point checklist: Are we learning something new or are we doing the same old things? Are we dedicating enough time to learn? Are we learning fast enough? Are we taking enough risks or being too conventional? Are we setting the bar high enough and benchmarking to the best-in-class out there?

"I always try to project these values to my colleagues here at SATS, and I would like to think that as a result, SATS is taking more risks, but also managing risks effectively to create a lot of success."

• Airline load factors are improving although airline yields are still weak. Our focus on productivity from scale and use of technology will continue to position us well to weather global economic and political uncertainties as well as intense competition.
• Investments in technology will bring more value to our customers as we connect our services across our operations in Asia.
• While our aviation business in Singapore remains a pillar of strength, we have been developing our non-aviation business and expanding across the region.
• The growth of tourism in the region, as well as demand for safe, high quality food from the burgeoning urban populations of Asia are also creating new growth opportunities for us.