SIN is and has always been geographically in a very good position: Right in the middle (well not exactly) between Europe and Australia, a route that is currently not flown non-stop (and it will stay that way at least for the next 10 years, probably longer), so it's basically a connecting hub to Europe, Australia, East Asia, and you don't need a big city for that, just enough capacity and infrastructure, and they obviously have that. The inhabitants of SIN are, so to speak, a nice add-on in terms of turnover, especially since there are many business people that travel a lot, probably many leisure travellers (living standard is quite high in SIN).
Business travel btw seems to be generally important, as these guys pay a lot of money when travelling.
I guess Dubai/Emirates is currently trying to follow the same strategy, and it might work: Good infrastructure, well-reputed local carrier, good connecting point for the whole Middle East, though even less people living there, (and at least Sharjah and Abu Dhabi have airports of their own), steeply growing tourism, that all travel by air (seems to be a very important point for the Emir of Dubai).
I don't think SINs position is that volatile, they have their position, SQ is tightly bound into Star Alliance, that brings at least StAl carriers to use SIN as a hub, as I said, there are not many airports like SIN close to SIN, and in order to achieve such a position you have to take away customers from SIN, and why should they go, if SIN works efficiently? Competitive pricing? Yes maybe, but SIN will not just sit there and do nothing if, say KUL, uses dumping prices.
Many good reasons I guess, that prove you don't really need a strong domestic market to succeed, though I'll gladly admit, it helps a lot!
I know it's only VfB but I like it!