This report will study the Business policy and system of SIA and will cover 6 different scopes, namely the background information SIA, the evaluation of External and Internal Environments that is affecting SIA, Long term and Short term Objectives of SIA should consider, Strategic choices SIA may select and implement and the justification Firstly, background information of SIA would be provided, in order to allow greater understanding of the organization on a whole. This section would include aspects such as the company’s history and core values.
Secondly, the Evaluation of External and Internal Environments would be identified. These changes would then be discussed in. A detailed analysis would be conducted, suggesting SIA on what Long & short term objectives to be met, which would be direct end results of their established changes.
Thereafter, recommendations would be provided, in attempts to correct any existing or identified issues, such that SIA would be able to boast higher profit margin and substantial growth within the next few years.
The History of the Singapore Airline (SIA)
The history of SIA is traced starting from 1 May 1947 where the Malayan Airways Limited (MAL) is under the twin-engine Airspeed consul scheduled service. The main route were from Kallang Airport to 3 states of Malaysia, namely Kuala Lumpur, Ipoh and Penang. As Malayan Airways grows steadily within 5 years, they were introduced to a larger aircraft DC-3 which provides a faster and more comfortable flight. This change opens up their services to destinations like Indonesia, Vietnam, Myanmar and other international locations. In order fulfill its mission and vision, they were bent on enhancing the service provided. The in-flight refreshments were improved progressively from plain iced water to choice of hot or cold beverages and from snacks ranging from sandwiches to biscuits. On the 16 September 1963 the Federation of Malaysia was born, the airline was then made known as Malaysia Airway Limited and Malaysia-Singapore Airline in 1966. Two years later in 1968, the airline hits S$100 million annual revenue and the Sarong Kebaya which is designed by a French was introduced.
The airline grew rapidly and purchases better aircraft like B737-100s. During the 1970s to the 1980s, the first transcontinental flight took off for London and the company was split into two entities due to disagreement. Devotion to the growth of the newly setup Singapore airlines was the main objective. Meanwhile SIA expanded its subsidiary company, Singapore Airport Terminal Service (SATS). This is to provide a more efficient ground service at Paya Lebar Airport. As Singapore Changi Airport starts its operation in 1977, its corporate headquarter Changi Airfreight Centre was operated two years later. In 1989, Singapore Airlines became the first airline operating the B747-400 on commercial flight across the pacific. February 1989 SIA’ subsidiary, Tradewinds which is known as SilkAir became the second airline in Singapore. In the 1990s, SIA start its operation with SQ23 in Terminal 2 at Changi Airport. In 1998 SIA set up a new standard in air travel by introducing a suite of products and services worth S$500 million across 3 different classes. This offers client enhanced service standards on both air and ground. KrisFlyer launched the following year. a program which allows its client to earn mileage credits according to its service class.
In 2004 February, the airline successfully set a record for the world’s longest non-stop commercial flight from Singapore to Los Angeles. Months later the record was bettered with its launch of the non-stop flight from Singapore to New York. To keep their mission and vision going, the airline added its new generation cabin with the widest full flat seats for First and Business class. Economy class seats paired with the award-winning in-flight entertainment system. The airline also start its operation at the new Terminal 3. Beside all these prospectus side of the airline, it was not always smooth sailing.
SIA faced incidents such as the hijacked of airbus A310-300 which was en route to Singapore in 26 March 1991, fortunately there was no fatalities amongst the passengers and crew. 9 years later in 2000, Flight 006 crashed at Taiwan TaoYuan International Airport after taking off on a closed runway, hitting construction equipment; taking away 83 people and 71 injured which marked the first fatal crash. In 2003, the airline faced another incident where Flight 287 suffered a tail strike during takeoff causing serious damage to the tail section during the departure at Auckland New Zealand for Singapore but touched down safely with no fatalities reported. In 2009, the operating performance decreased. Passenger and cargo carriage was lower compared to previous year. With decreasing capacity, Singapore Airline decided to scale back flights and suspended flights to counties.
The Singapore airlines, which have 14,071 employees is one of Singapore’s largest private sector employer. Acknowledged by Los Angeles Times as “one of the world’s best-managed and fastest growing airline”
SIA Mission statement:
“Global Company dedicated to providing air transportation services of the highest quality and to maximizing returns for the benefit of its shareholders and employees” The Singapore airlines focus on their current services by providing good quality services. Their signature is The Singapore Girl; No differentiation in treating customers in various classes.
Using SWOT analysis, we are able to identify the advantages and disadvantages of the organization’s direction and to promote the ideal recommendation to the growth of the company.
1.1 EXPANSION & STRATEGIES
SIA has strong foundation in its company structure. Being a Singapore based Airline Company, they engaged its businesses through three reportable segments; the airline operation, airport terminal and food operations, and engineering services. Since its inception, SIA had been a strong proponent of deregulation and free competition within the international airline industry. In order to maximize productivity and utilization of all resources, by 1999 SIA had operations in 110 cities across 42 countries.
Other facts of SIA’s strategy included the growth of a modern aircraft fleet, the development of Chang Airport as an air traffic hub, and the promotion of Singapore as a tourism destination. A key factor in SIA’s growth was Singapore’s development as a hub for Southeast Asian businesses. SIA experienced growth of 20% to 30% in the 1970s, 10% to 20% in the 1980s, and around 8% per annum in the 1990s. These structures are holding the SIA’s market share in high level.
1.2 UNIQUE CULTURE
SIA chose not to be a member of the International Air Travel Association (IATA) so as to form a distinctive service identity. The airline made a habit of leading the way, and along the way developed a reputation for being a trendsetter in the aviation industry. In the 1970’s, they were the first to offer economy class passengers with free headsets, complimentary drinks and a choice of meals.
1.3 INTERNATIONAL BRANDING
SIA is reputed internationally for its emphasis on delivery of excellent service quality. To develop its service culture, SIA benchmark its customer service not only against other airlines, but also against those in other industries which major in consumer retailing services. Its unique and successful service differentiation strategy, the high profile Singapore Girl icon, has turned out to be difficult-to-match over the past decades and still no signs of letting up. These measures have helped SIA receive a long list of awards from various publications and surveys.
SIA has invested substantially in its brand. On average, SIA spent S$35 million per year on advertising during its first two decades. The airline would run a few commercials on yearly basis, routinely stressed the fact that its fleet was the youngest in the world and using their trademark Singapore Girl concept; well-known international service icon. Genuine SIA flight attendances were used in the commercial to promote the Singapore Girl’s carefully defined set of gracefulness, compassion and affection personality traits as being the representative of SIA’s world-class service.
The Singapore Airline’s image and reputation are shown high impact to deliver the highest quality of customer service that was economical, safe and reliable. Their services towards customers are encouraging the passengers to continue choose SIA as their preferred air transportation company. It was nominated Top 33 in World’s Most Admired Companies, FORTUNE’s Survey 2009 and awarded in World’s Airline Awards quoted as below:
[Singapore Airlines won two key awards, taking the Best Airline First Class and Best First Class Airline Catering titles. “Singapore Airlines always puts up a strong performance in the World Airline Awards” said Plaisted, “and in winning these categories, Singapore Airlines has had to meet the expectations of some of the most demanding customers in this premium market”.]
1.6 HUMAN RESOURCE
The human resource management practices recruitment from the global labor that developed, motivated and retained employees who contributed to the company’s objectives. SIA has established training hubs to train staffs in the core functional areas of flight operations, cabin crew, information technology, commercial training, security, airport services, engineering and SIA’s Management Development Centre. Through these measurements, SIA is getting high effective and efficient performance from their employees and this will increase profit for the company.
2.1 MARKET RIVALRY
The Singapore Airlines is characterized by strong rivalry and supplier power. However, with the trend of upcoming budget airline targeting SIA’s largest market share which is within the Southeast Asia. SIA has to come up with new marketing strategy such as setting up their very own budget airline to compete with those that falls under the same category.
2.2 GLOBAL FINANCIAL CRISIS
Singapore Airlines was facing one of the greatest depressions in its history. Although the global financial crisis was well contained, it has affected the international airline industry; SIA will have to reframe the four major components of the airline’s cost structure: Labour, fuel, maintenance and aircraft purchase.
2.3 COMPETITION IN THE AIR
The airlines had a strong incentive to carry additional passengers, and competed fiercely with each other by lowering the quality and predictability of their operating earnings. Airlines also undertook high levels of debt to finance the purchase of new airplanes, which will increase their financial risk.
2.4 SHARE REDUCTION
SIA has a drop in share percentage of Singapore market, although there was a bounded by 16 percent, it was still underperformed compared to other Southeast Asia airline company. The Singapore Airlines has to look into the cause of decrease in Singapore market share.
The following is the summary and evaluation of the Internal Factor Evaluation (IFE) Matrix for SIA:-
Weight: 0.0 not important to 1.0 very important. The sum of all weights assigned to the factors must equal 1.0. Rating: 4 = Major Strength; 3 = Minor Strength; 2 = Minor Weakness; 1 = Major Weakness
There are a number of threats detected, namely the Presence of competitors, the Risk of Financial Crisis and the continued Weakness of the Singapore Dollar.
2.3.1 Presence of Competitors
Firstly, presence of other competitors in the airline industry providing comparable services at comparable rates includes Cathay Pacific, one of Singapore Airlines greatest rival. The choice on which airline to fly, would ultimately lies with the consumers’ preferences, based on factors that are ranked in different degrees of importance to them, such as the reputations of the airlines. In addition, budget carriers like Jetstar are offering flights at lower rates, as compared to SIA. Being in a price-sensitive economy, consumers may seek to travel at lower costs. Thus, in spite of lower standards of services provided, consumers may choose these budget carriers, especially when they are travelling to nearer destinations where shorter journey durations are involved.
2.3.2 Risk of Financial Crisis
Secondly, there is an evident risk of a financial crisis occurring. As mentioned in the case study, “demand for airline travel is significantly impacted by income levels”. Should a recession occur, consumers would be less likely to splurge on holidays and airfares. The consumers may choose seek alternative modes of travel, such as by coach or by sea. Singapore Airlines would then experience a decrease in demand which would thus affect its sales and profits.
2.3.3 Continued weakness of the Singapore Currency
Thirdly, the continued weakening of the Singapore Dollar has proved to be a threat. As SIA has minimal control over fuel costs, the airline may constantly experience high fuel costs, compared to other neighboring countries. With greater expenses and the need to keep airfares reasonable, the airline may see itself with a lower profit margin. In addition, it is understood that with the number of fleets an airline owns and coupled with the regular maintenance, a substantial amount of financing is required. With this, the Singapore Airline may run a risk of incurring huge debts.
It has been identified that there opportunities for SIA to tap onto. They are namely the Introduction of budget carriers between Singapore and Kuala Lumpur, the decrease in regulatory barriers, Good reputation of Singapore Airlines, the incorporation of high levels of technology and safety, the Formation of various alliances and lastly, the steady growth of Tiger Airways.
2.4.1 Introduction of budget carriers
In November 2008, the regulators from both Malaysia and Singapore agreed to the introduction of one budget carrier from each country to operate flights between Singapore and Kuala Lumpur. The budget carrier was Tiger Airways, which SIA had a stake in. Thus, this has been identified as an opportunity, whereby the subsidiary would experience greater sales volume, allowing SIA to gain greater market share and boosting the profits on the whole.
2.4.2 Decrease in regulatory barriers
Similarly, the decrease in regulatory barriers is viewed as an opportunity where penetrating into new markets are made easier. This is substantiated by the open skies agreement between the United States and Singapore in the late 1990s, allowing the SIA to fly to new destinations in the United States. This would allow the airline to reach out to a new target segment, where demand may exceed its saturated local market. Restrictions on flight frequencies were also dismantled, which provided SIA with greater autonomy in its operations. With the freedom to increase its flight frequencies, the SIA boasted of an opportunity to reach out to its consumers by providing more flight timings to suit each individual’s needs.
2.4.3 Good reputation
The SIA has won a number of awards, some of which include the Airline of the Year by Air Transport World, in Year 2007. In addition, the airline has been awarded the Best Airline to Asia award for the 9th consecutive year and 13th time in 14 years. All of these awards channel towards the positivity of creating a good reputation of the airline. It is likely that that the airline has gained much respect of its consumers and being awarded these prestigious titles would no doubt, boost the confidence of the consumers, in making Singapore Airlines the preferred carrier on their travel trips. Thus, it is an opportunity where the airline can tap onto, to reach out to the masses, especially when word-of-mouth is a powerful mode of advertising.
2.4.4 Incorporation of high levels of technology and safety
The incorporation of high levels of technology and safety is also a contributing factor to the creation of a reputable organization. With the airline’s average age of its fleet standing at 6 years old, this is way below the industry’s average age of 13 years. This increases the level of safety of travelling on Singapore Airlines as compared to its competitors. Adding on, the airline too, has embraced the latest technology to train its pilots, ensuring that they were all well trained to provide safe flights and impeccable services to its consumers. This is thus viewed as an opportunity as the airline boasts of high safety levels, which would be able to put minds at ease. The airline can thus, market their safes flights and reach out to risk-sensitive consumers who would choose safety over any other factors in determining their preferred airline carrier. It might be able to capture a new market segment, thereby increasing market share.
2.4.5 Formation of various alliances
It has been understood that the Singapore Airlines has had formed a number of alliances with various companies such as Delta Airlines, Lufthansa and Swissair. The airline even acquired 49% stakes in Virgin Atlantics. Despite certain issues which arose from the formations, all of these alliances offered the airline opportunities to reach out to greater masses in increased destinations. The airline had new and greater segment markets to target, which could possibly boost sales.
2.4.6 Steady Growth of Tiger Airways
Since its launch in Year 2005, Tiger Airways, SIA’s subsidiary, has been experiencing good results and steady growth, with help from the Singapore government which had constructed a new budget terminal. This is seen as an opportunity where the Singapore Airlines can continue to expand the budget airline. With Tiger Airways gaining popularity, it is easier for the airline to gain a greater percentage of market share.
The External Matrix below, are the factors that contribute to both the threats and opportunities of SIA.