1.0 LITERATURE REVIEW
1.1 PEST Analysis
PEST analysis is use extensively to organize the result of environmental scanning. The theory is believed to be originated in the 1980s with various author included variations of the taxonomy classifications in a variety of orders: PEST, PESTLE, STEEPLE etc [Morrison, 2009]. PEST stands for Political, Economic, Social and Technology. The Extended forms of PESTLE have further includes Legal and Environment. Another version of STEEPLE has further extended to include Ethical or Education and some even extended it to STEEPLED which includes demographic. It is important to understand the key drivers of change on these factors and the differential impact of these external influences and drivers have on particular industries of interest [Johnson, Kevan and Richard 2007].
1.2 SWOT Analysis
The SWOT analysis concept is originated from SOFT analysis introduced by Albert Humphrey with original goal to study corporate planning. SOFT is the acronyms for Satisfactory, Opportunity, Fault and Threat. Urick and Orr introduce SWOT analysis in 1964 during a seminar in Long Range Planning changing Satisfaction and Fault into Strength and Weakness [Morrison 2009]. Opportunity and Threat are factors external to the organisation, PEST analysis is often perform for this purposes. Strength and Weakness are factor internal to the organisation, it is often done by analysing the organisation’s financial position, product position, marketing capability, research and development capability, organisational structure, human resources, facilities/equipment and past objective and strategy [Thames Business School, P63].
1.3 Porter’s Five Forces
Porter’s five forces are developed by Michael E. Porter during 1979 as a framework to analyse industry and business strategy [Wikipedia, 2008]. The five forces includes threat of new entrants, rivalry among existing firms, threat of a substitute products or services, bargaining power of buyers and bargaining power of suppliers. Freeman recommends a sixth force: Relative power of other stakeholders, being added to Porter’s original five forces [Thames Business School, P61]. This analysis if often uses to evaluate an organisation’s competitive strength and its position in the industry.
2.0 Company Introduction
Singapore airlines were originated from Malayan Airway Limited where the company started it business on year 1947. Due to political reason, the company was renamed Malaysian Airways, Malaysia-Singapore Airlines and finally split to Singapore Airlines and Malaysia Airlines System in 1972. Singapore Airlines is owned by Temasek Holding which is a state owned investment house.
With no domestic route available after the separation, Singapore airline have been force to rely solely on international market, which subjected to heavy competition. The tough start created a driving spirit to compete and also a dedication to branding. The airlines have began its branding strategy on it in-flight service, the company engaged French haute-couture designer Pierre Balmain in 1972 to design a special version of the Malay sarong kebaya as the airline stewardess uniform and then is brand “Singapore Girls” for providing excellent in-flight hospitality. This later becomes one of the most recognized signatures of the airlines [Roll, undated].
The marketing strategy was accompany by background lobbying effort to talk country in granting access to its airport and dedication to its human resource management by investing 20million on training facilities. This was paid off at 1973 when the airline was ranked third in the Far East Asian region. The company then are force to conduct cost cutting program to struggle with surge of oil price on 1973~1977. Surviving this, in 1977 the airlines joint operation with British Airway to provide Concord jet service between Singapore and London, the service was terminated in 1980. This however was deem a marketing success as Singapore Airline were make famous around the globe with this achievement. At the same period, new Changi Airport was constructed, leading to a higher service standard being provided by Singapore Airline. This has paid off and Singapore Airlines were the top preference in Asia-Pacific Region in 1981.
The airline follows a steady internal growth strategy in the 1980s, expanding its size, renewing fleet and adding route. SIA was privatised on 1985, listing on Singapore stock exchange with Temasek Holding owning a 63% initially and gradually reduced to 54% in 2008. During 1990s, the company follows a more aggressive growth pattern, two subsidiaries were form in 1992, Silk Air to close the gap between its route networks and cater to a lower cost market segment, SIA Engineering is form to increase productivity and pursuit better business opportunity. Globalisation in the 1990s have also prompt the airline to expand overseas, invest in other airline company and forming new subsidiary in other country to provide better support on is airlines. The Asia financial crises at the end of 1990s prompt the airline to review its operation cost again, cutting down on not profitable route. [St James Press, 1999]. Against conventional wisdom, the company have utilized its strong financial resources during financial crisis to make capital investment, spending 300million to renovate cabins of its aircraft. This had benefit the airlines as the price level during the crisis is low and the airlines have more bargaining power over its supplier [Scott, 2008].
Till date, Singapore Airlines group of companies provide passenger and cargo air transportation, airport terminal services, aviation engineering services, training of pilots, air charters and tour wholesales and related activities. As of March 2009, the group have 31,834 employee, posted a revenue of SGD 15,996 million. The airlines also operate route on 36 countries with 66 destinations and 726 weekly flights. The performance of Singapore Airlines at the beginning of year 2009 was severely hit by the economic downturn and pre-purchase fuel priced hedge at high level before the financial crisis [SIA annual report 08/09]. Recent health crisis like bird flu, H1N1 had also affected the travel industry which the airline is operating in.
3.0 External Environment Analysis
3.1 Political
Singapore has a stable political environment, with its dominant political party People’s Action Party (PAP) holding the government since independences. Singapore government have allowed freedom in corporate governance and have set little restriction to the industry. The company are able to make over 90% of the decision on its own. The government only influence the company by appointing director over the company [Sikorski, 1995]. The government also allowed SIA to stress on profit when compare to public or social responsibility, the government supported the company for retrenchment practise during economy crisis [Sikorski, 1995].
Singapore foreign policy is maintain good relationship, it have established diplomatic relationship with 175 countries and have particular good relationship with large economy country like France, Germany and United Kingdom in Europe. The country also enters into free trade agreement between Australia, India, Japan, Korea, New Zealand, United States of America and recently, with China on October 2008. The country is seen working hard to build a strong tie with Middle East country with intensive high level visit between both countries in 2008 and signing the Gulf Cooperation Council-Singapore Free Trade Agreement on 15 December 2008 [Ministry of Foreign Affair Singapore].
The Asia Pacific regions have seen increase in unrest during the recent year in particularly developing country. Thailand has had a turmoil year in 2008, with constant protest and tourism industry is heavily affected. Terrorism also affect some of the country in the region, with India (2008) and Pakistan(2009) the worst hit recently that causes hundreds of life lost. Other includes the North Korea missile crisis that forces SIA to re-route its flight. China have also seen riot in Xingjian province in July 2009.
3.2 Economic
The financial crisis on 2007 had severely hit countries around the world, which brings recession to most country. The crisis has last through 2008 and made financial institution very cautious in loaning money and companies have gone through tough cost cutting measure to survive. Sign of recovery have shown during year 2009 and IMF has predicted that most of the countries will be out of recession at the end of 2009.
The oil price, hitting a high level of USD 140.00 per barrel at June 2008 has seen a sharp drop to USD 40.00 around December 2008. The price then rise steadily to around USD 80.00, hitting the high peak of 2009 at the end of October [Channelnewsasia.com. Nov 09]. The oil price have resulted in mix projection, some have projected the oil price will drop to a comfortable level of USD 70.00 due to most country are still in recession and other speculated that it will continue to surge because of the.
Singapore Tourism Board (STB) has putting in extreme effort in promoting Singapore as destination of MICE (Meeting, Incentives, Conventions and Exhibitions). In February 2009, a SGD 90 million BOOST (Building on Opportunities to Strengthen Tourism) program is launch, follow by October 2009 announcement on a new Tourism Compass 2020 roadmap to enhance Tourism 2015, the aim to make Singapore leading city for MICE [STB, 12 Oct 2009]. Two integrated resort project costing SGD 18 billion, Marina Bay Sand and Resort World at Sentosa is also going to complete 2010 that is expected to drawn 17 million top quality tourist within the next 5 years. Singapore will also continue to host the Formula One night race. All these will definitely have positive effect on business travel in Singapore and boost the tourism sector.
3.3 Social Cultural
Singapore is an immigrant country and have a very diversify culture with close to 35% of its population is non citizen residing in the country, (25% of is foreigner and 10% are permanent resident). Despite this high non-citizen to citizen ratio, the country are still promoting foreign talent and believing that the country will be in a shortage of labour if the immigrant policy were to stop. The population consist of more than 75% Chinese, follow by Malay and Indian; main religion is Buddhism, Islam, Christian, Taoism and Hinduism. Despite the rich Asian culture the country have, Singapore is also one of the most westernizes country within Asia. The recent growing China economy and its open door policy have landed Singapore with substantial foreign labour arrive from mainland China, this have created some cultural conflict among many Singaporean.
Singapore is famous for its hard working and competitive working cultures of ‘kiasu’. Traditional values of the Chinese have strong influence on the working culture, this converted to a culture high in power distance, and the lower level employee accepts the subordinate level and seldom question management decision. They also stressed on team works and maintaining group harmonies [Warnstam, 2007]. This has resulted in a very cooperative employee to employer relationship. The labour union in Singapore are usually in good term with the companies and the last open labour strike is more than 20 years ago on 1986.
3.4 Technology
The inventions of the computer, and subsequently Internet have prompt endless expansion of electronic and telecommunication innovation during the past decades. Recent development of high density (HD) video providing more crisp images, together with high speed computer processing speed to compress and decompress these images, and faster data transfer rate, resulted in high quality real time video conferencing with no time gap and clear sound and image. This had made video conferencing very attractive to companies as substitute for business travelling [Yu, 23 Jun 2009].
With technology advancement, the definition of entertainment has also been evolving. Electronic device are getting more and more portable with increased performance. These gadgets are also getting cheaper and more and more people are treating it as a necessity. Almost every household in Singapore will have a portable laptop, hand phone and digital cameras that are loaded with personalize music, game, photo and video. These items will normally being carried along during travelling.
The wide usage of Internet around the globe had prompt for more customize web address to suit different languages used around the world. It had been announce recently that Internet address are to allow non Latin character as addresses, this means in future, Chinese character forming the web address is highly possible [Choe, 30 Oct 2009]. While the impact of this is still uncertain, but company that market target country using non-Latin character as language like China and Japan will definitely need to adapt to this change.
4.0 Industrial Analysis
4.1 Threat of new entrants
The airline industry require a huge capital investment, with at least millions of capital required before any business process, it is estimate that the company require approximately $1 of capital to generate $1 of revenue. It would require a lot of logistic works, highly skilled personal such as pilots, aircraft technicians and specialise managerial personnel which are often limited in resources in the industry. Limited access to airport and route are also another difficulty post to new entrant [Calingo. 1997]
As the Asia Pacific region move toward free trade and deregulation of airspace, more opportunity are created. Since introduce by America Southwest Airlines in 1973, Low Cost Carrier (LCC) have gain popularity and proven to be profitable [Uherek, 2006]. Many new companies had been form to provide this service around the Asian region around 1990s, currently Asia region have over 60 of such LCC mainly offering short distance flight within same country. Some of these airlines have started to offer long haul budget airline, for example Air Asia had introduce Air Asia X in 2007 that offer flight from Malaysia to London, Australia and India [Kent, 5th Jan 2007]. Although these Low Cost Carrier (LCC) were not yet considered as a direct competition to SIA as the target market for these airlines is more for cost conscious traveller, it is possible that in not so distance future, these LLC will venture into the premium market sector when the company reach certain level of business expertise. This trend is highly possible and should not be overlooked by SIA in the long run. It would be safe to assume that the treat of new entrants are remains low at the moment.
4.2 Rivalry among existing firms
The goods in the airline industry have fairly short shelf live, the service is consider a loss once the airplane take off, and all cost incur are not recoverable. The seats are usually around 75% full in capacity. Airlines that are dominant in Singapore region and consider in direct competition with SIA are very few, they are Malaysian Airlines System, Japan Airlines, Cathay Pacific and British Airway.
Even though there are few airline able to compete against SIA, these entire airlines are very similar in size and market shares, 2008 study on international passanger-kilometer flown for these airline range from 113,000million to 83,000million [IATA, 2008].
While there is still potential for growth in the airline industry in the Asia-Pacific region, recent financial crisis have force companies around the globe to engage in cost cutting measure, hitting the airline industry hard with estimated 11billion loss in 2009 and 4billion loss in 2010. The Asia pacific region has post more positive growth of 2.1% as compare with the rest of the world that are still in reds [26th Oct 2009, Macinnis].
Most of these carriers are using differentiation strategy approach which concentrates mainly on booking service and in-flight offering. Frequent flyer programme were also introduced by these airline to retain customer and generate brand loyalty. On the marketing side, most of these airlines are member of strategic alliance like Star alliance and Skytrex, and have code share system with other partner airlines to enhance flight connection and extend route network. However, SIA have so far strive in its offering and are reputable of provide excellence in-flight service and innovative entertainment system. All the above had made SIA face lesser stress in competition, however the industry is still in very fierce competition giving the circumstances and SIA would lose out if it fail to maintain its high quality of services. The level of rivalry is medium.
4.3 Threat of a substitute products or services
SIA had target business traveller that emphasis on comfort and time when travelling and are less cost conscious, this have made other mode of transport a poor substitute for SIA, especially on medium and long haul flight. However technology advancement have evolve new treat. As discuss on previous section, video conferencing as a means of meeting relinquish the requirement for business travelling hence post serious treat as substitute to the whole airline industry. With technology advance, high quality video conferencing are able to be done at low capital investment of USD 18,500 and low maintenance fee [Calingo, 1997]. New feature had been introduce, such as sharing of files, computer screen, recording while doing video conferencing have made video conferencing to be near equal to face-to-face meeting. Although video conferencing forms a good substitute for meeting, it is only part of the reason for business travelling, other function such as inspection, discussion on sensitive issue, contractual support or hands-on servicing still require personnel to be present. In general, SIA have a medium to low treat on substitute of products or services.
4.4 Bargaining power of buyers
The airline industry had been commoditise over the years, with objective of getting from one point to another, it doesn’t make a lot of difference on which airline they choose, this is true especially for long to medium haul flight. As the air space deregulate, for example, the recent deregulation of Singapore-Malaysia air route had prompt an influx of other carrier such as Firefly and Air Asia to the market SIA and MAS (Malaysia Airlines System) once hold monopoly.
The passengers in the airline industry consist of business traveller and discretionary traveller. Discretionary travellers are quite flexible on the time and flight connections, cost is a main concern for them. Business traveller are not so sensitive about price, instead short travelling time and comfortable journey are priority for them. All of them would not hesitate to switch airline if price and timing matched their interest. Kris flyer program, a frequent flyer program which accumulates free air miles with other incentive such as gives admission to exclusive airport lounge and priority boarding had been promote to retain customer’s loyalty.
Most of these traveller approach travel agents for purchasing of tickets, some business traveller even appoint a designated travel agent. The travel agents often forms large amount of ticket sales, this gives certain power to the travel agents and airline would generally gives some percentage of commission to them for ticket sales. A zero commission policy by SIA had cause boycott of sales of SIA tickets by travel agents who consist of 80% total sales volume in India, forcing the company to reduce flight and down sized in India [Chowdhury, 17 Apr 2009]. The buyer bargaining power is indeed very high for SIA.
4.5 Bargaining power of suppliers
SIA have its own subsidiary Singapore Airport Terminal Service for ground handling service such as baggage handling and in-flight food and beverages supply. SIA’s other subsidiary SIA Engineering had been engage in aircraft maintenance and servicing. SIA are also financially strong hence does not depends heavily on financial institution for business process. This leaves the main suppliers of SIA only air craft manufacturer. Jet fuel, even though form up to 40% of the airline expenditure (as of year 2008), is a commodity that fluctuate with crude oil price.
The airline mainly purchases its plane from Boeing and Airbus. Although there were no apparent substitute and high retraining and logistic cost will incur for switching of supplier, the demand is relatively weak for these suppliers in recent years with about 10% of the world’s fleet in storage [Calingo, 1997]. SIA had been continuously renewing its fleet even during peak of crisis which gives sales order that helps aircraft manufacturer pull through financial difficulty [Scott, 2008]. The average age of aircraft is 6year and 2month in 2008; signal a large volume of purchase on its aircraft, with planed spending of SGD 11,800million in the next five year on aircraft. It is Boeing largest customer on 777 series plane [Boeing, 25th Aug 2004] and first customer for Airbus 380. This makes SIA an important customer and enjoys high bargaining power over the manufacturer.
4.6 Relative power of Other Stakeholders
Other stake holder that plays a major role includes Airline Pilot Association – Singapore (Alpa-S), Singapore Airline Staff Union (SIASU), Singapore Government and other regulatory authority at destination country. Alpa-S is SIA’s pilot union, as pilot are normally highly trained and difficult to replace, they have a much power over the airlines and will severely affect the business if they were to go on strike. SIA often had to invite government involvement to mediate major dispute unresolved [Yun, 24th Apr 2009]. As compare with Alpa-S, SIASU had a lesser bargaining power as other staff and crew have less expertise comparing with Alpa-S and are very diversify in its members background and job scope.
Singapore government plays a role in regulating the country’s air space, handling landing rights to foreign flight and establishing new landing rights with other country [The Financial Express, 21st May 2009]. This directly impact on the route SIA able to offer and competition it will face [Calingo. P141. 1997]. As major share holder of SIA through Temasek Holding, Singapore government have the power to intervene policy and business process it needs to.
Other regulatory authority may also affect the business process of SIA, for example, recent allegation by Australian Competition and Consumer Commission (ACCC) that Singapore airline cargo enter into a price fixing cartel [ACCC, 22nd Dec 2008]. As these foreign regulatory body have limited restriction on SIA and difficult to affect SIA’s business process, the power is consider low.
5.0 Internal Analysis
5.1 Financial position
SIA is one of the few airlines that maintain its profitability over the years, the group have maintains its profitability even during 2008 financial crisis up till 2009. As of 2009, the group have assets worth SGD 24,818million and debt of SGD 1,693million, an equity-debt ratio of 0.12. The group also have a general reserve of SGD 12,815million and plans to invest SGD 12,300million in the next five year. The Earning per Share (EPS) is 89.6cents with 5.6% profit margin and have liquid asset of SGD 2,805million. These demonstrate that the company are financially strong. A study by Aviation week magazine has rank SIA’s financial health to be 99%, way ahead of nearest runner up [Aviation Week, 11th Sep 2009].
5.2 Product position
| Carrier | RPK
(Million) |
| SIA | 90,128 |
| Cathay Pacific | 90,975 |
| Qantas | 99,176 |
| Total of AAPA member | 550,014 |
| Table 1 Comparison of RPK | |
Airlines market size can be measure by Revenue Passenger-Kilometer (RPK). Having based in Asia Pacific region, SIA, Cathay Pacific and Qantas all falls into the same category of medium cost, developed airlines. These airlines have similar offering and price level. The RPK of these airlines are listed in Table 1. It can be seen that SIA, Cathay and Qantas have market share of similar size [AAPA, 2009].
Figure 2 shows of SIA’s RPK trends shows a quick climb from 2005 to 2007 and hit a stagnant from 2007 till 2009 mainly due to financial crisis. As the market just shows recovery from mid of 2009, it is expected the market continue to shrink further and the RPK will further reduce on 2010 [SIA, 2005~09].
The company is ranked number two in Skytrax Best airline award; the airline is in the top five ranking for 10 out of the 12 award Skytrax have. The airline has the Best 1st Class and best in-flight catering award in 2009. The only part the company don’t have a ranking is on the airport lounge service [Skytrax, 2009].
5.3 Marketing capability
The distribution channel of SIA is mainly by travel agents and internet booking. The airline are moving toward e-ticketing and are the first to provide full interline e-ticketing system allowing complete ticketless boarding for passenger even when connecting flight using partner airlines [SIA, 2009]. The company have also made good placement in search engine, when searching using keyword ‘Singapore Airline’ and ‘Singapore Air ticket’, SIA had appear on top list, however the domain address www.sia.com and www.sia.com.sg is not owned by SIA which is an disadvantages. On marketing effort in social network website, the company have no present in twitter and limited present in Facebook [Facebook, 2009]. All this shows that the company had not been very good at establishing itself on the internet even though the company is promoting its business on the internet.
The company have spends lesser amount on marketing effort, figure 3 shows the declining trend of sales cost. At year 2009, the sales cost is 5% of total expenditure. This is still a high figure when compare with Qantas figure of 4.4% where as Cathay pacific had negligible marketing cost. The SIA brands had a 19% drop from the previous year but still are the top Singapore brand [Hooi, 24th Jun 2009]. Standing at about SGD 4billion, the value shows that the company are still well recognized around the worlds.
5.4 Research and development capability
The company had strong financial background and are constantly improving on in-flight entertainment and comfort. Major improvements are the launching of lie-flat bed in 2002 and the commercial launching of first Airbus 380 flight and its new airline suite class in 2007. It also becomes the first carrier to offer i-pod and i-phone connection in conjunction with new PC-application that allows the passenger to access their personal media file in-flight. The company are also the first to be able to implement interline ticketing system with all partner airlines [SIA, 2009]. These track records had proved the company have strong capability in research and development.
The company have also made plans to spend 11,800million on new aircraft over the next five year, this allows freedom to configure cabin according to latest entertainment technology available for the new aircraft. This provides opportunity to exploit new product [SIA, 2009].
5.5 Organisational structure
SIA’s organisation is divided primarily by function and has disadvantages of low responsibility at bottom level staff and compartmentalize on manager. To tackle this, SIA have a flatten organisation chart with few level of hierarchy within the organisation, this allows autonomy and create a more flexible and dynamic business that empower people to make decision and leads to job enrichment. The company also promotes independences and encourage senior staff to train and allow junior staff to made decision.
To tackle problem of job compartmentalize, non technical manager are rotated on jobs and allows them to have a broader picture. The management of SIA also stress on importance of maintaining good and healthy work culture inside the organisation. Team works is place on high importance by the company.
As the company have established sales office in over 80 countries, it had divided the sales operation by geographical area. To tackle problem on management control, the company had placed the focus point on end results objective allowing site manager to exercise flexibility and made adjustment based on situation. Full authorities had been given to its overseas regional general manager allowing decision to make quickly in respond to local issue and customize business operation to suit local climate [Times 100, undated.]. The company used organic growth strategy and stress on profitability rather than size, this allow slow and steady growth and leader to be groom properly.
In general, the organisational structure of SIA is decentralise encourages autonomy allowing quick response to business treat and opportunity which is crucial in the airline industry which are very fast and dynamics.
5.6 Human Resources
SIA’s director are mainly appointed between year 2003 to 2007 and have a average age of 62 year old, the chief executive director Mr. Chew Chong Seng had been with the company for 30years. The directors have diversity of background and holding key role from different but related industry, some are also government official and consultant.
SIA had often looked for talent from within the organisation; the company have high per capita training cost spending 100milion annually on training of employee. The company also have scholarship program recruiting management trainee fresh from university [Ravindran, undated].
SIA had put emphasis on its human resource. At the beginning, the entry level is high with only diploma holder accepted and potential employee goes through extensive recruitment process. After appointment, the training of SIA’s cabin crew is 15weeks, twice longer than industrial standards. Employees then have six month probation with continuous report from supervisor and a confirmation rate of 75% with another 20% gets extension. These training are adjusting periodically to reflect customer’s expectation. The employees also engage in various voluntary community service, arts and cultural activities. The company also allows 3~ 4day to be spends on refresher course each year and encourages self directive learning giving them responsibility on their own development. The result of the training is obvious with a clear result of self esteem, motivated, empathise and independence employee [Heracleous and Wirtz. 2009].
5.7 Condition of facilities and equipment
SIA fleet is one of the youngest in the worlds, standing at a average age of 6year old, it is way ahead of worldwide average of 14 to 15years old [Prystay, 28th Aug 2009]. Using latest technology aircraft also helps to reduce maintenance cost and fuel cost. The company also spends SGD 570million in 2006 to upgrade its cabin, providing customer with latest in-flight entertainment system and more comfortable seat. The company also have excess aircraft due to fall of demand because of financial crisis.
The company had also invested in a SGD 1million simulator that mimics condition at high altitude for food and drinks experimenting. The company also spends 80million building new training centre in 1999 enable to recruit more people and efficient training. In overall, the company have good condition of facilities and equipment for the business due to commitment on quality and strong financial background.
5.8 Past objective and strategies
SIA had mainly using related diversification strategy at the corporate level, expanding its business into airline catering, aircraft maintenance and airport terminal service. It used dual strategy of differentiation and cost leadership, achieving cost effective service excellence by exceptionally high business efficiency.
The company had achieved high business efficiency by implementing five organisational activity systems. First, It have structured service design and development, allocate dedicated department for its product design and run through countless testing to enable a perfect quality on its final product meeting latest customer expectation.
Secondly it uses total innovation with dedicated department monitoring closely consumer trend in the next five year, concentrating on slight improvement but over broad aspect, enabling a cost effective yet highly productive innovation. The company also allows itself to be a follower on its weak point, copying other successive development, reducing the risk and cost of re-innovation.
Third, it cultivates a profit consciousness culture, educating employee on the importance of profitability and strive balance between customer satisfactions and product offering are gone through profit/cost analysis prior to launching. The company also set up system that rewards employee based on profitability inducing peer pressure on wastage and encourage team works to boost its productivity.
Fourth, the company achieve cost synergies through diversification and infrastructure of its subsidiary. Vertical integration allows the company to have better quality control, enhance knowledge and reduce cost at the same time. The company also manage its subsidiary with clear expectation and allows its subsidiary to subject to market discipline.
Finally, the company develop its staff holistically with rigorous interview and training, promotes self direct continuous learning to boost self esteem. This had made the company competence in the ability to achieve a differentiated offering with exceptional levels of efficiency [Heracleous et al 2009].
6.0 SWOT Analysis
The SWOT analysis of SIA is presented below
STRENGTHS
- Strong financial position with high reserve
- Considerate amount of market share
- Strong and established R & D capability
- The company promotes autonomy hence able to quickly response to change of environment
- Strong human resource management with competence staffs that is highly motivated, service oriented and efficient.
- Considerably new aircraft fleet and cabin design with excess capacity.
- Highly reputable in the industry with many awards.
WEAKNESSES
- Low presence on the Internet
- Not good at horizontal integration with a few failed acquisition.
- No domestic market, revenue highly dependent on long haul cross country flights and premium class.
- The company uses internal growth strategy that is slow to gain size.
- Have excess aircraft due to low demands.
- Considerately high spending on marketing.
OPPORTUNITIES
- Government is supportive and less restriction on the airline’s operation allowing freedom to change.
- Singapore have good relationship with other country
- Many countries are coming out from the financial crisis.
- Singapore Tourism Board (STB) promoting MICE with good prospect of premium business traveller.
- Local culture emphasize on teamwork, harmony and hardworking.
- Low substitution on product offered
- Have high bargaining power over the aircraft manufacturer
THREATS
- Terrorism affecting airline industry
- Fluctuating oil price
- Video conferencing gaining popularity as substitute for business travelling.
- Budget airline in the region getting establish and possible to venture into premium market.
- Facing fierce competition on the industry with many equal size player
- Commoditizing of flight services and reduces in differentiation as competitor catching up on offering.
- High bargaining power of passenger and travel agents
7.0 Recommendations
The following options have been considered:
STRENGTH – OPPORTUNITY
- Using Singapore’s government connection and SIA brands and reputation, explore new market in countries with potential demand
- Having able to be flexible on operation, the company can divert low profitability route to country that are out of financial crisis.
WEAKNESS – OPPORTUNITY
- Using strong R&D resources, review and develop a marketing campaign using the internet, this can bring down the marketing cost also.
- Having relied heavily on long haul flight and premium class for revenue, company can tapped on STB’s MICE program to promote its brands on the event’s boosting market share in this segment.
STRENGTH – TREAT
- Having good service oriented culture and highly competence front line staff, it is possible to fostering relationship with passenger through personalize service; reduce down the effect of commoditising and crease differentiation.
- Having excess reserve and strong financial background, the airline can look into investing in video conferencing business, diversifying its risk.
WEAKNESS – TREAT
- Having a slow growth rate, the company can maintain its position even in fierce competition avoiding price war as it does not needs to quickly expand its market share.
- Having excess aircraft, the company can consider selling it off to low cost carrier that is the expanding its route and in needs to increase fleet.
The possibility of combining strategy is numerous, but with objective of maintaining profitability by continuous to use service excellence cost leadership strategy, it would recommend that the airlines employ cost cutting measure to reduce down the fleet size, selling the excess aircraft off to other low cost carrier that are expanding at the moment. In continuing to crease service excellence, the company should look into how the front line staff are able to further foster relationship with the passenger creating a personalize service that differentiate the airlines with its competitor. As the pace of the world is getting quicker due to advancement of technology, SIA flexibility and ability to adapt to change will definitely enable the company to continue to strive in future.
8.0 Reference
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