Singapore Airlines Analysis
SINGAPORE INTERNATIONAL AIRLINES Air travel remains a large and growing industry. Despite being plagued by several factors such as overcapacity, commoditization of offerings and cutthroat rivalry to name a few, it facilitates economic growth, world trade, international investment and tourism. This case study will analyze the external factors affecting the airline industry, analyze the internal factors affecting Singapore International Airlines (SIA) and critically discuss the different generic strategies in the airline industry as well as the dual strategy adopted by SIA.
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External Analysis for SIA SIA’s macro environment is the wider context in which the airline industry exists. Due to the fact that SIA operates in an international market, its operations are generally more complex and face higher levels of risk. The PEST analysis below provides a method of understanding the macro environment which SIA has practically no control or influence over but in fact have significant impacts on both SIA and its micro environment. | FACTORS| +/-|
Political-Legal| Deregulation of the airline industryThis has enabled new entrants into the growing budget airline market| -| Economic| Rising fuel prices This has an impact on the profitability of airline operations| -| Socio-Cultural| Security concernsAs a result of the terrorist attack on September 11, 2001 passengers have become increasingly concerned about their safetyHealth concernsRecent epidemics of diseases like SARS and bird flu have created a reluctance to fly| –| Technological| Development of the internetThis has provided disintermediation; with e-ticketing services, the need of a middle man is now reduced as airlines are now able to sell their own services on their websitesDevelopment of the Boeing 777-200LRThis new aircraft is capable of flying 17,500km thus allowing long haul flights which increases the routes available to passengers | ++| Internal Analysis for SIA SIA’s micro environment is affected not only by the macro environment in which the airline industry is in but also by issues arising from their own situations hence SIA will need to distinguish its own strengths and weaknesses while at the same time discover the opportunities and threats it faces in the industry. The SWOT analysis below is a tool for auditing an organisation and its environment. As this is primarily used as the first stage of planning, it will help SIA to focus on the key issues it faces. | POSITIVE| NEGATIVE|
INTERNAL| StrengthsStrong market positionSIA was announced by the International Air Transport Association as the world’s second largest airline in the world in terms of market capitalisation with a worth of 14billion USD thus giving it a significant edge over other airlinesAircraft fleetSIA has adopted aircrafts which have a larger passenger capacity and more fuel efficient technology Service excellenceSIA continues to be a leading innovator in in-flight services by adopting technological improvements and its subsidiaries allow it to have more direct access to relevant ground services and potentially achieve greater operational efficiencies Diversified geographical spreadSIA has a global presence serving more than 50 destinations with operations all over the globe| WeaknessesFailed investment activitiesSIA’s investments in Virgin Atlantic and Air New Zealand have been written offStaff attrition rates of 10%This forces SIA to hire around 500-600 new cabin crew yearly which incurs high costs for training| EXTERNAL| OpportunitiesGrowth in global air freightThere exists a market for cargo and postal carriage services which have grown in recent yearsGrowth in global passenger industryAccording to the International Air Transport Association, passenger demand has recovered and that passenger traffic has climbed by 9. % in July 2010 on an annual basisHeavy airline industry growth in Asia-PacificAccording to Boeing Co. the Asia-Pacific region is expected to overtake North America as the largest air travel market during 2011 or 2012Increased flight routesWith the introduction of new technology that enables long-range flights, SIA should seek to expand services to more destinations| ThreatsEmergence of low cost carriersThis has resulted in intensified competition which could potentially impact SIA’s market share across regionsRising fuel pricesThis is probably the greatest cost for many airlines Consolidation in airline industryThis could affect SIA’s relationship with certain firms |
With regards to the above analysis, there are several areas which marketing resource expenditure should be given a priority over. These include: 1. Service excellence SIA has been building up a strong brand image reflecting a high quality customer service which has worked thus far hence it should continue doing so 2. Promoting its modern fleet SIA was the launch customer of the Airbus A380 which is currently the world’s largest passenger aircraft thus allowing them to market the added value to the flying experience of customers in terms of luxury and comfort 3. Market research on competitors With the increase of low cost airlines, SIA has to position itself as an airline which differentiates itself from the rest that is an airline that provides service excellence.
Hence, sufficient research on other airlines which also follow the same generic strategy of differentiation should be carried out for SIA to remain competitive 4. Market research on innovation In order to satisfy ever changing customer needs, continuous research should be carried out to discover new innovations that could possibly provide SIA with a competitive advantage Porter’s Generic Strategies According to Michael Porter, there exist three types of generic strategies which are commonly used by firms to achieve and maintain competitive advantage. They are cost leadership, differentiation and focus. Cost Leadership This is achieved through the lowest cost of operation in the industry where airlines which adopt this strategy opt to cut costs to a minimum and pass heir savings on to customers in lover prices. This helps by allowing these firms to gain market share thus making sure that their planes are at full capacity which further drives down costs. Examples of such airlines are Ryanair and EasyJet which offer no-frills flights at low costs. Differentiation This is achieved by the ability to offer high-quality products or services where the target customer group is not price-sensitive. Luxury airlines adopt these strategies by focusing their efforts on making their service as wonderful as possible thus allowing them to command higher prices. Examples of such airlines are British Airways and Emirates which offer premium services. Focus
This is achieved through detailed knowledge of a few routes to provide better or cheaper services than their rivals thus allowing the airline to focus on a certain market segment which are distinct groups of passengers with specialized needs. Small airlines usually adopt this strategy. An example of such an airline is Southwest Airlines which only offers flights within the United States. Singapore Airlines Dual Strategy Instead of adopting a single strategy, SIA follows a dual strategy of differentiation and cost leadership. A strategy of differentiation implies high quality services with significant investments in innovation thus incurring higher costs than average.
This goes against cost leadership which arises when costs are driven down. Nevertheless, SIA has somehow managed to achieve the differentiation strategy cost effectively. SIA has been able to attain this dual strategy by innovating on certain aspects of its business namely the customer focused segments which remaining cost focused on other aspects like back office support systems. The reason behind this could possibly because of the high levels of efficiency achieved by SIA in comparison to its competitors. Factors which contribute to these high levels of efficiency include the Changi Airport which is one of the best and most efficient airports in the world.
In addition to this, SIA’s fleet of aircrafts which are the Airbus A380 are equipped with the latest technology which leads to fuel efficiency and lower maintenance costs. As a result, SIA has been able to combine the supposedly incompatible strategies of differentiation and cost leadership and are even excelling at it. While Porter describes this approach as dangerous with the firm being “stuck in the middle” as a result of not being successful in either cost control or differentiation, SIA has been able to succeed in using this strategy providing both a high quality of service while being one of the airline industry’s most cost-effective operators. Hence, this strategy is a viable option for SIA as history has proven.