Singapore Airlines is known as a global and respected Airline Company with safe journey, innovative technology and excellent service. After splitting from Malaysia-Singapore Airlines in 1972, Singapore Airlines has been developing dramatically to become a giant in global airline industry with more than $12 billion in revenue in the financial year 2010. Singapore Airlines’ route network reaches out to over 63 destinations in 34 countries around the world (www.singaporeair.com, 2011). Today, Singapore Airlines and its subsidiaries have the most modern fleet in the world where Singapore Airlines has 108 passenger fleets and its Silk Air has 11 Airbus A320s and 6 Airbus A319s, SIA Cargo has 11 B747-400 freighters.
Get Help With Your Essay
If you need assistance with writing your essay, our professional essay writing service is here to help!
As target on high income and business customers by providing unprecedented flying experience, Singapore Airlines is always a pioneer to set new standard for airline industry by continuously introducing innovative in-flight entertainment service (Kotler, 2009) and launching that latest modernized aircraft. Firstly, SIA always improves itself by expanding their fleet by continuously using more new modern service approach on the airline. As the expanding globally strategy, in 2004, Singapore Airlines was the first to launch the world’s longest non-stop flight from Singapore to Los Angeles and in 2007, they again were the first in the world to use the world’s largest commercial plane A380. Secondly, to fortify its position as the premier Asian Airline, Singapore Airlines’ service is of the highest order with boasts of selection exclusive and tantalizing dishes, special meals designed by nine internationally renowned chefs and the world’s most discerning wine consultants. Besides, with various entertainments options and continuing cabin improvements in all class while still providing excellent service, SIA has created its own standard for premier airlines market.
As one of step to build up reputation, in 1973, “Singapore Girl” with the uniform of sarong kebaya was born. This figure has become the famous symbol of SIA with elegant and friendly, warm and full of empathy like the culture that SIA always tries to dedicate into customers.
On the other hand, there would be a lot of unpredictable events which could affect negatively on Airline industry as well as Singapore Airlines. For examples, the financial crisis in Asian in 2008, SARS and H1N1 occurred and bloomed have decreased the passengers’ revenues of Singapore Airlines. As the result, understanding the macro environment today and evaluating itself are required to generate more and more competitive advantages in order to maintain its position in airline industry as the best of the best Airline in the world in terms of service and safety and to fortify its fourth ranking in terms of strictly on service (Churchill and Turen, 2009).
2. Macro-environment analysis
By employing PESTEL model, all external elements which have been directly affecting a company will be determined in order to help the company pursuit the organizational objectives, continue their successes and sustain the business (Aaker, 2005). Specially, in the airline industry, analyzing the following external factors in today uncertain environment will be useful for Singapore Airlines in order to cope with the environmental changes as well as to set up the suitable strategies for their long-term successful business.
2.1. Political- legal factors
As pursuing to develop globally, Singapore Airlines has to consider political factors in Singapore market and other countries as well. This consideration is seen as the critical element for their expanding internationally strategy and decisions.
Fortunately, Singapore Airlines receives tremendous support from the Singapore Government in terms of tax, fuel as their main shareholder is Government of Singapore (Lacar, F. 2004). Moreover, Singapore Airlines has more advantages than their competitors in terms of profit as the general tax for firms in Singapore is more favorable than in other countries. For example, Delta Airlines has to be subjected 35% corporation tax in America while British Airway as well as Japan Airlines has to pay 30% corporation tax in England and Japan, respectively in comparison with 20% corporation tax that Singapore Airlines pays in Singapore (Nation Master).
Additionally, aviation government regulations must be taken into consideration when Singapore Airlines expand their business overseas. In the past, Singapore Airlines has withdrawn its bid for a stake in Air India as a political barrier in India. In 2005, Singapore Airlines was very difficult to be approved by Australian Government to invest S$12 million into the Australia market where dominant by Qantas and United Airlines (Bandt, 2005).
In airline industry, the term airlines freedom refers to the airspace of each country which allows for whether landing or not. The agreement of landing right is discussed at the national level between the governments at trades meeting. Today, skies policies are opening and continuing to be deregulated which create more opportunities for Singapore Airlines. However, the process of reducing the government regulations is a threat for them to maintain their business in Singapore.
2.2. Economic factors
Economic elements which include interest rates, oil price, taxation changes, economic growth, inflation and tariff is the most important factor affecting directly to Airline industry. Also, the economic health of countries is influence strongly to flight demand. Singapore Airlines has been taken advantage of economic development in Singapore in where the more business and investment to Singapore the bigger number of customers for them.
As targeting to serve business people, Singapore Airlines even has to concern more about economic situation. Their financial report last year has shown the decrease in revenue by 20.6% from 15,996.3 $billion in 2009 to 12,707.3 $billion in 2010 as the consequence of Asian financial crisis and the recession (Singapore Airlines, 2010). In addition, recession is seen as the main reason for decrease in air travel. Also, it seems to be very difficult for Singapore Airlines as well as airline firms in determining demand and costs. Moreover, Singapore Airlines has to consider the price fluctuation such as oil price as its rising causes increasing flight prices which might hamper Singapore Airlines’ competitive advantages in terms of competing with budget airline firms.
By continuing consider economic factors around the world helps Singapore Airlines has more appreciate information and right decision when they come to other countries. For examples, as a major shareholder criticized that the deal is unfair, Singapore Airlines was in trouble when negotiating to buy 24% stake in China Eastern Airlines as a step of occupying Asian market.
On the other hand, the growth in Asian economics has opened more market and created more opportunities for Singapore Airlines.
2.3. Social – cultural factors
Nowadays, along with the high travel demand, people have more choices among airline firms when they travel or work aboard. At Singapore Airlines, as committing to provide excellent service and safe flight, customers are expecting more and more what they will receive in their journeys. For example, the different culture requires the different serve such as food provided, welcome …etc, that must be considered in order to satisfy customers. Also, Singapore Airlines has to maintain their standards to build up higher company image as “Singapore Girls” when going business globally.
Specially, one of the most concerns for Singapore Airlines is customer’s fear of travel due to terrorism, prestige and air accidences. In 2002, they had faced very negative social impacts as their responsibility for the dead of 82 people and wounds of 81 passengers after a fatal crash at Taipei International Airport. Moreover, SARS and flu epidemic in 2009 had caused Singapore Airlines stock index decreased by 4% and rising worries about travel overseas. Recognizing customers’ attitudes are very important; Singapore Airlines changed all engine motor of their aircraft A380 to retain customers after accidence occurred with the same planes of Qantas Airlines in 2010.
To ensure their mission, they have been caring their staff in terms of social customs by structuring their organization and providing advantage working environment. Also, by caring people’s opinions, lifestyles as well as customers’ social norms and values, Singapore Airlines is continuously expanding their business globally.
2.4. Technological factors
Continuing apply advanced technologies allow Singapore Airlines always is the pioneer in Airline industry. Besides, as the rapidly growing and changing in technology, technological factors are the critical elements requiring Singapore Airline to develop and apply in terms of safety and service standard. Otherwise, they will lose their competitive advantages.
In fact, Singapore Airlines was the first airline introducing the largest commercial plane A380 in 2007. Also, they are the first and only airline applying micro system powers in the sky which benefits customers to keep working on the air without power up their laptops. Moreover, providing the world’s wildest first and Business Class seats and a technologically advanced seat in Economic Class, which makes the competitive advantage for Singapore Airlines.
Besides, in terms of service and safety, Singapore Airlines was ranked at number one in 2008 (traveltruth.com, 2009) by rapidly improving their service systems such as online ticketing, self-service check in at airport as well as developed their ground services, which bring the unique experiences for customers flying with Singapore Airlines.
2.5. Environmental factors
Airline industry has been run under pressure of saving environment by decreasing air pollution, noise aircraft as well as reducing contribution to global warming. By looking at these factors carefully, Singapore Airlines have maintained their successful position in the market as well as provided their long-term benefits to customers. Otherwise, they would have to face challenges like the air traffic crisis in 2010 caused by volcano in Ireland.
Despite concerns about financial issues, Singapore Airlines is planning to spend $1.5 trillion on new aircraft by 2020 and replacing cleaner and greener aircraft A380 in order to reduce CO2 commission by 21% and committing to continue this reduction by 50% in 2050. Moreover, by using efficient fuel, replacing old planes, training staff, saving energy grounding resources, communicating with partnerships and applying advanced technologies, Singapore Airlines is continuing their successful business along with benefits for communities.
3. Key opportunities and threats
Analyzing macro-environmental factors is critical for Singapore Airlines to watch out the opportunities and threats for the specialty airline industry and the firm as well.
3.1. Opportunities
With the reputation and strong brand image, there is a chance for Singapore Airlines expanding its business. Moreover, the continuously increasing demand in travel and delivery by which global airline industry is forecasted growth by 6.4% in 2014 (Data monitor, 2009) creates a great opportunity for Singapore Airlines and airline industry as well. Additionally, in terms of revenue passenger Middle East and Africa are estimated to grow highest by 16.7% and 16.4% respectively, where is a chance for Singapore Airlines gaining more market share in the future. Also, in terms of cargo traffic, in 2009 they still have 20% of the world’s air cargo volume and expected to rise by 4% in the next five years.
Another opportunity for Singapore Airlines comes from an emerging Asian market and the development of Asia economy in where they would have chance in business travel, tourist travel. For example, as the financial center of Asia, the Singaporean airlines industry is forecast to have a volume of 24.7 million passengers in 2004, an increase of 36.5% since 2009 (Data monitor, 2009). Besides, Singapore Airlines has a strong position in East Asian market where they serve directly to many destinations. Therefore, they are estimated to increase their market share in Asia region from 25% in 2005 to 31% in 2015 (Data monitor, 2009).
Furthermore, entering low cost airline market by occupying some budget airlines, for example, acquiring 49% of Tiger Airways which is targeted as the new profitable market segment for Singapore Airlines. Considering new market segments as a good opportunity, Singapore Airlines also made Silk Air targeting on fascinating destinations with differentiated “unwinding experience”.
Participating in global group and building relationship with overseas partners are creating a positive chance for Singapore Airlines to going into new markets and developing their business as well. A sign with Airbus, Singapore Airline has received supports for their Airbus fleets (Asian Aviation, 2010). By joining Star Alliance in 2000, Singapore Airlines is reaching to the American market. Another example is that by rebuilding relationship with Tata Group, Singapore Airlines is shattering the policy barrier to open Indian sky. Those relationships will affect positively in its revenues and market share.
3.2. Threats
In the context of uncertain economy, airline firms have to deal with the various economic issues. The rising aviation fuel prices causes Singapore Airlines and other airline firms have to adjust their ticket and service prices. In the last five years, the jet cost was increased by 90%. Therefore, this increase impacts directly on prices and operating costs.
Another threat to airline industry is about foreign currency fluctuation. As an international airline, Singapore Airlines’ revenue streams are denominated in a number of foreign currencies such as USD, Yen, Australia dollar, etc. The foreign currency fluctuations, the fluctuations in inflation and interest rates could also have some impact on the exchange rates between two currencies which lead to risks to decline in top line growth and put pressure on the company’s margins.
As the economic fluctuation, airline firms have to face to the increasing competition from low cost airlines worldwide in the past ten years. In 2010, budget airlines have 20% of Asian aviation market share and it is expected to continuing increase rapidly. Singapore Airlines as well as other firms have intensified competition with low fare airlines. Also, minimizing stoppage time in their flights is seen as the challenge for them in order to satisfy customers.
Economic un-stability in other countries impact on Singapore Airlines’ profitability. Besides, international politics are complex in global markets which have made politic and economic barriers to Singapore Airlines to expand their business. Some geopolitical adversities and other risks will be happened, such as politic crisis in Africa last month or natural calamity such as tsunami, earthquakes, SARS occurred in this region, which decreased the passengers’ revenues.
4. Competitive environment analysis
4.1. The main competitors for Singapore Airlines
By pursuing to expand business globally, Singapore Airlines has to compete with many airline firms around the world. Despite the dominant in each region, the following airline companies are seen to be the main and direct competitors of Singapore Airlines.
4.1.1. Cathay Pacific Airways (CPA)
Cathay Pacific Airways is the second Top-Performing airline company, which is following SIA. Nowadays, CPA is one of the world’s largest and most beneficial international airlines based in Hong Kong.
As strong global alliances, member of the One World Global Airline Alliance can bring a large number of passengers for CPA. Besides, with a good reputation in the world, CPA has competed directly with Singapore Airlines in terms of providing services. Moreover, having the global extensive network with 92 destinations around the world CPA is seen as the main competitor for Singapore Airlines in global market.
4.1.2. Japan Airlines System Corporation (JAL)
Competing directly in Asian market, JAL and SIA are the main leaders and have totally 40% of the market share in Asia. JAL Group is one of the best operating performance scores of the largest companies, which is based in Tokyo.
JAL Group has a good global business presence of airline companies in traveling. Because JAL Group has its own travel information and ticket booking office, and has some alliance with major international airlines, so it can offer more services for their customers. Also it can get different business interests.
4.1.3. Budget Airlines firms
The growing of Air Asia, Jetstar Airways, and Virgin Blue in Australia is bringing a major problem for Singapore Airlines in Asian market. They offer very cheap flight with minimum luxuries facilities and services. These low cost airlines are a phenomenon among air travelers, where they can travel overseas with small amount of money. So that, the services provided by Singapore Airlines is not getting that much value to the customers and they might lose their competitive advantages.
Find Out How UKEssays.com Can Help You!
Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.
View our academic writing services
4.2. Five forces analysis
The Porter five forces model is used to identify factors which forces affect company’s ability to serve customers and make a profit. As dealing with the changes in any of the forces company has to re-assess the market place (Porter, 1998), and the stronger each force, the higher competitive industry and the lower the rate of return that can be earned (Larson, 2008).
4.2.1. Industry rivalry (High)
Even through the growth in airline industry, the rivalry in Singapore airline market is strong. The strong rivalry is caused by some reasons such as the presence of budget airline firms which can compete directly with Singapore Airlines on price. Additionally, the low switching cost for customers lead customers to change easily to Singapore Airlines’ competitors. Another reason is merging or forming alliances in global airline firms in America, Europe reducing price, which also intensify competition for Singapore Airlines.
Moreover, airline firms have to face to high “storage costs” caused by unsold seats on a flight while they have to be objected costs such as expensive depreciation, fuel, staffing, etc. And, the main revenue of airline firms comes from passenger, for example, passenger services contributed 68% of revenue to Singapore Airlines in 2009. Therefore, the high storage costs along with the lack of diversity intensify more pressure for Singapore Airlines in competitive airline market.
4.2.2. Potential of new entrants (Low)
In the airline circumstance even through the liberalization sky is opened in 2010, there is still a weak likelihood of new players in airline industry. The economic barriers do not allow a new airline company to operate easily as operating requires a lot such as to obtain planes, distribution systems, capitals and airport “slots” for landing and taking-off. Airport slots seem even more difficult in Singapore where only one airport. The huge instantly investment, the high operating costs are discouraging new entrants.
Furthermore, political factors are the biggest issues for new players in airline industry. In the domestic market, Singapore Airlines is supported by the government where only The Civil Authority manages the registration, operation and similar issues. Also, sharing agreement among airline alliances is critical to achieve more values and a new firm might not able to be approved for membership.
4.2.3. Potential of substitutes (Moderate)
Other forms of transport such as road, rail and marine travel are considered as substitutes to airline travel. In big countries, airlines have competitive advantages in long distances as benefit to customers. Whereas, as a small country and there is no domestic flight, Singapore Airlines has no chance to compete with MRT (Mass Rapid Transit) or buses among country. However, with bus services and ferries between Singapore and Malaysia and Indonesia, customers have more options for their travel. Besides, advanced technological communications may reduce demand for face-to-face business meeting. Although, the high benefit given of airline travel, the threat for substitutes of airline is moderate.
4.2.4. Bargaining power of customers (Moderate)
The overall power of customers is moderate as the following results. Although, the high price sensitivity and the competition intensely on price by budget airlines cause to strengthen power of buyers. But, a large number of buyers with their continuously high demand and the airline strategies make the power of customers are moderate. In details, airline companies add more features on higher price and applying loyalty programs such as Singapore Airlines use Kris Flyer in which customers can redeem their collected miles by free flight to defend themselves by customers.
4.2.5. Bargaining power of suppliers (High)
The supplier power is strong among airline industry as the relying on aircraft suppliers where Boeing and Airbus occupy almost the market. Also, to keep safe standard and improve services airlines firms have to depend on theirs aircraft suppliers. Nowadays, A380 and Boeing 747, 777 with advanced technologies allowing non-stop flight still dominate sky and long contracts with suppliers like Singapore Airlines signed with Airbus is the only way for airline firms to manage the strong power of suppliers.
Another reason strengthening supplier power is the relying on fuels. As the report in 2010, fuel costs accounted 25% for total costs of airline firms globally while this figure in Singapore Airlines was 33%. Therefore, with the lack of supplier diversity, the power of supplier tends to be strong continuously.
5. Core competencies
Having strong capabilities and core competencies, Singapore Airlines is outperforming among other competitors. First is cost-effective service excellence. This core competency is combined and maintained by business strategy such as management strategy by communicating and motivating employees to build up Singapore Airlines’ reputation along with its mission, managing strategic resources by creating and managing subsidiaries to improve Singapore Airlines as wholly its excellent services and valuing network where Singapore Airlines have built good long-term relationship with its suppliers, partners and coalitions to ensure continuously its excellent standard services in high price sensitive market. Besides, rigorous service design and development, total innovation, profit and cost consciousness ingrained in all employees, holistic staff development, and reaping of strategic synergies through related diversification and world-class infrastructure are continuous building up its core competency.
Another core competency of Singapore Airlines is its unique brand which consists of its name “first in flight” as well as its employees. Singapore Airlines is known as pioneering by continuously being the first in airline industry. For example, they first introduced hot meals, free alcoholic and non-alcoholic beverages, and hot towels with a unique and patented scent, personal entertainment systems, and video-on- demand in all cabins. Singapore Airlines keeps driving innovation as an important part of its unique brand. Also, its employees symbolized as “Singapore girls” that is representing charming, graceful, gentle and courteous is unique in the world which immediately linked to its unique brand (Chan, 2000).
6. Conclusion
Despite entering lately in airline industry, Singapore Airlines have built up its successful business by understanding external factors including opportunities and threats and maintaining its own core competencies. As the giant firm, Singapore Airlines should continuously consider and determine competitive environments to compete globally with other competitors. The recent crises and the emergence of budget carriers require Singapore Airline to sustain its focus on achieving cost-effective service excellence and improving its unique brand in order to continue successful.
Cite This Work
To export a reference to this article please select a referencing style below:
