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Singapore
International
Airlines
September 27
2010
Business Case Study of Singapore International Airlines for the class IB 207 (MBA
2011 batch)
Amit Khoje
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Amit Khoje Case Study: Singapore International Airlines International Business
Contents
A. The Problem ....................................................................................... ............................................. 3
a. Define the problem ...................................................................................................................... 3
The causes of the problems.............................................................................................................. 4
b. Define the Issue ............................... ............................................................................................ 6
The causes of the issues ................................................................................................................... 6
B. SWOT Analysis ..................................................................................... ............................................ 7
Strengths ......................................................................................................................................... 7
Weaknesses ..................................................................................................................................... 8
Opportunities................................................................................................................................... 9
Threats ............................................................................................................................................ 9
C. Alternatives to problems ................................................................................................................ 11Problem Motivating Staff ........................................................................... ................................. 11
Problem Threat of low cost air careers ........................................................................................ 12
Problem Sour deals ................................................................................. .................................... 12
Evaluation of Alternatives .................................................................................................................. 13
Motivate staff ................................................................................................................................ 13
Threat of low cost air carriers ......................................................................................................... 13
D. Recommendations ................................ ......................................................................................... 13
E. Plan of Action................................................................................................................................. 14
a. Tactical............................................................................................Error! Bookmark not defined.
b. Execution ........................................................................................ Error! Bookmark not defined.
c. Details ............................................................................................. Error! Bookmark not defined.
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Amit Khoje Case Study: Singapore International Airlines International Business
A. The Problem
When Mr. Chew Choon Seng came aboard as a CEO, Singapore International Airlines (SIA) was going
through hard time. It was facing some major challenges and issues which were supposed to be taken
care of. SIA was recognized as the worlds most admired airlines. It had also received number of awards
for the best service in the industry and to maintain the crown, it was necessary for Mr. Seng to take
immediate strategic actions to make the SIA again a leading competitor.
a. Define t he problem
1. De-Motivated staff
The building blocks of the image of SIA in the world, the human strength of SIA, were upset and
disgruntled after the staff layoffs and salary cuts. Analysts suggested that such moves adapted by SIA
would bring down the moral of the employees and this will severely impact the passenger service. SIAs
passenger service was known number one in its class and this has been one of main business strategies
of SIA. Also people were thinking that SIA had backing of its majority shareholder of 57%, the
Government of Singapore, in the form of subsidies and hence can sustain the financial turndown but it
was not the case. Hence the strategies to lower the operating costs spread a negative message in
peoples mind about SIA and people started losing faith in the company.
2. Threat of low cost competition
Sectors in Asia which SIA dominated for a long time were threatened by local low cost air careers. The
Government of Singapore authorized a new low cost start-up to be based in Changi the capital of SIAs
empire. Also it was suggested that the Government will sell its 57% stake in SIA. This would make SIA to
compete with more airlines i.e. even with low cost carriers.
3. Sour Deals
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Amit Khoje Case Study: Singapore International Airlines International Business
While trying to broaden its reach in the world, SIA acquired ownerships in other airlines. Two of such
acquisitions had cost SIA a big chunk of money. SIA lost $157 million in Air New Zealand deal. Market
analysts suggested that the 49% ownership in Virgin costing SIA $1.6 billion was losing its value and was
already at 40% of original value. Also SIA turned down an offer from Virgin Blue to participate in joint
venture in Australia which proved to be a bad decision.
The causes of t he problems
1. SARS outbreak in Singapore, Hong Kong, China and nearby regions had already declined the
passenger travel rate through airlines. Also the Iraq war contributed more to decimate the passenger
traffic. Not only SIA but other major airlines also were in a great loss because of less business. To sustain
in the current situation, SIA took the decision to cut down its operating cost. For that, SIA had to cut
short its employee strength. It laid off 400 employees in June and again additional 156 cabin crew in late
July. Also the senior management salaries were cut by average 22% and negotiations were in process for
further salary cuts.
SARS outbreak + outbreak of hostilities in Iraq -> Dampened traffic -> less business -> SIA need to lower
Operating Cost -> Lay off Staff and Cut short salaries
2. The traditional barriers to entry in Asia for other competitors; like longer flight distances, fewer
alternative airports and lower passenger densities, seem to fall off by the end of 2002. Taking advantage
of this, legitimate low cost carriers were enthusiastic to enter using Singapore as a base.
Air Asia based in Malaysia used operational model which was targeting Kuala Lumpur as its central
hub. It was also planning to expand in Johor which is very near to Singapore. Thus posing potential
threat to SIA as it planned to carry close to two million passengers in just 2 years. It inspected Changi
International and Seletar Airport in Singapore to explore the possibility of setting up operations there.
Air Asia came up with attractive prices which were definitely take away passengers from other network
airlines.
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Amit Khoje Case Study: Singapore International Airlines International Business
b. Define t he Issue
1. New Signaling Device
From the beginning, SIA had known that if at all it wanted to succeed in this industry, it would have to
come up with a completely new, different strategy and provide world class service to its passengers. It
has also come up with so many different innovative ideas that had placed SIA at the top of the industry.
It has received many prestigious awards for its service in the industry because of its innovativeness and
differentiation from other air carrier service. But now, other airlines were implementing its ideas and
sometimes the ideas used by SIA had become simply a norm in the whole industry. Also since they
offered same services as SIA, SIA had to develop new strategies to attract customers.
2. Address Low Cost Emergence
Low Cost carriers in Asia was becoming a new threat to SIA. There was a considerable difference in the
pricing models of the low cost airlines and that of SIA. Obviously it would cost SIA a significant loss of
passengers and hence business.
The causes of t he issues
1. The strategies used by SIA for significant differentiation from other carriers had now become
norm. Every major carrier offered meals in economy class, new options of entertainment in cabins and
all the luxury ideas that were pioneered by SIA. International carriers headquartered in neighboring
countries, such as Thai Airways, Cathay Pacific, Malaysian and Qantas copied the competitive strategy of
SIA. E.g. recruitment strategies, in-flight service innovative ideas, fleet management.
2. Virgin Blue thorough its example had proved that the network competitors were vulnerable to
low-cost competition. Virgin Blue had acquired 30% of the domestic Australian market with just three
years. The main losing airline because of this was Qantas.
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Amit Khoje Case Study: Singapore International Airlines International Business
B. SWOT Analysis
Strengt hs
Profitable Business
SIA has been setting a good record on operational performance and profitability. Even in economic
downturn in 1990, SIA was able to outperform in posting profits.
High quality service
SIA has always been frontier in providing high quality services to its customers which attracted a large
number of flyers to SIA. It
y Introduced electronic ticketing through websites.
y Online ticketing was rolled out at all destinations in its network.
y Introduced automated check-in system on certain flights.
y Silver Kris Lounge for first and business class people offering peace and tranquility in the hustle
and bustle of the airport.
y Provided top of the line business equipments such as computers, fax services and a stock ticker.
Singapore Girl Image
The Singapore Girl Image represented caring, comfortable and hospitable service. This image was
carefully nurtured as it represented the brand of SIA. SIA paid great attention in the selection process
and training of the candidates applying for the jobs. Apart from emphasized aspects of passenger
handling, social etiquettes and grooming, these candidates also spent extensive periods of the training
program in homes for aged. This gained a better appreciation for that segment.
Taking advantage of labor law, SIA had about 60% of the cabin crew as females.
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Amit Khoje Case Study: Singapore International Airlines International Business
Employee Training
SIA had pilots from over 50 countries. The company operated its own flying college with eight flight
simulators. All flight personnel were required to go through biennial proficiency checks. The
complement of cabin crew was chosen through a very rigorous process. SIA spent 14 times as much as
other airlines on per employee training program.
Strategy of differentiation
SIA has always been keen in developing innovative options to attract customers. The choice of meals in
economic class, innovative entertainment programs in the cabins then became the norm of the major
air carriers. SIA has always provided the best of its service to its customers in the best possible lowest
price.
Weak nesses
Sour Deals
SIA was somehow not able to form successful partnerships. The deals which SIA expected to be fruitful
turned out sour. As New Zealand Government put money into the company, the SIAs share in Air New
Zealand dropped dramatically and SIA lost about $157 million. Also the 49% ownership deal with Virgin
Atlantic which cost SIA $1.6 billion was 40% of its value.
Virgin Blue, before starting its service in Australia offered the opportunity to participate in venture but
SIA turned down that opportunity relying on Air New Zealand deal which went in loss.
Also the Government of Singapore declared that although SIA is a national carrier, it wont receive any
subsidies or protection from the government. It would have to develop based on its own resources.
International flights
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Amit Khoje Case Study: Singapore International Airlines International Business
Singapore Airlines doesnt offer domestic flights. 100% of total transported passenger fall under
international segment. As of 2009, SIA carried about 19 million passenger all of which were international
flyers.
Unbalanced Model
In addition to airline operations, SIA is also handling airport terminal services and engineering services.
Although company operates in different segments, the main revenue comes from airline operations.
Opport unities
Enter into Low cost-operating airline
SIA can definitely think of entering the low cost-operating airline service. If this hampers the brand
image of SIA, it can start with a different name and/or brand. The profit of the low cost-operating
airlines is basically based on the cost savings in in-flight services, higher fleet utilization, high load factor,
etc. SIA can earn a significant amount of revenue from there.
Future prospects of air hubbing in Singapore
According to developed projections by Boeing air freight traffic is expected to grow in Asia-Pacific
region during 1993 and 2014 at a rate of 5.3% to 7.9% annually. Even though Singapores geographical
location does compare less favorably with cities like Hong Kong, steps must be taken by Singapore
Government and different segments of the air freight industry to take advantage of new developments.
Reference: Hamdi, R. (2003). Singapore Airlines flies into turbulence. Media: Asia's Media & Marketing
Newspaper , 19. Retrieved from Business Source Premier Database.
Threats
Low cost operating airlines
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Amit Khoje Case Study: Singapore International Airlines International Business
Low cost operating airlines definitely pose a great threat to SIA. The unbelievably low air fairs for short
distances. Even though these carriers do not offer quality in-flight services, the business model works
great and can attract most of the consumers towards it.
Rising Fuel Prices
Due to global rise in oil prices, the aviation fuel prices have gone up substantially. The Fuel operating
cost for Singapore International Airlines for 4 years in $/ATK is shown below table.
Operating Cost 2000 2001 2002 2003 E
F
uel ($/AT
K) 4.6 6.7 5.5 6.6
These rising fuel prices may have immediate impact on the companys margins making the operating
expenses high and having lowered sales.
Foreign currency rates
Since SIAs 100% customer base is international, SIAs revenue is dominated by foreign currencies
exposing its margin to the threat of volatility due to currency rate changes. Currency rate fluctuations of
Australian Dollar, Euros, and Japanese yen have a substantial impact on the revenue streams of SIA.
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Amit Khoje Case Study: Singapore International Airlines International Business
C. Alternatives to problems
Problem Motivating St aff
Operating costs has been the main reason in laying off people after the outbreak of SARS and Iraq war.
But while cutting down the cost, SIA management in fact started cutting down its main strength which is
human resources. Its the personal service with which SIA has built its brand image. Layoffs de-motivate
the remaining staff members right from pilots to ground crew. Already laid off people join other airlines
and the training expenses done on those employees is wasted. Instead, SIA can adopt other measures to
cut down its operating cost.
1. Cut back on expensive fleet
SIA has considerably spending its capital on the luxury of its fleet. Its trying innovative ideas to make the
in-flight experience more luxurious. It has setup an office in Seattle in Washington near Boeing to
suggest design changes for its new fleet additions. Also its fleet age is less than 6 years. That means the
airplane is out of the fleet if its more than 6 years old. SIA can use these flights for its low cost
operations.
2. Cut short on training and expatriate expenses
SIA is spending about 14 times as much per employee as the average Singaporean company. Also the
number of local pilots available is quite low. This makes SIA to borrow pilots from Singapore Armed
Forces who are expatriates and company has to bear a variety of expenses such as housing, schooling
for children, travel, etc. in addition to busy pay.
3. Restructure work hours
If work hours are reduced, company has to pay for less hours. Also the work regulations allow working
for 35 hours in a week. So instead of working for 40 hours, 35 hours of each employee will be beneficial
for the company as well as the employee.
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Amit Khoje Case Study: Singapore International Airlines International Business
Problem Threat of low cost air careers
1. Attract customers with loyalty schemes
SIA should try to retain its customers through customer loyalty programs which will make customers
think before going to another airline. Frequent flyers program, Miles accumulation, redemption,
partnership program can be implemented for this purpose.
2. Enter Low cost carrier market
Entering low cost carrier market can be a good option for SIA to generate new traffic and revenues. Low
cost carriers provide low grade service to its customers and the target customer base is totally different.
Low Cost Carrier will operate in the local region and hence it wont affect SIAs current customer base
which is 100% international passenger. If starting a low cost carrier is damaging SIAs brand image, then
SIA can enter in this business using a different brand.
3. Private Jets
Because of the waiting periods at airports during flight, because of various reasons, companies have
started hiring/buying private jets for their business. These private jets are partly or completely owned by
the companies. SIA can think of entering into this business and provide service in this niche market.
Problem Sour deals
1. Careful evaluation and forecasting
Although Air New Zealand and Virgin Atlantic deals have been proved costly to SIA, it should be
considered that sometimes business decisions go wrong and unexpected. A careful evaluation of the
deals and proper study of the local and international politics, International Businesses would Yield a
positive result for the further deals of SIA. As Tourism Australia signed a deal of £ 5 million marketing
agreement with SIA as of December 2005; this deal has been found profitable as of now.
Reference: (2005). Tourism Australia signs SIA deal. T ravel Weekly: The C hoice of T ravel Pr of essi onals (00494577), (1798), 62.
Retrieved from Business Source Premier Database.
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Amit Khoje Case Study: Singapore International Airlines International Business
Evaluation of Alternatives
Motivate st aff
Higher operating costs has been the main reason for the layoff of the employees. Layoffs imprint a
negative impact on the retained employees minds. To clear the image, management should talk to
employee unions and through its actions it must show that its taking steps to reduce the operating
expenses. Considering the alternatives suggested, cutting down the expenses on the fleet can be
possible to a certain extent but not completely. Expenses on the trainings can be reduced to a maximum
extent. Restricting working hours means need of more employees which is not possible at the moment.
Hence I suggest the best alternative to reduce expenses on the training.
Threat of low cost air carriers
With customer loyalty programs, SIA can just hope to attract the customers which will not boost
revenue substantially but is necessary for the survival of the business. Giving an option of private jet
service is again on a lower scale and has a completely different customer base. Entering into the low
cost carrier is the best option since the industry is already booming in that area of business and people
are attracted towards low cost, low service flights. SIA can come up with a different name and or brand
to offer those services. This way, it will be possible for SIA to cover the local region also.
D. Recommendations
After analyzing each and every alternative to all the problems, I come to a conclusion that Singapore
International Airlines should cut down its operating expenses by cutting down its training costs. Entering
into a low cost carrier services should be the next move for SIA to compete effectively in the industry.
SIA should look for new deals and alliances using which it can share resources and maximize its
operating territory to increase benefits.
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Amit Khoje Case Study: Singapore International Airlines International Business
E. Plan of Action
It is now evident that SIA should now strategically place itself in a different position to capture
the larger segment of the available airline market. SIAs reputation is based on the employees
and the quality of service it provides to its customers. So SIA must do everything to protect the
good will and faith of the employees in the company. At this point of time, SIA should take
steps to cut short on the operating expenses and to maximize its business in wider regions. It
has been observed that, just for the sake of being innovative, and falling to the false reputation,
SIA maintains a young fleet of hardly 6 years old maximum. When other airlines use airplanes
which are about 14 years old, its very much agreeable that SIA keep its flights for at least 10
years. SIA is also providing top of the notch technological alternatives for its consumers to be
availed of in the airplane. SIA can certainly keep a hold on the technological innovativeness and
concentrate on saving operational costs. Instead of buying new planes every year, it can
certainly keep the present planes in the fleet and reuse them till they are more than 10 years
old. Passengers definitely do not concentrate on how old one plane is. They are always happy if
they receive a good cabin service.
As one of their main strengths, Culture of SIA is important for the success of the company and
hence it should not be compromised. Hence while implementing the option of entry to the low
cost carrier business, company should always maintain its reputation about its service.
The airline market in South Asia region has been open to new competitors. Deregulation and
liberalization in the industry has opened many new opportunities in Asian countries. Low cost
airlines serving domestic and short haul routes have emerged posing a great threat to existing
airlines. The most important difference between the low cost carrier and conventional airline is
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Amit Khoje Case Study: Singapore International Airlines International Business
not only the price but also the point-to-point and no-frill service instead of hub-and-spoke full
service provided by conventional airlines. Point-to-point services have advantages as they offer
direct and hence shorter flights, simpler baggage handling processes lowering airlines baggage
handling costs. In return, the customer has inconvenience to the connecting flights or baggage
handling for connected flights. In addition, cheaper and less crowded secondary airports are
used. No in-flight meals or entertainment system is provided.
The low cost carrier marketing structure also differs from conventional airlines. When
conventional airlines depend on the travel agent networks and websites for distribution, low
cost air carriers can depend on direct selling, call centers, bank and super market networks.
Reference: (October 2005) Yose Rizal Damuri and Titik Anas, Strategic Directions for ASEAN Airlines in a Globalizing
world The Emergence of Low Cost Carriers in South East Asia. REPSF Project number 04/008
Another important step SIA can take is partnership. SIA can become a part of alliances which it
has already become and share its resources. This way, it will be able to cover the operational
cost from other airlines as well as it will be able to take advantage of other routs in the foreign
countries which it was not able to take previously. Cathey Pacific for example has operating
cost (ATK) in 2003 of 26.6 when SIA was at 45.5. Also the sales of the SIA were lowered. By
becoming part of bigger network alliance, SIA will be able to negotiate better deals and take
advantage of more facilities and knowledge across the other airlines. When SIA can think of
getting these services from other airlines, it will also have to think of offering some of its core
competencies. It may have to share its customer care and service department expertise. Thus
in a group, all the airlines will be able to form a good reasonably priced, worldwide reached air
group.