CASE 3 – SINGAPORE AIRLINES GROUP IDENTIFY ISSUES 1. Global financial crisis (mid 2007 onwards) – further burdened by the collapse of some of the largest financial institutions in the world . b. As demand for air travel is significantly impacted by income levels, customers tend to be more price sensitive during crisis time and will usually opt for budget travel or in some cases will not travel at all. c. Led to reduced demand for travel d. Airline reduced the passenger and cargo capacity however majority of their costs pertains to fixed costs (84%) which will still be incurred despite the reduction in capacity. 2.
Faced with: – a. Increasing operation costs such as fuel (due to the rising oil prices) and labor (taken care by union). 3. Exposed to: – a. Exchange rate risk as certain costs (i. e. oil prices) are denominated in foreign currencies such as USD. Though exchange rate risk can be managed by hedging, there’s also risk involved in hedging strategies (locked into a high price when oil prices are declining rapidly). b. Unable to match costs and revenues due to fluctuation in foreign currency exchange rate (very volatile). c. Increasing financial risk due to high level of debts undertaken to finance the purchase of new planes. . SIA is faced with more and greater competition in the airline industry – especially after entry of budget carriers into certain region; expected to reduce SIA’s profit. (page 33) 5. Higher government intervention in the airline industry as compared to other industries – eg. Country law regarding unions would affect the wages and salaries component of an airline’s cost structure (page 32) 6. The needs to constantly enhance and improve their aircraft facilities and food menu as travelers nowadays are more demanding. (They know what they want in order to be a innovator and not follower). 7.
The decline in passenger and cargo loads is greater as compared to rival – Cathay Pacific (Why is that so? ) 8. Significant exposure to the geographical epicenters of the crisis (Europe and North America) led to detrimental impact on SIA’s result. 9. Is there a need to amend the premium pricing policy during time of crisis in order to reduce the opportunities for rivals to steal precious market share. (Page 42) 10. Threats posed by competitors: – a. HK & KL – Opening of state of the art airports. b. Manila, Taipei & Seoul – New Cargo hubs which threatens Changi Airport as a preeminent transshipment center.
CURRENT STRATEGIES Business–level Strategy (SIA) Strategy refers to an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Business-Level Strategy: an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage by exploiting core competencies in specific product markets. Differentiation Strategy: An integrated set of actions taken to produce goods/services (at an acceptable cost) that customers perceive as being different in ways that are important to them.
SIA customers are willing to pay a premium for the “perceived” product value which is the SIA service-A Great Way to Fly. Basis for Differentiation Focus on Customer-centric rather than on Pricing. “Human software”- golden inflight standard; specific touch points. Customers are important assets to SIA and they effectively manage their relationship by getting customers involved in their business (co-ordinating customers in the service they are going to provide) SIA has a frequent flyer program which has an excellent database containing the loyal passengers’ preferences during the flight.
At the same time, SIA uses the Compliments to Complaints Ratio model (34 compliments to 1 complaint per 10 000pax) to gauge their customers’ satisfaction in the different classes monthly. Furthermore, SIA conducts regular passengers’ opinion surveys to monitor the quality of service from ground handling, reservation, entertainment system & their cabin services. The results from the surveys would be tabulated into the Service & Performance Index (S&P Index) which would be disseminated to the employees in the organization.
Innovating and consistently upgrading differentiated features to enhance passengers’ comfort are critical success factors. SIA pioneered “frills” like free alcoholic drinks, ice-cream as dessert (in all classes) which were followed by other airlines. The airline also provides all passengers, regardless of class, with cocktails, fine wines, and Krisworld on-demand in-flight movies at no extra charge. Moreover, SIA has introduced the innovative widest bed in Business Class & the non-stop flight from SIN to LAX & EWR. • 40-30-30 rule:
SIA focus 40% of its resources on training & motivating its staffs, 30% on the review of processes & procedures and finally 30% on creating new products & service ideas. • Deployment of Technology On the technology side, SIA still maintains the youngest fleet of aircraft amongst all major air carriers, and keeps to the stringent policy of replacing older aircrafts for newer, better models. They have always been first in line to take delivery of new aircraft types like Boeing 747 jumbo jets, Boeing 777, and they are the first airline to fly the Airbus Super jumbo A-380 in 2007.
The strategy behind the technology program is clear: It enhances cost efficiency to use the latest aircrafts & by investing during economic downturns, aircraft manufacturers tend to provide discounts to any buyers to bail them out during recession. Maintaining the youngest generation of aircrafts provides SIA with some of the lowest fuel costs in the industry. This is very significant since 15-20% of an airlines’ total costs derive from fuel. On top of this, SIA carefully hedges up to 50% of their fuel contracts two years in advance to avoid cyclical and often large volatility in fuel prices.
Finally, the financial and cash position has allowed SIA to weather the short-term dips in the industry better than the competition. SIA has agreed to order eight more Boeing 777-300ERs in August 2011 to support growth plans for the years ahead. “The order is in line with our longstanding policy of operating a young and modern fleet. This enables us to offer our latest cabin products which have proven extremely popular with our customers. ”(CEO-Goh Choon Phong) Uniqueness of Business Concept
The use of the ‘Singapore Girl’ icon is unique in the industry; it can be immediately associated with Singapore Airlines itself. The icon has become so strong that Madame Tussaud’s Museum in London started to display the Singapore Girl in 1994 as the first commercial figure ever. The stringent service training & strict grooming standards are ingrained onto the new cabin crew trainees to uphold the company’s image & they are also expected to conform to the ‘SIA culture’ when they graduated from the training school. • Incentives
Service Above All the Rest (SOAR), a initiative to provide the existing cabin crews with series of training workshops for service & conversation session with the management. The latest SOAR campaign is: ”Seize Every Opportunity”. Winning Ways Award was instituted to recognize & reward crews who have provided excellent service to passengers. • Marketing Strategy Marketing is an investment to SIA rather than an expense. Singapore Airlines has been as consistent in its communication vehicles as in its brand strategy.
The primary message “Singapore Airlines – A Great Way to Fly” has been consistently conveyed in exclusive print media and also in advertisements to highlight the brand’s positioning. All communication messages are featured through the iconic Singapore Girl in different themes and settings. SIA has chosen to focus on one aspect of the brand strategy which is the in-flight hospitality and warmth shown by the Singapore Girl – rather than trying to communicate the entire brand benefits through its messages. This has led to a focused and consistent message for SIA since the airline began its advertising campaign.
In addition, Singapore Airlines uses the launch of their new aircrafts as part of their marketing purposes. An example of this was their inaugural A380 flight to SYD launched in 2007, which attracted huge publicity in global media and kept the innovation promise of this brand alive. Corporate-level Strategy SIA follows a strategy of diversification. The SIA Group initially has 27 subsidiaries, spanning in all fields relating to the airline industry including SATS, SIAEC, SIA Cargo etc. The subsidiaries include 100% ownership of SIlkAir, 49% of Virgin Atlantic & Tiger Airways.
SIA launched their own carrier for local and short-haul routes, Tiger Airways, to stay at the forefront of competition. The aim is to avoid dilution of the core premium brand, Singapore Airlines. However, in 2009 SATS 81% was divested from SIA group. It was said that SIA would be able to concentrate more on its airline and aircraft maintenance, repair and overhaul businesses. (then CEO-Chew Choon Seng) SIA joined the Star Alliance in 2000 as part of its intentional strategy to go into new markets as Singapore has no domestic markets like Australia to go into.
SIA Group has quietly investing in China through strategic alliances with local organizations as the East Asia market is a significant source of revenue for SIA. Investing in information technology is another effective strategy of SIA. The website is considered one of the most advanced & user-friendly in the industry. Passengers can almost do any itinerary online w/o visiting a travel agent. Effective use of IT helps to reduce costs & enhance service levels for customers. SIA is also well-known for their consciousness for profit & cost effectiveness.
Any proposed innovation is analyzed in terms of customers’ comfort versus cost. Every manager guards their KPI strongly & is willing to challenge any decision made if they see the resources being wasted. Even the front-line cabin crews are told to reduce wastage onboard. Profitability does not come about only by cost controlling. SIA is able to command a premium price for their tickets especially on West Asia routes with almost none existence of discount available. Even during the bad times, SIA is hardly seen using cost as a strategy to win the customers back as they believe the quality of the service would prevail.