The Singapore government has signed an agreement with the United States called “Open Skies” that gives both countries unrestricted flight access to each others countries. The open skies phenomenon is gathering momentum and more and more countries are signing up. Singapore Airlines is currently in negotiations with Australia, to reach an agreement regarding open skies access down under. Basically the countries that gain open skies agreements are able to expand on existing business. The airline industry is highly competitive industry and the rival airlines are always taking advantage of any opportunity to gain more destinations.
Statistics show Asia’s population is steadily increasing every year and this contributes to the increase in flights. Asia is recognised as the hotspot for air travel at present and into the future. Asia-Pacific intercontinental flights are up 7% and there has been growth of 8% intra-regional services (www.oag.com). This interest in the area has seen new cut price airlines emerge to cater for the demand. SIA has established its own low price airline Tiger Airlines to satisfy demand.
Other environmental factors influencing SIA and the airline industry are rising fuel prices. The price rise in fuel causes a cost increase in the running of flights, therefore a rise in ticket prices. SIA have just passed a decision to put a US$10 surcharge on ticket prices to accommodate the fuel rise.
Terrorism has caused massive economic losses for airline industry and also bankruptcy. Terrorism strikes happen at any time without warning and destinations around the world that are directly affected by terrorism attacks see a dramatic stop in airline flights. The airlines cannot predict these attacks from happening and have to build such occurrences into there risk management policies.
Review of the Industry Structure
In analysing the industry structure this report uses Porters 5 Forces. The five forces look at the Threat of New Entrants, Power of Suppliers, Power of Buyers, Availability of Substitutes, and Competitive Rivalry.
Threat of New Entrants: The international airline industry has high barriers to entry for a number of reasons, firstly there are quite high costs involved in setting up an industry. As mentioned previously, gaining flight access to foreign countries and obtaining airport space is another hurdle that stands in the way of new entrants. The current airlines dominating the industry are constantly working on maximising cost efficiency, and performance to discourage any new entrants and to try force out existing poor operators.
The Domestic industry is more attractive to new entrants as it doesn’t have as much complications as the international side and lower barriers to entry.
Power of Suppliers: The aircraft suppliers of the airline industry are dominated by two suppliers Boeing and Airbus. The aircrafts engines are standardised so both aircraft manufacturers have similar engines. Boeing and Airbus both outsource there parts for there planes and generally use the same suppliers. The body frames and interiors is where the two manufacturers can differentiate there product. Due to the standardisation of engines the switching costs of suppliers is reduced and airlines. (De Melo, 2000)
Power of Buyers: The power of buyers is low in the airline industry as switching costs are high. Most airlines are similar inside; it’s more the service that sets them apart. Most airlines follow each other on prices and cause buyers to pay there price, on the other hand new entrants my cause price competition and therefore a buyers market. (www.fool.com).
Availability of Substitutes: The substitutes that could threaten the airline are cars, boats and trains. These substitutes are not that much of a threat to aeroplane travel. Airlines are generally is used to cover large distances in a short period of time, and was establish to fill a demand that the other forms of travel couldn’t accommodate as effectively. Alternate measures of transport are more of a personal choice not a direct parallel substitute. (www.fool.com).
Competitive Rivalry: The airline industry is highly competitive and price wars are a common occurrence. There is constant fighting for territory and expansion. Major players in the industry concentrate on lowering there costs and improving service to deter new entrants.
What Key resources available to Singapore Airlines?
Singapore Airlines is a well establish international airline with strong profitable track record. The company has a government ownership and also private stakeholders. The airline has always been profitable and the funds reinvested back into the company, to build on capital. The table below shows that last 3 years financials and even in the case of the S.A.R.S breakout in 2004 they still posted a profit.
Aside from just financial capital, Singapore Airlines has many other resources listed below:
Changi airport the home of Singapore Airlines is one of the largest freight handling facilities in the world, and is the most popular hub in Asia.
Singapore has a resource of about 95 aircrafts that now are brought internally and not leased; the aircrafts are generally replaced every 4-5 years.
Singapore Airlines has built a mass of 89 international flight destinations.
The airline has built a human resource training facility.
Changi Airport hosts SIA state of art engineering company that services there planes and other international airlines. SIA also has one of the largest flight kitchens in the world situated at Changi.
SIA belongs to the Star Alliance where other airlines join resources together to increase coverage around the world. Star alliance covers 790 airports in 138 countries.
Finally the brand attribute, is probably there most powerful resource. “Singapore Girl you’re a great way to fly” Has been strongly nurtured over the last 32 years to be the most recognised brand and icon in the airline industry,
Singapore Airline has many capabilities that support there resources, these are:
Latest technological and communication products linking there global network.
Huge investment in human resources, this provides highly skilled workers and management.
Expansive destination coverage due to Star Alliance.
State of the art freight facilities that link with the port shipping authority
What it takes to be successful in the Airline Industry and What strategies are used by Singapore Airlines?
Singapore Airlines is basically the trend setter of the airline industry. SIA has employed many innovative strategies since it began. These strategies have been supported and strengthen over the years, and have led to the success, the company enjoys today. To be successful in the airline industry you have to employ superior efficiency, quality, innovation and customer responsiveness.
SIA has exercised a quality/service differentiation strategy to become one of the leaders in the passenger airline industry.
‘Singapore Airlines has carefully built a financial and fixed cost infrastructure which allows them to continue investing to support the brand while challenging the competition on costs’.(www.venturerepublic.com) More recently Singapore Airlines became a member with the star alliance, which helps the company maintain economies of scale by code sharing, where SIA can offer services on another airline under its own flight codes and offer more destinations.
By building solid capital the airline now enables them to purchase aircrafts and equipment internally without the need for leases and interest. This has enable SIA to have the latest aircrafts and renew them every 5 years. By having a new fleet the company is able to be more efficient with regards to fuel economy, maintenance, and have less downtime. (www.venturerepublic.com).
Another benefit of owning aircrafts outright gives flexibility if there is a dramatic decline in the economy, SIA has the freedom of not being locked into long leases and aircrafts can be disposed of, if need be. Therefore they can handle the ups and downs of the economy, more so than competitors. (www.venturerepublic.com).
Singapore Airlines have always concentrated on being innovative, as mentioned above they replace there airlines every 4-5 years taking advantage of new technology. The company has always the first to introduce new innovative ideas for example hot meals, free alcoholic and non-alcoholic drinks, Hot towels, personal entertainment systems, and video on demand. SIA will also be the first to own the new Airbus Super jumbo A-380 in 2006. (www.allaboutbranding.com)
SIA is committed to providing a world class quality and service, the airline allocates a substantial amount of time and money into there staff training and education. The company has 4 training facilities with various programs that exercise classroom, work experience and simulation strategies. (www.trainersdirect.com) SIA has more concentration on staff training than any other airline. Singapore Airlines employees have to complete a 4 month training course before they are even allowed to serve a customer. On average in 1997 Singapore Airlines spent $5600 per staff per year on training.
The emphasis on staff training is so they can provide the best quality service. (www.trainersdirect.com)
The branding of SIA is based on quality. SIA have the strongest brand name in the airline industry. “Singapore girl you’re a great way to fly” has been there brand of quality for the last 32 years. ‘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’. (www.venturerepublic.com). The airline provides the best on flight cuisine including fine wines, and cocktails. Complimentary gifts are received on each level of passenger class. SIA have maintained a policy that once a passenger pays for there ticket there is no more to pay. (www.venturerepublic.com). Some airlines in tough economic times have started to charge for in-flight drinks and entertainment where SIA haven’t. This commitment to quality has won the airline numerous international awards and differentiated themselves from other airlines.
Some issues facing Singapore Airlines
The Airline has purchased a number of the new Airbus Super jumbo A-380, which could be a bit premature due to the fact they are still in negotiations with the Australian government over open skies. The Australian government holds the key to Singapore gaining open skies agreements, if an agreement is reached Singapore will be able expand and benefit from long haul flights between Australia and United States. On the flip side the introduction of the new airbuses into the industry will cause less demand on Singapore as a stop-over, refuelling hub. Airlines that adopt the new airbuses will be able to bypass previous stopovers and enjoy cost savings.
As explained earlier there has been a dramatic increase in demand for inter-Asia flights. Rival players have noticed the increase in demand and have implemented there own low cost airlines. E.g. Australia’s Jet blue.
Recommendations and Justifications
Singapore Airlines conduct a very professional business they have a strong brand, strong human resources and management, advanced facilities and a proven track record as being one of the top airlines for the last 20 years.
I recommend:
The airline pursue “open skies” agreements to expand there destinations.
Establish the long haul routes with the new Airbus technology before rival airlines purchase the aircrafts.
Keep strong emphasis on the brand name and quality of service.
Utilise some of the success factor from SIA on the new low-cost airline to compete with new rival competitors establishing themselves in the Asian market.
Promote Changi Airports engineering and freight facilities to the new inter-Asian airlines as long haul flights maybe bypassing Singapore’s Changi Airport in the future.
Stay with the competitive advantage outlined above, using the differentiation strategy.
Maintain the innovation and complimentary products.
Help support the Star Alliance to improve customer satisfaction.
It is very hard to recommend a lot of strategies for Singapore airlines to undertake, as they have been leaders in the industry for so long and have developed award winning strategies that have made them very successful. This report has been constructed from a wide array of research that has complemented Singapore Airlines various approaches to conducting business.
References
Summers, Smith, 2001. Communication Skills, Revised Edition Wiley & Sons Australia.
