Environmental analysis for Tiger Airlines of Singapore

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        Name:                 Shereen Bte Mustafar

Student No.:         3178965

Course:                 Business Management (BBMFT – 39th Intake)

Assessment:        BUSM 3200 Strategic Management

Topic:                 Assignment 1: Individual Essay

Word Count:        4780


Environmental analysis is crucial as it identifies the issues and trends that have important implications for the future. The scanning includes analysis of the information about these issues and trends to assess their importance and determine their implications for planning and strategic decision making. There are several concepts which can be used to demonstrate environmental analysis with regards to the contemporary issues in Singapore today, and how they affect business industries, which will be discussed in the following parts of the essay.

Contemporary Issue 1: Recession

Singapore's worst economic crisis since independence is even more severe than expected, with output now forecast to shrink by as much as 9% in 2009. The Ministry of Trade and Industry said GDP would fall by 6-9% this year, a stunning downgrade from the previous estimate of a , and the fourth downgrade since November 2008 (Ministry of Transport 2009). Minister Mentor Mr Lee Kuan Yew had warned that the economy may shrink by 10% if exports . With the latest official report confirming Singapore's GDP contracting by over 10% year-on-year, it is apparent that the economy has reached one of the two markers that would indicate an economic depression (Channel News Asia 2009).

Contemporary Issue 2: Decline in Foreign Direct Investment

The main reason for the worsening recession is the continued falling demand of its export products from the US and the Europe, mainly the consumer electronics and high tech manufacturing products. Singapore's foreign direct investment fell the most in at least 22 years in January 2009, as the deepening global recession pared demand for electronics and other goods in all of the island's 10 largest markets. Singapore NODX (non-oil domestic exports) dropped 34.8% from a year earlier, after contracting 20.8% in Dec 2008. Singapore's economy is in its sharpest and deepest recession in the country's history (Ministry of Trade and Industry 2009).

Contemporary Issue 3: Pandemic H1N1

Another major contemporary issue is the Influenza A (H1N1), swine flu virus. Singapore has confirmed 72 new cases of H1N1 today, bringing the total tally to 701 confirmed cases, with five fatal cases to date (Ministry of Health 2009).

Reuters (2009) reported earlier this year, when Singapore received its first H1N1 case, from a 22-year-old Singaporean who arrived from New York on a Singapore Airlines flight, Health Minister Khaw Boon Wan told reporters, “this won't be the last case in Singapore unless we could stop people from travelling". The government is continuing with screening at border checkpoints and asked people to stay at home if suffering flu symptoms. It also advised caution over travel to affected areas. Singapore financial markets shrugged off the news. Singapore's central bank said in April 2009 that the global outbreak of flu has clouded the outlook for the economy. These external environment issues play a huge part, on affecting the airline industry.

Singapore’s Airline Industry

2008 was an exceptionally challenging year for the airline industry. Airlines were hit first by an unprecedented spike in oil prices and then by a precipitous drop in revenues caused by a collapse in world trade and the start of what are looking to be the deepest recession since the 1930s. Airlines have reacted with unusual speed to resize capacity in the face of slumping demand. This and the subsequent fall in oil prices back to 2004–5 levels may prevent what is expected to be the largest-ever decline in airline revenues, in 2008, from leading to a similarly record breaking net loss in 2009 (IATA 2009).

Low Cost Carriers (LCCs)

Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism; which is why business travel has also grown as companies become increasingly international in terms of their investment. The commercial aviation industry in Asia has grown dramatically, and has also witnessed additional turbulence with the entry of airlines adopting new business models variously referred to as low cost carriers, no frills airlines and budget carriers (Heracleaous, Wirtz & Pangarkar 2008).

The proliferation of budget carriers has been rapid enough that four out of every five airline markets, that is, areas served by a pair of airports, now feature a budget carrier. Prominent budget airlines include Ryanair and easyJet (Europe), VirginBlue (Australia), Skymark (Japan), Air Asia (Malaysia) and ValuAir, JetStar and Tiger Airways (Singapore) – which is the company this essay is focused on.

Tiger Airways

Tiger Airways was founded in September 2004 and is one of Southeast Asia’s leading budget carriers. According to TigerAirways.com (2009), Tiger Airways is the result of a joint venture – Singapore Airlines holds a 49% stake in the company, Indigo Partners LLC (24%), Irelandia Investments Limited (16%), and Temasek Holdings (11%). Tiger Airways was established at a time when the airline market was tumble, due to increasing fuel cost and an unstable financial market. As a result, some budget airlines were bankrupted, such as Skybus, Frontlier and ATA. Tiger Airways experienced loss from 2005 until 2007; during the first year of the company’s history, a slow development in both the number of passengers, flights and destinations were observed. However, Tiger Airways has shown steady improvements during the last few years.

Tiger Airways aims to be the top travel website in Singapore and took the next step to achieving this by being the number one airline website in Singapore in 2008 (Hitwise 2009). The airline garnered almost a quarter (22.5%) of all website traffic to airline websites in Singapore.  

Tiger’s popularity with travellers stems from its adherence to the true low cost model to deliver low fares. Tiger Airways, Singapore’s only nominee in the worldwide category for Best Low Cost Airline at the upcoming World Low Cost Airlines Congress (Low Cost Airlines World 2009), remains focused on what matters and continues to offer the best fares across its route network every day through disciplined cost control. Its aggressive application of the true low cost model includes selling the majority of its seats online with more than 90% of all tickets sold online.

External Environment: Macro

In analysing the macro environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the whole economy and the airline industry’s supply and demand levels and its costs. The radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the entire organisation (Grant 2005). The PEST analysis is a framework which categorises environmental influences such as political, economic, social and technological forces.

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PEST Factors

The political factor refers to the government’s policy such as the degree of intervention in the economy (Grant 2005). Airlines are not only regulated very heavily for safety’s sake but also in areas related directly or indirectly to the economy, control and ownership, mergers and acquisitions, alliances, passenger rights, protection of the environment, competition such as predatory pricing; and in the case of many international operations, capacity and frequency. Following the pandemic H1N1, the Singapore government had previously issued travel warnings about visiting Victoria, Australia, sparking unhappiness from the Australian government.

In terms of economic factors, Singapore’s economy is ...

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