Singapore Airlines Company Analysis

Introduction

Since its incorporation, Singapore Airlines continues to grow from a regional operator to a global organization. It split from Malaysia-Singapore Airlines and dedicated the decade from 1972 to 1982 to growth and expansion. During this time, it acquired a large fleet of different aircrafts. Over the following decade, Singapore Airlines grew its customer base and recorded exciting results (Wirtz and Heracleous, 2009). Additionally, it brought innovations in the transport sector with more customer attractions as a result. The airline industry has been plagued by intense competition, unpredictable oil prices, notable cases of overcapacity, and unpredictable environments, and hence intermittent results (Wirtz and Heracleous, 2009). However, in this environment, the airline continues to record good results because of innovations, good customer management and excellent strategy orientation. Singapore Airlines’ strategy is two-pronged. First, it effectively reduces costs and strategically aligns them (costs) using a formula that captures its main spending areas. This is part of a dual strategy, which also involves differentiation through superb services and innovation. Researchers had earlier considered dual strategy as unachievable. This case study looks into SIA in light of the industry, analyzes its performance and strategies, and recommends ways in which it can prepare for uncertainties (Wirtz and Heracleous, 2009).

Discussion of Issues

Competition

The airline industry is a case of turbulent waters. The competition is rife and many more players continue to enter the industry. For example, the entry of Boeing 777 plane with capability to fly close to 18000 km in 2005, increased competition in the industry sharply (Wirtz and Heracleous, 2009). It is crucial to note that this plane has a hub in Singapore and has the ability to bypass many hubs. However, the airline obtained rights to travel directly to Australia and the United States from Singapore to reduce that risk. Additionally, competition is copying SIA’s dual strategy. However, SIA continues to dedicate enough resources through its 4-3-3 rule of costs allocation to train employees and create customer-oriented products (Wirtz and Heracleous, 2009). Additionally, SIA concern for environment is excellent which makes the Singapore government to obtain a status of abetting its success. In the industry, it has among the best efficiency levels beating bitter rivals such a Malaysia Airlines (Wirtz and Heracleous, 2009).

Strategy

SIA uses a hard-to-emulate dual strategy, which had previously been deemed inapplicable (Porter, 1985). This strategy has four major areas of implementation: harnessing the power of people and culture, excellent use of technology, utilizing the power of business systems, and strategic decision-making (Castells, 2011). Since its implementation is difficult, many organizations can only try to emulate SIA, which is hard. SIA’s procedures and training programs are excellent which makes implementation of processes easy (Wirtz and Heracleous, 2009). Additionally, its processes are simple and easy to understand. In addition, its dual strategy focuses on cost efficiency. The company allocates a 4-3-3 spending formula to training, revision of procedures, crucial processes, and creation and innovation of new products and services respectively (Wirtz and Heracleous, 2009). SIA uses a lean management strategy where it outsources non-core business processes such as ticketing, and payroll processing services to an Indian company. Its operations are also world class and customer sensitive. For example, it has its own canteens, offers excellent in-flight entertainment, excellent services and treats its employees with respect and empathy (Wirtz and Heracleous, 2009).

Economic Conditions

The airline industry is quite unpredictable. The industry had been recording slumps in profits intermittently since 2000 (Wirtz and Heracleous, 2010). For example between 2001 and 2006, the industry recorded cumulative losses amounting to $42 billion. Singapore Airlines tries to operate in predictable markets to avoid such losses. It had been making profits even in a time when the industry was recoding losses (Wirtz and Heracleous, 2010). For example, it has signed exclusive contracts to operate in particular routes (Singapore to US and Singapore to Australia) to increase profitability and enhance predictability. For the past decade, the prices of crude oil have been unpredictable because of terminal wars and global economic crises (Wirtz and Heracleous, 2010). This makes the industry to operate at a state in which it cannot accurately predict costs. Additionally, in 2008 the world plunged in an economic crisis emanating from the finance systems of United States. This has led to a situation where world customers and businesses have cut spending spelling doom to an industry that mostly targets business and leisure customers (Waddel, et al. 2010).

Role of Government

Competitors and critics have constantly complained that success of Singapore Airlines is not attributable to its strategies. They have painted a picture where environmental forces, specifically Singaporean government, play a key role in the success of SIA. The airline industrial climate in Singapore is favorable compared to other nations (Wirtz and Heracleous, 2010). That is why the company has invested in two different airlines in a span of two years (between 1999 and 2001) and subsequently written off those investments (Usunier, 2000). Critics argue that this indicates SIA can only succeed in its own country. However, this is untrue, according to management and SIA proponents, as the airline operates in a similar environment as Malaysia Airlines and it has not matched SIA’s success (Wirtz and Heracleous, 2010).

Arguments and Suggestions

First, the company capacity plans are constantly hindered through delays of ordered aircrafts. For example, in 2006/2007 the company’s A380 aircrafts delayed for two years leading to a situation where capacity was as low as 50% (Wirtz and Heracleous, 2010). This means the company was operating at very high costs. The company can streamline its supply chain and research to ensure that future acquisitions do not cause capacity issues. Secondly, the employees of the company are constantly lured into other high paying jobs at companies such as Virgin Atlantic. This means that training programs may be a waste of time (Wirtz and Heracleous, 2010). To curb these exits the company should review its wage rate policy periodically and constantly to match world standards. Additionally, the company can use various reward systems that allow employees to own a part of the company to enhance their loyalty to the company (Wirtz and Heracleous, 2010). To keep employees motivated, the company should devise work enlargement policies (Skinner, 1974) that allow employees to take up new roles that are challenging (Suri et al. 2003).

Competition is also on the heels of SIA. The companies in the industry have obtained aircrafts that are cheaper and embarked cheaper ticketing procedures to reduce costs (Wirtz and Heracleous, 2010). Additionally, the dual strategy model is under consideration and test practice in other airlines such as Emirates. Reducing costs means that these companies will now focus on service quality (Garvin, 1987). Therefore, SIA should revise its operational strategy to focus on service quality and customer retention procedures (Chase, Jacobs and Aquilano, 2006).

The company should revisit its failed intention to acquire a stake in other airlines such as Virgin Atlantic and Emirates to brush off the ‘home success only’ tag. The move to obtain travel rights from Australia to US and from Australia to Europe is a good start but continues to enhance that image. The company should also obtain aircrafts capable of flying longer distances and bypassing hubs to enhance its growth and shrug of competition in long distance travels (Wirtz and Heracleous, 2010). Overall, the company still leads in cost efficiency and customer service because of the inimitable application of dual strategy (Masini and Wang, 2009). However, there is continued suggestion that this strategy can be applied in most Asia countries (Lapre and Scudder, 2004). This should ring alarm bells to SIA and act as a wakeup call to continue its innovation and differentiation to constantly make customer management decisions, which will have a futuristic outlook (Wirtz and Heracleous, 2010).

Synthesis

The company is a leader in innovation in the airline industry. It uses a distribution innovation approach, which focuses on employees who are in constant contact with customers. These include ground service employees, in-flight attendants, and loyalty marketing staff that, according to SIA, must remain innovative for future success (Wirtz and Heracleous, 2010). This improves operations and pegs strategy formulation on issues that are based on reality. Innovative methods come from a central position and localized areas (e.g. departments) to ensure complimentary decisions. The company is also a technology leader and follower. It does this pragmatically by discarding technologies that do not work and embracing the ones that work (Singapore Airlines, 2012). For example, the company can create a mobile application that gives customers information and probably allow them to book flights instantaneously instead of having online options only. Additionally, the company standardizes and personalizes services to ensure predictability and cost reduction. The company’s annual profit and operating margins have been constantly above the industry margins denoting the workability of its strategies (Singapore Airlines, 2012).

Conclusion and Recommendations

Singapore Airlines is a global leader in innovation and service quality. Its operational, management, and strategic management directions continue to yield good results (Singapore Airlines, 2012). In an environment marred by uncertainty and high risk posed by competition and regulatory changes, the company has a good outlook in comparison to other players. However, the industrial outlook remains bleak owing to a global financial crisis, environmental regulations, and cutthroat competition that have reduced customer spending levels and increased risks associated with operations (Lowson, 2003). Technology has also played a major role in the industry with customers easily accorded the power to make choices. Globalization means that poor public relations and services may lead to loss of market (Castells, 2011). Companies in the industry should strive to cut costs associated with operations although the main costs of fuel remains unpredictable in a world marked by wars and political deal making (Chase, Jacobs and Aquilano, 2006, Fynes, et al. 2000). It would also be prudent to enter emerging markets such as Africa where the potential for growth is high. Additionally, to curb unpredictability of fuel prices, the company can enter into future contracts with oil suppliers.

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