To Analyze the External Environment as well as factors affecting the Singapore Airlines as One of the Leading Airline Companies in the World
Singapore Airlines Limited (SIA) is one of the world’s distinguished passenger and cargo carriers. The business possesses modern fleet of aircraft that travel to nearly all parts of the world. Similarly, Changi Airport is continuously voted the best Airport in Asia and the World. These two prestigious acclamations however, risk being snatched from them had SIA not be aware of its own strength and threats.
SIA had come from a humble origin dating back since 1947. The first operation was when a twin-engine Airspeed Consul began its operation between Singapore, Kuala, Lumpur, Penang, and Ipoh. It led to a higher passenger demand in the region, and so did the latter-day airline.
With the creation of the Federation of Malaysia in 1963, the industry use the name Malaysian Airways and soon after Malaysian-Singapore Airlines (MSA). In 1972, MSA halted its operations, and it resulted in the formation of 2 separate Airlines, Malaysian and Singapore Airlines each representing the name of the country it bears. With good planning, innovation as well as investment, SIA rapidly got bigger and improved its fleet to be the world’s best. It mostly deals with cargo and passenger transportation.
The airline industry is affected by many factors ranging from political, social, economic, technological, environmental as well as legal factors. Each of these constituents play a part to the success of the industry hence the success of the national carriers. The SIA is a symbol of pride for Singaporeans. To this date, the SIA too carries an international presence but in the Australasian and Asian markets. Singapore is recognised for its achievement even in other areas of the economy like pharmaceutical as well as petroleum refining. These complimentary industries make Singapore an attractive country for work and leisure. This paves the way for the prosperity of the SIA.
Political Factors Affecting SIA
Good and reliable governance has been the bedrock for an effective economic environment for businesses to thrive. In general, we can be grateful that the government took a holistic approach to establish Singapore as an ideal place for businesses, jobs and livelihood. Government arms in Singapore like the Economic Development Board (EDB), Singapore Tourism Board, Spring Singapore etc. have extended and promoted Singapore and provided grants as well as targeted assistance for many SMEs and MNCs like Airliners based in Singapore.
The Singapore government has been taking proactive approach in ensuring the quality deliverables for SIA, crew well-being and overall satisfaction towards SIA. For example, back in 1980, SIA hit a rough patch and its reputation taking a bad hit. Disputes between the SIA management and Pilot’s Union took a toll on all parties involved. This dispute arises mainly over, basic salary demands and better working conditions. The strike was eventually put down by the Prime Minister himself resulting in the sacking and charging of three pilots and an engineer. As such, we have observed that the Singapore Government is ready to step in and deal with potential threats to SIA’s reputation.
Economic Factors Affecting SIA
Uncertainties in fuel costs has a big impact on the airline industry. Such uncertainties may require airlines to raise the prices and pass over the increased fuel costs to the passenger. This in turn will force the passengers to look for other cheaper transport alternatives or budget airlines. The rise of budget airlines has become a threat to the existing national carriers, compelling them to pull down prices as well due to competition without compromising the top-quality customer service or airplane maintenance. To maintain its position ahead of its competitions, SIA have also established its own brand of budget airline, Scoot. SIA also increases its shareholdings to the low-cost carrier Tiger air of Southeast Asia even though it offers no reasonable profit. With increasing competition, the demand on each employee, stewards, pilots and grounds personnel are increasingly becoming stiff. The expectations on the airlines and airport is also high. Passenger safety and avoidance of accidents and whilst maintaining is efficient deliverables are basic prerequisites for airlines to maintain a good profile. A slight error can be fatal. For example, there was a drop in total passengers in the Malaysian Airline despite a huge drop in ticket prices because of the recent disappearance of the Malaysian Airline.
Social Factors Affecting SIA
In the past, travelling by air is a privilege accorded to only the wealthy. With Singapore’s economic rise and betterment of citizen’s living standards, more Singaporeans can afford overseas travels for holiday or work. Increasing number of competitive airlines also forces price cuts enabling more Singaporeans to be able to afford travelling overseas. For example, the rise of low-cost carriers sees a shift in consumer preferences, with consumers preferring to “travel light”, eliminating services the passenger may find unnecessary, thereby lowering ticket prices further. With a more inclusive way to travel, connecting people across national boundaries are no longer a tedious matter. With increased connectivity, people able to travel freely promoting cultural exchanges as well as economic activities.
Technological Factors Affecting SIA
Over the years, air travel was regard as technologically impossible for mankind. However, with invention of the Wright Brothers and the airplane’s subsequent innovations – air travel and air power has taken a centre stage in human development. Controlling the air has both economic and military advantages. Since then, technological advances has centred on pilot and passenger safety, reduction of CO2 emissions, noise reduction and most importantly, reduced fuel consumption. The Concorde is the fastest commercial airplane ever invented. However, due to its limitations on maintenance and costs of operation, the Concorde may not be seen as the most economical form of travel for most airline companies. The productions from Airbus and Boeing still corner the market in airline manufacture acting as a duopoly. Through recent years however, a company SpaceX by its CEO Elon Musk is also exploring ways to travel between countries in less than 30 minutes in the concept he proposes in late 2017 as rocket flight. This however, is still in the test stage. Should it be commercialized one day, this alternative can be a threat of substitute for airplanes.
Environmental Factors Affecting SIA
SIA has considered the environmental preservation and has carry out all that is possible to bring down global warming. The industry teaches its employees to be environmentally responsible wherever applicable in their everyday tasks. The industry plans to bring in aircraft that does not produce much carbon dioxide that always leads to environmental degradation. There is also a plan to cut down the noise pollution made by the planes by using efficient fuel as well as doing away with out-dated equipment.
Legal Factors Affecting the SIA
Airlines work across different national boundaries which subject them to the national as well as international political peculiarities. The Airline industry in Singapore is highly regulated and policed. With the Singapore Airport being the foremost Airport in the World, operational efficiency and quality of deliverables are benchmarked against high standards. The industry always favours the passengers over the airlines, and this high customer-oriented approach is therefore, one of the main contributions to its fast development. The industry has deliberated on political factors in Singapore as well as other courtiers’ markets, and that is the main reason for their growth internationally.
The Singapore government offers huge support to the industry regarding tax and fuel as it is the principal shareholder of the Airline (Scott, 2005). This form of support and favourable taxes allowed the airline to make more profit as compared to other airlines competing in Singapore. The Singapore government’s aviation regulations are regarded by the industry while trying to enlarge their operations abroad therefore keep away from all threat that may happen on their way. For example, the Airline pulls out its bid for a stake in Air India due to India’s political barrier.
Porter’s Five Forces
Michael Porter, American economist came up with five factors which will have significant impact on a company within its market boundaries. The five factors are: the threats of new entrants to the market; the competitive rivalry within an industry; the threat of substitute product or services; the bargaining power of suppliers and the bargaining power of consumers (Alan, 2013).
(1) Threat of new entrants – High
There are two key threats of new entrants, namely the emergence of no-frills or low-cost airlines, the high-speed rail project linking up the Singapore up to China. There has been a stiff competition from other airlines because of low flight prices as compared to Singapore Airlines. Most customers are price conscious and prefer travelling with cheaper airlines just to save a little money for other purposes. To end to this problem, the industry must come with a strategy to lower their prices to be a little bit comparable to the smaller emerging airlines industry (PwC, 2014).
Similarly, the surrounding countries in the North Asia such as China, Korea, Malaysia and Thailand have upped their general infrastructure and offerings of their airport facility, traffic, cost and support. Hence, the air carriers or passengers have more choices to compare and choose within their means. We would expect that the travellers demand for the comfort and amount of time to reach the destination to be almost comparable with the upcoming Singapore Malaysia high speed rail project. To this end, SIA have acquired Scoot as the low cost carrier arm of its flight business in order to stay in the business through this secondary company.
(2) Competitive rivalry within an industry – High
There is a big competition within the Singapore Airline industry because of its market strength. The merging confederations in global airline industries in America and Europe led to the decrease of prices which compelled the Singapore Airline industry to follow suit. The main revenue of SIA is from passengers; therefore, if the airplanes must go with several seats unsold every now and then, this will post a huge loss to the company in potential revenue per trip.
(3) Threats of substitute products or services – Moderate
The threat of substitute goods or services to the Singapore Airline industry is reasonably moderate. Globalization has made other means of transportation to be as a preference by people because of convenience and is becoming alternative for air transport. A lot of people use marine or road services for short distance journey such as between Singapore and Indonesia. With the invention of an electric train, the industry might face stiff competition from rail transportation in time to come. This however, may not necessarily post a threat of a complete elimination of the airline industry; people will still want to travel by air for leisure and ease of transition.
(4) Bargaining power of suppliers – High
Internationally, there are only two companies that supply airplanes, and they are Airbus and Boeing. So, it becomes very hard to bargain for price reduction or maintenance parts replacement from other companies as both Airbus and Boeing have high bargaining power compared to the buyers who have no choice but to comply with the fixed price set (Teresa, 2014). This cost of switching from Airbus to Boeing can also post a high capital outlay on the part of the airline. Unless other aircraft manufacturing companies come up to present competition, the difficulty will remain unsettled by the industry. But the Canada’s Bombardier is expected to become the largest C Series customer and will bring an end to the Airbus and Boeing duopoly (Gillian, 2016).
(5) Bargaining power of consumers – Moderate
According to Porter, when the bargaining power of consumers becomes stronger, the position of the supplier of goods and services weakens. The bargaining power of consumers in the Singapore Airlines industry or any airline, in general, is relatively moderate, and switching of costs between carriers is low (Teresa, 2014). There has been an effort to increase the switching cost to retain customers and avoid wastage of time and inconveniences caused by customers.
Management recommendations for SIA
For SIA to carry on being the leading airline of the future, it must embark on better strategies and continue improving on the management plan is necessary. The recommendations comprise new and deepened partnerships; keeping attention to the external environmental factors; engaging top-performing employees; pricing control and maintenance programme.
SIA should continue to look for new serious partners to stay competitive in the market as well as to enlarge its network. Although the industry has partnered with Virgin Australia and Scandinavian Airlines, it should still go for the present partnership that involves neutrality and antitrust immunity.
(2) External environment
The industry must be vigilant on the external environmental factors to be able to mark the opportunities and threats in their everyday operations. Apart from this, SIA’s Corporate Social Responsibility should also display concern towards its environment. This way, attaining potential partners and gaining the respect of customers will be a bonus towards its existing excellence in customer service. People will be more willing to spend on SIA tickets despite its slightly premium prices. SIA’s efforts towards obtaining latest fleets from Boeing that aide in reduced fuel consumption not only contribute to its cost control but also reduced CO2 emissions.
Singapore Airline must look for qualified as well as result-oriented employees to continue to be the best in the aviation industry. The employees ought to continue to be placed under strict image upkeep in order to continue displaying SIA’s drive towards excellence. The management as well as flight crew teams should also accept working with external organizations to learn from their counterparts and identify the areas that must change. In its daily operations, to retain its presence both in long distance flights and in SEA, SIA ought to regularize its flight schedules to these countries to make it predictable for regular customers flying to these areas allowing them to make more certain flight plans thus remaining loyal customers.
(4) Pricing and advertisement
Through that, the industry will be able to keep its customers and carry on controlling the aviation sector. Advertisements are all the time essential for the prosperity of any business industry. For this case, the industry should do so to attract more customers and show the world how lucrative their services are (Rene, 2015).
SIA has endured many challenges throughout the years since its infancy. We have seen, the impact of crew well-being and Pilot’s Union’s strike, Singapore Government’s interventions, market threats from the growths of low-cost carriers which to-date have continued to put pressure to the industry compelling SIA to act and give up on the profit margins. Through market segmentation and increasing stakes in low-cost carriers. SIA has purchased more planes and has partnered with Australia and India to enlarge its environmental Market segmentation and SIA’s operations to measure up with other greater competitors in the business. It has also volunteered to take the partially-owned Tiger Airways Holdings Limited to be entirely private and get ready for premium economy seats and cheaper fares due to declining oil prices (Anurag, 2016).
The industry is carrying out thorough market research on the grounds to find out the taste and preference of customers, to maximize its profits and remain the preferred airline industry. SIA is going for modern aircraft with great comfort as well as security assurance to the passengers. The aircraft also have advanced technological developments which entice customers as compared to the other airline industries. With relations both Airbus and Boeing amongst its fleet, SIA reduced reliance on downtime. The Singapore Airline industry must continue to engage the government in their daily operations to benefit from the government regulations such as lowering the taxation rate to the industry (Scott, 2005).