Singapore Airlines Case Analysis 1

Background:Singapore Airlines has managed to establish itself as a service leader in the airlines industry. By the year 2002, it had 30 years of undisputed success in the industry and was always ranked No.1 in surveys conducted within the industry across various parameters such as comfort, service, food and overall performance. The background of the case highlights a few key events that had taken place:

SIA had withdrawn from IATA when they were regulating prices and service levels. It rejoined in the 90’s when IATA no longer regulated competitive prices

In 2000, SIA joined the Star Alliance to expand the options it could offer to its customers

9/11 attacks had made people skeptical of air travel thus reducing the passenger load factor

BA had introduced lie-flat beds in business class in 2000 and some of the Raffles Class passengers of SIA were found migrating to BA

The “Singapore Girl” campaign had become widely popular internationally and further added to the brand image of SIA. It also focused on in-flight service and young aircraft fleet

Stiff competition from competitors like Cathay Pacific, BA, Lufthansa, Qantas, etc.

Low cost carriers were coming up and gaining popularity despite no-frills

SIA maintains the youngest fleet of aircraft among all major carriers SIA deploys the latest technology in in-flight & other operations SIA was the pioneer in customer conveniences such as free headsets,

drinks in the economy class, etc. SIA endeavored to excel in related operations such as building and

maintaining airports, maintaining planes, operating kitchens and transporting cargo.

SIA benchmarks itself not only against competitors but also against the best service organisations

SIA ensured that it followed certain organizational policies strictly, such as: Rigorous recruitment and selection procedures Training at all levels in the organization Actively seeks customer feedback Employee recognition programs that rewarded staff that provided

superior customer service Empowerment and total involvement of employees through pyramid-

shaped structure

Problem Statement:The company had to make a decision on whether or not to invest USD 100 million in installing new seatbeds that they referred to as “spacebeds”. This implied a tradeoff between postponing investment in enhancing service standards and maintaining the brand image vs. cutting costs during hard times.

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Solution:Differentiation Cost leadership

Positioning of service excellence & superior quality, brand equity (marketing strategy)

Young fleet (fuel efficiency, lower maintenance costs, effective fuel hedging, paying cash for planes)

Developing the Singapore Girl (HR development policies)

Related diversification through efficient subsidiaries that contribute to bottom line

In-flight experience (young fleet, entertainment system, gourmet cuisine – operations strategy)

Labour costs compared to major competitors (16.6% vs. 30%); continuous drive for productivity, cost reduction programmes

Cultural values and practice of constant innovation and learning

Innovations not only increase differentiation but also efficiency Changi airport one of the most efficient (related infrastructure)

Premium pricing in Singapore and in business / first class, and higher load factor as differentiation indicators

Changi airport one of the most efficient

Changi airport one of the world’s best Cultural values: cost consciousness, obsession with reducing wastage

The loss in consumer confidence due to the 9/11 attacks is not likely to recover immediately. The company may have to defer aircraft service on a few routes to remain profitable until the situation gets better.

The company must focus on differentiation just like it has been and also cost leadership to be successful in the industry in the long run.

Source: L. Heracleous, J. Wirtz / Journal of Air Transport Management 15 (2009) 274–279

Thus, the company must introduce the spacebeds despite the huge investment required because in the long run it will help in preserving the brand image and the SIA commitment to total innovation and providing best-in-class service. Further, the R&D cost has already been incurred in designing the bed. Also, since BA has already installed flat-beds and it has proven to be a success given by the Raffles Class passenger migrating to BA, the company does not have to worry about the risk of failing to assess consumers’ need correctly. If the company does not act now, then with the already declining passenger load and more passengers migrating for better service, the company will suffer in coming years.