Case Study: Singapore Airlines

Singapore Airlines is one of the key players globally within the airline industry. It has employed a set of core strategies which seek to combine excellent customer service with high rates of profitability. Using the SWOT analysis tool defined by Jobber (2001) it is a useful task to look at SIA’s competitive strengths that contribute to increasing shareholders value. As mentioned above the high quality of its customer service is one of the strengths of SIA and its brand image of ‘Singapore Girl’ is one which is highly recognizable by global customers. Of concern however is that maintaining quality of service at profitable levels has become increasingly difficult bearing in mind the threats faced by SIA in both macro and micro environmental contexts. In considering these threats this report uses a PESTEL analytical framework to illustrate thoExamples of these threats include the fact that fuel prices have consistently increased and will do so into the future while price wars between airline companies have become ever more intensive due to increased competitive levels in the industry. This is due to existing rivalries as well as new entrants within the discount airline market segment. In contrast to its rivals SIA has preferred policies of adding extra value through customer service rather than ones of pure discounts on prices, (Thompson, 2005). Similarly investment in technology such as the development of an e-ticket system enhanced its strength in terms of cost effective sales and billing systems. These developments have been supported by skilled management and governance procedures which have generally resulted in SIA enjoying a strong financial framework benefiting from previous successful operations.se factors of relevance to SIA competitive capabilities and profitability.

In addition as Porter (1980) suggests competitive forces such as rival, consumer and supplier power, new entrants as well as substitutes greatly impact on a company’s competitive capabilities in its industrial context. As mentioned above competition levels are high in the airline industry matched with consumers becoming even more sophisticated in terms of their purchasing decisions related to travel. Also of note is that in the consideration of terrorist related attacks in the US consumers both in the US and globally express more concerns in relation to safety in choosing public traveling methods. These broader trends have generated significant threats to airline companies such as SIA in such facets as increased airport expenses due to enhanced security checks. It is reasonable to suggest that at this point the brand image of Singapore Girl is a principal icon reflecting the ethos of customer service within SIA. However considering changing consumer behaviour and attitudes towards flying it is a difficult challenge for SIA to adjust its marketing strategy and brand image reflecting these changing psychosocial trends. This indeed can be seen as a critical weakness for SIA. An integrated view at board level regarding the changing environmental conditions and the use of a differentiation marketing strategy leveraging customer service strengths will enable SIA to maintain a strong competitive position in the long term. HRM strategies especially staff training and development programs have helped SIA not only maintain its customer service quality level but also created cost controls related to staff retention which further enhance its competitive advantages in adding value for shareholders and sustaining long term corporate growth.

The Budget Sector And Challenges To SIA 

Singapore Airlines is recognised globally as a brand emphasising professional and customer orientated service and this aspect is also one of the most important competitive advantages for the company. However due to changing environmental forces and growing and past concerns over costs in the airline industry it is vital for SIA to take stock of competitive pressures from budget airline companies such as Ryanair. Budget airlines focus on delivering reduced cost travel through marketing strategies targeting people who are price sensitive as well as short-haul business passengers. It is obvious that SIA has exploited a differentiation marketing strategy based on building up a strong brand image reflecting high quality customer service airline and one which seeks to create added value to the flying experience of customers in terms of luxury and comfort.

A key indicator is that the load factor represents and determines the breakeven point between cost and profitability. It is also affected by other cost related factors in determining the profitability of an airline company. SIA is a successful example in obtaining better performance in respect of its load factor for passenger journeys. For international flights SIA chooses secondary catalogues for larger cities avoiding high costs linked with airport tariffs for primary airports, (Wirtz & Johnston, 2003). In order to compete with budget airlines companies like Ryanair SIA has marketed itself as a value adding airline operator but has sought to focus also on cost control in order to improve competitive capabilities. The competitive advantages of operators such as Ryanair in contrast are those in employing price as a strategy in attracting consumers especially short-haul business passengers seeking lower priced tickets and discount offerings. However as Jobber (2001) suggests price is often used by consumers as an indicator of service level hence Ryanair is rarely perceived as a quality service offering company. Macro environmental contexts are of

Case Study: Singapore Airlines

concern in these advantages as wider economic conditions impacting on businesses will have a significant impact on SIA if reductions in travelling expenses are sought by business passengers.

Budget operators such as Ryanair are more flexible in responding to increasing cost pressures on profitability which have threatened SIA’s operations and corporate growth. As one response to these pressures SIA invested in technology in order to control its cost levels while attempting to avoid sacrificing customer service quality in achieving profitability. Critical concerns generated at this stage in considering changing consumer behaviour and attitudes towards flying are to what extent SIA will be able to maintain and enhance its brand image of superior customer service. Similarly continued cost pressures such as high fuel prices as well as operational costs related to enhanced security will continue to be a challenge for SIA in maintaining profitability in competing with budget operators. While budget operators to date have been either locally or regionally based should operators like Ryannair expand to providing international journeys this will create major threats to SIA in terms of competition for long-haul passengers also.

Load Factors And Profitability 

Load factor is one of the most important determining factors of profitability within the airline industry. It is necessary here to be aware of macro environmental conditions in looking at the impact of load factor in contributing to profitability. Firstly, effective cost control contributes to a significant degree to improvement of profitability bearing in mind the impact of significant increases in fuel prices over the long term. The unstable political environments in oil producing countries and regions such as Iraq, Iran and Venezuela have already resulted in oil prices being driven upwards to record prices. The uncertain future of these political contexts also means that future economic impacts on the airline industry remain unclear.

Secondly the terrorist attacks of 9/11 in the US had massive ramifications for profitability in the airline industry globally with many companies such as American Airlines continuing to experience losses and the threat of closure. Not only was domestic travelling by planes reduced but also international travelling experienced a decline. At this stage load factors were generally disappointing for most airline companies yet the performance of SIA has been demonstrated to be better than its rivals in the ensuing period after the attacks. Therefore it is unsurprising to note better revenues and higher profit margins being reported by SIA (Hoovers, 2006). Arguably this may have been as a result of lower terrorist related concerns in Asia but instability arising out of the terrorist attacks in Bali, Indonesia may in the future create more security related pressures for south-east Asian airline operators. Also natural disasters such as the tsunami and its impact on holiday passengers in the region may also potentially have a long term impact on SIA.

At the same time it is interesting to note that while costs increased visibly net income after tax improved for SIA which is mainly attributable to high operating income and improved load factor on its flights. In this then better load factors have to some degree reduced the pressures of high costs on airline companies in trying to maintaining profitability. However continued good performance in load factors faces substantial threats. As mentioned earlier a successful marketing strategy emphasising quality helped SIA maintain a stable load factor which as a result enabled it to achieve stable rates of profitability and enhance its competitive position in the industry.

HRM And Marketing Strategies 

HRM strategy is an essential part of corporate strategy and research suggests that in the service industry human resource management can be seen as a significant part of marketing strategies also (Beardwell, Holden & Claydon, 2004). SIA exploited a HRM policy where productivity was closely linked with motivational policies for employees (Thompson, Gamble & Strickland, 2005). Research demonstrates that higher income individuals are more likely than lower income individuals to report themselves at higher levels of satisfaction (David and Smeeding, 1985). It is unsurprising to see traditional human resource management approach viewing performance management as enhancing individual performance through assessing past performance and rewarding employees in purely fiscal terms (Walker, 1992).

This practice is found in SIA however Jacques (1962) argues that every employee will display strong feelings toward levels of payment in terms of comparing equitable rewards based on the difficulty of jobs/tasks and skills possessed/required. This is to say the employees with higher levels of education and vocational skills will seek higher pay and do so where increased productivity has been achieved. However productivity levels are not only linked with monetary rewards. Thus pure payment increases are not necessarily contributory factors to increased productivity. As

Case Study: Singapore Airlines

such the HRM of SIA can be criticised because the encouragement of monetary rewards is not solely enough and considerations must be made for long term staff development in rewarding and securing increased productivity.

The differentiation marketing strategy exploited by SIA is based on service and the image of Singapore Girl is a key part of this brand image. The Singapore Girl stands for friendly customer orientated staff delivering superior customer service. This has become the most important competitive advantage for SIA. Staff training and development programs have helped SIA retain and improve its customer service level through measures such as language courses and attitudinal programs to ensure professional service amongst employees. As a result the awareness of the Singapore Girl image among global customers is high. This is beneficial given the argument that companies who are able to attract customers are those who are with better customer service (Pillay, 1989).

It is reasonable to say that the effective marketing strategy helped SIA reduce cost pressures in competing in the airline industry through value adding targeted market segmentation. The use of Singapore Girl as an icon for SIA has enhanced its competitive position in the industry, (Chan, 2000). Changing consumer behaviour though has shaped airline companies’ strategies particularly in considering terrorist linked attacks. Customers use safety as an important criterion in choosing travel methods with substitutes such as trains generating threats to airline companies in particular markets. New entrants or existing rivals who positioned themselves as safe airlines such as Jetblue have exploited this opportunity to increase market share yet repositioning SIA’s brand image from quality orientated to safety may prove difficult and costly. However given the broader political and legal contexts it is arguably a necessity for SIA to pursue this strategy