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Singapore Airlines1

1. INTRODUCTION

Singapore Airlines was never supposed to become one of the leading airlines, in fact, its prospects

were not promising. But the airline has incredibly grown over the last few years and has won more

awards than any other airline (Lord, 2019). Since its founding in 1972, it has repeatedly set new

standards in the aviation industry and is regarded as a trendsetter in the sector. Due to its commitment

to service excellence, product leadership and network connectivity, Singapore Airlines is today

known as a world-class international airline group (siaec.com.sg, 2019). It has an operating fleet of

121 and serves by now 64 destinations. It carried almost 21.000 passengers in the fiscal year

2018/2019 and together with its wholly owned subsidiaries Silkair and Scoot, the SIA group covers

138 destinations and carried almost 40.000 passengers this year (Annual Report, 2019).

2. HISTORY

Originally created as Malayan Airways Limited (MAL) in 1947, the airline’s first flight was between

Singapore Kallang Airport and Kuala Lumpur. In 1963, the company changed its name to Malaysian

Airways limited due the newly introduced federation of Malaysia. In May 1966, it became Malaysia-

Singapore Airlines (MSA). Finally, in 1972, the airline split into two companies, namely Singapore

Airlines and Malaysian Airline System, today Malaysia Airlines (Lord, 2019; siaec.com.sg, 2019).

1972 Malaysian-Singapore Airlines (MAS) splits into two companies: Malaysian Airlines System and

Singapore Airlines

1981 On February 1, the first Airbus A300 Superbus flies to Kuala Lumpur and Jakarta; On 1 July, operations

are moved to the new Singapore Changi Airport

1989 Becomes the first airline to send a Boeing 747-400 commercial flight from Singapore across the Pacific

and in the same year a subsidiary is announced, today known as SilkAir, flies to more than 30

destinations across Asia and in Australia

1 Case written by Linda Kivine, Helen Weidler, Julia Florensa and Wera Wilkko; and

supervised by professor Oriol Amat, UPF Barcelona School of Management, 2020.

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1990 The first flight to land at the new Terminal in Singapore Changi Airport is SQ23 from Amsterdam

1991 Personal satellite-based phones onboard allow passengers to stay in touch with people on the ground

while they are in the air

1993 A wax figure of the Singapore Girl is shown at Madame Tussauds in London to reflect the growing

popularity of international travel

1998 $500 million investment provides a new suite of cabin products across all classes of travel, combined

with a bigger selection of cuisine and entertainment. In addition, the culinary Panel consist of five world-

acclaimed chefs from five

1999 KrisFlyer, as the frequent flyer program is introduced where passenger from all classes can collect miles

2001 KrisWorld is the first to provide audio-and video-on-demand to all passengers in all classes

2006 Introduction of the new generation of cabin products in all classes, including the world’s widest First and

Business Class seats, which transform into fully-flat beds

2007 On 25th of October, the first Airbus A380 flies from Singapore to Sydney

2008 In January, Flight SQ318 is the first departure from the new terminal 3 at Singapore Changi Airport.

Besides, the non-stop-service, exclusively reserved for the business class from Singapore to Los Angeles

starts in August

2009 Take delivery of the first new Airbus A330-300 and in February the airlines celebrated their one-

millionth passenger on its Airbus A380

2010 Singapore Airlines presents its cookbook in May

2013 Next generation of cabin products is introduced on an initial eight Boeing 777-300 aircraft

2015 The airline spends US$80 million on new Premium Economy Class seats and in-flight-offerings. In the

same month the airline operates its first Charity Flight on the world’s largest commercial Aircraft, the

Airbus A380

2016 Takes delivery of first Airbus A350-900. In September, the airline launches its new ‘Capital Express’

service, which connects Singapore with the capital cities of Australia and New Zealand. Thus, it is the

first airline with flights between Canberra and Wellington

2017 After an investment of US$850 million, the airline unveils its latest cabin products for the Airbus,

including 471 seats in four classes, six suites and 78 business class seats on the upper deck, 44 premium

economy seats and 343 economy seats on the main deck

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3. BUSINESS MODEL

3.1. Mission and Vision

Singapore Airlines’ mission is to “provide air transportation services of the highest quality and to

maximize returns for the benefit of its shareholders and employees”. Their vision is not only to be

beyond an excellent company, but also to be an excellent citizen of the world. With that aim in mind,

they have made many commitments to arts and education, to communities, to the health and welfare

of their country’s citizens, and also of those they fly to. With this goal in mind, they have also made a

strong commitment to preserving the environment – and the world for future generations. (Erikoway,

2013; siaec.com.sg, 2019)

Core Values of Singapore Airlines

Figure 1. Core Values of Singapore Airlines (2019).

3.2. Distinctive factors

1) Singapore Airlines has one of the youngest fleet of aircraft compared to all major air carriers,

as they have a policy of replacing older aircrafts for newer and fuel-efficient models

constantly.

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2) Singapore Airlines has joined the International Air Transport Association (IATA) with a

commitment of reducing the industry’s emissions.

3) Singapore Airlines was the first airline globally to fly the Airbus A380, one of the world’s

most eco-efficient aircraft.

4) Singapore Airlines also gives back to society in various other ways, including sponsoring arts,

education and sports institutions and initiatives. (Roll, 2019)

5) The Singapore Girl - The personalization of the Singapore Airlines brand is the mixed male

and female cabin crew, where the flight stewardesses commonly referred to as the Singapore

Girls have become very well-known. It can be said without doubt that the Singapore Girl has

contributed significantly to Singapore’s image. (Roll, 2019).

3.3. Corporate Governance

Based at Singapore Changi Airport, Singapore Airlines Limited (SIA) is part of the Singapore

Airlines Group. The group is listed as SGX: C6L on the Singapore Exchange, of which the

government’s arm-Temasek Holdings own 54.5 % of the group. To the wholly-owned and majority-

owned subsidiaries belong Silk Air (100%) since 1989, Singapore Airlines Cargo (100%) since 2001

and Budget Aviation Holdings (100%) as well as Tiger Airways Holdings, which is traded as Scoot

(100%) since July 2017 after Tigerair and Scoot merged in March 2016. Since 2013, Vistara (49%) is

the only minority subsidiary owned by Singapore Airlines. In addition, SIA engineering company, the

airlines related subsidiary is responsible for the maintenance, overhaul and repair of the fleet

(centerforaviation.com, 2019).

The role of the Board of Directors is to oversee the company's performance and to guide the

management. It mainly focuses on direction, guidance on digitalization, technology as well as

innovation. In addition, they check and approve budgets, financial plans and approve acquisitions and

fund-raising exercises. Other activities include ensuring the airline’s compliance and regulations.

Currently, the board of directors consists of 9 members, shown in the following figure (Annual

Report, 2019).

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Figure 2. Board Composition and Guidance (2019). Retrieved (October 16, 2019) from

http://www.siaec.com.sg/board_directors.html.

3.4. Strategy

Singapore Airlines decided on a fully branded product/service differentiation strategy from the very

beginning - with the focus on genuine quality, innovation, excellent customer service and high focus

on the best technologies. Driving innovation is an important part of their brand. The key factors to

their success include their cabin ambience and the overall experience. One of the main customer

experience strategies used by Singapore Airlines to deliver the best flying experience include

searching for familiar flavors to make its passengers feel at home. They also focus on constantly

replacing older aircrafts for new and more efficient models. The strategy behind this program is clear:

using the latest aircrafts enhances cost efficiency and allows Singapore Airlines to use these events for

marketing purposes. (Roll, 2019)

Strategies for the future:

� Invest in both full-service and low-cost airlines to enhance competitiveness and increase the

fleet to serve the right markets

� Set up new hubs in growing markets outside of Singapore

� New business and revenue initiatives such as pilot training and development of e-commerce

channels

� Commitment to the three main pillars of its brand promise 1) service excellence 2) product

leadership 3) network connectivity (Annual report 2019)

4. INDUSTRY ANALYSIS AND MAIN COMPETITORS

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4.1 Main Competitors

The top three main competitors in the industry are Malaysia Airlines, China Southern Airlines and

AirAsia. Not to forget are the 5-star airline Etihad and the eternal competitor Qatar Airways.

Malaysia Airlines: Malaysia Airlines is the national airline of Malaysia. It carries about 40,000

passengers per day to over 50 different destinations. Besides the domestic market of Malaysia, the

airline mainly focuses on China, the South and North of Asia as well as New Zealand, Australia and

the United Kingdom and is therefore considered as one of the strongest competitors in the industry.

The fleet of the airline includes six Airbus A380-800’s, 15 Airbus A330-300’s, and 54 Boeing 737-

800’s. As well as Singapore Airlines, they offer premium long routes with three different classes:

Economy, Business and First (malaysiaairlines.com, 2019).

China Southern Airlines: China Southern Airlines controls more than 3.000 flights to over 224

destinations, covering 40 countries and regions across the world. In 2018, the airline transported 140

million passengers. The fleet consists of Boeing B787, B777, B747 and B737, as well as Airbus

A380, A330, A321, A320, and A319. Especially in the Chinese market, China Southern Airlines has

to be considered as a strong competitor. Besides their developed route network, the airline has the

largest fleet and largest passenger capacity among any airline in the Republic of China. In addition,

China Southern Airlines has established an extensive network across China that connects Europe and

Oceania and operates throughout North America, the Middle East, Africa and Asia to compete with

the network of other world-class airlines (csair.com, 2019).

Air Asia: Air Asia is the leading low-cost airline in Asia and Asean. The airline has achieved to grow

from just two aircrafts flying six routes in Malaysia in 2002 to 152 destinations in 22 countries at the

end of 2018. Today, the carrier employs more than 20.000 people and is considered as the only ‘true’

ASEAN airline, covering Kuala Lumpur, Kota Kinabalu, Kuching, Penang, and Johor Bahru in

Malaysia; Bangkok, Phuket, Chiang Mai, Krabi, U-Tapao (Pattaya) and Chiang Rai in Thailand;

Jakarta, Bali, Medan, Surabaya and Lombok in Indonesia; Manila, Kalibo (Boracay) Cebu and Clark

in the Philippines; Bengaluru, Delhi and Kolkata in India; and Nagoya in Japan. Above all, what

makes Air Asia dangerous is their low-cost business model that appeals to many price conscious

consumers (ir.airasia.com, 2019).

Etihad: The home of Etihad is Abu Dhabi. Their destinations include the Middle East, Africa,

Europe, Asia, Australia and North America and thus compete directly with Singapore Airlines

(etihad.com). Both are considered 5-star airlines, owning almost the same fleet and offering the same

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exclusive customer experience. The only distinction between the two airlines is that Singapore

Airlines additionally offers Premium Economy among their different classes (finder.com, 2019).

Qatar Airlines: Qatar Airways serves all six continents and is considered the youngest global airline

and the world’s fastest-growing airline. They fly to 160 destinations from their five star airport,

Hamad International airport in Doha, the State of Qatar. Since their founding in 1997, the airline has

won several awards and is one of an elite group of airlines worldwide that earned a 5-star rating by

Skytrax and is the voted airline for the years 2011, 2012, 2015, 2017 and this year

(qatarairways.com).

Figure 3. Positioning Matrix of Singapore Airlines and main competitors in 2019

4.2. Sales evolution in the industry

The airline industry has been growing at a sustained pace in the last decenny, and it is still expected to

grow in the next few years. According to Statista, between 2009 and 2019, revenue in the industry

increased at an annual rate of around 5.9%. It reached the imposing value of $745 Billion in 2017

(Statista, 2019).

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Figure 4. Revenue of commercial airlines worldwide from 2003 to 2019 (in billion U.S. dollars) (2019). Retrieved (October 16, 2019) from https://www.statista.com/statistics/278372/revenue-of-commercial-airlines-worldwide

Regarding the future for airlines worldwide, it seems that despite the challenges that rising fuel prices

and increasing competition represent, the industry will keep growing and making higher profits.

Indeed, while fuel prices are thought to soon reach 19.6% of airlines’ operating costs (KMPG, 2019),

and while aggressive competition is discarding some players of the race, it seems that demand for

flights is very strong and keeps on increasing. Also, airlines are more and more efficient, and are

finding new streams of revenue generation, such as the sale of ancillary products and services. Some

examples include charging a fee for checked baggage or for seat selection, selling premium services

which include Wifi or premium menus onboard. Not only are airlines looking to generate more

revenue, but they are also focusing on reducing losses in revenue by improving the departure control

process, their CRMs and their ticketing, among other things.

For these reasons, the forecasts of revenue for the industry remain positive for the next few years, and

profits are even expected to rise.

4.3. SWOT Analysis

Nowadays, passengers have a wide choice between many different airline providers. Low-cost carriers

as well as well-known premium airlines are competing for customers, market share and reputation in

one market. Above all, the transparency of online platforms - which allows for an easy comparison

among ticket prices and services of the airlines - promotes the competitive environment. Therefore, it

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is important for an airline to analyze the internal strengths and weaknesses as well as the external

opportunities and threats in order to perform successfully and reach their objectives (Centre for

Avaiation, 2015).

STRENGTHS

- Brand: strong global airline brand and high brand visibility due to strong branding and marketing

- Satisfaction: satisfied customer base and high loyalty among their passengers

- Good strategy implementation: always focused on their strategies, including cost control, operational efficiency and service quality

- Premium Product: well-known luxury suites in the A830, which can be transformed into beds and even private bathrooms offered for passengers

- Market strength in Australia / South Pacific Area: largest airline in Australia and New Zealand

WEAKNESSES

- Narrow Focus: focusing heavily on international flights

- Weak presence: in major markets like North America and China

- Reduced margins: since the presence of low-cost airlines is growing, the model of luxury airlines is thus suffering (passengers more price conscious)

- Premium Perception: Singapore Airlines is also seen as an expensive airline and therefore not considered by many potential customers

OPPORTUNITIES

- Expanding partnerships: forge more and deeper partnerships, e.g. in the middle east

- Indian market: a strategic market that promises growth

- Expanding in Hong Kong: an aviation hub

THREATS

- Increasing competition: in and outside the region can reduce Singapore Airlines market share and lead to an increasing supply in the industry

- Rising Fuel Costs: in the future can have an impact on generated revenues

4.4. Sales Ranking

According to World Airline Awards in 2019, Singapore Airlines won the categories for World’s Best

Cabin Crew, and was rated as the World’s Best First Class, the Best Airline in Asia and the World’s

Best First Class Seat (worldairlinesaward.com, 2019). In addition, the airline won the annual Skytrax

survey in 2018 which involves 24 million passengers, but had to give up their first place this year to

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their eternal competitor Qatar Airways (scmp.com, 2019). These rankings are also reflected in the

sales and the number of passengers of Singapore airlines.

As seen in the figure below, Singapore Airlines has reported a growth in sales over the years and also

the future prospects seem to be promising. According to Marketscreener, Singapore Airlines can

increase its sales by more than 13% from 2019 to the year 2022 (marketscreener.com).

Figure 5. Singapore Airlines Income Statement data. Retrieved (October 19, 2019) from

https://www.marketscreener.com/SINGAPORE-AIRLINES-LIMITE-6491138/financials/

Compared to its main competitors, Singapore Airlines generated the second highest revenue so far this

year. Only China Southern Airlines outcompetes the airline in terms of revenue but does not come

close in terms of quality and exclusivity and thus loses places in the comparison among the airlines,

giving up the first place to Singapore according to Owler (owler.com, 2019).

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Figure 6. Top 10 competitors of Singapore Airlines. Retrieved (October 20, 2019) from

https://www.owler.com/company/singaporeair

Figure 7. Airlines Sales Ranking 2019

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5. PRESENT SITUATION OF THE COMPANY

5.1. Products and services offered

With its focus on excellence and quality service, Singapore Airlines offers a variety of services, both

before the flight and onboard. The offer regarding the process before boarding includes five types of

lounges in airports for its customers to enjoy calm, quality food and beverages, and resting areas

while receiving five-star treatment. They include the First class check-in reception, the SilverKris

Lounge, the KrisFlyer Gold Lounge, Partner lounges and the SilkAir Lounges.

On top of the lounges, SIA provides its customers with an airport meet and greet at their hub airport,

Singapore Changi Airport, with buggy transport within the terminals.

The airline also owns an online flagship retailer, KrisShop, from which customers and flyers can order

from any location at any time and have the order delivered either on the flight or at any address. In

parallel to these services, SIA offers a frequent flyer program for its customers, named KrisFlyer,

allowing customers to enjoy selected discounts, priority and additional services according to their

level of loyalty (KrisFlyer, KrisFlyer Elite Silver and KrisFlyer Elite Golden).

With regards to the offer onboard, the airline targets different customer segments through its selection

of classes which include Economy class, Premium Economy, Business class, First class and Suites.

All of them appear to be among the most innovative and qualitative within global airlines, since they

have allowed Singapore Airlines to earn many awards in the last few years. In 2019, the airline won

the “Best Airline in Asia”, “World’s best First class” and many other Economy class and lounge top

positions, all of them from the Skytrax World Airline Awards in the UK. Through 2019, it has also

earned the “Best Airline in the World”, “Best Airline Business and First class” positions according to

Business Traveller China. In terms of Dining, passengers (excluding Economy class) have the option

to select their meals in advance (up to three weeks before the flight) from a range of dishes created by

an international culinary panel made of celebrated chefs and wine experts. The airline has also proven

to be performing to its best in terms of entertainment offered onboard. The latest technologies are

being used in the aircrafts with a wide range options (over 1800) of movies, TV shows, music, games

and wireless connectivity made available to the passengers.

5.2. Customers and distribution channels

The Singapore Airlines group includes the Singapore Airlines brand itself as well as the wholly

owned subsidiaries SilkAir, Scoot, and Singapore Airlines Cargo. It also has a minority subsidiary,

Vistara, from which it owns 49% of the firm.

SilkAir was launched in 1975 under the name Tradewinds Charters, and became a commercial airline

-part of SIA- in 1989. It is a regional airline that flies to more than 40 destinations within the Asia-

Pacific area. Scoot is a low-cost airline that was launched in 2012 and which merged with Tigerair (its

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main competitor) in 2016. It mainly covers routes within India and China, while it also has some

further destinations such as Berlin.

The Singapore Airlines group - including Singapore Airlines, SilkAir and Scoot - flies to over 130

destinations around the globe, in over 30 countries. More than 60 of the routes are operated by

Singapore Airlines alone. It also operates trans-Pacific routes including non-stop flights such as the

Singapore to New York route or Singapore to Los Angeles. According to the South China Morning

Post, the group owns around 200 aircraft and 26,000 staff, serving more than 33 million passengers a

year. Being a premium brand, SIA targets premium customers from middle and upper class who value

reliability, comfort and excellency in the service. One of the main targets is also corporate passengers.

The group can take advantage of its widespread distribution network, which is made of the airline’s

website but also affiliated companies, travel agencies and tour operators.

5.3. Key success factors

The main success factor of Singapore Airlines is its high quality and personalised customer service.

Besides the quality of the products and the entertainment options it offers, the airline differentiates

itself through a process that can hardly be replicated, their service. As its general manager Chia Chow

claims, “The hardware gets [Singapore Airlines] into the game, but it’s the software that differentiates

us”. With the well known Singapore Girl as a strong branding weapon, the service culture is

personified.

Innovation is another key for success for the airline, since it has enabled the firm to become more

efficient at all levels. From the launch of the newest and most fuel-efficient aircrafts (A380), to

optimised digital internal workforce systems, while offering creative unique culinary options and

having award winning cabin designs. In addition, the company has been a pioneer in many long hauls,

such as the Singapore-Los Angeles.

The company has even been four times host of the Singapore Airlines AppChallenge, which is

described by the airline as “the leading digital innovation challenge for aviation”. It is a contest in

which entrepreneurs and students can take part to find innovative ideas to improve processes in the

airline industry. From this challenge was born the app KrisPay, which allows customers to use air

miles for everyday purchases.

Besides being a pioneer in its industry, the airline is known worldwide and trusted for its safety.

Indeed, SIA finds itself in the top twenty safest airlines in 2019, according to Airline Ratings. The

innovation in its processes with the trust earned through excellent service and the newest aircraft

enhance the feeling of safety in passengers’ minds. It is also important to point out that safety is

essential in such an industry, and scandals after crashes affect widely the image of airlines.

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5.4. Stock Market and dividend policy

Singapore Airlines Ltd is listed in the Singapore Exchange (SGX), and its market capitalization stands

around 7.97 Billion USD (using the conversion rate 1 SGD = 0.738 USD on XE). According to

Bloomberg, the company currently has 1.19 Billion shares outstanding. The graph below shows the

evolution of the share price from 2015 until now, reaching one of the lowest price levels with 6.64

USD (9 SGD).

Figure 8. SIA share price evolution (Bloomberg, December 2019) Source: https://www.bloomberg.com/quote/SIA:SP The figure below shows the evolution and forecasts of the company’s Dividends/EPS, which are

expected to fluctuate between 50-55%, revealing that SIA is being quite prudent with its policy.

According to Bloomberg, the company’s dividend yield stands around 3.33%, which is an optimal

level.

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Figure 9. SIA’s dividend policy forecasts (Market screener, 2019) https://www.marketscreener.com/SINGAPORE-AIRLINES-LIMITE-6491138/financials/

6. Main challenges the company is facing

While Singapore Airlines as a company is struggling with some internal and external problems, the

whole market is in a turnaround. Problems such as rising oil prices and interest rates, pollution,

regulations, shortage of pilots, high costs and decreasing profit margins are general problems from

which the airline is not spared.

Airlines are faced with high fixed and variable costs. Airplanes are a costly investment which has to

be made regardless of business conditions and also the large labor force, which is needed to run the

business results in a high amount of costs which are almost impossible to reduce (investopedia.com).

Fleet renewal, which could both lower costs and help differentiation, poses a challenging situation.

Without the strong profits provided by airline operations, it is difficult to buy new planes without

encountering debts. This poses risks in an industry that is easily impacted by many factors beyond the

airline's control.

While many airlines are expanding world-wide, their is a shortage in pilots. In fact, it takes a lot of

money and time to train pilots and this can become a major challenge in the future

(businessinsider.com). Besides, maintenance costs are increasing due to more expensive labour and

rising interest rates and thus will reduce the profit margins in the airline industry (KPMG, 2019).

Due to rising fuel costs and tightened regulations in the market, one of the main focus of Singapore

Airlines has been shifted to waste reduction and maximized resource utilization to reduce the adverse

effects of waste on the environment. As fuel makes up about 40% of the industry’s total operating

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costs, and with more emissions regulations, there is an urgent need for the airline industry to improve

their fuel efficiency.

According to the analysis of The Transpacific Airline Fuel Efficiency Ranking by the International

Council on Clean Transportation (ICCT), who modelled fuel burn for airlines based on their flight

schedules and operational data, Singapore Airlines was found to perform below an industry average.

Singapore Airlines had an average fuel efficiency of 30 (pax-km/L), below the industry average of 31

pax-km/L. The Airbus A380 was the least fuel efficient aircraft in its fleet, with the average fuel

efficiency of 26 pax-km/L, compared to 43 pax-km/L of United Airlines. (CNA 2018).

Figure 10. Fuel Efficiency. Retrieved (December 19, 2019) from

https://www.channelnewsasia.com/news/singapore/singapore-airlines-among-least-fuel-efficient-

airlines-flying-9875158

In the past, Singapore Airlines benefitted from the loosened regulations in the South-East Asia region

where it derived most of its revenues. But loosened regulations have allowed new competitors to enter

the market creating an increased price competition. The South Asian market is challenging compared

to its US counterpart, the market is fragmented, and Singapore Airlines faces stiff competition from

low-cost carriers. In Southeast Asia, low-cost carriers have 50 percent of the market, the highest

percentage in the world. As Singapore’s strategy aims to compete for price-sensitive travelers on

short-haul routes with its subsidiary Scoot, and premium passengers on medium- and long-haul routes

with the mainline Singapore Airlines, one positive aspect is the relative success of their low cost

carrier Scoot. (Osder, Elizabeth 2019).

During its first 40 years of operations, innovation, superior service quality and consistent high

profitability were the key success factors of the company, while earning the airline multiple awards.

However, for the past decade the company’s financial performance has suffered, while the industry

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has been having one of its best years. The gap between the key success factors of Singapore and its

competitors is growing smaller day by day, as factors such as government support and secular growth

in air traffic over the past decade have enabled rival carriers to narrow the gap. Meanwhile, to cut

costs and maintain profits, the company has cut back on aspects of its service, narrowing further the

gap with key rivals. The magical "X factor" that distinguished Singapore Airlines from its rivals has

been diluted. (Essays, UK. November 2018). The challenges faced by Singapore Airlines imply the

need for continuous improvement by developing new competencies. The company must find new

success factors to maintain its differentiation against rivals, and develop new competencies in

operating in the budget-airline space. (The Business Times, 2018).

7. QUESTIONS

1. Prepare a qualitative analysis of Singapore Airlines, including the main strengths and

weaknesses.

2. Analyze the balance sheet, income statement and cash flow statement from 2019 to 2015 in

order to identify the main financial strengths and weaknesses of Singapore Airlines.

3. Calculate the working capital of Singapore Airlines and the working capital needed in order to

analyze their financing necessities.

4. Does Singapore Airlines have capacity to grow?

5. Calculate the Z score from 2014 to 2018. Are the prospects for the company good?

6. Prepare the Cause and Effect diagram.

7. What measures would you recommend the company to apply so as to improve their

performance?

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8. FINANCIAL STATEMENTS

Malaysia Airlines %

(2018) 2018 % 2017 % 2016 % 2015 % 2014 %

Non-current assets 80,86 25,005.50

81.97

20,925.50

80.82

16,873.10

74.75

16,993.40

71.49

16,668.70

69.68

Intangible assets 75,27 451.3

1.48

435.3

1.68

423.5

1.88

515.8

2.17

497.6

2.08

Fixed assets 1,88 22,176.30

72.70

18,169.20

70.17

14,286.40

63.29

14,143.50

59.50

13,523.20

56.53

Long-term financial investments 2,53 2,333.80

7.65

2,268.10

8.76

2,102.10

9.31

2328.1

9.79

2591.5

10.83

Deferred taxes / Other LT Liabilities 1,18 44.1

0.14

52.9

0.20

61.1

0.27

6

0.03

56.4

0.24

Current Assets 19,14 5,499.70

18.03

4,967.00

19.18

5,698.70

25.25

6,776.30

28.51

7,252.90

30.32

Inventory 0,58 229.9 0.75 179.3 0.69 178.4 0.79 181.9 0.77 202 0.84

Accounts receivable 6,02 1,621.00 5.31

1,488.70

5.75

1,270.70

5.63

1,336.60

5.62

1,530.30

6.40

Short-term financial investments 0,07 539.90

1.77

546.10

2.11

658.10

2.92

1,153.00

4.85

353.30

1.48

Short term accruals 0,10 164.9

0.54

184.6

0.71

211

0.93

132.4

0.56

124.6

0.52

Cash and cash equivalents 12,37 2,944.00 9.65 2,568.30 9.92 3,380.50 14.98 3,972.40 16.71 5,042.70 21.08

Total Assets 100 30,505.20 100 25,892.50

100 22,571.80 100 23,769.70

100 23,921.60 100

Net Equity 41,04 13,683.20

44.86

13,228.40

51.09

11,671.30

51.71

13,132.90

55.25

12,930.10

54.05

Share capital 22,96 1,856.10 6.08 1,856.10

7.17

1,856.10

8.22

1,856.10

7.81

1,856.10

7.76

Reserves 13,64 11,430.70

37.47

11,004.20

42.50

9,428.00

41.77

10,898.60

45.85

10,607.50

44.34

Non-Controlling Interest / Other Equity 4,44 396.4

1.30

368.1

1.42

387.2

1.72

378.2

1.59

466.5

1.95

Non-current Liabilities 49,39 9,443.60

30.96

6,098.40

23.55

4,595.60

20.36

4,196.80

17.66

4,351.10

18.19

Long term loans 22,14 6,512.40

21.35

3,199.80

12.36

1,794.70

7.95

1,283.40

5.40

1,521.20 6.36

Other long term liabilities 23,12 2,228.70

7.31

2,077.10

8.02

1,890.60

8.38

2,036.30

8.57

1,871.00

7.82

Long term provisions 4,13 702.5

2.30

821.5

3.17

910.3

4.03

877.1

3.69

958.9

4.01

Current Liabilities 9,58 7,378.40 24.19 6,565.70 25.36 6,304.90 27.93 6,440.00 27.09 6,640.40 27.76

Short term loans 0,95 231.1

0.76

20.6

0.08

42

0.19

211.9

0.89

447.1

1.87

Short term provisions 0,03 435.7

1.43

369.1

1.43

322.4

1.43

218.5

0.92

178.9

0.75

Account payable and other short term operating debts

8,52 6,624.30

21.72

6,041.90

23.33

5,860.20

25.96

5,817.70

24.48

5,852.50

24.47

Short term accruals 0,07 87.3

0.29

134.1

0.52

80.3

0.36

191.9

0.81

161.9

0.68

Total Equity and Liabilities 100 30,505.20 100 25,892.50 100 22,571.80 100 23,769.70 100 23,921.60 100

Figure 11. SIA’s Balance sheets from 2014 to 2018 (data in $ million)

19

Malaysia Airlines % (2018) 2018 % 2017 % 2016 % 2015 % 2014 %

Revenues 100,00 16323 100 15806 100 14869 100 15239 100 15566 100

Cost of goods sold 44,21 13866 84,95 13035 82,47 12650 85,08 12971 85,12 13590 87,13

Gross margin 91,32 2457 15,05 2772 17,53 2219 14,92 2268 14,88 1976 12,69

Other operating expenses 36,23 1390 8,51 1223 7,74 1596 10,73 1586 10,41 1566 10,06

OPERATING RESULT (EBIT) 19,56 1067 6,54 1549 9,8 623 4,19 681 4,47 409 2,63

Financial income 11,90 68 0,42 108 0,68 140 0,94 209 1,37 140 0,90

Financial expenses 15,37 -267 1,63 -64 0,4 -244 1,64 82,4 0,54 -141,1 0,91

FINANCIAL RESULT 3,47 -199 1,22 44 0,28 -104 0,7 291 1,91 -1 0,01

Earnings before taxes 16,09 869 5,32 1593 10,08 519 3,49 972 6,38 443 2,85

Income Tax 1,10 -147 0,9 -248 1,57 -77 0,52 -121 0,79 -36 0,23

NET INCOME 14,99 722 4,42 1346 8,51 442 2,97 852 5,59 407 2,61

Figure 12. SIA’s Income statement from 2014 to 2018 (data in $ million)

Malaysia Airlines 2018 2017 2016 2015 2014

DEBT AND CAPITALIZATION

Debt = Liability / Assets 0,60 0,55 0,49 0,48 0,45 0,46

Debt Quality = Current Liabilities / Total Liabilities 0,16 0,44 0,52 0,58 0,61 0,60

Repayment Capacity = Cash flow /Loans 0,07 0,13 0,20 0,19 0,23 0,18

Cost of debt = Financial Expenses / Loans 0,16 0,01 0,01 0,00 0,00 0,00

Financial Expenses = Financial Expenses / Sales 0,21 0,01 0,01 0,00 0,00 0,00

LIQUIDITY

Liquidity = Current Assets / Current Liabilities 1,53 0,75 0,76 0,90 1,05 1,09

Treasury = Debtors + Cash / Current Liabilities 0,99 0,27 0,31 0,42 0,49 0,59

Acid Test = Cash / Current Liabilities 0,64 0,40 0,39 0,54 0,62 0,76

Z (UPF) = -3,9 + 1,28 CA/CL+ 6,1 E/A+ 6,5 NI/A+ 4,8 NI/E 0,63 0,20 1,01 0,72 1,36 1,06

Working Capital (real) (euros)= Current assets – Current liabilities 1102 -1879 -1599 -606 336 613

Operating Working Capital (euros)= Operating current assets – Operating current liabilities 1627 1544 1285 1453 2400 3706

20

Operating CA = Inventory + Clients + Other operating CA + Minimum cash required 2477 4795 4236 4830 5491 6775

Operating CL = Suppliers + Other operating CL + Accruals 1623 3250 2951 3376 3091 3068

Working Capital Deficit (euros) -341 -3423 -2884 -2060 -2064 -3094

ASSETS MANAGEMENT

Non-current assets turnover = Sales / Non-current assets 0,23 0,65 0,76 0,88 0,90 0,93

Current assets turnover = Sales / Current assets 1,41 2,97 3,18 2,61 2,25 2,15

TERMS

Inventories days = Stocks / Daily cost of sales 109,43 6,05 5,02 5,15 5,12 5,43

Days receivable (days) = Clients / Daily Sales 62,57 40,20 39,23 32,99 34,38 40,06

Days payables (days) = Suppliers / Daily cost of sales 693,02 83,27 78,88 95,10 81,58 78,06

SALES

Sales growth = Last year’s sales / Previous year sales 7,9% 3,27% 6,31% -2,43% -2,1% -

PROFITABILITY, SELF-FINANCING AND GROWTH

Return on assets = EBIT / Assets 0,02 0,03 0,06 0,03 0,03 0,02

Return on equity = Net Income / Equity 0,03 0,05 0,10 0,04 0,06 0,03

Cash flow / Sales 0,08 0,02 -0,05 -0,04 -0,07 0,02

Cash flow / Assets 0,02 0,01 -0,03 -0,03 -0,04 0,01

Dividends / Net profit 0,79 0,62 0,18 1,18 0,37 1,18

Dividends / Net equity 0,02 0,03 0,02 0,04 0,02 0,04

Figure 13. SIA’s Ratios from 2014 to 2018

ROE = EBIT/Sales Sales /Assets (Assets/Equity) x (EBT/EBIT) Net Profit/EBT

Malaysia Airlines* 0,02 0,23 0,20 0,69 0,54

2018 0,05 0,07 0,54 1,81 0,83

2017 0,10 0,10 0,61 2,01 0,84

2016 0,04 0,66 0,66 1,61 0,85

2015 0,06 0,64 0,64 2,58 0,88

2014 0,03 0,65 0,65 2,00 0,92

Figure 14. SIA’s breakdown of profitability, *average for 2015-18.

21

2018 2017 2016 2015

A) CASH FLOWS FROM OPERATING ACTIVITIES

1) EBT 868.6

1,593.20

518.6

972.4

2) Adjustments

Amortization of fixed assets 61.9

44.4

39.8

32.7

Depreciation 1,327.90

1,148.10

1,552.10

1,543.00

Impairment of property, plant and equipment 30.2

3.9

10.6

Impairment of trade debtors 5.7

1

-1.3

-4.7

Write-down of inventories 5.4

7.4

5.8

26.6

Income from short-term investments -1.1

-1.8

-1.8

-1.8

Provisions 302.2

282.9

304.8

218.5

Share-based compensation expense 21

13.1

15.2

12.4

Exchange differences -2.4

25.9

-47.1

16.3

Amortization of deferred loss/(gain) on sale and operating leaseback transactions

4.3

-3.9

-6

-7.6

Finance charges 116.1

89.8

46.1

50.3

Interest income -41.9

-60.9

-73.9

-70.7

Loss/(Surplus) on disposal of aircraft, spares and spare engines 5.8

-16.1

31.7

-52.7

Dividends from long-term investments -3.1

-6.2

-5.5

-115.3

Dividends from asset held for sale -39.5

Net loss/(gain) on financial assets mandatorily measured at fair value through profit or loss (“FVTPL”) -0.7 -6.3 -1.6

Other non-operating items 47.4 -19.3 103.2 -91.1

Share of profits of joint venture companies -23.2 -41 -20.9 -22.8

Share of losses of associated companies 97.4

9.3

63

11.1

5) Cash flows from operating activities 2,801.10

2,610.90

2,532.90

3,005.50

B) CASH FLOW FROM INVESTING ACTIVITIES

Payment for investments (-) -6,717.60

-6,051.20

-5,306.60

-3,636.30

Divestments costs (+) 1355.2

1,469.90

2,363.10

936.6

8) Cash flows from investing activities (6+7) -5,362.40

-4,581.30

-2,943.50

-2,699.70

C) CASH FLOW FROM FINANCING ACTIVITIES

Dividends paid -449.8

-248.3

-521.3

-315.4

Dividends paid by subsidiary companies to non-controlling interests

-34.4

-50.1

-37.6

-43.6

Proceeds from exercise of share options pursuant to the VGO of Tiger Airways 301.2

Acquisition of non-controlling interests without a change in contr

-4.7

-51.2

-458.5

22

Issuance of share capital by subsidiary companies 19.5 8.2

1.5

Interest paid -124.5 -75.7 -41.1 -53.8

Proceeds from borrowings 2,280.40 5 1.8 4.9

Repayment of borrowings -93.7 -20.3 -192 -41.4

Repayment of long-term lease liabilities -23.7 -21.5 -54.1

Proceeds from exercise of share options 33.2 24.4

Proceeds from issuance of bonds 1,350.00 1,600.00 430

Repayment of bonds -300

Payment of transaction costs related to borrowings -11.1

Purchase of treasury shares -134.3 -85.4

Proceeds from exercise of share options 1

12) Cash flows from financing activities 2931.7

1187.9

-224.6

-1321.4

E) INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS

370.40

-782.50

-635.20

-1,015.60

Cash and cash equivalents at the beginning of the year 2,568.30

3,380.50

3,972.40

5,042.70

Cash and cash equivalents at the end of the year 2,944.00

2,568.30

3,380.50

3,972.40

Figure 15. SIA’s cash flow statement from 2015 to 2018 (data in $ million) *We decided to compare the financial results of Singapore Airlines with the data from their main competitor Malaysia Airlines. For the ratio analysis, we used the financial data of Malaysia Airlines from 2015-2018 in order to compare the ratios of the two companies. To compare the balance sheet and income statement, we have computed the percentages of Malaysian Airlines financial data from the year 2018.

23

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