1.1 Background to the Report
Strategic management refers to analysing the important initiatives which are taken by the top management of the company on behalf of the owners. It successfully keeps a track of day- to- day activities which are going into an organization to organise the resources and plan a strategy which the organization should follow in order to get benefit in the business. It provides a direction to the organization and is closely related to the field of organizational structure. (Hambrick, 2007) In this report, strategic management of Singapore Airlines is critically evaluated on the basis of several strategies used by them. This not only helped the company in achieving the results but also enabled SIA to expand itself in the global market as well as establish a new base in the new expanding countries. 1.2 Aims of the research are –
To develop a good understanding about what involves in Strategic management. To develop knowledge about constituents of strategic management process. Critical assessment of strategies of a selected organization. To throw some light on the internal and external environment of selected organization.
Gap analysis for Singapore Airlines –
2. Analysis of internal framework of Singapore Airlines –
Capability to restore competency in order to attain similarity with the change in business environment are termed as dynamic capabilities. This is done by reconfiguring, mixing and adjusting external and internal resources, skills and abilities (Teece et al., 1997).
2.1 Resources –
Connecting strategic resources and core strategies is defined as ‘configuration’ by Hamel where core competencies and assets, process and assets are organized and combined in order to maintain strategies (Hamel, 2002). Resources are divided into two categories, tangible and intangible resources of Singapore Airlines. They are further divided into sub categories on the basis of which it can be assessed that core strategies and strategic resources were well connected.
2.2 Capabilities –
On the basis of broad variety of competency and technological expertise in newly invented planes, Singapore Airlines effectively fascinated more airlines clients to its fleet management industry, securing its place as major fleet management facility providers of the world. It also persists on expanding its potential by means of strategic joint ventures. For instance, a joint venture agreement is signed by SIA with Panasonic Avionic Corporation in order to prepare a facility for maintenance, repair and operation of communication and in-flight entertainment. Facility will be based in Singapore and components will be generated by Panasonic Avionics (Singapore Airlines, 2011).
2.3 Core Competencies –
Core competencies of Singapore Airlines consist of the interpersonal talents of its flight assistants and ability of its top level management in planning strategies for marketing. They endeavour to make flights as relaxing as possible (Singapore Airlines, 2011). 3. Analysis of external framework of Singapore Airlines –
PoliticalUnpredictable, SIA reject Air India offer
EconomicSIA offer created trouble in Hong Kong
SocialSIA Airplane crash in Taiwan
TechnologicalQuick technology implementation
EnvironmentalLaunch of A380 Air career
4. Five forces of porter –
Porter’s five forces model deliver a well-liked external analysis framework for Singapore Airlines. After analysing the internal and external framework of Singapore Airlines, S.W.O.T analysis is performed in order to assess SIA’s capabilities, followed by the critical analysis of corporate and business level strategies.
5. S.W.O.T. Analysis –
Singapore Airlines has an expanded geographical reach. They operate in a number of reasons like US, West Asia, Europe, Africa, South west Pacific and East Asia. They run flights to 63 cities globally, whereas its division Silk Air is offering flights in 12 countries with 39 cities. Considerable amount of revenue is generated by SIA group with its airline operations around the globe. Equally spread and diversified revenue base guarantees that group is not dependent on single geographic market for most of its profits, by which business risk decreases significantly. Though, SIA is basically a passenger airline, but the group is also offering various specialized services like engineering services, airline operations, cargo operations, etc. which are providing them stability by diversifying business threats. Additionally, SIA group has a policy of maintaining young aircraft fleets, which emit lower carbon emissions and have less burning of fuel per kilometres. This is also strength of SIA group as this factor helps in keeping maintenance costs less, along with reducing performance related security concerns (Heracleous, 2006).
SIA faced extremely competitive market in its initial phases. Many countries restricted air-route access to protect national airlines from other competitions. SIA worked hard to get access rights for many important airports (eg. Heathrow, Manchester) (Reddy, 2004). Various competitive authorities keep on investigating about Singapore airlines and its subsidiaries. For example, South Korea, Canada, Australia, South Africa and European Union investigated about SIA group in order to determine whether the rates, surcharges, and other characteristics of cargo service were determined lawfully or not. In financial year 2012, SIA paid administrative penalty to South African competition commission (2.8millionUSD) as settlement. Legal expenses connected with the inquiry and court case and time spent on this issue left an impact on SIA’s business and operations.
Singapore Airlines with its well-built base of operations and proficiency, is well placed to reap advantages from the worldwide boom in tourism industry. This would help SIA Group to produce extra profits. Also, group is focusing on joint ventures and strategic operational alliances to add opportunities for growth and sales. SIA entered into partnerships (jetblue Airways) and code-sharing agreements (Virgin Australia/ Virgin America) in order to increase growth opportunities. For instance, SIA signed code share agreement with Virgin America in December 2012 (SIA, Virgin America reach code-sharing agreement, 2012). SIA will add its ‘SQ’ airline code to flights of virgin which are America-operated serving Washington DC, Las Vegas, Seattle, Chicago, etc Furthermore, SIA group has launched ‘Scoot’ which is a low cost carrier in order to grow its existence in low cost flight market. This step will enable SIA group to attract more groups of customers which will increase its growth and revenues.
Competition is very high in the airline industry. Reputation, safety records, customers service, flight schedules, fares, code-sharing relations are few parameters of competitions. SIA faces straight competition with other carriers on its route. Cathay Pacific, Japan airlines, United Continental, AMR are few of its competitors. Extreme competition on the basis of price matching, promotions, discounting, capacity, etc. affects operating margins of SIA. Also, Natural disasters can have affect on SIA’s operations effecting the cash flows and financial state. Moreover, hike in the prices of jet fuel can increase operating costs, which can affect the profitability (Heracleous, 2006).
6. Strategies used by Singapore Airlines –
6.1 Corporate level Strategies –
Companies tend to grow their full potential in economies which are developing, with the help of strategic diversification. Strategy of diversification is followed by SIA at the corporate level. SIA group has number of primary companies with key companies being SIA Cargo, SIA Engineering Company and Silk AIR. They also have number of associated companies. Its Airlines divisions which consist of 49% ownership of Virgin Atlantic, 32 % of Tiger Airways and entire ownership of local carrier Silk Air cover basic segments of customer in the industry. This was a long-term strategy (Singapore Airlines, 2008).
Benefits of using diversification by Singapore Airlines is to enable passing of learning and control quality and side by side reaping cost synergies. Subsidiaries serve as sources of learning; and also as progress arena for skills of management and corporate rather than divisional viewpoint through job rotation. Profit margins are better in related operations (like aircraft maintenance and catering) on comparison with airline business itself as structure of industry in those sectors is more favourable. (Singapore Airlines, 2008).
Strategic Alliances –
In April 2000, SIA joined Star Alliance as a step of its internationalization strategy. In the three main airline alliances, Star alliance hold its place with Oneworld and Skyteam. Also, In India and China, SIA Group were investing through planned deals during this time. Deals were done with local services like engineering services, cargo85 divisions, catering and airport services. SIA is also under a code share contract with Malaysian Airlines. These airlines are offering up to 14 flights in a day between Kuala Lumpur and Singapore (Doganis, 2006).
For the expansion of the company, strategic alliances are becoming more common tool. SIA used strategic alliances for increasing competitiveness in the global and domestic markets. This helped SIA in developing new business opportunities with the help of new services and products. This resulted in the expansion and growth of company globally. An alliance is a business-to-business relationship (Jeffrey, 2004).
6.2 Business level strategies –
Differentiation strategy –
Premium services were successfully delivered by Singapore Airlines to those customers who are very demanding and this can be termed as achieving differentiation strategy. This helped Singapore Airlines in identifying that different customers are broadly scattered, with varied needs and sufficient spending power. If an organization is unique in something which is valuable to its customers at the same time, it differentiates itself in the marketplace (Chamberline & Robinson, 1996). If an offer is valuable for the customers, they tend to be less sensitive to characteristics of competing suggestions where cost may not be one among these characteristics.
This accomplishment of SIA challenges viewpoint of Porter that cost leadership and differentiation strategies are equally exclusive strategies (Porter, 1985). Differentiation strategy allowed Singapore Airlines to insulate itself partially from rivalry competitors of same industry. Customers of differentiated services were less sensitive to prices and they started preferring SIA over other airlines, that is, SIA succeeded in gaining customer loyalty (Hitt et al., 2007). SIA carefully applied this strategy and played safe by delivering premium services appropriately without over-proliferating them.
leadership strategy –
Singapore Airlines has considerably greater effectiveness than its peer group, which is a crucial aspect of an effective leadership strategy. They have young fleets which have lower maintenance costs; they are fuel efficient and have effective hedging of fuel. Labor cost of SIA is comparatively low (16.6%) than average of all prime airlines (20.1%) (Singapore Airlines, 2008). Singapore Airlines have youngest fleets in the airline industry, which is worth considering. Their fleets have average age of 75 months, and average age of half of airline industry fleets is 163 months. SIA’s fleets are much efficient. Younger planes are quiet, comfortable and fuel efficient. They have low repair, service and maintenance costs which are all part of its leadership strategy. 7. Recommendations –
Keeping in mind the weaknesses discussed above, some recommendations for Singapore Airlines come into light like keeping company information confidential. SIA paid huge fine as various companies successfully investigated about SIA’s internal facts and figures. Also, they need to keep a close eye on its competitors who try to gain lead in the competition on the basis of price matching, promotions, discounting and capacity.
8. Conclusion –
A variety of strategies were executed by Singapore Airlines by which the company is successful for a considerable time. By keeping a track on industrial environment and the macro environment, Singapore Airlines can uplift its capabilities to secure future success. However, as there are uncertainties in the environment and market keeps on altering quickly, it is crucial to monitor and carefully consider all the strategies before implementation. Singapore Airline’s potential to become accustomed to change will positively help the company..to..strive..on..with..competitors..in..the..future.
9. References –
Chamberline. E, & Robinson, J. (1996). “Theory of Monopolistic Competition, What is Perfect Competition ? ” Quarterly Journal of Economics, Vol. II, no.
4, 431- 433
Doganis, R. (2006). Outlook, The Airline business ed. 2, Routledge, Abingdon.
Hambrick, D. C., (2007). What is strategic management really? Hamel, G. (2002). Leading the Revolution: How to Thrive in Turbulent Times by Making Innovation a Way of Life. New York: Plume Books.
Heracleous, L. (2006). Flying high in competitive industry: Cost effective service at SIA. Mc Graw hill.
Hitt, M., Hoskisson, R., Ireland, R. (2007) Management of Strategy: Concepts and Cases.7th ed., Thomson South-Western, USA
Jeffrey, R., (2004). Strategic alliances: Theory and evidence, Oxford university press, US, 2004.
Porter, M.E.(1985). Competitive Advantage. New York: Free Press, 6-22.
Reddy, A. (1994). Total quality marketing: the key to regaining market shares. Westport, CT: Quorum Books.
SIA, Virgin America reach code-sharing agreement (2012, December 15, Saturday). Business pg30..Retrieved..from http://imcmsimages.mediacorp.sg/CMSFileserver/documents/006/PDF/20121215/1512BZC032.pdf
SIA (2012). Virgin America reaches code-sharing agreement, December 15, 2012.
Singapore Airlines, (2008). Annual Report, Singapore.
Singapore Airlines, (2011). Annual Report, Singapore.
Teece, D., Pisano, G., and Shuen, A.(1997). Dynamic capabilities and strategic management, Strategic Management Journal , 18, 509-533. reaches
code-sharing agreement (2012, December 15, Saturday)