Macro environmental trends

In 1997 SIA joined the well-acclaimed ‘Star Alliance’ that comprise 14 leading airlines, a first truly global airline alliance offering 700 destinations in 124 countries. Other members include Air Canada, Air New Zealand, Nippon Airways, Austrian Airlines, Lufthansa, etc. As part of the alliance agreements, SIA established its presence in Frankfurt, Munich, Denmark, Norway, Sweden, and the Baltics. The advantage of this alliance to SIA is that it guarantees them mutually beneficial partnership in a highly competitive environment.

In October 2002 SIA reported half-yearly operating profit of $510 million (+12. 8% compared with the same period last year) and pre-tax profit of $656 million (+127. 9% compared with the same period last year). 34% of profit comes from East-Asian operations, 20% from American routes, 20% from European routes, and the rest from the Pacific, West Asia and Africa. On the whole, there was a steady increase in the number of passengers and other indicators (figures 1 to 3).SIA Deputy Chairman stated that SIA ‘made full use of opportunities presented by a faster-than-expected recovery post-September 11’2.

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While the rest of the Asian carriers are engaged in the struggle of survival, SIA stands out. It managed to hold profits steady after the initial post-Sept11th fall. Although SIA had to suspend 11 aircrafts and almost halved the rate of expansion, they managed to seize on their rivals misfortunes and made some acquisitions, e. g. SIA recently bought 10% stake in Thai Airlines.

Also despite the global downturn in the airline industry, SIA could afford to recently undertake the biggest product launch in its history: $300 million revamp of its first class, business class and economy services. SIA services 93 destinations in 38 countries. SIA Group has more than 29,000 employees that come from a diverse background and bring a range of skills, attributes and personalities. They are employed both in Singapore and outside in 80 different locations around the world.SIA company structure is distinguished by its flat management structure, which means that there are few levels of authority within the hierarchy.

This creates a more dynamic and flexible business that empowers people to make decisions in response to customer needs and changes in the business environment. To avoid their staff being compartmentalised into their roles, SIA has a policy of moving key staff around in a process of job rotation. It provides managers with cross-functional expertise and a better knowledge of SIA business as a whole.SIA Group stresses the importance of retraining and motivating their staff.

SIA training expenditure per worker exceeds Singapore’s national average and accounts for 15% of SIA’s total annual cost. In turn it positively affects staff productivity, which is kept rising over the years. Airlines operate in a competitive environment. A key area of competitive for them is the quality of customer service. There are two main long-term objectives: a) expand their route network, and b) to continue making improvements to their in-flight services.On the first objective, expansion can be made via already existing ‘Star Alliance’ and creating new alliances (e.

g. with Air India, Quantas, or Virgin Atlantic). These alliances are beneficial for SIA in case of a sudden fall in passenger numbers on any one route, because diversification of routes via alliances helps to reduce that risk. On the second objective, SIA have mastered an art of equilibrium in terms of maintaining a healthy financial position while 80% of its revenue comes from economy class passengers who expect a world-class service but pay economy-class prices.To date, SIA upheld its world-class services for all the passengers regardless.

In terms of passengers’ satisfaction with safety, SIA is proud of its safety record: it is a company policy to purchase a new aircraft whenever possible and to maintain them thoroughly. The age of its fleet is well below the mean average for the industry, with the underlying assumption that new machines are less likely to be involved in accidents. To reduce the health risk of thrombosis, SIA has printed warnings on its tickets and provides advice to passengers on liquid intake and in-flight exercise.

While a non-stop SIA flight may take up to 18 hours, the passengers endure major loss of control. Therefore the use of technology (especially individual in-flight entertainment and a global satellite email service) can assist passengers’ empowerment and enable them to feel that the time spent on the airplane has not been wasted. SIA are introducing in-flight internet system for use by economy class passengers, free during the test period and nominally priced thereafter.

In terms of legroom for economy class passengers, SIA’s standard exceeds UK regulation.And yet SIA is considering removing few rows of seats in their aircrafts to give even more legroom, which is a sign of their continuous strive to improve standards. And finally, ‘Thinking globally whilst acting locally’ philosophy helps the in-flight staff to respond positively to local needs of their clients whilst remaining conscious of airline’s global goals. Part4. Product strategy: objectives, targeting, positioning against competitors, product features, quality and image, pricing, distribution channels, promotion mix, sales force, etc. Marketing philosophy and objectives SIA’s marketing philosophy is that ‘the customer is always right’.SIA’s long-term objective has been to rise from a very good Asian airline to the world’s most exquisite airline, in which they succeeded, and to maintain this position. Maintaining this position rests on a) maintaining high profits, and b) continuous development, innovation and improvement of its outstanding level of service.

Targeting SIA segments its customers using the Activities-Interests-Opinions-Demographics framework. A customer audit identified that SIA’s most profitable customers, in good and bad times, are business and first class passengers on transcontinental routes.SIA’s response was to enhance services to these passengers by introducing more capacity on long-haul flights and by up-scaling its services. Recent $300 million revamp, the biggest in SIA history, was the answer.

Further than that, the revamp involves upgrading economy class as well, since economy passengers comprise the largest chunk of SIA customers. Positioning against competitors SIA had positioned itself to execute a strategy of differentiation, offering its passages a level of service that was seldom.SIA is the first airline to have attained a ‘top quality service’ position in the market and a ‘top quality service’ image in customers minds. SIA’s focus is on continuous enhancement of quality of service, not on reducing costs. And as such, SIA consistently delivers its service promise. For example, SIA operates its catering subsidiary that comprise the world’s largest flight kitchen and prepares 45, 000 meals a day, following the passengers menu pre-orders. SIA’s luggage delivery subsidiary promises to deliver passengers’ luggage within 10 minutes of arrival.

As above, outsourcing of non-inflight services to SIA’s subsidiaries helps to maintain the highest level of service across the board. Increasing competition in in-flight service from international carriers such as Thai Airline, Cathay Pacific, Malaysian, etc gave increasing pressure to distinguish SIA from the others. Additionally, the tragedy of 9/11 has put greater pressure in the air travel market. Alliance is the only reasonable way of solving problems. SIA joined the ‘Star Alliance’ as a means of growth in overseas market, Europe and the United States.However, there are some concerns about the ability of the other partners to offer the same service quality as SIA do.

Another way to defy competition is to participate in so-called ‘equity investment’ scheme, the basic idea of which is that an airline invests in other airline’s equity in order to cement a long partnership with them or have a controlling stake in them. SIA took few steps in this direction: it acquired 25% stake of Air New Zealand (who already owns 50% of Ansett shares), 49% if Virgin Atlantic shares in 2000, and recently acquired 10% stake in Thai Airlines.Another advantage of SIA over its competitors is that it has the lowest labour costs among leading airlines, thanks to its recruitment strategy. Most SIA staff is Singaporean although they were drawn from many ethnicities within the South/Southeast Asia region. This is critical ingredients in the success of the airline. Also, SIA takes advantage of low cost of fuel, typically the biggest expense for Asia airlines, especially in recent years. Lower global demand for fuel after Sept.

11 has left prices 10% lower than they were last year, and rising Asian currencies have made it cheaper still for the region’s airlines. It is estimated that SIA will save US$200 million on fuel this year as the result3. To maximize profitability, SIA has focused on long-haul flights. Evidence shows that long-haul flights are the most profitable and have the highest number of business class passengers (see table below)4.

In addition, the flights are supported by the Alliance to US and Europe, as mentioned above.