Singapore Airlines External Factor Analysis - Essay Example

? Singapore Airlines External Factor Analysis ID] [Department] [Supervisor’s Singapore Airlines External Factor Analysis Introduction Singapore Airlines, initially the Malaysia-Singapore Airlines, started operations as an independent airlines company in 1972. The company has gained a strong position in the airline industry and the route network now has expanded to over 90 destinations in more than 40 countries. The company has been able to achieve competitive advantage through product and experience based differentiation as it pioneered the concept of entertainment and innovation in flight. It was the first airline to introduce hot meals, alcoholic and non alcoholic drinks, fragranced towels, and video on demand for the cabin crew members. The crew members are youngest in any airline industry in South Asia and they use the “Singapore Girl” as the symbolic representation of the company’s commitment to quality excellence and service delivery (Singapore Tourism Report, 2011). Further, the airline keeps the youngest fleet of aircrafts in order to minimize its fuel costs and has an impressive business model which is responsible for its astounding success. It has an efficient financial infrastructure developed and incorporates innovation and strategic management to adapt to the rapidly changing external environment of the industry. As it is the national airline, it is present in the markets of South Asia, East Asia, Europe and America. Therefore, Singapore Airline operates in a highly competitive market thus external environment is of particular importance to its strategic management and leadership. External Factor Analysis of Singapore Airlines The External environment has an important impact on the airline industries in Asia especially after the augmentation of terrorism across the world. With the changing external trends globally Singapore Airlines is faced by many micro and macroeconomic pressures, socio-cultural changes, political and legal factors and also the technological pressures to constantly innovate. Below is an analysis of the four external factors affecting Singapore Airlines. Political This refers to the political set up and government intervention in the business sector. The government usually discourages private monopolies and hence would encourage competition. This means Singapore Airlines has to watch for political barriers in host countries for example it withdrew the stake in Air India because of the privatization programme of Indian government (BBC News, 2001). The government’s lobbying activities or policies regarding privatization, protection of domestic industry, contracts or subsidies can all affect the international firms like Singapore Airlines. In politically unstable countries like India and Pakistan, the Airlines will be subject to much uncertainity in operations and will have to incur additional security costs. Even in Singapore, it does not receive any government subsidies despite the fact that it is a national airline (John, 2010) Social Factors Social factors pertain to the societal changes in tastes, preferences and consumption patterns of the consumers. A change in income levels of the society means more people can afford to travel by air rather than by rail or car hence, there can be an increase in the sales of Singapore Airlines domestic and international flights (Hill, 2008). Moreover, changes in social habits like increased preference of entertainment on flights poses a greater pressure on Singapore Airlines to provide such features to the travellers. The crash of Singapore Airline flight SQ006, at the Chiang Kai Shek International Airport in Taipei, meant that the company had to compensate the agitated families of victims with a total amount of $400,000 (BBC News, 2001). Moreover, the increased trend of online shopping also requires Singapore Airlines to regularly update its website and offer online selling and booking of airline tickets in Asia. The increase in terrorist activities however, has a declining impact on its sales as the tourism industry was badly struck by the tragedies (Christopher, 2007). Furthermore, the societal trend towards green marketing solutions also impacts the strategic management decisions of the airlines. The company launched its first ASPIRE green flight in 2010 from Los Angeles to Singapore via Tokyo resulted in saving massive 10,686 kilo grams of fuel consumption and 33% reduction in Carbon dioxide emissions (Singapore Airlines, 2010). Economic Factors An increase in two income households in Asia has resulted in more people being able to travel by air. However, increased unemployment, inflation and interest rates have negatively impacted the sales of the company. The macroeconomic inflationary pressures on oil prices have also challenged its model of low cost leadership. The Airlines has outsourced most of its operations as a result which further pose challenges in terms of service delivery and performance. Singapore Airlines has been criticized for its unfair offer to buy 24% stake in the China Eastern Airlines for US$923.8 billion. The prices of the tickets have to be stable and affordable. (Singapore Airlines, 2010) Technological Factors Rapid changes and innovations in technology means airlines have to constantly update their technologies to remain competitive. Singapore Airlines has maintained its competitive position because of the constant innovation and pioneering many technological features like the productivity suit for its passengers which enables them to carry on their work on the laptops powered by the sun micro system. The airline also provides technological advanced economy class seats and the world first business class seats. This enables Singapore Airlines to have a sustainable competitive advantage that not many airlines have been able to surpass. (John, 2010) The most important factors that affect the airline industry in general and Singapore Airlines in particular are the political factors and the technological factors. This is because political instability can take the form of civil unrest as is in Iraq, Iran or Northern Pakistan, or political protests that can delay the operations of the airlines. Terrorist activities in certain countries can result in drastic decline in tourism. Northern Pakistan which was previously an attractive spot for tourists has now taken over by the military operations, driving out all the tourism in the region. Moreover, political lobbying in certain countries can result in governments trying to contract out the multinational companies in the country, exempting any tax breaks (Hill, 2008). Moreover, economic factors in terms of inflation, oil prices and labour markets are also very important. The prices of oil have escalated; further increasing the cost of fuel consumption at the airlines challenges its low cost leadership model. Coupled with inflation, this is major macroeconomic threat to the business (John, 2010). The workforce and local personnel is also an important factor as cross cultural differences can create barriers in learning and delivery of service. Airlines is a service industry and thus the importance of delivering an excellent service is the selling premise whereby companies try to differentiate their product based on service and experience provided to the customers (Conger, 2007). In order for the firm to ensure that customers get the service it has aimed for, it needs to ensure that the visionary goals are understood by the staff and management at all levels. This can become increasingly difficult for a multinational firm which has to train the local workforce with different working ethics and practices. Thus the difference between the cultural values of work in Singapore and Europe for example are entirely different which may impact the performance of the airline staff (Christopher, 2007). Role of Management in Attaining Competitive Advantage for the Singapore Airlines In order to achieve competitive advantage and be able to sustain it, the company must maximise its external opportunities and minimise the threats and challenges. Thus the aforementioned external factors have mostly been managed by Singapore Airlines management as part of its strategic leadership which is the main contributor of it getting the competitive edge it has over its rivals (Conger, 2007). Planning Singapore Airlines has a comprehensive strategic management system whereby the management sets out short term and long term goals and strategies to achieve those goals. Strategic Planning enables the firm to seek prospectus directions and adapt the appropriate strategy in relation to the competitive market positioning and external factors (Hill, 2008). For example, the decision to sell air line tickets online consisted of extensive market research, strategy analysis and strategy selection process. The strategy choice for Singapore Airlines is based on external factors and demographic variables of the target market in the host country. Moreover, at Singapore Airlines the senior management responsible for strategy choice and decision, engages management and encourages the participation of their workers hence it hires new young staff which can generate innovative ideas and suggestions for service delivery (Locke, 2009). Organizing Organizing refers to the management’s role to organize the tasks required achieve the set objectives. Coordination of departments is integral in this stage. Since Singapore Airlines is a national airline with its operations in multiple countries, the organization of strategy is done on a decentralised basis. The decision making is centralised while the service is delivered to meet the local needs of the target market hence, is done on a localized basis. The major strategic decision is to be cost efficient and the company has designed all its operations to achieve that strategic goal. From procurement to meals at dinner times, all activities are organized to minimize costs. In order to do this, the company has outsourced many of its costly operations like the preparation of payroll or ticketing activities (Locke, 2009). Staffing The process of recruiting, hiring, training and staffing are also the most important for service industry firms like Singapore Airlines. Since its workforce is the major marketing tool, it heavily invests in the selection of crew staff. The human resource development holds significance as the workers are highly motivated by monetary and non-monetary factors. The trainers are usually the former crew members and are experts. The staffing needs are fulfilled keeping the corporate goals and objectives in light and continue even after the applicant has been hired in the form of on the job training. The company engages in talent hunting and is one of the most renowned recruiters in Malaysia and Singapore. Job satisfaction is on top of the criteria and that is one of the reasons for its success (Heracleous, 2010). Leading Management at Singapore Airlines has been able to achieve the tremendous success because of the ability of its management to lead, not just manage (Singapore Tourism Report, 2011). The effective leadership requires for an effective communication of the company’s strategic and visionary goals to the workforce. Participative decision making is encourages at Singapore Airlines whereby workers are made to feel as a part of the strategic management and are encouraged to contribute innovative ideas and suggestions. The leadership has been strong and faced many challenges firmly like the aircraft crash and maintaining their low cost leadership model in times of escalating global inflation (Heracleous, 2010). Controlling Evaluative measures are also taken by the management in order to periodically evaluate the effectiveness of existing strategy and take corrective measures if required. The senior executives directly hold meetings to stress on the importance of cost reduction and thus are able to control the employees to maintain the business model. The company also has outsourced the process of ticketing to an Indian firm which enables it to control the costs and the management to achieve the corporate goals (Conger, 2007). Conclusion and Recommendations Singapore Airlines has gained the market positioning of being one of the most cost effective airlines in the world. The analysis of external factors and management’s role in managing these external threats and opportunities it can be concluded that Singapore Airlines enjoys some pioneering advantages in terms of its innovation and technological advancement. It has achieved a sustainable competitive advantage because of the effective management and strategic positioning. The brand management and service marketing of the Airlines has outperformed many others in the industry. It copes well with the external pressures of economic, political and environmental factors (Heracleous, 2010). However, the rising oil prices and the economic recession have negatively impacted the sales and profitability of the business (John, 2010). In order to respond to these changing external environmental factors, the company needs to maintain its pre-eminent position in the market. It needs to keep responding to the dynamic nature of airline business and confront the increasing competition by British Airways, Virgin Atlantic and Cathay Pacific all of which are improving tremendously on improving the service quality provided to passengers (Singapore Tourism Report, 2011). It needs to increase its points of differentiation and points of parity in response to the increasing popularity of these airlines. Further expansion globally is another prospect it can peruse to increase the market share. It should continue with its plans of a $100 million investment in the new space bed of 45 aircrafts in Raffles Class which will maintain its brand positioning and enable it to sustain the competitive advantage it has. This will also take the pioneering advantage from British Airways in installation of space beds (Singapore Tourism Report, 2011). The communication plan also needs improvement as Singapore Airlines is not investing in media and communication channels. The in flight entertainment programmes also need improvement, it can offer the Raffles class passengers to use the internet while on board. DVD range should also increase and interconnected games network could be another point of differentiation for passengers on board. In order to gain a strong financial and economic infrastructure and expanded global reach it can form strategic alliances with companies like Star Alliance (Hill, 2008). By doing this, Singapore Airlines can reduce its costs while reaching out new destinations and increasing the passenger base. There are a lot of routes and zones that are not yet reached by Singapore Airlines in Europe and USA which can be attained if it forms strategic alliance with other airlines. Hence, in all Singapore Airlines should continue to improve its organizational development and business model of low cost leadership. This should be done with more emphasis to the human resource management and development of a trained and efficient staff that can deliver the highest quality of service, unreeling any cultural barriers (Singapore Tourism Report, 2011). References BBC News. (2001, February 23). Airport criticised over Taiwan crash. Retrieved November 29, 2011, from BBC Asia Pacific: http://news.bbc.co.uk/2/hi/asia-pacific/1185522.stm BBC News. (2001, September 02). Singapore Airlines drops Air India Bid. Retrieved November 29, 2011, from BBC Business: http://news.bbc.co.uk/2/hi/business/1521547.stm Christopher, L. (2007). Service Marketing. New York: Prentice Hall. Conger, J. A. (2007). The practice of leadership: developing the next generation of leaders. California: John Wiley and Sons. Heracleous, L. (2010). Singapore Airlines' Balancing Act. Harvard Business Review Vol.88 , 145-149. Hill, C. W. (2008). Principles of Management. New Delhi: Tata Mc Graw-hill Publishing Company Limited. John, T. (2010). Strategic Management: Awareness and Change. San Francisco: Thomas Rennie. Locke, E. (2009). Handbook of Principles of Organizational Behaviour: Indispensable Knowledge for evidence based management (Vol. second edition). London: John Wiley and Sons. Singapore Airlines. (2010). CAAS and Singapore Airlines Partner for World's First Multi-Sector Green Flight. Retrieved November 30, 2011, from News Releases: http://www.singaporeair.com/jsp/cms/en_UK/press_release_news/ne100128.jsp Singapore Tourism Report. (2011). Company Profile. Singapore: Singapore Tourism. Read More