Critical Analysis of an Organisations External Environment of Singapore Airlines - Case Study Example

Table of Contents Introduction 2 About the Company 2 External Analysis 3 PESTEL Analysis 3 Influence of External Factors on Singapore Airlines 12 Conclusion 13 References 14 Introduction Businesses all around the world have to face external pressure due to the manner in which the external environment influences the decision making of different players in the industry (Tsiakkiros, 2002). External factors influence every player in the industry similarly and organizations that are able to understand and mould with the changing external environment are able to take better decisions (Binggeli & Pompeo, 2002). It is imperative that businesses understand the external factors and devise ways which will support their decision making. This report looks into the external analysis of Singapore Airlines by concentration on the manner the external factors have influenced their decision making (Tsiakkiros, 2002). This report looks into the external analysis through the PESTEL Analysis as it will help to understand the manner in which the external environment is influencing all organizations and more specifically Singapore Airlines (Singapore, 2011). About the Company Singapore Airlines as it name suggest operates in the airline industry and is a major carrier in Singapore (Singapore, 2011). The airline has been operative since 1972 and has diversified the business to reduce risk and performs in aircraft handling and engineering section as well (Singapore Airlines, 2011). The airline over the period has grown and now owns 107 fleets which cover over 62 different destinations including both domestic and international ones (Singapore Airlines, 2011). The company has served the customers and has moved from an airline player to a cargo player and is termed as one of the most admired airlines (Binggeli & Pompeo, 2002). This has made the airlines compete on service and ensure that they look towards providing service which has helped the airline to contribute significantly in this sector (Binggeli & Pompeo, 2002). External Analysis The airline industry has witnessed major ramifications due to various changes in the external environment which has intensified cut throat competiton due to entry of new low cost players, underperformance of airlines and working at over capacity (Costa et al., 2002). This has been matched by other problems like Asian tsunami, rising terrorism, and increasing prices of fuel which has taken a toll in the way the sector performced and brought about changes in the external environment (Costa et al., 2002). The airline industry in Asia has thereby been affected by the external factors especially after the September 2001 terrorist attacks in the United State and the traffic loss that was attributed to the Iraq war and other terrorist activities (Doebele, 2005). The rapidly changing external environment and the uncertainty associated with the external factors have made widespread changes and have created an adverse effect on all the players performing in the industry (Tsiakkiros, 2002). This will further be clarified and developed through the PESTEL Analysis (Tsiakkiros, 2002). PESTEL Analysis The PESTEL Analysis for the airline industry will help to identify the manner in which the external factors are affecting Singapore Airlines and determine the areas that the airlines need to perform so that the performance gets enhanced in the future (Czinkota & Ronkainen, 2004) The analysis is Political The political instability especially after the September 11 terrorist attacks has made millions of dollars to be spent on security thereby increasing the pressure on the airlines to match with the set security standards (Mullins, 2009). This has aided towards an increase in the volume of passengers thereby making the airlines to look towards having a scenario where they foster growth and proper services (Shostack, 2009). This has been aided by the deregulation of airline sector by the government of the country thereby making more players enter the market and compete on price and service (Mullins, 2009). Along with it Singapore Airlines is partially held by Tamasek Holding and has government holding as well which has ensured government protection and looking towards a political strategy which ensures the ability to provide rules governing growth (Singapore, 2011). The manner in which the political situation and increase in security has transformed the way the airlines performs has made the airlines understand the importance of ensuring political stability (Mullins, 2009). The manner in which the performance of Singapore Airlines has been enhanced due to the presence of government and the ability of the government to ensure an environment where despite the growth in terrorist activities the airlines has been able to ensure better rules governing the industry (Cateora, Mary & Graham, 2009). The fact that the government has ensured that the political situation provides maximum advantage to the airlines has ensured that they are able to develop an environment which has increased the volume of passengers using the services daily (Mullins, 2009). Therefore, the political situation has transformed the manner in which airlines work in the industry and have to look towards ensuring that the political factor is dealt with utmost importance so that the airlines are able to deal with the external environment in a better way (Doganis, 2006) Economic The volume of passengers has been affected by the present economic scenario faced by the entire world as the world is looking towards coming out of recession (Justin, 2011). People loosing jobs and looking for alternatives to sustain their livelihood has made people look towards cheaper mode of transport like the railways and substitute airways for it (Cateora, Mary & Graham, 2009). Job losses has resulted in dwindling purchasing power and this fuelled with rising inflation and prices of oil has multiplied the effect and resulted in few travelers looking towards airlines (Justin, 2011). The widespread changes along with decreasing bargaining power of customers due to the present economic scenario has resulted in the airlines facing a situation which is making it difficult for them to adjust (Doganis, 2006) The present economic scenario has resulted in decreasing the purchasing power as increasing inflation level and the recessionary conditions have ensured that the volume of passengers looking towards airlines reduce (Justin, 2011). This has resulted in creating a situation where the economic conditions are taking a toll on the number of passengers and despite the efforts of the airlines to ensure effective marketing strategies is providing little advantage (Doganis, 2006). The manner in which the economic conditions have altered the level of standard has affected the volume of business for the airlines (Wind & Robertson, 2003). This highlights the manner in which the present economic scenario is affecting the manner in which the business conducted by the airlines gets affected (Cateora, Mary & Graham, 2009). This makes it imperative for the airlines to wait for some time and as the economic conditions look to improve needs to bank on it so that the volume of business grows (Mullins, 2009). This thereby highlights the manner in which the current economic scenario is affecting the businesses of airlines and the importance of the airlines to overcome this situation as the purchasing power and economic growth has a bearing on the performance of the airline industry (Rowley, 2011). Social Social factors have a bearing on the industry as witnessed by the airline industry (Johnson & Scholes, 2005). The growth in generation Y customers has increased the business for airlines as the generation prefers faster mode of communication and looks towards travelling in planes to match their social status (Mullins, 2009). This has resulted in changes in the taste and preference of customers as people are younger and look towards increasing their consumption by spending on goods and commodities that helps to simplify lives (Wind & Robertson, 2003). The growth and preference towards airlines due to change in habits and customs has helped the airline industry to be able to identify the different areas which when worked upon will help to change the flow of passengers and ensure better operative results for the airline players (Mullins, 2009). This has helped Singapore Airlines as they have been able to bank on the changing social environment and mould their services in a manner that helps the airlines to ensure maximum efficiency and flow of traffic (Singapore Airlines, 2011). Availability of different substitutes for the customers has brought about the required changes in the social outlook (Fletcher & Crawford, 2011). Buyers have a lot of option to choose from and especially due to the increase in the number of players and especially the low cost airlines find it easy to substitute one airline for the others (Rowley, 2011). This has been aided with the recent economic conditions which have decreased the number of customers travelling by airlines as they have more options at lower rates thereby ensuring a very high bargaining power (Rowley, 2011). The change in the social factors and people looking towards faster means of transport has ensured that customers or buyers are able to use their force and power to ensure that they are charged the correct fare thereby helping them ensure corrective measures (Mullins, 2009). Hence, the change in social outlook and the growing importance being laid on faster mode of transport has helped to enhance the business avenues for airlines and they need to look towards ensuing proper services to be able to match with the changes in the social environment (Fletcher & Crawford, 2011) Technological The growth and advent of new technology has brought about widespread changes in the way the airlines perform (Costa, Harned & Lundquist, 2002). The growth in better tools and technology has helped to transform the ground clearance methods adopted by airlines and has reduced the time taken by airlines to ensure that its routine operations are carried out in the most effective way (Shostack, 2009). This has helped the airlines to reduce cost and gain economies of scale as bigger and bulkier tasks are been performed at ease and with minimum manpower (Shostack, 2009). Also, the manner in which the interface has improved due to technological advancement has made it possible for the airlines to ensure that customers can come in contact with the airline operators and book their tickets through the official website of the company (Mullins, 2009). Along with it the customers are also able to retrieve valuable information relating to the arrival and departure of flights and all are information that they consider necessary (Costa, Harned & Lundquist, 2002). The growth in the number of airline carrier has made the technology to change with changing times (Rowley, 2011). The opening up of skies and entry of more and more players in the airline industry has increased the number of options available to different stakeholders (Shostack, 2009). This has made the airline have different technological advancement which has thereby ensured the airlines to improve the manner in which services were delivered (Mullins, 2009). Since, the switching cost for customers is low and they have little preference for particular airlines as the services offered by all airlines is similar with little differentiation (Rowley, 2011). This has made airlines look towards having an interface where they are able to differentiate from the other players in the market and devise a method which ensures maximum technological usage (Kotler, 2001). All the players in the airline industry look to offer similar service with very little differentiation between them (Considine, 2005). Also the fact that most airlines look to follow similar strategy like the Just-In-Time technology has resulted in the price charged to be the same (Rowley, 2011). The only differentiation available to them is in relation to the quality of service which is dependent on the way the customers perceive it (Kotler, 2001). This has resulted in the Singapore Airlines looking towards endorsing their brand through marketing strategy where they look towards advertising the brand and presenting their services so that they can highlight the difference that exist between the services of Singapore Airline and other players in the industry (Considine, 2005). Thus, with very little differentiation between the products and services offered by each player in the industry the degree of competition has intensified in the airline industry as each player looks towards increasing its market share by acquiring the market share of other companies (Outlook, 2004). Thus, the technological advancement has improved scope for airlines and provided with a new tool where the airlines are able to ensure better interface with the customers and reduce the clearance time from the airport by having sophisticated tools which ensures maximum efficiency in operations (Outlook, 2004) Environmental The government has drafted environmental norms and players performing in the airline industry looks to provide services by matching the environmental needs of the country (Kalyani & Babu 2006). This has resulted in a cap being placed on the airlines to gauge the amount of environmental hazards released into the environment and steps have been taken from different airlines to ensure that they remain within limits (Mullins, 2009). Also, the manner in which the environment has led towards global pressure has ensured that Singapore Airlines look towards devising strategies by planting saplings and taking necessary steps that helps to reduce the amount of environmental hazards (Performance Management, 2005). Also, the participation of different airlines with other private bodies to take steps which will help to curtail the amount of environmental hazards has helped to develop a mechanism which will ensure effectiveness and reduction of global temperatures (Ajay, 2006) Airlines due to increasing pressure from world bodies have look towards incorporating in their planning process a mechanism which will help to preserve the environment and ensure better uniformity to the environmental laws (Kalyani & Babu 2006). Singapore Airlines in this direction has also looked towards transforming its business by taking necessary steps which will help to reduce the level of environmental effect by ensuring strict norms and rules which governs the manner in which the environment has an effect on the final outcome of the business (Ajay, 2006). The airlines has looked towards incorporating the global laws in regard to the environment and looking towards incorporating will help to improve the quality of service and ensure better confirmation with the environmental laws (Ajay, 2006). Hence, the manner in which the airlines has drafted laws to govern proper environmental conditions which help to reduce the amount of harmful chemicals being released and taking appropriate steps towards having better reforms will ensure more saplings being planted for the preservation of the environment (Kotler, 2001) Legal The legal external factors has also shaped the manner in which the airline performs as drafting of rules by the government which allows foreign carriers to operate and have investments in the airline sector has opened the skies for all players around the globe to bank on (Justin, 2011). Allowing foreign direct investment into the airline sector has intensified competition for the players and has made the local players look towards matching international standards (Luther, 2011). Also, the manner in which the changes in the rules and regulations regarding the entry and exit of airlines from this industry has affected the market sharing pattern and has resulted in the different airlines operating in the industry to look towards abiding by the legal structure so that they are able to facilitate growth and ensure transparency in its operations (Ireland, Hoskisson & Hitt, 2007). The opening up of economies and government regulations which allow foreign direct investment has increased the threat of new players (Luther, 2011). The entry and exit cost are high in the industry as airlines require a lot of fixed investments making it difficult for a new player to start a new venture (Rowley, 2011). Instead, the manner in which the government has ensured that new players are able to market and especially the entry of low cost airlines has intensified competition (Rowley, 2011). This has created a situation where the regular airlines like the Singapore Airlines have to deal with stiff competition so as to sustain their market share (Justin, 2011). The fact that players from elsewhere have entered the Asian airline business has made the local players face competition from the local players and need to dvise tools and strategies to ensure that they are able to deliver better services (Tsiakkiros, 2002). Thereby, airlines which are able to ensure proper legal requirements and ensure to fulfil all the legal requirements are able to perform deligently and look towards enhancing servcies so that the customer experience gets enhanced and are able to receive support from different areas while performing in the different regions of the world (Kotler, 2001) Influence of External Factors on Singapore Airlines The external factors have influenced the working of Singapore Airlines as it has resulted in the airlines drafting marketing strategies which look after the external factors (Singapore Airlines, 2011). The Singapore Airlines as a result have been influenced by the manner in which the external factors are having an influence on the working of the airlines (Singapore Airlines, 2011). Singapore Airlines as a result has ensured that they look towards matching the requirements of the external factor and molding their working environment in a manner that ensures effective use of the resources and the ability of the airline to deliver best results for the company (Ajay, 2006). The airlines as a result has been able to deal with the external environment in a better way and devise strategies which will help them to combat the effect of the environment and will ensure maximum efficiency in its operations (Ajay, 2006). Conclusion This report thereby presents the manner in which the external environment has influenced the working of Singapore Airlines and has brought about changes in the manner the airline worked (Bangs, 2002). The influence of external factors has brought changes in the working of the Singapore Airlines and has resulted in making changes in the way the airline performs (Coughlan, Stern & Ansary, 2006). 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