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External Industrial
Environment Analysis for
Singapore airline
Prepared By
Rezaul Huda
MBA Programme
University of Southern Queensland
Australia 2007
Student Id # W0076997 MGT8002 - Strategic Management
Introduction:
Air travel remains a large and growing industry. It facilitates economic growth, world trade,
international investment and tourism and is therefore central to the globalization taking place in
many other industries. Business travel has also grown as companies become increasingly
international in terms of their investments. The commercial aviation industry in Asia has grown
dramatically. The primary objective of my study was to answer one key question: analyse the
external factors for Airline Company, analyse the internal factors of the company I have chosen,
critically discussion about companies stakeholders expectation, critically discuss strategic
choices of the company and justification of those choices.
I have chosen the Singapore airline in Asian context, “Singapore Airlines has evolved into one of
the most respected travel brands around the world. They have one of the world's youngest fleet in
the air, a network spanning five continents, and the Singapore Girl as their symbol of quality
customer care and service”. Though Singapore airline is one of the leading airline companies in
the world but there are hundred over Airline Company doing business in this region. As it’s a
competitive market Singapore airline has to concern about their internal, external and other
factors to keep their positioning. I find some trouble in their external, internal and stakeholder
particulars. I this essay I have been use the PESTEL and five forces framework to identify the
external factors for Singapore airline. To identify the capability of SIA, I analyse the resources
and competence, unique and core competence and strength and weakness of Singapore airline.
To study about the stakeholder I used the stakeholder mapping and ethics or social responsibility
of Singapore airline.
After all those external and internal capability analysis I will find the strategic option for
Singapore airline because Strategic choices are one of the logical elements of the strategy
process and have a central role. The process of choice can only be described as deciding between
different options but this makes the process neater and tidier than it really is.
Student Id # W0076997 MGT8002 - Strategic Management
The external environment has an enormous impact on the Airline industry. These have been
unstable times for the Asian airline industry. It has been confronted with a marked decline in
international tourism in the aftermath of the September 2001 terrorist attacks in the United State
and, more recently, traffic loss attributable to the war in Iraq and several terrorist activities. The
airline industry are more competitive in Asian region because there are more than thirty country
operate around thousand of Airline company. Singapore airline is one of them operating in Asian
region as well as in Europe and American region. Figure1 shows the circle of external
environment and the airline industry. Figure 1 shows the external environment of airline industry.
environment, I have been using the five forces of framework and opportunity & threat for
Singapore Airline.
Political factor: This refers to government policy such as the degree of intervention in the
economy. What goods and services does a government want to provide. To what extent does it
believe in finance firms such as Singapore Airlines has withdrawn its bid for a stake in Air India,
dealing a heavy blow to the Indian government's privatization programmed. This is a political
barrier for Singapore airline.
Economic factors: These include interest rates, taxation changes, economic growth,
inflation and exchange rates. The Singapore Airlines offer to buy a 24 percent stake in China
Eastern Airlines for 7.2 billion Hong Kong dollars (US$923.8 million) appeared in trouble
Wednesday after a major shareholder criticized the deal as unfair.
Social factors: Changes in social trends can impact on the demand for a firm's products
and the availability and willingness of individuals to work. In the year 2002 there was a fatal
crash of a Singapore Airlines flight SQ006 at Taipei's Chiang Kai-Shek International Airport.
Authorities blamed “pilot error” for the accident. Singapore Airlines has accepted “full
Student Id # W0076997 MGT8002 - Strategic Management
responsibility” for the crash, saying it was obviously a case of “pilot error”. The airline has
offered $400,000 in compensation to the relatives of each of the dead and announced it will meet
the medical expenses of the injured and discuss compensation with them. But facts have already
begun to emerge that point to a number of other causes, some of which are directly linked to
cost-saving measures by airlines and airport authorities. The death toll has risen to 82 people
with the death of a survivor in hospital. Another 81 passengers were injured. This accident makes
societal effect on Singapore airline.
Technological factors: New technologies create new products and new processes.
Organization must have-to concern about the new upcoming technology. Singapore Airlines is
the first and only airline to install a productivity suite for the benefit of its passengers who can
now continue to work after boarding the plane without having to power up their laptops. In
addition to providing the world's widest first and Business Class seats and a technologically
advanced seat in Economy Class, which makes the competitive advantage for Singapore airline.
Technological factors Sun a micro system powers the first productivity suite in the sky.
Supplier Power: Suppliers power is very high in airline industry. Singapore airline also
concern about this factors. For example if the jet fuel price increase, the air line company has no
choose. Recently increase in the price of jet fuel, Singapore Airlines will increase its fuel
surcharge for tickets issued on or after December 4, 2007. The price of jet fuel has increased
piercingly in recent weeks, and is now hovering around US$115 per barrel.
Buyer Power & Substitution: The buying power for individual customer is too high in
airline industry. There are hundreds of Airline Company operate in Asian region, in this fact
individual buyers has so many option to choose which airline he wants to fly.
Competitive Rivalry & New Entry: Singapore airline has to concern about the
competitors because airline industry is so competitive. This has already started with two national
carriers, Air Canada and Garuda of Indonesia, seeking to curb Singapore Airlines' access to their
Student Id # W0076997 MGT8002 - Strategic Management
home markets. Growth of global megacarriers, as U.S. and European airlines merge or form
alliances to cut costs, will also intensify competition for Singapore Airlines.
Singapore Airlines is the strapping company in the East Asian region. They directly serve
destinations in Asia, which includes Hong Kong, Beijing and Tokyo. Present opportunity and
threat of Singapore airline is written blew:
Opportunity
• Growing Asia Pacific market
• Increase in trans-pacific cargo
• Global airline market
Threat
• Rising aviation fuel prices
• Increasing competition from low cost airlines
• Instability in the Middle East
Student Id # W0076997 MGT8002 - Strategic Management
To analyse the internal environment I have classified in three categories; strategic capability of
Singapore airline and competitive advantage of Singapore airline.
Strategic capability identifies the capacity of a business to deliver future value to his end user.
So, most companies discuss their strategic capabilities to get the competitive advantage. I have
analyse the strategic capability for Singapore airline identifying “resources and competence”
“unique and core competence” and “Strength & Weakness” of Singapore airline.
Singapore airline is the strongest brand from Asia and it’s long-serving, almost iconic. Singapore
Airlines has consistently been one of the most profitable airlines globally, and has always had the
reputation of a trendsetter and industry challenger. There are several good reasons for this. Most
relates directly to the strong brand management driven primarily by the Singapore Airlines
boardroom and top-management, and the healthy brand equity as the result of a dedicated,
professional brand strategy throughout a diversified, global organization.
Singapore airline is the strongest and iconic brands from Asia. Singapore Airlines has
consistently been one of the most profitable airlines globally. There are several good reasons for
this. Most relates directly to the strong brand management driven primarily by the Singapore
Airlines boardroom and top-management. The Singapore Airlines brand is unique in the sense
that the boardroom takes dedicated leadership of the brand strategy unlike many other Asian
companies. SIA also has the high brand attributes. They have pioneered many in-flight
experiential and entertainment innovations, and strived to be best-in-class. SIA was the first to
introduce hot meals, free alcoholic and non-alcoholic beverages, and hot towels with a unique
and patented scent, personal entertainment systems, and video-on-demand in all cabins. The
company keeps driving innovation as an important part of the brand, and the cabin ambience and
combined experience are key factors of their success.
Student Id # W0076997 MGT8002 - Strategic Management
Singapore Airlines is the strapping company in the East Asian region. They directly serve
destinations in Asia, which includes Hong Kong, Beijing and Tokyo. To identify their capability I
have analysis SIA’s strength and weakness.
Strengths
Diversified geographical spread
Youngest fleet of aircrafts
Strong financial performance
Weaknesses
Weak turnover ratios
Unbalanced business portfolio
Singapore Airlines (SIA) has achieved sustainable competitive advantage. SIA has consistently
outperformed its competitors throughout its three and a half decade history. One key element of
SIA’s competitive success is that it manages to navigate skilfully between poles that most
companies think of as distinct: delivering service excellence in a cost-effective way, at cost levels
so low that they are comparable to those of budget airlines in the U.S.A. and Europe (in 2005-6
for example the cost per available seat kilometre was S$7.9 cents, or US$5.2 cents).
Student Id # W0076997 MGT8002 - Strategic Management
The corporate governance is set of processes such as customs, policies, laws and institutions
affecting the way in which a corporation is directed, administered or controlled. The principal
players in corporate governance of Singapore airline are the shareholders, management and the
board of directors. Other stakeholders include employees, suppliers, customers, banks and other
lenders, regulators, the environment and the community at large. Figure 4 shows the governance
chain of Singapore airline.
A stakeholder is an individual or group that can heavily influence the performance of the
company, this people support to make company successful. They have in turn certain
Student Id # W0076997 MGT8002 - Strategic Management
expectations from the company. To make satisfied Singapore airline also concern. Here is the list
of stakeholders of Singapore airline to whom they have to make satisfied:
• Customers
• Employees
• Owners (stockholders)
• Suppliers
• Regulators (Singapore government)
• Local Communities (where they operate)
This stakeholder has expectation on their company Singapore airline. To analyze stakeholder
expectation I have been use the stakeholder mapping, power and ethics and social responsibility
of Singapore airline.
Stakeholder mapping is the process of creating such pictures to clarify the position of the
stakeholders of the organization. It also helps to identify the expectation of stakeholders and
power. It also helps to understand the political priorities for the organization. I have been use the
power/interest matrix and Power/dynamism matrix to identify the stakeholder mapping of
Singapore airline.
Power/dynamism Matrix:
Power/dynamism matrix use to identify the political effect that can be effect on company’s
strategic decision. Figure 5 shows the power/dynamism matrix for stakeholder of Singapore
airline. Segment D, since they are in a powerful position to block or support new strategies, but
their ‘stance’ is difficult to predict. For Singapore airline I have identify that the Singapore
government, suppliers and the competitors of SIA belong to this segment. Singapore government
has high influence on strategic decision of Singapore airline, and this influence also not
predictable. In the segment C belong those stakeholders whose has high influence to making
strategic decision but SIA can forecast this influence. The shareholder, customer and the media
people are in this group for Singapore airline. Though segment A and B has very little influence
on decision making but SIA has to concern about those stakeholders. The employee, alliance
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partner are belong to segment A. The local community where Singapore airline operate are in the
segment B. This segment has little influence on decision making but SIA can’t predict their
influence.
Power/interest matrix:
Figure 6 shows the power/interest matrix. This matrix shows, which stakeholders in relation to
the power they hold and the extent to which they are likely to show interest in the organization’s
strategies. The matrix indicates the type of relationship which the organization will need to
establish with each stakeholder group. The Singapore government and shareholder are in the
segment D. They are the key player; Singapore airline has to consider their opinion to develop
new strategy. The media, customer and the supplier are in the segment C. This group has less
interest in company’s strategy but for some event SIA has to concern their feedback. SIA has to
keep satisfied this segment. The local communities are in the segment B. This stakeholder has
high interest but low power to influence in the company’s strategy, for this reason SIA should
make them informed about all activity. The employees are in the group A. They have low interest
Student Id # W0076997 MGT8002 - Strategic Management
and less power in strategy development process. For some specific event company have to
informed and take their contribution in the strategy development process.
Stakeholder also concern about companies ethics and social responsibilities. Singapore airline
took many activities to maintain company ethics. For example: Singapore Airlines is the first
airline in the world to fly the new Airbus A380, which is preparing for the first commercial flight
of the new double-decker jumbo jet, from Singapore to Sydney and return. It was taken placed in
the month of October 2007 and in a first-time move, all proceeds from the sale of tickets on the
first flight will be donated to charities. (See the appendix).
Student Id # W0076997 MGT8002 - Strategic Management
Strategic choices are one of the logical elements of the strategy process and have a central role.
The process of choice can only be described as deciding between different options but this makes
the process neater and tidier than it really is. Company should identify their strategic choice
according their demographic and others external factors. Singapore airline also implement their
strategic choice according internal and external factors. I have been describing the strategic
choices of Singapore airline for budget airline into three part business level strategy, corporate
level strategy and direction and method of development. Figure 7 shows the strategic choice of
Singapore airline for budget air.
Price based strategy consider the product price to get the competitive advantage. There are many
low cost airline companies doing business in Asian region. This market is very competitive.
Singapore airline is one of them, providing these services. Air-Asia is one of their competitors,
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who are using price based strategy to compete their market. Comparing to Air-Asia, Singapore
airline took high fare for specific rote.
Justification:
Acceptability & Feasibility of price based strategy:
The acceptability and feasibility of price based strategy is high, because some of their
competitors are providing low fare for same rote. For example on the popular Bangkok-
Singapore corridor, Air Asia is selling some round-trip tickets for about $150, compared with
$500 or more on Singapore Airlines. Singapore airline are losing their customer in this rote
because of their price. To get the completive advantage SIA should take action for price based
strategy. (See the appendix)
The direction policy matrix measures the health of airline industry in the Asian region and the
strength Singapore airline to pursue it. I have been analysing the current position of Singapore
airline in Asian region, comparing previous external, internal and stakeholder analysis. Figure 8
shows the present positioning of Singapore airline, Air Asia and MAS airline in Asian region.
Student Id # W0076997 MGT8002 - Strategic Management
Justification:
Acceptability & Feasibility of Directional policy matrix:
Based on my internal and external analysis I have been identifying their position in this market
as middle business strength and high attractive market. Because I have been find that supplier
bargaining power, threat of substitutes and competitive rivalry is high for Singapore airline. For
example the supplier has high bargaining power; recently jet fuel has increased around US$115
per barrel. The threat of substitute is also very high in this market. Considering this factors I
believe the feasibility and acceptability of directional policy matrix for Singapore airline is high.
TOWS Analysis is a variant of the classic business tool, SWOT Analysis. TOWS and SWOT are
acronyms for different arrangements of the words Strengths, Weaknesses, Opportunities and
Threats. By analysing the external environment (threats and opportunities), and internal
environment (weaknesses and strengths) of Singapore airline I have generate the strategic option.
Figure 9 shows the TOWS Matrix for Singapore airline.
Student Id # W0076997 MGT8002 - Strategic Management
Using the strength and opportunity Singapore airline could diversify their market. To overcome
SIA’s threat they could go for merger and acquisition with some other airline company like China
eastern. To avoid the weakness Singapore airline can use the cost leadership strategy. Singapore
airline should develop their internal factors to avoid the threat and weakness.
Justification:
Acceptability & Feasibility of Directional policy matrix:
Diversification: At present airline industry in Asian region is very competitive. There are many
airline operate in this region. Air Asia is one of the competitors of Singapore airline. Air Asia
will open twice daily flights from Malaysia to Guangzhou in 2008. Air Asia currently has 86
routes and its no-frills service has obtained wide recognition in the China market and the
Student Id # W0076997 MGT8002 - Strategic Management
Marge & Acquisition: Singapore airline has to concern about the competitors. To avoid their
threat, Singapore airline could sue their strength. Marge and Acquisition is one of the best
choices. This has already started with two national carriers, Air Canada and Garuda of Indonesia,
seeking to curb Singapore Airlines' access to their home markets. Growth of global megacarriers,
as U.S. and European airlines merge or form alliances to cut costs, will also intensify
competition for Singapore Airlines.
Internal Development: I have described that to recover the weakness and threat Singapore airline
has to take action for their internal factors. During the capability analysis I find that Singapore
significantly lower turnover ratios during the fiscal year 2007.
During the year, Singapore airlines recorded a lower asset turnover ratio in comparison with
some of its competitors. The company’s asset turnover ratio during 2007 stood at 0.59 times,
significantly lower than some of its prime competitors such as SAS, Lufthansa, and Cathay
Pacific Airways. During the same fiscal year, the asset turnover ratio of SAS stood at 1.15 times,
while the asset turnover ratio of Lufthansa stood at 1.07. The asset turnover ratio of Cathay
Pacific Airways at 0.67 times was also higher than that of Singapore Airlines. The weaker asset
turnover ratio depicts ineffective utilization of assets in generating sales. This could further affect
the group’s top line growth for the future. (See the appendix)
Student Id # W0076997 MGT8002 - Strategic Management
Conclusion:
Singapore airline is the national airline of Singapore and one of the leading aviation companies
in the world. At present they operate in South East Asia, East Asia, South Asia, Europe and
Australia route. After analysing external factors I find that SIA has some major barrier in
international political and economical sector. As we are familiar that oil price is sensitive issue
worldwide and day by day it’s in receipt of more unstable. For those reason the supplier power
very high. In the internal capability shows high brand attributes and strong brand management as
their core competence. To maintain the current positioning company should concern their
internal, external surroundings.
Student Id # W0076997 MGT8002 - Strategic Management
List of Reference:
14. Daniel Chan, no. 6 (2000), P:515–42 “Beyond Singapore Girl: Brand and
product/service differentiation strategies in the new millennium” Journal of
Management Development, 19
15. Heracleous, 2005 “Flying High in a Competitive Industry: Cost-Effective Service
Excellence at Singapore Airlines” McGraw. Hill Company.
16. Robert, Michel 1999 “Power of Strategic Thinking: Lock in Markets, Lock out
Competitor” Blacklick, OH, USA: McGraw-Hill Companies.
17. [Corporate Governance International Journal, 2003 "A Board Culture of Corporate
Governance, Vol 6 Issue 3
18. Nicolas Meisel 2004 “Governance Culture and Development” Paris: OECD
Publishing.
19. Richard Lynch April 2003 “Corporate Strategy” 3rd Edition, Financial Times /
Pearson Education
20. Jeffrey K. Pinto, David I. Cleland and Dennis P. Slevin “The Frontiers of Project
Management Research” on-line access [Accessed 2nd January 2008]
21. J. Pfeffer 1994 “Managing with power: Political influence in organization” HBS
press.
22. [Andersen, Erling S 2004 p 48 “Goal Directed Project Management: Effective
Techniques and Strategies” 3rd Edition, London GBR: Kogan Page Limited,
23. [Gardner, J.R., Rachlin, R. and Sweeny, H.W.A. 1986 “ Handbook of Strategic
Planning online access [Accessed 7th January 2008]
24. [Mitchell, R.K, Agle, B.R, Sonnenfeld, J.A. 1999 “Who Matters to CEOs? An
Investigation of Stakeholders Attributes and Salience, Corporate Performance and
CEO Values” online access[Accessed 7th 2008]
25. Leung, Kwok 2004. p 151 “Handbook of Asian Management” Hingham, MA, USA:
Kluwer Academic Publishers
26. Joshua Kurlantzick, December 27, 2007 “More low-cost airlines in Asia mean more
of everything, including crashes” The International Herald Tribune (business)
27. [Mintzberg, Henry, Lampel, B 1998 “Strategy Safari: A Guided Tour through the
Wilds of Strategic Management” The Free Press.
Student Id # W0076997 MGT8002 - Strategic Management
Appendix:
Note
Company information has been taken from corporate web page (http://www.singaporeair.com)
TOTAL PRICE
SGD
464.00
Total Fare:
SGD
464.00
3. Efficiency ratio: