Singapore Airlines was founded as a state owned airline in the year 1972. Gradually the company has expanded with the strategy of focusing on unique customer needs and providing excellent in-flight services. With time, SIA has come highly competitive in the market. The company has achieved sustainable competitive advantage and classy elegance by investing much in personnel skills and different other sources (Binggeli & Pompeo, 2002, pp.70). The company has a wide range of services including operations of airline, engineering services and airport terminal services. Singapore Airlines has also made an entrance into the industry with operations as aircraft leasing, ground handling, aviation engineering, tour operations and air catering. SIA flies across 35 countries and 65 cities. The major operations base is in East Asia, but its services are spread across South West Pacific, Europe, Western Asia, America and Africa. The fleet size of SIA consists of around 101 aircrafts.
Macro-Environment Analysis if the Airline Industry
The airline industry has been affected by numerous factors including commoditization of offerings, overcapacity, intermitted times of disastrous performance, entrance of numerous low cost airlines that has been exacerbating cut trout competition (Best & Dalton, 2005, 224). Myriad socio-economic factor at macro level also affects the industry including oil price inflation, Asian Tsunami, SARS Crisis, Bird Flu eruption concerns, additional the global threat of terrorism has also enhanced is concerns. In the year 2006, the global airline industry suffered $500m net loss or it is about 0.1% of the revenue, which makes an aggregate $42bn of net loss between 2001 and 2006. The financial results from 2008 onwards are still bleak (Shostack, 1984, 139).
In the Fortune Global 500 ranking, the airline industry is regularly rated as the worst performing industries, which is not surprising. In this disastrous condition of the industry, Singapore Airlines has performed financially well and it has outperformed its competitors (Costa & Harned, 2002, 89). It has achieved superior and substantial returns, has never posted a loss compared to its industry, and additionally has numerous hundred awards due to its service quality. Singapore Airlines has received these accolades by implementing a dual strategy. This dual strategy is based on the concept of differentiation through innovation and service quality, with simultaneous leadership of cost amongst the peer companies. According to Michael Porter, this strategy was unachievable because as per his concept, cost leadership and differentiation are
Porter’s 5-forces Model
Entering into industry requires its macro analysis that will allow the company to know whether an investment in that industry is worthwhile for a long run. Airline industry is a multibillion industry with few players but major investment (Doebele, 2005, 39). The Porter 5 Forces tool is an excellent tool to analyze the industry. Following analysis portrays the industrial picture of the Airline Industry:
Threat of New Entrants
Entering in this airline industry is challenging, as it requires large amount of capital investment. For starting any business process, the company will require at least few millions. To earn revenue of $1, it will need $1 of capital. It will require very skilled personnel like aircraft technicians, pilots, specialize managerial staff and many logistic arrangements, which is scare in this industry. The limitation of route and airport access is also another difficulty for a new entrant to get into this industry.
Rivalry among Existing Firms
Smaller shelf life of the goods in the airline is also a hampering force. When the airplane takes off, the service incurred is considered a loss and this cost is unrecoverable. On usual basis, the capacity of the airline seats is 75% filled. The famous airlines in Singapore, which are considered a direct competitor of SIA, include Japan Airlines, Malaysia Airlines, British Airways and Cathay Pacific.
Threat of a Substitute Services or Products
Singapore Airlines target customer who gives heavy emphasis on time, comfort and are business travelers. These types of customer are comparatively lesser cost conscious, which makes other services as unsuitable substitute for Singapore Airlines, specifically for long and medium haul flights. Although, this sort of substitute is not much threatening to SIA but due to the advancement of technology, many business travelers have now shifted to video conferencing system. High-speed internet connection like 3G or 4G and HD video technology, it is coming up as a substitute. Video conferencing can be done with very low investment of around $18,500 and the installation and maintenance fee is low, as well.
Buyers’ Bargaining Power
With the goal of shifting from one point to another, the airlines have commoditize over the years that makes only a little difference on the airline that they intend to choose. This is especially for medium to long haul flights. Due to the deregulation in the airline, industry by the government there has been much influx of new airlines coming in the industry. Airlines like Air Asia and Firefly have come into the market after he deregulations (Doganis, 2006, 105) .
Suppliers’ Bargaining Power
Singapore Airlines is not much dependent on suppliers as it has their own services as SIA Engineering that helps it for servicing and maintenance, Singapore Airport Terminal Service that helps it for various ground handling service that include in-flight food, baggage handling and beverages supply. There is least dependences on the financial institution as they have enough financial resources to fund its business processes (Heracleous & Pangarkar, 2000). Other services as if aircraft buying is much dependable and the fluctuation in the price of jet fuel.
Other Stakeholders’ Relative Power
There are numerous stakeholders that play a pivotal role including Singapore Airlines Staff Union (SIASU), Singapore Government and other regulatory authority at destination country, and Airline Pilot Association –Singapore (Alpa-S). Alpha-S is the Singapore Airlines union of the pilots. They have much bargaining power with SIA due to scare availability of crew and staff member, and diversification in its job scope and background. Whenever these associations go on strike, SIA usually requires the professional services of government for meditation.
Resources & Competence for Competitive Advantage
Main competence and resources of Singapore Airlines is based on a dual strategy, which helps to create a competitive advantage. This dual strategy is based on the concept of differentiation through innovation and service quality, with simultaneous leadership of cost amongst the peer companies. According to Michael Porter, this strategy was unachievable because as per his concept; cost leadership and differentiation are mutually exclusive (Porter, 1985, 998).
The strategy of differentiation means significant investment in innovation, high quality offerings, branding, staff development that leads to higher cost average. Singapore Airlines makes a strategy based on differentiation but without the penalty of cost.
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