Air travel remains a large and growing industry. Despite being plagued by several factors such as overcapacity, commoditization of offerings and cutthroat rivalry to name a few, it facilitates economic growth, world trade, international investment and tourism.
This case study will analyze the external factors affecting the airline industry, analyze the internal factors affecting Singapore International Airlines (SIA) and critically discuss the different generic strategies in the airline industry as well as the dual strategy adopted by SIA.
External Analysis for SIA
SIA’s macro environment is the wider context in which the airline industry exists. Due to the fact that SIA operates in an international market, its operations are generally more complex and face higher levels of risk. The PEST analysis below provides a method of understanding the macro environment which SIA has practically no control or influence over but in fact have significant impacts on both SIA and its micro environment.
| FACTORS| +/-|
Political-Legal| Deregulation of the airline industryThis has enabled new entrants into the growing budget airline market| -| Economic| Rising fuel prices This has an impact on the profitability of airline operations| -| Socio-Cultural| Security concernsAs a result of the terrorist attack on September 11, 2001 passengers have become increasingly concerned about their safetyHealth concernsRecent epidemics of diseases like SARS and bird flu have created a reluctance to fly| --| Technological| Development of the internetThis has provided disintermediation; with e-ticketing services, the need of a middle man is now reduced as airlines are now able to sell their own services on their websitesDevelopment of the Boeing 777-200LRThis new aircraft is capable of flying 17,500km thus allowing long haul flights which increases the routes available to passengers | ++| Internal Analysis for SIA
SIA’s micro environment is affected not only by the macro environment in which the airline industry is in but also by issues arising from their own situations hence SIA will need to distinguish its own strengths and weaknesses while at the same time discover the opportunities and threats it faces in the industry. The SWOT analysis below is a tool for auditing an organisation and its environment. As this is primarily used as the first stage of planning, it will help SIA to focus on the key issues it faces.
| POSITIVE| NEGATIVE|
INTERNAL| StrengthsStrong market positionSIA was announced by the International Air Transport Association as the world’s second largest airline in the world in terms of market capitalisation with a worth of 14billion USD thus giving it a significant edge over other airlinesAircraft fleetSIA has adopted aircrafts which have a larger passenger capacity and more fuel efficient technology Service excellenceSIA continues to be a leading innovator in in-flight services by adopting technological improvements and its subsidiaries allow it to have more direct access to relevant ground services and potentially achieve greater operational efficiencies Diversified geographical spreadSIA has a global presence serving more than 50 destinations with operations all over the globe| WeaknessesFailed investment activitiesSIA’s investments in Virgin Atlantic and Air New Zealand have been written offStaff attrition rates of 10%This forces SIA to hire around 500-600 new cabin crew yearly which incurs high costs for training| EXTERNAL| OpportunitiesGrowth in global air freightThere exists a market for cargo and postal carriage services which have grown in recent yearsGrowth in global passenger industryAccording to the International Air Transport Association, passenger demand has recovered and that passenger traffic has climbed by 9.2% in July 2010 on an annual basisHeavy airline industry growth in Asia-PacificAccording to Boeing Co. the Asia-Pacific region is...