b. As demand for air travel is significantly impacted by income levels, customers tend to be more price sensitive during crisis time and will usually opt for budget travel or in some cases will not travel at all.
c. Led to reduced demand for travel
d. Airline reduced the passenger and cargo capacity however majority of their costs pertains to fixed costs (84%) which will still be incurred despite the reduction in capacity.
2. Faced with: -
a. Increasing operation costs such as fuel (due to the rising oil prices) and labor (taken care by union).
3. Exposed to: -
a. Exchange rate risk as certain costs (i.e. oil prices) are denominated in foreign currencies such as USD. Though exchange rate risk can be managed by hedging, there’s also risk involved in hedging strategies (locked into a high price when oil prices are declining rapidly).
b. Unable to match costs and revenues due to fluctuation in foreign currency exchange rate (very volatile).
c. Increasing financial risk due to high level of debts undertaken to finance the purchase of new planes.
4. SIA is faced with more and greater competition in the airline industry – especially after entry of budget carriers into certain region; expected to reduce SIA’s profit. (page 33)
5. Higher government intervention in the airline industry as compared to other industries – eg. Country law regarding unions would affect the wages and salaries component of an airline’s cost structure (page 32)
6. The needs to constantly enhance and improve their aircraft facilities and food menu as travelers nowadays are more demanding. (They know what they want in order to be a innovator and not follower).
7. The decline in passenger and cargo loads is greater as compared to rival – Cathay Pacific (Why is that so?)
8. Significant