CASE 3 – SINGAPORE AIRLINES GROUP
1. Global financial crisis (mid 2007 onwards) - further burdened by the collapse of some of the largest financial institutions in the world. 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 exposure to the geographical epicenters of the crisis (Europe and North America) led to detrimental impact on SIA’s result. 9. Is there a need to amend the premium pricing policy during time of crisis in order to reduce the opportunities for rivals to steal precious market share. (Page 42) 10. Threats posed by competitors: -
a. HK & KL – Opening of state of the art airports.
b. Manila, Taipei & Seoul – New Cargo hubs which threatens Changi Airport as a preeminent transshipment center.
Business–level Strategy (SIA)
Strategy refers to an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage. Business-Level Strategy: an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage by exploiting core competencies in specific product markets. Differentiation Strategy: An integrated set of actions taken to produce goods/services (at an acceptable cost) that customers perceive as being different in ways that are important to them. SIA customers are willing to pay a premium for the “perceived” product value which is the SIA service-A Great Way to Fly.
Basis for Differentiation
Focus on Customer-centric rather than on Pricing. “Human software”- golden inflight standard; specific touch points. Customers are important assets to SIA and they effectively manage their relationship by getting customers involved in their business (co-ordinating customers in the service they are going to provide) SIA has a frequent flyer program which has an excellent database containing the loyal passengers’ preferences during the flight. At the same time, SIA uses the Compliments to Complaints Ratio model (34 compliments to 1 complaint per 10 000pax) to gauge their customers’ satisfaction in the different classes monthly. Furthermore, SIA conducts regular passengers’ opinion surveys to monitor the quality of service from ground handling,...
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