Strategic Issues in the Airline Industry
and the Role of Singapore Intl. Airlines
The Economic and Strategic Issues of Airlines in a Regulated World Airline is a highly regulated industry in every country. Domestic air-routes are preserved for the domestic airlines only. This regulatory constraint effects success of an airline a lot. In the scenario, technological advancement in the airline industry can not provide desired benefits to the airline company because it can not compete effectively with other. The reason is that there is no feeder traffic from other country.
Past Two Decades of Airline Industry:
The Asia Pacific Region and Singapore Airlines
The region is important for commercial air travel. The industry of the region has steady growth and economy is growing rapidly. SIA is born on 1 May 1947 with an air craft having capacity of five passengers and tri-weekly flights. It had expanded its operation with comet jets in 1962.
After passing long way of severe competition, it is well-known as symbol of international service. It celebrated its golden jubilee anniversary on 1 May 1997.
The Influence of External Factors and Past Events:
The Chicago Convention was signed in 1944, failure of which results in various bilateral Air Service Agreements. The negotiation was made on various issues. In a country which has a single airline, the negotiation is biased towards benefits os national airlines. Open skies Agreements Technologies:
Some Recent technological developments are: Electronic booking system, Yield management system, Modern planes, Flight entertainment, and internet booking system. Labor Markets
Sticks and pay disputes are extremely costly.
Unbalanced Distribution of Traffic
Singapore located at centre of Asia pacific.
Out of 1000 airports in 182 countries, 45% of air travel is made in 25 airports of 17 countries. 50% of international cargo is handled in 15 airports of 12 countries. Unfair exercise over traffic rights.
Majority of airport in Asia pacific are congested and experiencing infrastructure problems. Carrier Competitiveness
Competitions on the basis of yield and cost.
Willingness of fly, affordability of consumer is key driver of the industry. Price in real price has been decrease by 2% decrease during 30yrs Increasing Use of Strategic Alliances
There are some 100 airline-alliances in operation which provide relief form regulatory issue. Benefits: Economies of scale and specialization, Cross country specialization, market access, risk sharing, branding, cost efficiency etc.
Industry Evolution and Source of Uncertainty:
An industry having highest growth rate. 1945 growth rate is 12%, during 1965 – 11%, after market maturity it started declining. 1985-95 by 5%, 1991-93 due to gulf war it is 2.3%, in an average 5% in recent years. Rapid growth in Asia pacific in 80s and 90s till 1997, 26.2% of the total intl passenger in 1985, 36.5% in 1998. Due to recession traffic fell by 20% and 7.6% reduction in world travel. Fuel price increase. Foreign exchange rate fluctuation.
North American: 2 trips per year (1990). India and china: out of 100, one manages a trip a year. Leisure travel is price sensitive and business travel is inelastic. (In 1999 the ratio is 80:20) The frequent flyer Program, a purchase incentive plan reward passengers for their loyalty.
The Present: Singapore Airlines Market Position
Deregulation process is slow in Asia pacific.
This region is socially, politically, and culturally diverse compared to other region. Airline in this reason gain both load and yield factor.
Recently Asian airlines are finding it increasingly difficult to sustain themselves due to reduced passenger traffic from within Asia and increased operating expenses coupled with heavy competition. Be efficient and put pressure on govt to sign open sky agreement. Global alliances: between Japan and American airlines and British...
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