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Pestel and Five Forces analysis of Singapore Airline

Background Information

Singapore Airline has been widely acknowledged as well known brand name in the aviation industry since it was established in 1947, particularly in term of safety, innovation and excellent services. Due to the route network spans over 93 cities in more than 38 countries (singaporeair.com) with the most modern fleet in the industry, in addition to Star Alliance member airlines to co-operate with more than 20 international airlines over the world, Singapore Airline has provided the best services to its customer and built the strong brand in their mind.

For over 38 years independent existence since it was separated form alliance Malayan Airway Limited in 1972, Singapore Airlines has continuously developed and rapidly become one of the great airlines of the World based on the superior values and the specific culture that it dedicates to customer. Besides, through the provided services, SIA has impressed in customer’s mind by its creativity, diversity and continuous improvement; throughout it could satisfy better the customer’s demand as well gaining the certain competitive advantages in the target market

However, during the history, SIA sometime had to face certain problems that came from itself and negative effects from external environment (inflation, crisis economy, etc.) as well. Especially, during and after the difficult economic situation when Sars outbreak in 2003 and economic crisis in Middle East in the same year, the relationship between the group management and the labor unions in internal organisation began to sour, particularly after the wage-cuts and lay-offs of over 400 employees. In fact, this was regarded as the highest number of lay-offs in the history of Singapore Airline.

In order to archive its goals today as one of the world’s leading carries, Singapore Airline underwent the long history with the point of time as follow:

The history of SIA started in April 1947, when the first flight of SIA took off from Singapore to Kuala Lumpur – Malaysia. At that time, SIA was known under the name Malayan Airways

In 1963, when Federation of Malaysia was formed, SIA was renamed Malaysian Airways. Three years later, 1966, when Singapore was separated from the federation, SIA became Malaysia-Singapore Airlines (MSA).

In 1972, it was split up from Malaysian Airways and keep operating under the brand name Singapore Airline till now.

In 1986, “Singapore Girl” with the uniform of sarong kebaya was born. This figure has become the famous icon of SIA that is a figure of a beautiful girl in the oriental scent, elegant and friendly, warm and full of empathy like the culture that SIA always tries to dedicate into customers.

In 1990s, 2000s, SIA had expanded its route networks with more aircrafts: 22 B747-400s and 30 A340-300s in 1994, 77 B777s in 1995, and 10 A340-500 in 1998, 19 A380s 20 more B777-200s in 2001 (Singapore Airlines).

In 2004, SIA opened the world's longest non-stop commercial flight: Singapore to New York and Singapore to Los Angeles.

In 2007, SIA made another record with the world’s largest commercial plane – A380.

Nowadays, because of the route network spans 93 destinations in more than 38 countries with the most modern fleet in the industry, SIA has a strong presence in the South East Asian region, which together with its subsidiary SilkAir, connects Singapore with more international destinations in the region than any other South East Asian airline (singaporeair.com).

External Analysis for Singapore Airline

Basically, external analysis involves an examination of the relevant elements external to an organization, it focuses on the identification of opportunities, threat, trends, strategic uncertainties and strategic choices (Aaker, D, A. 2005) that the companies always have to face and adapt during their business in order to achieve their goals and contribute to society as well. Over the years, Singapore has been seen as one of the best business environments in the world – one of the world's most attractive, most competitive with world-class intellectual property protection and enforcement (World Economic Forum Global Competitiveness Report). Therefore, it has attracted more and more the local companies, international corporations and also the leading global corporations. Actually, there are now more than 7000 multi-national corporations in Singapore, that number is clear proof for Singapore's excellence in manufacturing and services (Liew, 2009)

. Environment Analysis

Nowadays, in harmony with the development of global economy, the interaction between environment and companies become more and more closely, the slight change in the external situation impact dramatically to the company’s existence and development (Kottler, 2010). Therefore, macro environment analysis become an indispensable part and throughout the opportunities and threats that the businesses have to face will be revealed. Especially in the aviation industry, the challenges from external environment such as: politic, economy or technology that play the key role in the sustainable development. In the following sections, I will analyse the factors (Politic, Economy, Social, Environment, Legal and Technology) that influence significantly on Singapore’s economy and Singapore Airlines as well.

2.1.1. Political Factors

Basically, this refers to governmental policies such as degree in the intervention in the economy or what goods and services that government want to provide to its audiences. In fact, Singapore is an enterprise friendly country with the open policies in order to make the best environment for not only local firms but also international firms. Moreover, Singapore Airline’s major shareholder being the Government of Singapore, so SIA has always received tremendous support from the tax to the fuel policies (Lacar, F. 2004). Besides, there are some competitive policies in aviation industry gave the certain challenges for SIA such as deregulation of airline industry has enabled other airlines to enter the market with lower barriers to entry as in the case of Low-Cost Airlines (Lacar, F. 2004).

2.1.2. Economic Factors

The economic health of countries determines viability of business operations, especially the exchange rates, tariffs, tax legislation or economic crisis, etc (Kottler, 2010) that not only impact significantly on customer’s needs but also make the changes in the relationship with suppliers and other partner over the world of Singapore Airline. More detail, the last time when rising fuel costs that occurred over the world lead to that the businesses in aviation industries had to face range of difficulties and Singapore Airlines was unexceptional. In order to keep on providing the excellent services with the competitive price in the context became a serious problems for not only SIA but also other airlines in the world (Lacar, F. 2004).

2.1.3. Social- Culture Factors

Basically, culture trends can present both threats and opportunities for wide variety of firms, in which considering people’s beliefs, values, attitudes, opinions and lifestyles is one of the important things to gain the customer’s belief and build strong brand name in the market. Singapore is a multi-culture nation where Indian, Malaysian and special Chinese culture live together, therefore, these affected significantly on SIA’s operation, range from the provided services, building the brand and business strategies as well.

2.1.4. Technological Factors

Other dimension of environmental analysis is technological trends that occurring outside the market that have the potential to impact strategies, they also can represent opportunities and threat to those in a position to capitalize (Aaker, D, A. 2005). Basically, new technologies can create the new product, new tools and new process as well. Especially in the airlines industry, the technological development will create significant changes in improving the service quality and increasing the customer satisfaction. Indeed, rapid adoption of relevant technologies enables to create competitive advantages for Singapore Airline. Actually, SIA was quick to trial and adopt the latest in-flight entertainment systems for its consumers, besides, IT & telecomm technology have improved efficiency and business operations growth in e- business strategies. Moreover, information systems have led to more efficient targeting of segments within market and customised marketing offers

2.1.5. Environmental Factors

Nowadays, global warming become a strict problem for every people, every industry and all countries over the world, therefore, green industries is the first concern that firms need to consider for their businesses. Especially, Singapore that is one of the clearest nations in the world, environment factors is really strategic factors that impact dramatically on the development of the industries. In the context, SIA always attempt to seek ways of decreasing significantly the negative effect on the environment while giving “green brand” on its sustainable development. Taking an example is A380 aircraft that Singapore Airline use for their fleets, is a cleaner and greener aircraft compared to the Boeing 747 on per seat basis.

2.1.6. Legal Factors

Although Singapore was established in 1965, however its legal system has been one of the most attractive factor pulling the foreign investment and make perfect environment for the economic development. With the law of fair-trading, consumer, or natural environmental outlook etc, Singapore not only has guaranteed its regulation but also make so many advantages for its development. In term of aviation industry, Singapore has also clear legal system in order to protect benefit and responsibility of both customer and firms. Therefore, SIA needs to keep abreast of changes in the law to ensure their marketing strategies comply growing emphasis on passenger safety and carrier reliability.

2.2. Opportunities and Threats

Opportunities

Based on the analysis in external environment for Singapore Airlines, it can be seen that beside the provided route, SIA can seek opportunities to expand their network to new destinations over the world, especially Europe and American where is potential market but SIA still don’t develop thoroughly and left the gaps in the market. Moreover, SIA can utilizes the rapid development of the technological environment in order to improve its equipment, provide more services with higher quality and range of other attractive offers to its customer, throughout increase the customer satisfaction and make the differences compare with its competitors in customer’s mind. Furthermore, SIA also can develop marketing strategies in growth areas to attract new customers and increase the market share in the Middle East, China and India market. On the other hands, Singapore Airline can focus more on investing and trial the growing Low-Cost Airline market so that it can ensure its competitive capacities in low-cost market segment (.

Threats

Due to the unexpected changes of inflation, taxes rate and other issues from Singapore economy such as rising and volatile fuel costs that created the considerable effects on SIA’s operational costs and its business strategies as well. As mentioned, SIA underwent the difficult times because of the challenges from external environment, however, finding the effective way to encounter and overcome it helped SIA not only confirm its position in the competitive airlines market but also contribute to build the brand image in its audience’s mind. Besides the environment uncertain came from the external environment, SIA also met the strong competition from low-cost airlines such as Tiger Airways or Jestar Airlines and other well-known airline in its potential market. Furthermore, SIA also has to face threats from the other countries economy outside Singapore, economic crisis, environmental changes or tax policies will impact dramatically on SIA’s profitability.

2.3. Competitors Analysis – Porter’s Five Forces Model

If the macro environment might be seen as the factors influences on the success of failure of the firm, the industry environment will create the challenges that the firm has to face directly in the closer scale. Basically, the industry environment was originally developed as a way of assessing the attractiveness (profit potential) of different industries, it is also called as Porter five forces model, including: the threat of entries and substitutions, the power of buyers and suppliers as well the competitive rivalry. Porter’s five forces analysis not only provides a useful starting point for strategic analysis but also assesses the attractiveness of an industry or sector and help set an agenda for action on the various ‘pinch-points’ that they identify as well. In fact, the airline is the specific industry in Singapore market; it is impacted significantly from Porter’s five forces and other external environment. In the market, Singapore Airline plays role as the market leader with excellent services, strong alliance and well-known brand name in customer’s mind. However, recently, SIA is facing with not only direct competitors as Asiana Airways, Cathay Airline but also the coming up of new entries with competitive cost strategies, ect. Therefore, industry analysis has become the strategic tool for SIA before it makes changes link to win in competition and throughout gain its goals.

2.3.1. Threat of Entry

In fact, how easy it is to enter on the market influences on the degree of competition and the threats of entries depend significantly on the height of barrier to new entrants. Therefore, high barriers through the factors: experience, differences or the advantages in distribution channels are really necessary for companies in against the threat of entries (Kottler, 2001). Over the year, in harmony the rapid development of Singapore economy and tourism industry as well, Singapore has become attractive destination for not only travellers but also the business in aviation industry, therefore, in order to face with so many potential competitors from popular global airline, Singapore Airline need to increase its differences through the excellent quality and experiences in the market that it is playing as market leader.

2.3.2. The threat of substitutes

Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process (Kottler, 2001). Sometimes, manager focused so much on their competitors in the own industry and ignores the substitutes that can reduce the customer’s demand for their products or create the alternatives for customer in satisfying their demands by the advantages of price, performance or as extra-industry (Kottler, 2001). Actually, airline is special industry that has such high barrier for new entrants and the substitutions as well, especially Singapore where airline is major vehicle for international transportation. However, SIA need to pay attention on threat of its in some strategic market segments as Asian area or Middle East area.

2.3.3. The power of buyer

In fact, customers are essential for the survival of any business. But sometimes customers – here buyers– can have such high bargaining power that their suppliers are hard pressed to make any profits at all (Porter, M. 2001). Moreover, the buying power for individual customer is too high in airline industry. On the other hands, there are so many airlines that is seen as SIA’s competitors operate in the Singapore and other markets, in this fact individual buyers has so many option to choose which airline he wants to fly. Therefore, SIA need to recognize deeply its customer, their needs as well abilities and throughout increase customer satisfactions by the excellent services and other attractive offers.

2.3.4. The power of supplier

Basically, suppliers are those who supply the organisation what it need to produce the product or service (Kottler, 2001), such as fuel, materials or equipments, etc. However, in fact, most of companies have many suppliers in order to the risk and the power of suppliers. Especially in Singapore aviation industry where the power of suppliers are so significant and impact directly on airline’s competitive capacity, therefore, in order to control the power SIA has established strong alliances with not only other airline but also suppliers which provide the aircraft (Airbus), fuel and raw materials.

2.3.5. The competitive rivalry

This is the most considerable force in the Porter’s five forces model and the factor that influences significantly on the company’s operation as well. Basically, competitive rivalry is organisation with the similar products or services aim to the same market (Kottler, 2001). In the target market, nowadays, Singapore Airline met strong competition from not only Asians airline brand but also so many famous brand over the world such as Cathay Pacific Airways, Malaysia Airlines, or Asiana Airlines (the best airlines for World Best Airlines Award 2010) and Japan Airlines System Corporation, etc. In order to exist and develop in the busy competitive market, SIA has continuously improved its equipment (aircraft, furniture, etc.) the providing service process, the fleet network or brand culture lead to increase customer satisfaction and throughout gain its goals.

2. 4. Core Competency

Currently, Singapore airline is widely acknowledged as one of the world’s best airlines with the excellent services and specific brand culture, therefore, over the years, Singapore Airlines always has consistently been one of the most profitable airlines in the world. In order to achieve this position as today, SIA improved continuously itself and throughout gaining the certain core competencies in brand management and experiences. Firstly, most relates directly to the strong brand management driven primarily by the Singapore Airlines boardroom and top- management. Actually, Singapore Airlines is unique brand in the sense that the boardroom takes dedicated leadership of the brand strategy unlike many other Asia airlines. Moreover, SIA also has the high brand attributes and good perception in the customer’s minds because of its icon – Singapore Girl that represents the elegant and friendly, warm and full of empathy like the culture that SIA always tries to dedicate into customer. Likewise, it has pioneered many in-flight experiential and especially entertainment system, in addition to innovations in provided services and strived to be best-in-class. Moreover, Singapore airlines was the first to offer hot meals, free alcoholic and non-alcoholic beverages, and hot towels with a unique and patented scent, personal entertainment systems, and video-on- demand in all cabins. Furthermore, the company keeps driving innovation as an important part of the brand, and the cabin ambience and combined experience are key factors of their success.

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