SWOT Analysis of Singapore Airlines

In this week’s seminars, we covered the S.W.O.T analysis and framework. 

Strengths: Features of the organization that gives it a competitive advantage over its rivals and competitors

Weaknesses: Features of the organization that places it at a relative disadvantage compared to its rivals and competitors

Opportunities: External elements that the organization could export to its advantage

Threats: External elements that could cause trouble and put the organization at a disadvantage 

Singapore Airlines (SIA) is Singapore’s national carrier, making a net income of S$378.9 million (£186.6 million) in FY 2012/13. SIA is one of the world’s leading airlines, bagging Skytrax’s “Airline of The Year” award for several years in 2004, 2007 and 2008. In more recent years, it has come in 2nd and 3rd to other airlines such as Emirates, Qatar, Asiana and Cathay Pacific. 

STRENGTHS

Exceptional branding and marketing coupled with premium customer service and unparalleled hospitality

Singapore Airlines is reputed for delivering quality service. The airline’s air stewardesses, also known as the Singapore Girl, dressed in the distinctive “Sarong Kebaya”, is a prominent element of SIA’s marketing. The iconic images and branding of the Singapore girl is recognized globally and has become a visual trademark. The Singapore Girl has become a symbol of world-class experience and portrays the values of affection, kindness, compassion and gracefulness. 

Quality service has become a differentiating factor for SIA, their strong brand name has given them the ability to charge a premium for their products due to the additional value that consumers place on the service that SIA provides. 

Diversification of business risks by offering other specialized services.

Singapore Airlines offers several other specialized services so as to diversify its business risks, providing greater stability to their business. SIA Group has its normal passenger airline operations, cargo operations and engineering services. It also has two wholly-owned subsidiaries, Scoot and Silkair. While Singapore Airlines is a full-fledged airline, SilkAir operates medium haul flights for locations across Asia and Scoot is a budget airline specializing in low cost flights between Singapore and Australia and other parts of Asia. 

SIA Cargo operates worldwide with a fleet of freighter airplanes, involved in air cargo transportation.

SIA Engineering provides maintenance, fleet management programmes and ground handling services to over 85 airlines. 

Singapore Airlines has a strong hub in Singapore and has a large geographical spread.

Singapore Airlines flies to 65 international destinations in 35 countries over 6 continents, while its subsidiary, Silkair, flies to 45 destinations in 12 countries. 

By operating to multiple destinations, it reduces the airline’s reliance on a specific geographic market for a majority of its revenue, reducing their business risk. 

WEAKNESSES

Heavy reliance on international traffic

Singapore is a small country and the domestic market in Singapore is very limited thus SIA has to rely heavily on travellers and passengers from all over the world, and cannot depend on their domestic market to survive. 

Limited growth in market share

Due to increasing competition from other airlines, it is difficult for SIA to grow their market share. 

OPPORTUNITIES

Growth of global tourism industry

According to the World Tourism Organization, international tourist arrivals grew by 4% in 2012 to reach 1.035 billion, and it expects the tourism industry to keep up its growth at a rate of 3% to 4%. 

Moreover, according to International Air Transport Association, there will be 3.6 billion air travellers by 2016.

Since SIA has a strong operational base, it is in a good position to benefit from the growth of the global tourism industry, generating additional revenue for SIA.

Growth through establishing operational alliances

Singapore Airlines started code-sharing on Australian domestic flights, partnering with Scandinavian Airlines as well as JetBlue Airways. By forming more of these strategic operational alliances, it would help strengthen SIA’s market position, allowing the airline to broaden its reach and cater to a larger base of travellers.

More international destinations 

Singapore Airlines can leverage on its high value brand image and expand their list of destinations. Many people would fly with Singapore Airlines since it has a good reputation and SIA would be able to expand its market share and global presence. 

THREATS

Intense Competition in Aviation Industry 

The airline industry is a highly competitive one. Singapore Airlines’ direct competitors are airlines that fly on the same routes, and faces indirect competition from airlines that have indirect flights as well as other modes of transport. 

Some of Singapore Airlines’ competitors include Cathay Pacific Airways, All Nippon Airways, Emirates, Qatar Airways and United Continental. Some of the factors that these airlines compete over are fares, customer service, flight schedules, routes served, safety record and reputation, code-sharing relationships and frequent flyer programmes. 

Furthermore, there is often price competition between airlines through price discounting and fare matching. If SIA was to make a relatively small change in the pricing of their fares, it could have a disproportionate effect on their operating and financial results. Hence, the intense competition that the group faces could affect their operating margins. 

Volatile prices in petroleum market

Jet fuel is the main raw material used in the airline industry. International prices of crude oil have always fluctuated widely due to factors that are not within the control of Singapore Airlines. 

In FY 2012, cost of jet fuel formed 40% of SIA’s total expenses. 

Thus, when jet fuel prices increase, the operating costs of SIA will also increase, which will adversely impact SIA’s profitability.

Future Direction and Possibilities

In my opinion, even though Singapore Airlines faces the threat of competitive pricing, it is in a good position to continue charging relatively higher prices as compared to its competitors. This is because Singapore Airlines has built up a strong brand image and is a reputable airline with superb safety records. This would mean that they would attract a loyal customer base who would not mind paying a little more for better services and a sense of assurance. 

With the expected increase of international tourist arrivals, SIA could capitalise on this and further expand their list of destinations by taking on some new and profitable routes. This would help them widen their reach and also increase their market share and global presence. 

As Singapore Airlines have already built up such a good reputation for themselves, they would be able to easily attract new customers as people have good faith in their airline. 

Globalisation - The Double Edged Sword

Globalization is indeed a double edged sword that can bring us countless benefits, yet it can also harm our economy and society. 

Many big corporations would argue that globalization is a trend that helps corporations reap larger profits and benefit the people. 

Does this scene look familiar? If you guessed that it was Starbucks, you’re absolutely right!

Starbucks is a golden icon of globalisation. Its logo and store is easily recognized in all parts of the world. In fact, you can get a cup of Starbucks’ coffee in almost any corner of the world - it has 20,891 stores in 62 countries and territories including North America, Central America, Asia, Europe and Africa. 

In 2008, it had 16,226 stores in 44 countries. In just over 5 years, the number of stores increased by 28.75% and its global presence increased from 44 countries to 62 countries. 

Starbucks started its global expansion by acquiring local coffee chains in different countries. In 1998, Starbucks acquired the 65 outlet UK-based Seattle Coffee Company and rebranded all their stores as Starbucks. (Horizontal integration)

As Starbucks’ business started to flourish rapidly, its need for basic resources in production such as coffee beans, sugar and paper cups also grew. Starbucks obtains these resources from all over the world. It also established a wholesale coffee trading company in Switzerland, bought over the manufacturer of Clover Brewing System (a manufacturer of coffee equipment) and Teavana (speciality tea and tea accessory retailer), all of which are basic resources for its global chain of stores. (Backwards vertical integration)

Starbucks is a successful business that reaped in a revenue of US$13.29 billion and a profit of US$1.38 billion in 2012. 

However, there is a growing tension between the global expansion of corporations and societal norms of the countries that globalization affects.

Starbucks has been criticized for using it’s power to get the prime location and restrict landlords from leasing units to it’s direct competitors. It is criticized for “killing” small coffee shops, who cannot afford to pay an inflated price to lease the shop space. 

Although it can be argued that globalization can give us greater choice, the reverse can also be argued. Starbucks is accused of saturating the market and creating a homogeneous culture, essentially killing some countries’ individual “coffee culture” and limiting consumers’ choices. 

“Starbucks has become a global brand through their costumer loyalty and 'word of mouth' communications. If I were to go to Hungary and see two coffee shops, one being a local Hungarian coffee cafe and the other being Starbucks, I would probably go to Starbucks. Why? Because brand loyalty. I know when I order my Chai tea latte it will be just that: a chai tea latte. When I go somewhere unfamiliar I can be hesitant to what I might actually get, even if it is an unique European style coffee house.”

http://theeconomicspectacular.blogspot.co.uk/2013/02/globalization-and-starbucks.html

From this quote, we can see that Starbucks has effectively limited this consumer’s choice. 

Another effect of globalization that I would like to discuss is that it can help a company lower its cost of production. Companies such as Nike, Primark etc have global production chains to manufacture their clothes, which help them to capitalise on cheaper resources in different countries. In the case of Nike, it has kept its design plants in Europe and US, but it has moved productions to Asian countries such as China and India, as the labour costs in Asia are relatively cheaper.

By setting up manufacturing plants in these countries, these companies have helped to create jobs for the low-skilled workers in these countries, and also contributed to the gross domestic product (GDP) of these developing countries, fueling economic growth in these countries. 

However, many of these large companies have exploited cheap labour, often grossly underpaying their workers. A report showed that workers in Bangalore are paid as little as 13p an hour, and work up to 48 hours a week in poor conditions. Nike, for example, was embroiled in a sweatshop scandal that damaged their reputation. Thus, while it is claimed that people’s lives are being bettered through globalisation, it can be shown that in actual fact, these people are actually being exploited and underpaid. 

Social, Technological and Political Factors For Electric Cars

This week, we learnt about the PESTEL factors.

In the car industry, the introduction of green electric cars is the combination of Social, Technological and Political factors. 

Technological Factor

“Normal” cars, the ones that we’re all familiar with, are extremely harmful to our environment as they pollute the environment and is one of the main contributors to carbon emissions. 

Source: www.epa.gov

Innovation in technology has allowed car manufacturers to develop electric cars. The idea is that eventually, all “normal” cars that run on fossil fuel will be replaced by electric cars, as electric cars are cheaper and more environmentally-friendly. Electric cars produce close to zero exhaust emissions, and this will definitely improve air quality in many urban areas. 

Electric cars first appeared in the 1910s, but they were mainly marketed as “city cars”. However, in 2013, technology has advanced and many electric cars are now “highway capable”

Tesla is credited for producing Tesla Roadster, the first fully electric sports car, followed by Tesla Model S, a fully electric luxury sedan. 

Following which, luxury German car manufacturer BMW also recently launched the i3 and the i8 just last week, the former a city vehicle, and the latter a luxury sports grand tourer plug-in hybrid. 

Apart from BMW, Mercedes, Nissan, Mitsubishi, Ford, Toyota, Honda and Chevrolet and many other car manufacturers also have their own “electric car” range, apart from their “normal car” range. 

Thus, we can see the trend that many car manufacturers are now exploring the options of electric cars. In addition, it would also help car manufacturers to appear more “socially responsible”. 

However, one challenge faced by manufacturers is that there are not enough electrical charging points along highways and cities to encourage consumers to switch to electric vehicles. 

Also, electric cars generally are not able to make long trips without needing to recharge, which may deter consumers from owning an electric car. 

Social Factors

Manufacturer POV

It seems that in this modern world where large corporations are perceived negatively, having a sense of corporate social responsibility (CSR) and producing socially responsible products is a key differentiating factor for firms. 

The lack of CSR can have devastating effects on a company. For eg, in an article by Crossboarder Monitor (1997), it was discussed how Nike’s irresponsible practices made it suffer a huge image damage. It was reported that Nike’s sweatshop scandals caused its sales to fall by 8% in 1999, and its stock also fell by 15%. Thus, it can be proven that a lack of corporate social responsibility can damage a brand and cause a fall in revenue and profits.

Consumer POV

As the Western society grows more affluent, it has led to a trend that sees customers more willing to pay for products that are deemed to be “socially responsible”. This is evident in the automobile industry, where it has led to a trend of an environmentally-friendly approach towards the production of cars, as well as consumption of cars. For eg, in the UK, sales of electric cars have jumped by 25% in Q3.

 (http://www.theguardian.com/environment/2013/nov/11/electric-car-sales-record-high-uk) 

Normal cars have been heavily criticised since they are a major source of pollution to the environment, and also contribute to global warming, acid rain and ozone layer depletion. They are also a major cause for depletion of natural resources, ie. fossil fuel. Thus, there may be a social pressure to switch to using hybrid electric cars to be seen as “socially responsible” and “eco-friendly”. 

Political Factor

Some governments encourage its citizens to buy electric cars by providing buyers some incentives in the form of tax rebates or subsidies. It may also give subsidies or loans to electric car manufacturers. This would encourage car manufacturers to produce more electric cars, as they know that demand for electric cars is likely to increase due to the incentives that the government would offer to buyers of electric cars. 

UK: 25% off the cost of the car, up to maximum of £5,000

China: Subsidies of 60,000 yuan (£6,160) to buyers of electric cars

US: When a consumer purchases a hybrid-electric vehicle, he/she would be eligible for US$3,400 (£2,128) in federal tax credits; US$7,500 in federal tax credits with the purchase of a Tesla electric car

In the US, The Department of Energy also gave a federal loan of US$465 million loan in January 2010 to Tesla, a car manufacturer that only manufactures fully electric cars. The government awarded the loan as part of the Advanced Technology Vehicle program, to encourage the development of fully electric cars.