Singapore Airlines

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Singapore Airlines

  1. 1. AMITY GLOBAL BUSINESS SCHOOL, SINGAPORE Term Paper "Singapore Airlines - sustainable advantage through their dual strategy" Submitted to: Prof. Latha Chakravarthi Submitted by: Harshita Baranwal Enrollment no. A1802011082
  2. 2. Page 1 Acknowledgement Before moving ahead with the term paper, I would like to show gratitude to our Director Sir, Dr. Moorthy for including such a healthy exposure in the form of term papaer, in our course programme. I am very obliged to Ms. Latha Chakravarthi (my guide and mentor for the internship report) who guided me throughout the making and completion of this report. It’s because of her continuous supervision and efforts only that today my report could be completed. Lastly, I would like to thank the Almighty God for everything. This report would never have been a success without his blessings. I sincerely hope that the readers find my report interesting, informative and enjoyable to read.
  3. 3. Page 2 Table of Contents S no. Particulars Page no. 1 Chapter 1: Executive Summary 2-3 2 Chapter 2: Literature Review 4-5 3 Chapter 3: Research Methodology 6 4 Chapter 4: Introduction 7-15 5 Chapter 5: Research Analysis 16-29 6 Chapter 6: Recommendations & Conclusion 30-37 7 Bibliography 38
  4. 4. Page 3 Chapter 1: Executive Summary The report provides an overview of the company and its environment. The paper identifies various resources and capabilities available to the company. The various strategies that Singapore Airlines utilize and how they affect the airlines performance. Key issues have been identified that threaten Singapore Airlines current market. The often complicated Government regulations and global laws that affect the airline industry have been defined and explained. Current industry issues and trends that affect Singapore Airlines have been researched, a number of recommendations have been provided, as a possible solution. 1.1 Introduction of Title of Study Singapore Airlines has consistently outperformed its competitors throughout its history, in the context of an unforgiving industry environment. The study examines how Singapore Airlines has achieved its outstanding performance and sustained its competitive advantage, through effectively implementing a dual strategy: differentiation through service excellence and innovation, together with simultaneous cost leadership in its peer group. It also examines the organizational elements that have allowed the company to do so, illustrate its strategic alignment using a vertical alignment framework, and conclude by highlighting the significant challenges ahead. 1.2 Objectives of Study 1.2.1 How SIA has outstripped its competitors? 1.2.2 How SIA has sustained its competitive advantage through its dual strategy? 1.3 Scope of Study This research paper is pervasive at all levels of study. Anyone willing to learn the marketing aspect esp. pricing & differentiation can seek help from this term paper. It can be used by learned, students, teachers & educated citizens. 1.4 Limitations of Study 1.4.1 Primary data goes inaccessible 1.4.2 Time constraint
  5. 5. Page 4 Chapter 2: Literature Review Harvard Business Review. “The Globe: Singapore Airlines’ Balancing Act” (July 2012) SIA’s service processes, like those of most other airlines, are highly standardized. That’s central to high-volume service operations, because it leads to predictability, safety, and lower costs. It also leads to customer satisfaction, but it can’t deliver a “wow” experience, partly because once customers have experienced something, they tend to discount its value. That’s why SIA combines standardization with personalization to delight customers. Doing so is cost-effective because it doesn’t add permanent costs to standard processes. The airline institutionalizes personalization by creating a service culture that, as mentioned earlier, it sustains through recruitment, training, and rewards. It instills in employees a certain pride in working for the company, and they come to identify with its reputation. SIA’s crew members and managers alike say that service is in their blood. Berinatto Scott, “Singapore Airlines' Winning Strategy” (August 19, 2008 ) Harvard Business School Professor Rohit Deshpande discusses one airline that's not just surviving the current downturn, but thriving: Singapore Airlines. Why is Singapore offering complimentary espresso on flights when others arecharging for luggage and taking away in- flight movies? How has the company avoided the doom and gloom that so many other carriers face? Deshpande says that Singapore brings its customer service focus to all cabins, even if it's making its money off of the front of the plane. "They give more frills to economy than any airline," he says. "They were the first in-seat TVs and offered more channels than any airline. They have, even in economy, more flight attendants per passenger." The net result is an airline that's built customer loyalty and a solid business. Deshpande Rohit, “Singapore Airlines: Customer Service Innovation” (Jul 22, 2003) The members of Singapore Airlines' (SIA) management committee needs to decide whether to cancel the implementation of the new lie-flat seats in business class after the effects of the global recession on the travel industry in September 2001. SIA was considered the gold standard for its innovative customer service, and the $100 million new seats project for the international market was planned to bolster that reputation. Loizos Heracleous, Jochen Wirtz “Journal of Air Transport Management” 15 (2009) 274– 279 (2008)
  6. 6. Page 5 Singapore Airlines has consistently outperformed its competitors throughout its history, in the context of an unforgiving industry environment. We examine how Singapore Airlines has achieved its outstanding performance and sustained its competitive advantage, through effectively implementing a dual strategy: differentiation through service excellence and innovation, together with simultaneous cost leadership in its peer group. We examine the organizational elements that have allowed the company to do so, illustrate its strategic alignment using a vertical alignment framework, and conclude by highlighting the significant challenges ahead.
  7. 7. Page 6 Chapter 3: Research Methodology This study intends to probe how SIA has managed to progress over the past several years & has managed to sustain its competitive advantage? For this research, secondary data has been used. Secondary data has been gathered via company’s annual reports, press releases, online journals
  8. 8. Page 7 Chapter 4: Introduction The Early Days Singapore Airlines’ history can be traced back to 1 May 1947, when a Malayan Airways Limited (MAL) Airspeed Consul took off from Singapore Kallang Airport on the first of three scheduled flights a week to Kuala Lumpur, Ipoh and Penang. · Over the next five years, larger capacity DC-3 aircraft were introduced. This meant faster and more comfortable flights, and the extension of services to destinations in Indonesia, Vietnam, Burma (now Myanmar), North Borneo (Sabah) and Sarawak. · Inflight refreshments improved from the original thermos flask of iced water to sandwiches, biscuits and cold cuts plus a choice of hot and cold drinks, and alcoholic beverages served by a lone hostess. Known as “female pursers”, these hostesses are the forerunners of today’s Singapore Girl. The 1950s & 1960s More new aircraft were added to the fleet in the 1950s and 1960s, the period leading up to the jet age. Among these were the DC-4 Skymaster, Vickers Viscount, Lockheed Super Constellation, Bristol Britannia, Comet IV and Fokker F27. · On 16 September 1963, the Federation of Malaysia was born and the Airline became known as Malaysian Airways Limited. In May 1966, it became Malaysia-Singapore Airlines (MSA). · In 1968, for the first time, annual revenue hit S$100 million. The sarong kebaya uniform for the Singapore Girl, designed by French couturier Pierre Balmain, was introduced and three B707s were added to the fleet. · In 1969, the Airline purchased five B737-100s. The 1970s & 1980s The 1970s got underway with a bang: on 2 June 1971, MSA’s first transcontinental flight took off for London. · In 1972, MSA split to become two new entities – Singapore Airlines and Malaysian Airline System. · The rest of the decade was devoted to growth and consolidation of the newly established Singapore Airlines. The fleet was expanded to include B747s, B727s and DC10s. To provide more efficient ground services at Paya Lebar Airport, a subsidiary company, Singapore Airport Terminal Services (SATS), was set up. A B747
  9. 9. Page 8 hangar and airfreight terminal opened in 1977. · The move to the new Singapore Changi Airport from Paya Lebar on 1 July 1981 was a big event. Two years later, Airline House, Singapore Airlines’ corporate headquarters in the Changi Airfreight Centre, was officially opened. · The first Singapore Airlines A300 Superbus went into service in February 1981, and the first B747-300 in May 1983. The first B757 and the first A310-200 arrived in November 1984. In 1989, Singapore Airlines became the first airline to operate a B747-400 on a commercial flight across the Pacific. · Tradewinds, a Singapore Airlines subsidiary, became Singapore’s second airline in February 1989. It has since been renamed SilkAir and has an established network of more than 30 destinations in the region. The 1990s Singapore Airlines commenced operations from the new Terminal 2 at Singapore Changi Airport on 22 November 1990, with the arrival of SQ23 from Amsterdam. In September 1998, Singapore Airlines set new standards in air travel by unveiling a new suite of products and services worth S$500 million across all three classes of travel, offering customers enhanced standards of service on the ground and new levels of comfort, cuisine and entertainment in the air. In 1999, Singapore Airlines launched KrisFlyer, its first proprietary frequent flyer programme, which allows First, Business and Economy Class customers to earn mileage credits. The 2000s In February 2004, Singapore Airlines inaugurated its first A340-500 by setting a record for the world’s longest non-stop commercial flight from Singapore to Los Angeles. The Airline bettered the record just months later, in June 2004, when it launched the non-stop Singapore to New York (Newark) flight. · In October 2006, Singapore Airlines launched a comprehensive suite of new generation cabin products comprising the world’s widest First and Business Class full-flat seat products, a new Economy Class seat, and the next generation of the award-winning KrisWorld inflight entertainment system. · On 15 October 2007, Singapore Airlines took delivery of the world’s first A380 at the Airbus Headquarters in Toulouse. · Singapore Airlines was the first airline to operate out of Changi Airport Terminal 3 in January 2008. The Airline currently operates out of both Terminal 2 and Terminal 3. · In May 2008, Singapore Airlines created history again by being the first carrier to operate an all- Business Class service between Asia and the USA with its launch of all-Business Class non- stop flights from Singapore to New York (Newark). Three months later, in August 2008, the
  10. 10. Page 9 Airline introduced this all-Business Class non-stop service to Los Angeles. · On 21 January 2009, Singapore Airlines received the first of 19 new A330-300 aircraft in Toulouse, France. The aircraft is configured in a two-class layout, with 30 new Business Class seats and 255 Economy Class seats. Singapore Airlines has come a long way since our founding in 1972, evolving from a regional airline to one of the most respected travel brands around the world. We fly one of the youngest aircraft fleets in the world to destinations spanning a network spread over six continents, with our Singapore Girl as our internationally-recognizable icon providing the high standards of care and service that customers have come to expect of us. We have made a habit of leading the way, and along the way developed a reputation for being an industry trendsetter. Our ever-growing list of industry-leading innovations includes the following firsts:  First to offer free headsets, a choice of meals and free drinks in Economy Class, in the 1970s  First to introduce satellite-based inflight telephones in 1991  First to involve a comprehensive panel of world-renowned chefs, the International Culinary Panel, in developing inflight meals in 1998  First to offer audio and video on demand (AVOD) capabilities on KrisWorld in all classes in October 2001  First to operate the world’s longest non-stop commercial flight between Singapore and Los Angeles in February 2004 on the A340-500, and then surpassing the record (in terms of distance) later that year with the non-stop service to New York (Newark), in June 2004  First to fly the A380 from Singapore to Sydney on 25 October 2007 Singapore Airlines (SIA) first flights began in 1947 partnered with Malaysian Airlines, each funded by their governments. The two airlines mainly serviced South East Asia. Singapore separated from Malaysia in 1965 to become the republic of Singapore. The two governments therefore decided to go their own ways and set up their own airlines. In 1972 Singapore Airlines was launched. The domestic market was basically nonexistent due to Singapore being a small country geographically. Singapore Airlines had to immediately pursue an international presence and
  11. 11. Page 10 started planning flight routes, airport resources, and government acceptance into foreign destinations etc. SIA also had to establish themselves as a genuine competitor and market the airline internationally to potential customers and future stakeholders. Today, SIA has more than 10,000 employees and 95 aircrafts. The airline now serves 89 destinations around the world including Asia, Europe, North America, Middle East, Australasia, and Africa. SIA is situated at Changi Airport along with subsidiaries Silkair and Tiger Airlines. ‘In 2004, Changi Airport received a record 30,400,000 passengers, a year-on-year growth of 23.1% in passenger traffic. Similarly, a record 1,780,000 tonnes of cargo was moved, representing a year-on-year increase of 10.2% in airfreight volume. Changi Airport is classed as “the hub of Asia”, Changi provides stopovers, refueling, and passenger exchange for all the international airlines travelling from one side of the world to the other. Changi Airport is also expanding to accommodate for their cut price airline and new Airbuses arriving in 2006. AnalysisofSingaporeAirlinesEnvironment In analyzing the environment, the important external influences that effect performance and decisions of Singapore airlines have been detailed in this section. The airline industry has been strongly controlled by agreements and policies. Airlines couldn’t just fly to any destination or country without appropriate authorization. Most countries have their own national airline that are generally government backed and hold a big influence on their operation. The governments also implement policies and regulations to control foreign airline access to their airports. Some countries now have deregulated there national airline industry to reduce the amount of government control, and make access to airports/services more open for negotiation. Countries that have employed this action are the United States, Australia, European Union and Japan. The deregulation of the Airline industry opens doors for more entrants to the market and increased competition. Singapore Airlines is still owned by the Singapore government and is still affected by such controls. The Singapore government has signed an agreement with the United States called “Open Skies” that gives both countries unrestricted flight access to each other’s countries. The open skies phenomenon is gathering momentum and more and more countries are signing up. Singapore Airlines is currently in negotiations with Australia, to reach an agreement regarding open skies access down under. Basically the countries that gain open skies agreements are able to expand on existing business. The airline industry is highly competitive industry and the rival airlines are always taking advantage of any opportunity to gain more
  12. 12. Page 11 destinations. Statistics show Asia’s population is steadily increasing every year and this contributes to the increase in flights. Asia is recognized as the hotspot for air travel at present and into the future. Asia-Pacific intercontinental flights are up 7% and there has been growth of 8% intra-regional services. This interest in the area has seen new cut price airlines emerge to cater for the demand. SIA has established its own low price airline Tiger Airlines to satisfy demand. Other environmental factors influencing SIA and the airline industry are rising fuel prices. The price rise in fuel causes a cost increase in the running of flights, therefore a rise in ticket prices. SIA have just passed a decision to put a US$10 surcharge on ticket prices to accommodate the fuel rise. Terrorism has caused massive economic losses for airline industry and also bankruptcy. Terrorism strikes happen at any time without warning and destinations around the world that are directly affected by terrorism attacks see a dramatic stop in airline flights. The airlines cannot predict these attacks from happening and have to build such occurrences into their risk management policies. ReviewoftheIndustryStructure In analyzing the industry structure this report uses Porters 5 Forces. The five forces look at the Threat of New Entrants, Power of Suppliers, Power of Buyers, Availability of Substitutes, and Competitive Rivalry. Threat of New Entrants: The international airline industry has high barriers to entry for a number of reasons, firstly there are quite high costs involved in setting up an industry. As mentioned previously, gaining flight access to foreign countries and obtaining airport space is another hurdle that stands in the way of new entrants. The current airlines dominating the industry are constantly working on maximizing cost efficiency, and performance to discourage any new entrants and to try force out existing poor operators. The Domestic industry is more attractive to new entrants as it doesn’t have as much complications as the international side and lower barriers to entry. Power of Suppliers: The aircraft suppliers of the airline industry are dominated by two suppliers Boeing and Airbus. The aircrafts engines are standardized so both aircraft manufacturers have similar engines. Boeing and Airbus both outsource their parts for their planes and generally use the same suppliers. The body frames and interiors is where the two
  13. 13. Page 12 manufacturers can differentiate their product. Due to the standardization of engines the switching costs of suppliers is reduced and airlines. Power of Buyers: The power of buyers is low in the airline industry as switching costs are high. Most airlines are similar inside; it’s more the service that sets them apart. Most airlines follow each other on prices and cause buyers to pay their price, on the other hand new entrants my cause price competition and therefore a buyers market. Availability of Substitutes: The substitutes that could threaten the airline are cars, boats and trains. These substitutes are not that much of a threat to airplane travel. Airlines are generally is used to cover large distances in a short period of time, and was establish to fill a demand that the other forms of travel couldn’t accommodate as effectively. Alternate measures of transport are more of a personal choice not a direct parallel substitute. Competitive Rivalry: The airline industry is highly competitive and price wars are a common occurrence. There is constant fighting for territory and expansion. Major players in the industry concentrate on lowering their costs and improving service to deter new entrants. WhatKeyresourcesavailabletoSingaporeAirlines? Singapore Airlines is a well establish international airline with strong profitable track record. The company has a government ownership and also private stakeholders. The airline has always been profitable and the funds reinvested back into the company, to build on capital. Aside from just financial capital, Singapore Airlines has many other resources listed below: • Changi airport the home of Singapore Airlines is one of the largest freight handling facilities in the world, and is the most popular hub in Asia. • Singapore has a resource of about 95 aircrafts that now are brought internally and not leased; the aircrafts are generally replaced every 4-5 years. • Singapore Airlines has built a mass of 89 international flight destinations. • The airline has built a human resource training facility. • Changi Airport hosts SIA state of art engineering company that services there planes and other international airlines. SIA also has one of the largest flight kitchens in the world situated at Changi. • SIA belongs to the Star Alliance where other airlines join resources together to increase
  14. 14. Page 13 coverage around the world. Star alliance covers 790 airports in 138 countries. • Finally the brand attribute, is probably there most powerful resource. “Singapore Girl you’re a great way to fly” Has been strongly nurtured over the last 32 years to be the most recognized brand and icon in the airline industry, Singapore Airline has many capabilities that support their resources, these are: • Latest technological and communication products linking there global network. • Huge investment in human resources, this provides highly skilled workers and management. • Expansive destination coverage due to Star Alliance. • State of the art freight facilities that link with the port shipping authority What it takes to be successful in the Airline Industry and What strategies are used by Singapore Airlines? Singapore Airlines is basically the trend setter of the airline industry. SIA has employed many innovative strategies since it began. These strategies have been supported and strengthen over the years, and have led to the success, the company enjoys today. To be successful in the airline industry you have to employ superior efficiency, quality, innovation and customer responsiveness. SIA has exercised a quality/service differentiation strategy to become one of the leaders in the passenger airline industry. ‘Singapore Airlines has carefully built a financial and fixed cost infrastructure which allows them to continue investing to support the brand while challenging the competition on costs’.(www.venturerepublic.com) More recently Singapore Airlines became a member with the star alliance, which helps the company maintain economies of scale by code sharing, where SIA can offer services on another airline under its own flight codes and offer more destinations. By building solid capital the airline now enables them to purchase aircrafts and equipment internally without the need for leases and interest. This has enable SIA to have the latest aircrafts and renew them every 5 years. By having a new fleet the company is able to be more efficient with regards to fuel economy, maintenance, and have less downtime. Another benefit of owning aircrafts outright gives flexibility if there is a dramatic decline in the economy, SIA has the freedom of not being locked into long leases and aircrafts can be disposed of, if need be. Therefore they can handle the ups and downs of the economy, more
  15. 15. Page 14 so than competitors. Singapore Airlines have always concentrated on being innovative, as mentioned above they replace there airlines every 4-5 years taking advantage of new technology. The company has always the first to introduce new innovative ideas for example hot meals, free alcoholic and non-alcoholic drinks, Hot towels, personal entertainment systems, and video on demand. SIA will also be the first to own the new Airbus Super jumbo A-380 in 2006. SIA is committed to providing a world class quality and service, the airline allocates a substantial amount of time and money into their staff training and education. The company has 4 training facilities with various programs that exercise classroom, work experience and simulation strategies. SIA has more concentration on staff training than any other airline. Singapore Airlines employees have to complete a 4 month training course before they are even allowed to serve a customer. On average in 1997 Singapore Airlines spent $5600 per staff per year on training. The emphasis on staff training is so they can provide the best quality service. The branding of SIA is based on quality. SIA have the strongest brand name in the airline industry. “Singapore girl you’re a great way to fly” has been there brand of quality for the last 32 years. ‘The icon has become so strong that Madame Tussaud’s Museum in London started to display the Singapore Girl in 1994 as the first commercial figure ever. The airline provides the best on flight cuisine including fine wines, and cocktails. Complimentary gifts are received on each level of passenger class. SIA have maintained a policy that once a passenger pays for their ticket there is no more to pay. Some airlines in tough economic times have started to charge for in-flight drinks and entertainment where SIA haven’t. This commitment to quality has won the airline numerous international awards and differentiated themselves from other airlines. SomeissuesfacingSingaporeAirlines The Airline has purchased a number of the new Airbus Super jumbo A-380, which could be a bit premature due to the fact they are still in negotiations with the Australian government over open skies. The Australian government holds the key to Singapore gaining open skies agreements, if an agreement is reached Singapore will be able expand and benefit from long haul flights between Australia and United States. On the flip side the introduction of the new airbuses into the industry will cause less demand on Singapore as a stop-over, refueling hub. Airlines that adopt the new airbuses will be able to bypass previous stopovers and enjoy cost savings. As explained earlier there has been a dramatic increase in demand for inter-Asia flights. Rival
  16. 16. Page 15 players have noticed the increase in demand and have implemented their own low cost airlines. E.g. Australia’s Jet Star
  17. 17. Page 16 Chapter 5: Analysis There’s something about Singapore Airlines. Over the past four decades, it has earned a stellar reputation in the fiercely competitive commercial aviation business by providing customers with high-quality service and dominating the business-travel segments. SIA has won the World’s Best Airline award from Condé Nast Traveler 21 out of the 22 times it has been awarded and Skytrax’s Airline of the Year award three times over the past decade. What’s not so well known is that despite the quality of its services, SIA is also one of the industry’s most cost-effective operators. From 2001 to 2009, its costs per available seat kilometer (ASK) were just 4.58 cents. According to a 2007 International Air Transport Association study, costs for full-service European airlines were 8 to 16 cents, for U.S. airlines 7 to 8 cents, and for Asian airlines 5 to 7 cents. In fact, SIA had lower costs than most European and American budget carriers, which ranged from 4 to 8 cents and 5 to 6 cents respectively. Singapore Airlines’ strategy Singapore Airlines is positioned as a premium carrier with high levels of innovation and excellent levels of service, and has made a strategic choice of giving priority to profitability over size. The internal organizational practices outlined in this paper, such as continuous people development and rigorous service design are key aspects of operationalizing and sustaining this positioning and strategic choice. At the corporate level, SIA follows a strategy of related diversification. The Singapore Airlines Group has 36 direct subsidiaries and associated companies (Singapore Airlines, 2008). SIA Group subsidiaries include Singapore Airport Terminal Services (80.8%), Singapore Engineering Company (81%), and Singapore Airlines Cargo (100%) (Singapore Airlines, 2008). Its airline subsidiaries which include 100% ownership of regional carrier Silk Air, budget carrier Tiger Airways (49%), and Virgin Atlantic (49%) cover the key customer segments within the industry. According to CEO Chew Choon Seng ‘‘we intend to play in all the segments – SIA at the high end, Silk Air on middle ground and Tiger Airways at the low end’’ (Outlook, 2004). The shareholders in Tiger Airways include Temasek (the Singapore government’s investment arm as well as SIA’s majority owner) and Irelandia Investments, the private family investment vehicle of Anthony Ryan, the founder of Ryanair, one of the world’s leading budget carriers. As part of its international strategy, in April 2000 SIA joined the Star Alliance, one of the three major
  18. 18. Page 17 airline alliances (the other two being Oneworld and Skyteam). In the meantime various divisions of the SIA Group have been investing in China and India through strategic alliances with local organizations (cargo division, airport services, engineering services and catering). Use of information technology is an essential feature of SIA’s strategy both in enhancing customer service as well as increasing efficiency. SIA’s web site is one of the most advanced and userfriendly in the industry, where customers can check schedules, buy tickets, check into a flight, manage their Krisflyer (frequent flyer) account, find out about promotions, and even choose their meal for their next flight. Given that agents’ commissions can be up to 7.5% of total operating costs (and reservations/ticketing a further 5.4%) (Doganis, 2006), effective use of IT can significantly reduce costs and enhance service levels. When the current CEO, Chew Choon Seng took over in mid-2003, cost cutting was on the top of his agenda with particular emphasis on cutting non-fuel costs by 20% within 3 years, and outsourcing IT functions to IBM. The sustained drive for efficiency as well as quality has enabled SIA to increase the spread between breakeven load factor and actual load factor to 6.7% by 2006. With regard to business-level strategy, Singapore Airlines has managed to deliver premium service to very demanding customers (achieving differentiation); at a level of costs that approach those of a budget carrier. This achievement challenges Porter’s suggestion that differentiation and cost leadership are mutually exclusive strategies. Singapore Airlines supports this dual strategy of differentiation and internal cost leadership through the core competency of cost-effective service excellence, enshrined in a unique, selfreinforcing system of organizational processes and activities. SIA’s organizational activity system The five pillars of SIA’s organizational activity system, described below, are rigorous service design and development, total innovation, profit consciousness ingrained in all employees, achieving strategic synergies, and developing staff holistically. Rigorous service design and development Almost two and a half decades ago, services marketing professor Lyn Shostack (1984) noted that service design and development were characterised by trial and error rather than by a structured process as was the case in manufacturing. Things appear to have changed little
  19. 19. Page 18 since then for most service organizations. SIA however views product design and development as a serious, structured effort. SIA’s initial commitment to exceptional levels of service and innovation begun in 1972, when, after its separation from Malaysian Airlines, it chose not to be a member of IATA, whose rules SIA considered too constraining. SIA has a Service Development department that hones and thoroughly tests any change before it is introduced. This department undertakes research, trials, time and motion studies, mockups, assessing customer reaction; to ensure that a service innovation is supported by the appropriate procedures. Underpinning the continuous innovation is a corporate culture that accepts change and development as not just inevitable, but as a way of life; a cultural element that is also inculcated at the national level by Singapore’s government. A trial that fails or an implemented innovation that is removed after a few months is acceptable, and damages no- one’s reputation. At SIA it is expected that any innovation may have a limited shelf life. SIA recognises that to sustain its differentiation, it must maintain continuous improvement, and be able to dispose of programs or services that no longer provide competitive differentiation or that could be offered in a different way. According to SIA’s senior management, ‘‘It is getting more and more difficult to differentiate ourselves because every airline is doing the same thing . the crucial fact is that we continue to say that we want to improve. That we have the will to do so. And that every time we reach a goal, we always say that we got to find a new mountain or hill to climb . you must be able to give up what you love’’ (Yap Kim Wah). The stakes are raised for SIA, not only by its competitors but also by its customers, who have sky-high expectations: ‘‘Customers adjust their expectations according to the brand image. When you fly on a good brand, like SIA, your expectations are already skyhigh. And if SIA gives anything that is just OK, it is just not good enough.’’ (Sim Kay Wee). Combined with its extensive customer feedback mechanisms, SIA treats its customers’ high expectations as a fundamental resource for innovation ideas. Weak signals are amplified; every customer letter, be it complaint or compliment, creates a reaction within the airline. There is also a program called ‘‘SIA’’, for ‘‘staff ideas in action’’, where staff can propose any ideas they have that would improve service or cut costs. Additional sources of intelligence are the IATA, Global Airline Performance (GAP) survey, and SIA’s ‘‘spy flights’’, where individuals travel with competitors and report detailed intelligence on competitive offerings. Lastly, SIA recognises that its competition does not just come from within the industry. Instead of aiming to be the best airline its intention is to be the best service organization. To achieve that, SIA employs broad benchmarking not just against its main competitors, but against the best-in-class service companies.
  20. 20. Page 19 Total innovation SIA does not aim to be a lot better but just a bit better in everyone of its functions and offerings than its competitors. This not only means constant innovation but also total innovation – innovation in everything, all the time. Importantly, this also supports the notion of cost-effectiveness. Continuous incremental development comes at a lower cost than radical innovation, but delivers that necessary margin of value to the customer: ‘‘It is the totality that counts. This also means that it does not need to be too expensive. If you want to provide the best food you might decide to serve lobster on short haul flights between Singapore and Bangkok for example, however you might go bankrupt. The point is that, on that route, we just have to be better than our competitors in everything we do. Just a little bit better in everything. This allows us to make a small profit from the flight to enable us to innovate without pricing ourselves out of the market.’’ (Yap Kim Wah). In addition to incremental improvements, SIA also implements frequent major initiatives aiming to sustain service excellence. Organizational initiatives include SIA’s ‘‘Outstanding Service On The Ground’’ program, ‘‘Transforming Customer Service’’ and ‘‘Soar’’, for ‘‘Service above all the rest’’. As a way of inspiring discontinuous service innovations, SIA strives to gain a deep understanding of trends in customer lifestyles, and debates their implications for the future of better service in the air. According to the Senior Vice President (Product and Service), ‘‘Most new changes that really secure the wow effect are those things that customers never expected . we have our Product Innovation Department that continuously looks at trends and why people behave in a certain manner, why they do certain things. And then we do a projection of 3–5 years of what is going to happen . for the airline, it’s not just about having a smoother flight from A to B. That will be taken for granted. It is really about what are the customers’ lifestyle needs. Can you meet these lifestyle needs?’’ Examples of such innovations include the Krisworld on-demand entertainment system for all classes, Internet and phone check-in for all classes, the full-size ‘‘space-bed’’. SIA was the first airline to fly the A380 jet (when it was finally delivered after long delays), and has been working on developing the in-flight offerings in that aircraft. These include suites, or ‘‘a class beyond first’’ in SIA’s words that have helped to perpetuate its differentiated positioning. Another investment in innovation included a $1m simulator that mimics the air pressure and humidity in the air, so that food can be tasted under these conditions, which affect taste buds. One decision wasto reduce spices in its food. SIA has made a clear strategic choice of being a leader and follower at the same time. It is a pioneer on innovations that have high impact on customer service (for
  21. 21. Page 20 example in-flight entertainment, gourmet cuisine that includes fine wines, the ability to order one’s choice of dishes in advance by internet, ‘beds’ in the air). However, it is at the same time a fast follower in areas that are less visible from the customer’s point of view, such as revenue management or CRM systems. In doing so, SIA relies on proven technology that can be implemented swiftly and cost-effectively; this reduces the implementation risk while delivering the necessary functionality. ‘‘Profit-consciousness’’ ingrained in all employees Despite SIA’s focus on service excellence and innovation, managers and staff are simultaneously aware of the need for profit and cost- effectiveness. This derives from the company culture: ‘‘It’s drilled into us from the day we start working for SIA that if we don’t make money, we’ll be closed down. Singapore doesn’t need a national airline. Second, the company has made a very important visionary statement that ‘We don’t want to be the largest company. We want to be the most profitable.’ That’s very powerful.’’ (Yap Kim Wah) It is due to this policy of pursuing profitability, rather than size, that SIA has the second highest market capitalization in the airline industry globally (after Southwest), even though its revenues are relatively modest compared to competitors such as the Air France–KLM Group, British Airways, or the Lufthansa Group. Any proposed innovation is analysed carefully on the balance of expected customer benefits versus costs. A solid business case needs to be made to support all proposed innovations and new service offerings. Station managers and frontline staff know that they should balance passenger satisfaction versus cost-effectiveness in their decisions. The importance of efficiency in the company culture is reinforced by SIA’s physical spaces. In contrast to the company’s world-class fleet, there are no grand or expensive decorations and furnishings at the company’s headquarters for example. The HQ is characterised by a simple, functional design that epitomises the drive for internal efficiency. Further, SIA has a rewards system that pays bonuses according to the profitability of the company; the same percentage for everyone – the same formula is used throughout the SIA Group. As a result there is a lot of informal peer pressure from individuals within the organisation, and staff and managers can challenge decisions and actions if they see resources being wasted. In 2006, the profit sharing bonus formula has shifted to place more weight on the performance of individual companies (subsidiaries) in the SIA Group in order to increase cost and profit consciousness in these companies and motivate them to increase their business with third parties, so that they will be less dependent on the airline (Singapore Airlines, 2006). SIA builds team spirit within its
  22. 22. Page 21 6600 crew members through its ‘‘team concept’’, where small teams of 13 crew members are formed and then fly together as far as possible for at least two years. This leads to the development of social bonds within the team that reinforce the culture of cost-effective service excellence and the peer pressure to deliver SIA’s promise to customers. Based on both cabin crew feedback and efficiency issues, this team concept has recently been under consideration for further refinement. The aims include the improvement of rostering efficiency, enhancement of the cabin crew evaluation system, and providing cabin crew the opportunity to meet other colleagues who are not on their team SIA: A Premium Service Provider & Cost Leader It’s intriguing that SIA has combined the supposedly incompatible strategies of differentiation—which it pursues through service excellence and continuous innovation—and cost leadership. Few enterprises have executed a dual strategy profitably; indeed, management experts such as Michael Porter argue that it’s impossible to do so for a sustained period since dual strategies entail contradictory investments and organizational processes. Yet pursuing dual strategies is becoming an imperative. The demand for value-for-money products and services has shot up since the recent recession, particularly in developed countries, so even producers of premium offerings have to figure out how to grab opportunities in the middle and the low end of the market. Moreover, multinational corporations face competition from rivals—many of them from emerging markets—that use new technologies and business models to provide good-enough offerings at attractive prices. Incumbents can fight back by cutting prices or further differentiating products and services, but it’s often a losing battle. Price wars typically hurt leaders more than they do challengers, and relentless differentiation is tough to sustain. Adopting a dual strategy is often the only choice. Our research suggests that dual strategies are embraced more readily in Asian countries. Many Western executives believe that, for instance, cost leadership and differentiation, globalization and localization, and size and agility are fundamentally contradictory and can’t be reconciled. But SIA and other companies such as Banyan Tree, Haier, Samsung, and Toyota operate as though the dualities are opposites that make up a whole; that is, they complement, instead of contradicting, each other. This way of thinking is embedded in Eastern thought; the concept of yin and yang in Taoist philosophy, for instance, encapsulates the idea. To be sure, pursuing two strategies will result in organizational paradoxes, but
  23. 23. Page 22 executives in Asian markets tend to realize that opposing insights present the full picture and develop policies to manage both of them. No company executes a dual strategy better than SIA. The airline has delivered healthy financial returns since its founding, in 1972, never posting an annual loss. It has almost no debt, and except for its initial capitalization, it has funded growth through retained earnings while consistently paying dividends. Reaping the Rewards of the Dual Strategy SIA for the past nine years has been executing a dual strategy by managing four paradoxes: providing service excellence cost-effectively; innovating in both a centralized and a decentralized manner; being a technology leader and a follower; and achieving standardization and personalization in its processes. SIA’s self-reinforcing system is difficult to imitate, yielding sustainable competitive advantage. As we shall see in the following pages, the dual strategy has become part of the airline’s organizational DNA over the years. Achieving Service Excellence Cost-Effectively SIA has two main assets—planes and people—and it manages them so that its service is better than rivals’ and its costs are lower. Unlike other airlines, SIA ensures that its fleet is always young. For instance, in 2009, its aircraft were 74 months old, on average—less than half the industry average of 160 months. This triggers a virtuous cycle: Because mechanical failures are rare, fewer takeoffs are delayed, more arrivals are on time, and fewer flights are canceled. New planes are more fuel efficient and need less repair and maintenance: In 2008, repairs accounted for 4% of SIA’s total costs compared with 5.9% for United Air Lines and 4.8% for American Airlines. SIA’s aircraft spend less time in hangars—which means more time in the air: 13 hours, on average, per day versus the industry average of 11.3 hours. And, of course, customers like newer planes better. Service is mostly about people, so SIA invests heavily in training employees. It schools its fresh recruits for four months—twice as long as the industry average of eight weeks—and spends around $70 million a year to put each of its 14,500 employees through 110 hours of retraining annually. The training includes courses on deportment, etiquette, wine appreciation, and cultural sensitivity. SIA’s cabin crews are trained to interact with Japanese, Chinese, and American passengers in different ways. Trainees learn to appreciate subtle issues, such as communicating at eye level rather than “talking down” to passengers. The
  24. 24. Page 23 superior service that results not only delights customers but also reduces costs by minimizing customer turnover. SIA’s training program focuses as much on the necessity of keeping costs down as on the delivery of great service. Trainers, usually former senior crew members or external experts, discuss the airline industry’s fiercely competitive nature with employees every year. At town hall–style meetings and in internal communications, senior executives stress the fact that SIA must become more efficient in order to remain competitive. They emphasize both parts of the company’s vision: providing air transportation services of the highest quality and maximizing returns for the benefit of shareholders and employees. Cost considerations affect every decision made at SIA. In day-to-day operations, the aim is to reduce waste without compromising customer service. For instance, when cabin crews noticed that about a third of passengers don’t eat dinner on late-night flights out of Singapore, they recommended carrying less food. Unlike other airlines, SIA offers two brands of champagne in first class, Krug Grande Cuvée and Dom Pérignon, and spends $8 million on champagne every year. But its cabin crew minimize costs by pouring from whichever bottle is open unless a passenger specifically requests the other brand. No cost is too small to reduce. SIA recently decided not to place jam jars on every breakfast tray, because many people don’t eat jam. Even SIA’s bonus scheme, which extends to all employees, serves as an incentive for employees to worry about expenses. SIA’s plan gives them the opportunity to earn bonuses of up to 50% of their salary depending on how profitable the company is. SIA attracts first-class university graduates, who are hardworking and ambitious. They like the idea of working for a leading local company, and they’re also able to take on a lot of responsibility at a young age. Companies in other service industries are happy to hire SIA employees when they leave. SIA offers only average pay by Singaporean standards, which is low by global standards. Because of this, its 2008 labor costs were just 16.6% of total costs, whereas American Airlines’ were 30.8%, British Airways’ 27.5%, Lufthansa’s 24.4%, and United Air Lines’ 22.5%. According to a 2002 study, SIA’s employees were the second most productive among airlines (measured by the available ton per kilometer for $1,000 of labor costs)—after Korean Airlines. Anything that touches the customer must be consistent with SIA’s premium positioning, whereas everything behind the scenes is subject to control. For instance, the company has
  25. 25. Page 24 outsourced ticketing and payroll processing to a low-cost Indian provider. The company’s headquarters is atop an old hangar at Changi Airport—not in a swank downtown skyscraper—and the number of headquarters staff is small. What’s more, you won’t find espresso machines, fancy carpets, designer furniture, gyms, or swimming pools in its offices. For its training programs, SIA uses its own facilities instead of sending employees to resorts, and participants buy their lunch from company canteens. Hard-bargaining local managers negotiate hotel rates for crew members at SIA’s destinations. Consequently, SIA’s Other Costs (total costs less fuel, labor, depreciation, and aircraft rentals) is, at 29.1%, lower than the other large airlines’ average of 38.2%. This flies in the face of the notion that companies that deliver quality service can’t be cost leaders. Fostering both Centralized and Decentralized Innovation SIA has earned the reputation of being a serial innovator, bringing many firsts to the civil aviation industry: on-demand entertainment systems in all classes; Dolby sound systems; a book-the-cook service that allows business- and first-class customers to order their favorite meals before boarding; the widest business-class seats; and so on. It follows a 4-3-3 rule of spending: 40% on training, 30% on revising processes and procedures, and 30% on creating new products and services every year. The few airlines that worry about innovation usually have a central innovation department. SIA sustains innovation by using a structured, rigorous, and centralized process along with an emergent, distributed, and local process. The former is the skeleton, the latter the flesh and blood; together, they provide customers with a body of novel services at a low cost. The Product Innovation Department (PID) follows a highly structured process that includes opportunity identification, concept evaluation, design and development, and launch. The PID has developed innovations such as a nonstop, all business-class service between Singapore and New York and the induction of the Airbus A380 into the fleet in 2007. SIA engages frontline employees, customers, competitors, and the media to create multiple feedback channels. A small number of executives rotate in and out of the department every three years. Only for megaprojects like the A380 induction do managers stay through the development cycle. Most employees regard being involved in new-product development as prestigious and an opportunity to shine. At the same time, SIA uses its distributed innovation approach for efficiency. The company fosters the idea that employees—especially those in customer-facing functions such as in-
  26. 26. Page 25 flight services, ground services, and loyalty marketing—must innovate if SIA is to stay ahead. Every function is responsible for improving its services, and department heads must implement new ideas out of their budgets. Not only is this approach cost-effective, but the process ensures that innovations are developed in accordance with operational realities, making it easy to implement them. Tensions sometimes erupt between central and local innovation, but SIA encourages both because they complement each other. Distributed innovation helps sustain service excellence, which requires that every part of a customer encounter be outstanding. Frontline employees are particularly important in developing innovations that strengthen SIA’s image—and torpedoing those that could damage it. For example, cabin crews demurred when the idea of allowing passengers to order food and drinks by using the in- flight entertainment system was floated. The crews felt they wouldn’t be able to respond to requests immediately after take-off, before landing, and during planned services, harming their ability to meet customer expectations consistently. That killed the idea. SIA doesn’t try to be overwhelmingly best in class on every count. It focuses on incremental innovation in most areas because the overall experience matters most. This approach enables the airline to make a profit, without pricing itself out of the market. Being Both a Technology Leader and Follower SIA is often the first to innovate in order to enhance the customer experience. But unlike many market leaders that innovate in every aspect of their business, SIA engages in only small improvements in functions that don’t touch the customer. Being a technology leader where customers can experience the benefits is essential to differentiation; being a follower in the back office contributes to cost leadership. Over the years, SIA has developed the ability to execute high-risk innovation projects. For example, it takes a lot of expertise and courage to be the launch airline for a huge aircraft like the A380. Although things did go wrong when Airbus postponed the launch by almost two years, SIA did get a boost. Introducing the A380 not only strengthened its image as a pioneer but also gained enormous publicity for the company. People bid for seats in one of eBay’s biggest auctions, and some paid $100,000 for a seat on the flight from Singapore to Sydney. (SIA raised $1.3 million for charity in the auction.)
  27. 27. Page 26 SIA’s deep pockets allow it to take calculated risks. For instance, in 1976, when it introduced slumberettes in first class, competitors demanded that it either charge more or withdraw the innovation. It did neither. In 1991 it became the first to introduce telephone and fax services on board, and in 1998, SIA was one of the first airlines to set up a website where customers could book flights, choose seats, and order meals. That was a no-brainer; SIA knew it would save costs by sending would-be travelers online. However, SIA is a pragmatic innovator, quickly stopping the use of technologies that cause problems or that customers don’t like. In 1981, it introduced slot machines in the upper decks of its Boeing 747s but removed them when the queues that formed became a safety risk. In the aftermath of the SARS epidemic in the early 2000s, many airlines added time-consuming check-in procedures to screen for the contagious illness. SIA introduced a check-in system based on biometric technology, which enabled passengers to clear immigration, check in, and get their boarding passes in about 60 seconds. However, the airline discontinued the system’s usage when data showed that few passengers were taking advantage of it and conventional immigration procedures had speeded up. SIA is happy to be a back-office laggard. For instance, it wanted a revenue management system that it could deploy quickly and had a low chance of failing. It bought a largely off- the-shelf system, whereas other airlines, such as American Airlines and Lufthansa, developed expensive cutting-edge systems. In 2004, SIA outsourced many of its IT functions—such as its data center and end-user computing support—so it could focus on its core business. Many SIA executives told us that constant innovation on many fronts is risky; changing processes could spread resources and expertise thin and blur SIA’s customer focus. Using Standardization for Personalization SIA’s service processes, like those of most other airlines, are highly standardized. That’s central to high-volume service operations, because it leads to predictability, safety, and lower costs. It also leads to customer satisfaction, but it can’t deliver a “wow” experience, partly because once customers have experienced something, they tend to discount its value. That’s why SIA combines standardization with personalization to delight customers. Doing so is cost-effective because it doesn’t add permanent costs to standard processes. The airline institutionalizes personalization by creating a service culture that, as mentioned earlier, it sustains through recruitment, training, and rewards. It instills in employees a certain
  28. 28. Page 27 pride in working for the company, and they come to identify with its reputation. SIA’s crew members and managers alike say that service is in their blood. SIA personalizes the customer experience by relaying information about birthdays and preferences from its CRM system to cabin crew members. They address frequent flyers by name and know their favorite drinks and magazines. Usually, though, personalization is spontaneous. Most opportunities arise from unexpressed needs: A passenger may look unwell; another may have no book to read; yet another may have a laptop that has run out of power. Most airlines’ employees don’t pay attention to these small things, but SIA’s training programs such as Transforming Customer Service teach cabin crews how to anticipate customer needs and enhance employees’ ability to delight customers. For example, a passenger may request a vegetarian meal without having reserved one. Even when the menu has no vegetarian option, SIA’s cabin crews know how to put together a vegetarian meal from the available food. If a passenger wants to discuss the wine he is drinking, a member of the crew who has taken a wine appreciation course will quickly materialize. Standardization actually enables personalization. Because SIA designs simple processes and trains people well, following procedures becomes second nature. Employees know their jobs so well that they have the mental space to “read” customers and respond to them in creative ways. However, it takes time and effort to go the extra mile, so SIA flights carry more crew members than competitors’. That adds about 5% to costs, but these crews help the airline provide unmatched service, which allows it to charge premium prices. The How-To of Dual Strategies Emulating SIA is not just about following its best practices; it’s about implementing two seemingly contradictory strategies. This involves four broad principles. Harness the power of your people and culture. Your rivals can’t easily copy your people and organizational culture, and those are the linchpins of getting a dual strategy right. Companies should select, develop, and reward employees in ways that incorporate aspects of both strategies in their everyday work. That will create an environment in which making decisions in accordance with both strategies comes naturally. For instance, SIA’s human resource processes induce employees to keep costs low and boost productivity. Employees also feel that they are all members of one family, so if they don’t deliver great service, they’re letting down the company and their
  29. 29. Page 28 peers. Culture is deeply rooted in an organization’s history. SIA has been concerned about losing money since it broke off from Malaysian Airlines, in 1972. At the time, the Singapore government could not support a loss-making airline; besides, the city-state didn’t need an airline because it had no domestic routes. Employees are constantly reminded that things haven’t changed much today. Make good use of technology. Technology can transcend apparent contradictions such as cost-effective service excellence. Companies often make investment decisions on the basis of industry trends, instead of implementing technology to attain dual goals. For example, SIA chose the widest possible seats for its Airbus A380s, but it also ensured that the seats have the fewest possible parts, such as motors, cables, and switches, to keep the risk of malfunction and the cost of repairs low. This kind of thinking results in service excellence at a low cost. Utilize the power of business ecosystems. Companies must create business ecosystems rather than value chains, which are linear. A business ecosystem involves networks of interconnected actors and creates virtuous circles that support dual strategies. For instance, SIA has tied up with leading hotels, restaurants, and retailers to offer discounts to frequent flyers. It selects high-end partners, such as the Ritz- Carlton and the Banyan Tree Private Collection, and uses its negotiating power to earn a commission every time a frequent flyer uses its partners’ services. The discounts accentuate SIA’s differentiation while the additional revenues mitigate costs. Make investment decisions strategically. Strategic alignment, not financial returns, must guide investment decisions. Executives should ask: What investments should we undertake to achieve both strategies? This mind-set should prevail even when rates of return are difficult to calculate or when investments are large. For instance, a person’s ability to taste food declines by about 40% at an altitude of 30,000 feet because of the dry air. SIA invested $700,000 to build a facility that enables chefs to taste food under pressurized flight conditions. This ensures that SIA’s cuisine tastes good in the sky and allows its chefs to get their dishes right the first time. It’s often impossible to calculate the return on initiatives like this, but they are worth making because they contribute to differentiation and lower costs.
  30. 30. Page 29 Executing dual strategies is difficult— that’s what makes the approach so valuable. By being different in ways that customers like, companies that do so rise from the pits of commoditization and make profits even in highly competitive industries.
  31. 31. Page 30 Chapter 6: Recommendations / Conclusion Singapore Airlines is among the surviving companies that surpasses the challenges of a very unstable industry. One of the strongest brands in Asia, leaders in service and competitive airline companies in the world, Singapore Airlines consistently maintains its position as supported by its long duration of serving its clients. It successfully increases its profitability, with $2.13 billion profits attributable to equity holders for the financial year 2006-07 or 71.6% growth from the past year. The Airline operates to approximately a hundred cities and 65 destinations across the globe. SIA's success has contributed to rapid economic development in Singapore. The Airline is an important generator of skilled employment, a channel for the introduction of high technology into the local economy, and a force to the emergence of higher value-added services and manufacturing in Singapore. Tapping its strong market position and financial background, SIA has so much bargaining power that it can exchange aircraft orders for aerospace jobs with the world’s largest aircraft company. Singapore Airlines is well known as having the youngest fleet and best service among all airlines in the world. The distinctions for SIA have a long way to go considering that the Airline is a leader in airline high quality service and innovation of firsts. PROBLEMS AFFECTING SINGAPORE AIRLINES Despite the current success experienced by SIA, there are still problems and challenges that affect its line of services. These problems and challenges are rooted in demanding customers with high expectations and competitive pressures including technology innovations, labor issues, and terrorism among other factors of the increasingly competitive marketplace. Serving Customers with High Expectations Most companies find it impossible to create any kind of sustainable competitive advantage based on product or service alone. It is common knowledge that every one of the successful companies sought and found a precise understanding of how it could create a customer- centered competitive advantage emphasized the idea to take advantage of the competitive situation not just by being better in how that product gets sold, serviced, and marketed at the customer interface. It requires that companies create breakthroughs in how they interact with customers, and design a way of interacting that makes an indelible impression on customers,
  32. 32. Page 31 one that so utterly distinguishes them from others that it becomes a brand in itself. Aiming for competitive advantage, the decision of the management on how to put on the products and services in the market becomes a significant strategic question particularly on what kind of customer experience is offered. Consumers are considered as the fuel of any business venture. They are the ones who purchase the products and/or services of the company. Accordingly, the customers are always the one who identify what is valuable and what is not. With this fact alone, companies like SIA are limited in creating value propositions deliberately aimed at sustaining customers in their value-creating consumption activities. Furthermore, consumers may choose particular products/brands not only because these products provide the functional or performance benefits expected, but also because products can be used to express consumers’ personality, social status or affiliation (symbolic purposes) or to fulfill their internal psychological needs, such as the need for change or newness (emotional purposes). Understanding their behavior is the most elementary solution in providing their varying demands and expectations. Competitive Pressures Aside from considering customers’ high expectations, SIA is facing other competitive pressures such as technology innovations, travel cost, and labor issues. Technology (or scientific) innovations, accordingly the introduction of new-fangled ideas, goods, services, and practices which are essentially intended to be constructive. Technology has always been a major means for creating new physical and human environments. It is possible to ask whether technology will also destroy the global civilization that human beings have created. The utilization of technologies is the involvement of its use in improving the traditional operations and machineries of most organizations and at the same time the technical skills of every individual. These technological advancements have brought people especially those in the business world to utilize a strategy that would be helpful in enhancing the business value of any organization. The intricacies of achieving business achievement through increased efficiency and competitiveness, combined with innovative applications of information technology (IT) has heightened the awareness of both IT and business managers towards more strategically oriented approaches for planning and management. On this case, it is practically the introduction of latest advances in technology and its standard applications. The provided technological capabilities to businesses like SIA is the intrinsic ability to distribute available resources within the context of the operations provided the
  33. 33. Page 32 deliberate target of coming up with competitive products and services. Ironically, SIA is a global leader in innovations. In the recent years, SIA launched the newest cabin products designed to improve the in-flight experience in all cabin classes particularly on the case of Boeing 777-300ER. The increasing worldwide awareness on the protection of the environment is another challenge in the innovative capability of SIA. Airlines are threatened with the advances of information and communication technologies (ICT) such as video conferencing due to the possibility of decreasing the need to travel. Technology is dynamic. More so, SIA is obliged to continuously evaluate its technological inclination in reference to providing the array of customers with varying needs and high levels of expectations. Travel cost is among the most imperative problem that SIA is facing. Pricing is a marketing issue. Marketing can be considered as one of the most important element underpinning successful business creation . Provided that the airline niche market battles on the most effective pricing strategy, the unique marketing strategy on providing their consumers reasonable and affordable costs of flight with a quality service is the biggest menace. The pressures in the airline industry stemming from low-cost carrier competition caused a number of the full-service airlines to begin charging for on-board services which used to be free. This is a violation to the commitment of providing quality customer service. Also, the economic recession in various areas of operations as well as the changing lifestyle of the customers are among the immediate considerations. On the labor issues, the need to continuously train members of the staff based on the high expectations of customers is to be addressed. While competition becomes even more complex, training subordinates is a potent solution to cope up with the emerging challenges of the global workforce. Training is usually done prior to actual employment yet it extends beyond the requirement for both organizational and subordinates’ competitiveness and competency. According to Hornsby and Kuratko, training and development activities can help companies acquire a staff with the right combination of skills and motivations which a company needs to be competitive. Most organizations and their management invest on human resources as human capital is known to be a resource-based competitive advantage. Training remains one of the key aspects necessary for high quality service delivery. Schermermon identified training benefits as it improves communication between groups and individuals; aids in orientation for new employees and those taking new jobs through transfer or promotion; provides information on equal opportunity and affirmative action; provides information on other governmental laws and administrative policies; and improves
  34. 34. Page 33 interpersonal skills. In this case, airline industry professionals need training and education to ensure their adequacy and preparations to serve their role. Given the appropriate training programs for subordinates, it is tantamount to productivity and success yet requires significant amount of financial resources. With the identified problems in the case of SIA, the question of consideration, development, and management of change is necessary. According to Conner, major changes are occurring in most of today’s organizations. Perhaps the space between the new organization design and implementing it into actuality is the whole coverage of organizational change and development. Could the Airline contain costs without sacrificing service? The ability of SIA to extend superior service to its customers is the only possible source of competitive advantage. Current financial conditions of SIA will remain outstanding while consistently holding and developing its high quality customer service. This is attributed to the policy of steady organic growth, strong organizational culture, effective HR function, and overall strategy and commitment of management towards balance in growth and quality service. SIA recognizes the changes that affect their business operations. The varying needs and demands of the airline market and the consumers are the driving factors to incessantly move towards progression. The policy of steady organic growth is the rejection of the managers to the idea that consolidation will lead to an industry consisting of a handful of megacarriers and a few industry players. In the early years of the Singapore Girl carrier, the members of the corporate management are afraid that growth within the organizational environment is fast paced. Even if SIA is financially capable, it did not immediately take hold of the opportunity of acquisition. Strategic management planning is evident to SIA and its executives. In the end of 1999, SIA bought 49% of the Virgin Atlantic Airways. The reason behind this acquisition is the reputation of SIA and Virgin as string players in innovation and high standard service. SIA also expand to promising and new markets (e.g. the US) and strategic alliances (e.g. Swissair and Delta). Everything in SIA is a product of long-term planning and strategic management. Thus, the financial resources of the company is directed to productive ventures rather than futile and aggressive spendings and aimless decision making directed to temporary solutions toward difficulties in their operations.
  35. 35. Page 34 Committed to developing continuous and outstanding airline services, SIA invested on standardization of service, efficiency of transfers, and realization of their core principles. It is, however, impossible to believe that financial cost is unnecessary on these actions. There are significant amount of money involved and spent yet it is not as high as expected. One of the most admired corporate managerial attributes of SIA is its ability to be cost efficient in undertaking its given programmes. For instance, the launching of the Outstanding Service on the Ground (OSG) or ground service programme is focused on improving reservations, ticketing, and general airport services. Training is supposedly directed to airport personnel who are directly in contact to clients. SIA purchased technological systems that will speed up or automate manual works. Being a leader in innovations, SIA invested on technology advancements. The ground service is the springboard for the other corporate plans and programmes. These programmes no longer involve financial resources but the inherent managerial abilities and HR functions. In relation to efficient transfer, each airport unit was given standards reflecting the values of punctuality, baggage handling, speed and friendliness of check-in, efficiency of seat assignment, number of compliments and complaints from customers and professionalism in handling delays. There was additional standard given to the region’s hub – Changi, wherein managers are obliged to achieve the mentioned standards as awards are given to stations that perform the finest. Motivation among employees is palpable in line to SIA’s commitment to high standard service. The emphasis on the core principles of SIA: “Show You Care”, “Dare To Care”, and “Be Service Entrepreneurs” among its workforce is a cost-efficient mechanism. It only includes standard (i.e. oral or written) inculcation or instruction among the direct personnel involved such the pilots, flight attendants, stewards and stewardesses, and airport staff members. To supplement the achievement of these pillars in service, seminars, trainings, reminders, and reinforcement mechanisms through monthly reports, publication, monitoring, recognition, and other activities including posters decorated in staff quarters are implemented. This is another remarkable effort of the management to motivate their workers in general. The effective application of the three pillars in service reaped its fruitful benefits through increased financial performance and expansion of operations. SIA recognize that behind these successes were policies as well as practices that were deliberately and systematically developed and similarly implemented by management. Were security and service inevitably in conflict with each other?
  36. 36. Page 35 Provided the core competencies of SIA, chances are less in terms of conflict in security and service. The brand strategy of SIA is, in theory, a relatively high-cost strategy. The management decided on a fully branded product/service differentiation strategy from the very beginning. Innovation, best technology, genuine quality and excellent customer service were to become the major drivers of the brand. With these attributes, the question of corporate security and service surfaces. There will still be minor issues and challenges that will be faced by SIA but the established corporate structure and leadership is the key to solve such. Leaders play a key role in change implementation. It can be argued that the effective planning and management of change require careful consideration of the impact of structural changes on middle managerial work roles and work satisfaction levels. Drucker (1995) sees leaders as the basic resource for an organisation as well as the key factor for a healthy growing economy and supply, which is critical to the survival and further development of any organisations. For example, the management expertise of Chew Choon Seng as the CEO of the Airline is unquestionable. Like any other business leader, Seng is supported by clear corporate governance initiatives that possess outstanding ability to cope with uncertainty, position in information network, and control over physical and financial resources. The leadership emphasises on achieving consistency and stability by following procedures and practices, high level of conformity and collaboration among employees, and focused efficiency and consistency are the key objectives. Could it grow, yet maintain its high service standards? Airlines worldwide have been trying to strike a balance between cooperation and competition. SIA will definitely grow and maintain its high standards. This is supported by the continuous progressive performance in the current market. In its 61-year history, SIA is committed to their brand attributes. According to their corporate history posted in their web domain, SIA have pioneered many in-flight experiential and entertainment innovations, and strived to be best-in-class. SIA was the first to bring in various assortments of services like hot meals, free alcoholic and non-alcoholic beverages, hot towels with a unique and patented scent, personal entertainment systems, and video-on-demand in all cabins (Roll, 2004). 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. As stated earlier, SIA launched its new generation cabin products while continuously delivering operational efficiency, environmental improvements and customer benefits. Today, SIA faces a future of firsts. This means that there will be more new offerings to come directly aimed to improve their services.
  37. 37. Page 36 SIA made Aviation milestone when they became the first to operate the world's largest aircraft – the A380 in October 25 last year between Singapore and Sydney. In addition, SIA introduced its Suites - in a class beyond First, together with cabin improvements in all other classes while still providing excellent service. Accordingly, the future promises to bring more firsts like these because SIA continually strives to drive quality service through innovation. Could it in fact further improve its already high quality of service? According to Kay (1995), the success of an organization is based on its distinctive capabilities that are continuously developed all throughout the organizations life cycle. SIA, with its given core competencies and current competitive position will undoubtedly further improve in its high quality service. By looking on the three pillars of service, it is definitely as lifetime commitment on their part. The high quality service of SIA is their main selling point. They will continue to improve by striving for more customer service innovations that will generally cater to high expectations or demands. In customer welfare, consumer feedback system must be reinforced. The resolution of customer complaints and problems, for example, is a key for companies like SIA to be able to maintain the loyalty. Dissatisfied customers are more likely to tell people about their experience than satisfied customers are (Ganey and Hall, 1997). The possibilities are coming and there are high stakes to pay and numerous risks to take. In SIA, the challenge is on beyond doubt. Recommendations Singapore Airlines conduct a very professional business they have a strong brand, strong human resources and management, advanced facilities and a proven track record as being one of the top airlines for the last 20 years. I recommend: • The airline pursue “open skies” agreements to expand their destinations. • Establish the long haul routes with the new Airbus technology before rival airlines purchase the aircrafts. • Keep strong emphasis on the brand name and quality of service. • Utilize some of the success factor from SIA on the new low-cost airline to compete with new rival competitors establishing themselves in the Asian market. • Promote Changi Airport’s engineering and freight facilities to the new inter-Asian
  38. 38. Page 37 airlines as long haul flights maybe bypassing Singapore’s Changi Airport in the future. • Stay with the competitive advantage outlined above, using the differentiation strategy. • Maintain the innovation and complimentary products. • Help support the Star Alliance to improve customer satisfaction. It is very hard to recommend a lot of strategies for Singapore airlines to undertake, as they have been leaders in the industry for so long and have developed award winning strategies that have made them very successful. This report has been constructed from a wide array of research that has complemented Singapore Airlines various approaches to conducting business.
  39. 39. Page 38 6.1 Bibliography Harvard Business Review. “The Globe: Singapore Airlines’ Balancing Act” (July 2012) Berinatto Scott, “Singapore Airlines' Winning Strategy” (August 19, 2008 ) Loizos Heracleous, Jochen Wirtz “Journal of Air Transport Management” 15 (2009) 274– 279 (2008)

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