Pictures	                                             Singapore Airlines                               Exalt	  Consulting	...
Agenda	  	                                              Situa(onal	  Analysis	  	                                         ...
Core	  business	  is	  in	  air	  transport	  	                                                                           ...
Core	  business	  is	  in	  air	  transport	  	                                                                           ...
Compe00ve	  advantage	  lies	  in	  a	  duo	  strategy	  of	                                   differen0a0on	  and	  cost	 ...
Compe00ve	  advantage	  lies	  in	  a	  duo	  strategy	  of	                                   differen0a0on	  and	  cost	 ...
Industry	  trends	  drive	  need	  for	  innova0on	                                                  and	  new	  areas	  f...
Industry	  trends	  and	  nature	  drive	  need	  for	                                                   innova0on	  and	 ...
Need	  to	  remain	  compe00ve	  and	  profitable	        Where	  we	  are	  	                          Where	  we	  want	 ...
Need	  to	  remain	  compe00ve	  and	  profitable	        Where	  we	  are	  	                           Where	  we	  want	...
Innova0on	  and	  focus	  are	  the	  key	                                                      issues	  	                ...
Our	  ACE	  strategy	  	                                                           E	                                     ...
Increased	                              Scheduling	                      compe00on	                               Complexi...
Increased	                              Scheduling	                      compe00on	                               Complexi...
Why	  Europe?	                                                   Middle	  East	  	          Europe	             China	    ...
Why	  Europe?	                      Brand	  recogni0on	                      Business	  between	                          ...
Why	  Europe?	                       Brand	  recogni0on	                Business	  between	                           in	 ...
Why	  Europe?	                      Brand	  recogni0on	                                                       Business	  b...
Why	  business-­‐only?	                                  Success	  in	  US	                        SIA	  appeal	  to	     ...
Why	  business-­‐only?	                       Success	  in	  US	                      SIA	  appeal	  to	  premium	        ...
Why	  business-­‐only?	                         Success	  in	  US	                      SIA	  appeal	  to	  premium	      ...
Where	  in	  Europe	  70000	  60000	  50000	                                                                              ...
The	  Singapore	  Girl	                                                   • Consistent	  brand	  since	  1972	            ...
The	  Singapore	  Girl	    Increased	  compe00on	  	                                                              “Sexist”...
The	  Singapore	  Girl	    Increased	  compe00on	  	                                         “Sexist”	  cri0cism:	    -­‐ ...
The	  Singapore	  Girl	               Subservient	                                                                    Well...
The	  Singapore	  Girl	               Subservient	                                                                    Well...
The	  Singapore	  Girl	               Subservient	                                                                     Wel...
The	  Singapore	  Girl	               Subservient	                                                                     Wel...
Enhance-­‐	  Divest	  Tradewinds	  to	  focus	  on	                                                          core	  busine...
Divest	  to	  a	  local	  tour	  agency	  	                                                                        1      ...
SIA	  Cargo	                                                                    1                            2            ...
Why	  Focus	  on	  Cargo?	                                                                              1                 ...
Why	  Focus	  On	  Cargo?	                                                                                 1              ...
How	  To	  Enhance	  SIA	  Cargo?	                                                         1                       2      ...
Seeking	  Growth	  Opportuni0es:	  Mexico	                                                     City	  	                   ...
Financial	  Considera0ons	                                                 Revenues	      2009	                 2014	     ...
Financial	  Performance	                                                           CASH	  FLOW	  PROJECTION	              ...
Financial	  Performance	                                                           REVENUE	  PROJECTION	                  ...
NPV	  Analysis	                               2000	                                                                       ...
Milestones	                                 2010   2011           2011      2013       2014      2015Accentuate1) Airplane...
Milestones	                                 2010   2011           2011      2013       2014      2015Accentuate1) Airplane...
Milestones	                                 2010   2011           2011      2013       2014      2015Accentuate1) Airplane...
Our	  ACE	  strategy	  will	  yield	                                                                results	              ...
E	          C	  A	          THE	  END	  	  
Middle	  East	                                           Middle	  East	  	                     Europe	                    ...
Europe	                                        Middle	  East	  	                      Europe	                          Chi...
China	                                           Middle	  East	  	                    Europe	                       China	...
Skytrax	  ra0ngs	          	  Speaking	  about	  the	  exclusive	  5-­‐Star	  Airline	  ranking,	  Skytrax	  CEO,	  Mr	  E...
Why	  Europe?	  Stock of FDI in singapore by region/countryRegion              1998           2003               2004     ...
Where	  in	  Europe?	  Country          1998           2003           2004           2005           2006           2007   ...
LLC:	  can’t	  do	  long	  haul	  A	  trend	  from	  the	  mid-­‐2000s	  was	  the	  forma0on	  of	  new	  low-­‐cost	  ca...
Business-­‐Only	  (LA,	  NY)	  Singapore	  Airlines	  redefines	  long-­‐haul	  air	  travel	  with	  daily	  all	  Busines...
Dest.       Fleet Core businesses                           Primary markets              Special service         Implicati...
Price	  Premium	                      Short	  Distance	                                         Long	  Haul	              ...
LONG	  HAUL,	  LOW	  PRICE	                                                      Price	  Premium	                      -­‐...
Price	  Premium	                      Short	  Distance	                                            Long	  Haul	           ...
•  Budget	  Airlines	  moving	  upmarket	             Increased	                  AND	  into	  long	  haul	  flights	      ...
Backup	  Slide:	  What	  SIA	  Cargo	  is	  doing	      Intensified	  service	  audit	  programme	  to	  strengthen	  opera...
Backup	  Slide:	  Why	  Cargo	  even	  though	                                 loss	  made	  in	  2009	  and	  2010?	  	  ...
Backup	  Slide:	  Why	  La0n	  America	  	  	  	  	  	  Trade	  paeerns	  are	  moving	  away	  from	  the	  old	  North	 ...
Backup	  sliede:	  Why	  not	  acquisi0on	  	  	  -­‐ 	  While	  ozen	  seen	  as	  the	  best	  managed	  airlines	  in	 ...
Partner	  selec0on	  	  •  Aligned	  strategy	  (in	  terms	  of	  ambi0on	  for	  growth	     and	  profitability)	  	  • ...
WHY	  NOT	  SIA	  Engineering	  	  •  Revenue	  contribu0on	  in	  2009-­‐2010	  is	  SGD	  1	  billion	  	  •  Singapore,...
Alliance	  or	  equity	  when	  nego0a0ng	                                                    barriers	  	  	  Alliance	  ...
Back	  up	  :	  Passenger	  load	  factor	  Key	  issues	  	     Accentuate	       Cul0vate	        Enhance	     Implement...
WACC	  Weighted Average Cost of CapitalWACC = KD (1-T) (D/V)+ KP (P/V) + KE (E/V)I.       Cost of Debt (Kd):              ...
ACE	  Income	  Statement	  SGD	  Million	                                                                                 ...
NVP	  Valuation Summary - Using Perpetuity Growth Rate for Terminal ValueMillionnSGD                                      ...
Key	  issues	  	     Accentuate	     Cul0vate	     Enhance	     Implementa0on	  
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NUS-DBS International Case Competition 2010 - National University of Singapore (2nd Runners Up)

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NUS-DBS International Case Competition 2010 - National University of Singapore (2nd Runners Up)

  1. 1. Pictures   Singapore Airlines Exalt  Consulting  Grace  Lin  |  Amelia  Lee  |  Peh  Che  Min  |  Kwek  Hsien  Yao  
  2. 2. Agenda     Situa(onal  Analysis     Accentuate       Cul(vate   Enhance       Financials  and  milestone    Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  3. 3. Core  business  is  in  air  transport     2009-­‐2010  Revenue     2005-­‐2006  Revenue     2%   1%   Airline  opera0ons     2%   7%   16%   Airport  terminal  and   food  opera0ons     7%   Engineering  service     4%   Cargo  opera0ons     89%   72%   Others    Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  4. 4. Core  business  is  in  air  transport     2009-­‐2010  Revenue     2005-­‐2006  Revenue     2%   1%   Airline  opera0ons     2%   7%   Airline  opera0ons  accounts  for  bulk  of  revenue     and   16%   Airport  terminal   food  opera0ons     Cargo  opera0ons  grew  7%   significantly  over  Engineering  service     5  years     4%   Cargo  opera0ons     89%   72%   Others    Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  5. 5. Compe00ve  advantage  lies  in  a  duo  strategy  of   differen0a0on  and  cost   Strong  focus  on  innova0on       Emphasis  on  core  business   DIfferentiation Cost effectiveness Service  excellence   Cost  management   Product  quality   Flexibility  in  downturn Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  6. 6. Compe00ve  advantage  lies  in  a  duo  strategy  of   differen0a0on  and  cost   Strong  focus  on  innova0on       Emphasis  on  core  business   Con0nuously  reinvent  and  maintain  focus  on  core  business   DIfferentiation   Cost effectiveness Service  excellence   Cost  management   Product  quality   Flexibility  in  downturn Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  7. 7. Industry  trends  drive  need  for  innova0on   and  new  areas  for  growth     Stronger  compe((on     Full  airline  service     Leisure  travel  is  cyclical  and  vola0le     Expansion     Quality  service  and   Industry  facing  overcapacity     product       Low  cost  carrier     Long  haul  flights   Vulnerable  to  external  shocks   Full  service    Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  8. 8. Industry  trends  and  nature  drive  need  for   innova0on  and  flexibility   Stronger  compe((on     Full  airline  service     Cyclical  and  vola0le     Expansion     Innovate  and  differen0ate  to  keep  compe00ve  edge   Remain  flexible  to  respond  to  external  condi0ons     Quality  service  and   Overcapacity     product         Low  cost  carrier     Long  haul  flights   Vulnerability  to  external  shocks       Full  service    Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  9. 9. Need  to  remain  compe00ve  and  profitable   Where  we  are     Where  we  want  to  be     •  High  end,  premium  full   •  Remain  compe00ve  and   service  carrier   profitability  in  the  next  10   •  Known  for  service  and   years     quality  products     •  Con0nue  to  be  the  brand  of   •  Biggest  airline  by  market   choice  for  air  transport     capitalisa0on    Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  10. 10. Need  to  remain  compe00ve  and  profitable   Where  we  are     Where  we  want  to  be     •  High  end,  premium  full   •  Remain  compe00ve  and   service  carrier   profitability  in  the  next  10   •  Known  for  service  and   Key  Issues:       years   quality  products     to  innovate  to  • emain  compe00ve?  brand  of   1.  How   r Con0nue  to  be  the     2.  How  much  focus  should  be  choice  fon  aore  business?   •  Biggest  airline  by  market   placed   or  c ir  transport     capitalisa0on    Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  11. 11. Innova0on  and  focus  are  the  key   issues     Key  Issue     Concerns       •   Product:  Reduce  or  maintain   number  of  service  classes;   How  to  innovate  to  remain   scheduling  complexity     compe00ve?   •   Brand:  Relevance  of  Singapore   girl     •   Narrow  or  balanced  porolio:     How  much  focus  should  be   balance  flexibility  and   placed  on  core  business  ?   diversifica0on          Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  12. 12. Our  ACE  strategy     E   C   A   Accentuate   Cul0vate   Enhance  Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  13. 13. Increased   Scheduling   compe00on   Complexity   Business-­‐only  Flights  to     Financial  Hubs  in  Europe    Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  14. 14. Increased   Scheduling   compe00on   Complexity   ACCENTUATE     Premium  Quality   Business-­‐only  Flights  to     Financial  Hubs  in  Europe    Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  15. 15. Why  Europe?   Middle  East     Europe   China   Exis(ng  25%   compe((on     Government  25%   regula(on     Poten(al  demand  25%   Suitability  25%   Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  16. 16. Why  Europe?   Brand  recogni0on   Business  between   in  Europe   Asia  and  Europe   Why  business-­‐only?   Success  in  US   SIA  appeal  to   business-­‐only   premium  travellers  Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  17. 17. Why  Europe?   Brand  recogni0on   Business  between   in  Europe   Asia  and  Europe  •  Established  network   and  sustainable  demand  •  21.8%  of  SIA  revenue  •  OAG  Airline  Industry   Awards  based  in  UK  (6-­‐ 0me  winner)   Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  18. 18. Why  Europe?   Brand  recogni0on   Business  between   in  Europe   Asia  and  Europe   250,000.00   200,000.00   Europe   150,000.00   100,000.00   USA   50,000.00   Asia   0.00   1998   2003   2004   2005   2006   2007   2008   Stock  of  FDI  in  Singapore  (S$millions)  Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  19. 19. Why  business-­‐only?   Success  in  US   SIA  appeal  to   business-­‐only   premium  travellers   A340-­‐500  is  re-­‐fieed   with  business  seats            “Our  perseverance  through  the  early  part  of  the   downturn  un6l  mid-­‐2009  has  been  vindicated  by  the   fact  that  non-­‐stop  to  New  York  has  been  running   near-­‐full  capacity  these  last  few  months.”   -­‐  CEO  Mr.  Chew  Choon  Seng  Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  20. 20. Why  business-­‐only?   Success  in  US   SIA  appeal  to  premium   business-­‐only   travellers   •   Business  travel  is  less  affected  by   business  cycles     •   Less  price  sensi(ve   •   40%  of  revenue  comes  from   premium  travellers    Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  21. 21. Why  business-­‐only?   Success  in  US   SIA  appeal  to  premium   business-­‐only   travellers   Reduce   Reduce   scheduling   vulnerability  to   •   Business  travel  is  less  affected  by   complexity   business  cycles   business  cycles     Increased   sensi(ve   •   Less  price   differen(a(on   •   40%  of  revenue  comes  from   premium  travellers    Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  22. 22. Where  in  Europe  70000  60000  50000   France  40000   Germany   Netherlands  30000   Switzerland  20000   United  Kingdom  10000   0   1998   2003   2004   2005   2006   2007   2008   1)  FRANCE,  Paris   2)  GERMANY,  Amsterdam   3)  SWITZERLAND,  Zurich  Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  23. 23. The  Singapore  Girl   • Consistent  brand  since  1972   • Icon  of  Singapore  Airlines   • Symbol  of  warmth  and   hospitality   A  Na0onal  Icon  that  is  Interna0onally  Recognised  Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  24. 24. The  Singapore  Girl   Increased  compe00on     “Sexist”  cri0cism:   -­‐ Regional,  global   stereotype  of  Oriental  girl   -­‐   Premium,  budget   Consistent  brand  icon  for   Modern,  out-­‐spoken  girl   premium  service   image  publicised  Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  25. 25. The  Singapore  Girl   Increased  compe00on     “Sexist”  cri0cism:   -­‐ Regional,  global   stereotype  of  Oriental  girl   -­‐   Premium,  budget   Enhance  ‘modernity’  and   ‘professionalism’  of  the   Singapore  Girl   Consistent  brand  icon  for   Modern,  out-­‐spoken  girl   premium  service   image  publicised  Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  26. 26. The  Singapore  Girl   Subservient   Well-­‐informed     and  ar0culate  Hospitable  Warm  Friendly  Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  27. 27. The  Singapore  Girl   Subservient   Well-­‐informed     and  ar0culate  Hospitable  Warm  Friendly  INTELLIGENT  ARTICULATE  WELL-­‐INFORMED  Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  28. 28. The  Singapore  Girl   Subservient   Well-­‐informed     and  ar0culate   Write  columns   Host  “Travel  and  Living”  shows   Increased  recogni0on  for  the  news  companies  Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  29. 29. The  Singapore  Girl   Subservient   Well-­‐informed     and  ar0culate   First:  regional.   Publicize  this  on  an  interna(onal  scale.   Write  columns   Host  “Travel  and  Living”  shows   Move  global.     Increased  recogni0on  for  the  news  companies  Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  30. 30. Enhance-­‐  Divest  Tradewinds  to  focus  on   core  business   1 2 Divest     Build     35%   Strategic  importance     25%   Ability  to  compete     25%   Required  resources   Revenue  contribu0on     20%   100%   Total    Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  31. 31. Divest  to  a  local  tour  agency     1 2 Divest     Build     •   9  strategic  branches  in  Singapore   •   Cover  corporate  and  free  and  easy  tours     • Progressively  growing  and  expanding    Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  32. 32. SIA  Cargo   1 2 Divest     Build    SIA  Cargo  contributes  17%  to   SIA  GROUP  top  line  of  SIA    Currently  flies  to  70  ci(es  in  36   Passenger  countries,  with  more  than  600   Cargo  flights  a  week     Engineering  3rd  largest  Cargo  carrier  in  the   Other  world       Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  33. 33. Why  Focus  on  Cargo?   1 2ASIAN  EXPORT  ECONOMY  EXPECTED   Divest     Build    TO  BE  ROBUST    •   New  products  launched  with  rebound  in  economy    •   More  Just-­‐In-­‐Time  (JIT)  Inventory  management    •   Rising  trend  of  China’s  PMI  export  orders      CONSOLIDATION  OF  CARGO  SECTOR  IN  JAPAN  AND  CHINA  •   Pose  as  a  strong  poten0al  compe0tor    •   Greater  need  to  build  up  SIA  Cargo  to  maintain  compe00ve  edge    Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  34. 34. Why  Focus  On  Cargo?   1 2 Divest     Build     GLOBAL  INCREASE  IN  CARGO   FREIGHT  TONNES     •   40%  increase  in  Freight  tonnes   from  28.8  mil  to  40.3  mil  in  the  last   decade   •   Falling  trend  in  US  Inventory/Sales   Ra0o  over  past  decade     US  Inventory/  Sales  Ra(o  Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  35. 35. How  To  Enhance  SIA  Cargo?   1 2 Divest     Build    Improve  opera(onal  efficiency  and  exis(ng  technology  Seek  growth  opportuni(es  in  emerging  markets      Exercise  flexibility  in  deployment  of  resources      Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  36. 36. Seeking  Growth  Opportuni0es:  Mexico   City     1 2 Divest     Build    Second  largest  economy  in  La(n  America    Largely  Export-­‐Oriented  country      SGD  24  229  mil  &  SGD  13  133  mil  of  imports  and  exports  to  Singapore  from  La(n  America  in  2009    SIA  Cargo  has  not  developed  its  routes  to  La(n  America        Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  37. 37. Financial  Considera0ons   Revenues   2009   2014   Highlights   From  •  Passenger  Airlines   Economy   46%   45%   •  4%  –  6%  CAGR  •  Accentuate:  Business  Class   Passengers  Increase   Premium   30%   34%   •  6%  -­‐  8%  •  Cul0vate     •  0.5%  -­‐  1.5%   Cargo   19%   18%  •  Enhance:  Cargo  Traffic   Increase   Others   5%   3%   •  5%  -­‐  6.5%  •  5  Year  Forecast  Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  38. 38. Financial  Performance   CASH  FLOW  PROJECTION   600   500   400   SGD  Million   300   200   100   0   2010   2011   2012   2013   2014  Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  39. 39. Financial  Performance   REVENUE  PROJECTION   20,000   18,000   934   16,000   14,000   SGD  Million   12,000   10,000   8,000   6,000   4,000   2,000   0   2010   2011   2012   2013   2014   CURRENT  OPERATIONS   "ACE"   4.2%   5.2%  Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  40. 40. NPV  Analysis   2000   Sensi(vity  Analysis   1950   1909     1900   1875     1850   1823   1800   1783     SGD  Million   1750   With  Terminal   SGD  $1,736   Value:   WACC  =  5.54%   1700   Million   SGD  $11,883   1650   1690   1649   Million   1600   1597   1550     1690   1500   Revenue  Drivers  (+-­‐  5%)   General  Expenses  (+-­‐5%)   Fuel  Expenses  (+-­‐10%)   NPV  (+-­‐20%)  Key  Issues   Accentuate   Cul0vate   Enhance   Financials  
  41. 41. Milestones   2010 2011 2011 2013 2014 2015Accentuate1) Airplane Modification2) Routes (Paris,Amsterdam, Zurich)Cultivate1) Marketing CampaignsEnhance1)  Divest Trade Winds •  Valuate, finding partner Firm •  Sell share2)  Cargo Operations 1)  Route discovery 2)  ImplementationKey  Issues   Accentuate   Cul0vate   Enhance   Financials  
  42. 42. Milestones   2010 2011 2011 2013 2014 2015Accentuate1) Airplane Modification2) Routes (Paris,Amsterdam, Zurich)Cultivate1) Marketing CampaignsEnhance1)  Divest Trade Winds •  Valuate, finding partner Firm •  Sell share2)  Cargo Operations 1)  Route discovery 2)  ImplementationKey  Issues   Accentuate   Cul0vate   Enhance   Financials  
  43. 43. Milestones   2010 2011 2011 2013 2014 2015Accentuate1) Airplane Modification2) Routes (Paris,Amsterdam, Zurich)Cultivate1) Marketing CampaignsEnhance1)  Divest Trade Winds •  Valuate, finding partner Firm •  Sell share2)  Cargo Operations 1)  Route discovery 2)  ImplementationKey  Issues   Accentuate   Cul0vate   Enhance   Financials  
  44. 44. Our  ACE  strategy  will  yield   results   Remain  compe00ve  and  profitable       How  focused  should  we  be  on  core   How  to  innovate  to  remain  compe00ve       business   Cul0vate  our  brand  image  Accentuate  our  premium   Enhance  our  core  business       •     Maintain  the  image  of   service     • Divest  Tradewinds     Singapore  girl  but  focus  on  •   Increasing  business  only   •   Build  cargo  opera0ons   being  ar0culate  and  well-­‐ flights  to  Europe       business     informed     NPV  =  SGD  1  Billion    
  45. 45. E   C  A   THE  END    
  46. 46. Middle  East   Middle  East     Europe   China   Exis(ng   Emirates  and  Qatar  Airways  are  dominant  players.  Also  highly  25%   recognised  as  a  premium  airline   compe((on     Government  25%   Not  an  issue  but  trade  rela0ons  not  as  good  as  with  Europe.   regula(on     Poten(al  demand  25%   Insufficient  business  travel  demand     Suitability  25%   Medium  haul  (e.g.  8  hours  to  Qatar)   Total    100%  
  47. 47. Europe   Middle  East     Europe   China   Exis(ng  25%   Compe00on  with  Bri0sh  Airways  and  Air  France   compe((on     Government  25%   Friendly  rela0ons,  free  economy,  open-­‐skies  agreements   regula(on     Poten(al  demand  25%   Significant  FDI  in  Singapore   Suitability  25%   Long  haul  (e.g.  13  hours  to  London)   Total    100%  
  48. 48. China   Middle  East     Europe   China   Exis(ng   Strong  player:  China  Eastern  not  a  premium  service  provider.    25%   (3-­‐star  Skytrax  ra0ng  as  compared  to  SIA’s  5-­‐star)   compe((on     Government  25%   Strong  government  control   regula(on     Poten(al  demand  25%   Poten0al  trade  growth  (especially  with  growing  affluence)   Suitability  25%   Short-­‐medium  haul  (e.g.  5  hours  to  Shanghai)   Total    100%  
  49. 49. Skytrax  ra0ngs    Speaking  about  the  exclusive  5-­‐Star  Airline  ranking,  Skytrax  CEO,  Mr  Edward  Plaisted  ....  "The  greatest  aeribute  behind  5-­‐Star  status  is  an  airlines  ability  to  deliver  the  combina0on  of  Product  and  Service.  A  great  product  standard  is  not  by  itself  the  key  to  a  5-­‐Star  ranking,  and  we  are  equally  concerned  by  the  Quality  of  front-­‐line  service  that  an  airline  provides.  We  are  focussed  on  recognising  airlines  whose  staff  deliver  a  true  5-­‐Star  standard  of  service  delivery.  The  Star  Ranking  covers  both  Airport  and  Onboard  services  ....  and  an  airline  mee0ng  a  5-­‐Star  level  onboard,  whilst  only  at  say  a  3-­‐Star  standard  in  the  airport  environment,  will  not  be  eligible  for  the  5-­‐Star  accolade.    In  a  similar  manner,  there  may  be  an  airline  that  delivers  5-­‐Star  standards  across  70-­‐80  per  cent  of  product  analysis,  whilst  achieving  5-­‐Star  status  for  90  per  cent  of  the  service  delivery  items,  and  this  will  be  classed  as  eligible  for  the  global  5-­‐Star  accolade."    
  50. 50. Why  Europe?  Stock of FDI in singapore by region/countryRegion 1998 2003 2004 2005 2006 2007 2008Asia 43,759 57.755.3 62.252.9 78,253.90 82,485.00 104,591.60 107,906.70USA 22,810.70 37,162.60 41,019.50 40,574.40 38,325.00 51,550.80 51,801.60Europe 49,619.80 103,936.10 120,505.70 139,987.40 174,034.90 197,976.80 193.525.0 Note:    Middle-­‐East  does  not  have  substan0al  FDI  in  Singapore;     classified  under  ‘other  countries’  
  51. 51. Where  in  Europe?  Country 1998 2003 2004 2005 2006 2007 2008France 3766 5162 6349 7004 8091 10961 9243Germany 2105 6137 7279 8189 7592 9297 9564Netherlands 9470 26902 31561 32142 48631 51419 49140Switzerland 13021 16836 16444 22273 27114 27453 30468United Kingdom 17599 38092 43924 49593 55264 62528 51744
  52. 52. LLC:  can’t  do  long  haul  A  trend  from  the  mid-­‐2000s  was  the  forma0on  of  new  low-­‐cost  carriers  exclusively  targe0ng  the  long-­‐haul  business  market,  with  aircraz  configured  for  a  single  class  of  service,  ini0ally  on  transatlan0c  rou0ngs.  Probably  best  described  as  "fewer  frills"  rather  than  "no  frills",  the  ini0al  entrants  in  this  market  u0lised  second-­‐hand,  mid-­‐sized,  twin  jets  such  as  Boeing  757  and  Boeing  767  in  an  aeempt  to  service  the  lucra0ve  London-­‐US  Eastern  Seaboard  market:Eos  Airlines,  which  ceased  opera0ng  on  27  April  2008[8]Maxjet,  which  has  ceased  its  scheduled  business  flights,  but  is  planning  to  restart  as  a  luxury  charter  carrier[9]Silverjet,  which  ceased[10]  opera0ons  on  30  May  2008  
  53. 53. Business-­‐Only  (LA,  NY)  Singapore  Airlines  redefines  long-­‐haul  air  travel  with  daily  all  Business  Class  service  to  New  York  (Newark)  and  Los  Angeles.  The  A340-­‐500  is  fieed  with  100  of  the  Airlines  new  award  winning  Business  Class  seats.  
  54. 54. Dest. Fleet Core businesses Primary markets Special service Implication for (countries) size factors SIASingapore 93 (38) Append SIA Engineering, SIA Cargo, SilkAir East Asia (28.9%) EuropeAirlines ix 3 (SIAs subsidiary airline focusing on (21.8%) Americas (18.7%) regional locations). And Tradewinds South-West Pacific (18.3%) Tours and Travels. West Asia and Africa (12.3%)Air-France 245 (>100) 640 Passenger operations, cargo and Europe (42% of revenue) Asia Premium economy aircraft repair and maintenance (+ 8 (17%) seats for Incheon- subsidiaries) Paris (April 2010) as well as other destinations in Asia, Carribean and Indian OceanBritish 150 (75) 240 International and domestic air Europe (72%) therefore Innovative business- migration fromAirways services for passengers, freight and compete in European + class seatbeds (2000) SIA customers mail transatlantic flight marketEmirates 100 (60) 137 East Asia and Australasia A380 targeting India In-flight (27.9%) Europe (27.3%) (??) with special entertainment Shower Spas and system innovating Onboard Lounge. and competing with SIAQantas 250 First of 50 Boeing 787 Dreamliners in mid-2012. Launch of new in-flight entertainment systemChina Eastern 80 intl/ 200 Competes with SIA in Asian market China, Hong Kong and JapanAirlines regional in areas of passenger services and (72%) routes, 330 cargo. domestic routes (110 citiesCathay 120 North Asia, especially Hong KongPacific and Mainland ChinaLow-cost Budget carriers increased frequencies and added new destinations while SIA cut down on capacity and routes due to economiccarriers downturn.
  55. 55. Price  Premium   Short  Distance   Long  Haul   SHORT  DISTANCE   -­‐  Insufficient  demand  for  premium  service     -­‐   Intense  compe00on  L(eadership   airlines)   Cost   budget   -­‐   SilkAir:  regional  routes    Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  56. 56. LONG  HAUL,  LOW  PRICE   Price  Premium   -­‐   Mismatch  with  premium  brand  image   -­‐   Proven  not  to  work       Short  Distance   Long  Haul   Cost  Leadership  Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  57. 57. Price  Premium   Short  Distance   Long  Haul   Cost  Leadership  Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  58. 58. •  Budget  Airlines  moving  upmarket   Increased   AND  into  long  haul  flights   compe((on   •  AirAsia  Premium  X:  London,  Tehran,   Beijing   Scheduling   •  4  Airbus  classes   complexity   •  3  Boeing  classes  Key  Issues   Accentuate   Cul0vate   Enhance   Implementa0on  
  59. 59. Backup  Slide:  What  SIA  Cargo  is  doing   Intensified  service  audit  programme  to  strengthen  opera(onal   efficiency     •   Overall  percentage  of  freight  “Flown  as  Booked”  and   percentage  of  “On-­‐0me  no0fica0on  for  Delivery”  of  shipments   have  exceeded  expecta0ons  and  surpassed  the  Cargo  2000   average  performance  index     In  the  process  of  replacing  its  legacy  reserva(ons  system  with  a     new  user-­‐friendly  system   •   New  system  Reserva0ons  express  will  enable  the  company  to   adapt  func0onali0es  or  new  requirements  more  quickly  to   customer  needs      Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  60. 60. Backup  Slide:  Why  Cargo  even  though   loss  made  in  2009  and  2010?    Airfreight  industry  was  severely  impacted  by  economic  downturn      During  this  period,  SIA  Cargo  seized  opportuni0es  to  ra0onalise   freighter  network  to  align  capacity  more  closely  to  demand  in   response  to  global  economic  downturn      SIA  Cargo  has  improved  flexibility  in  the  deployment  of  its  resources,   while  maintaining  cost  discipline  à  will  be  able  to  beeer  deal  with   uncertain  business  environments     Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  61. 61. Backup  Slide:  Why  La0n  America            Trade  paeerns  are  moving  away  from  the  old  North   models  of  across  the  North  Atlan0c  and  around   North  Asia  to  incorporate  increasingly  important   South  American  des0na0ons.        The  route  SIA  set  up  is  Singapore-­‐Dhaka-­‐  Brussels-­‐ Sao  Paolo-­‐Quito-­‐Bogota-­‐Bridgetown-­‐Brussels-­‐ Sharjah  and  Singapore.       Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  62. 62. Backup  sliede:  Why  not  acquisi0on      -­‐  While  ozen  seen  as  the  best  managed  airlines  in   the  region,  SIA’s  overseas  forays  have  not  been  very   successful    -­‐  SIA’s  investement  in  Air  NZ  was  substan0atlly   diluted  to  just  4.5%  in  2001,  and  SIA  sold  out  its   remaining  stake  at  a  significant  loss  in  2004    -­‐   Following  SIA’s  49%  acquisi0on  stake  in  March   2000,  Virgin  Atlan0c’s  earning  are  yet  to  reacha     level  of  profitability  seen  prior  to  the  acquisiton       Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  63. 63. Partner  selec0on    •  Aligned  strategy  (in  terms  of  ambi0on  for  growth   and  profitability)    •  Brand  strength  and  good  corporate  reputa0on    •  Strong  distribu0on  and  customer  reach    •  Financial  strength  (ability  to  contribute  capital)    •  Management  control    •  Power  of  vito   Key  Issues   Accentuate     Cul0vate     Enhance   Financials  
  64. 64. WHY  NOT  SIA  Engineering    •  Revenue  contribu0on  in  2009-­‐2010  is  SGD  1  billion    •  Singapore,  Australia,  USA  (all  80.5%  stake  ),  Philippines   (52.5%)  •  24  joint  ventures  and  subsidiaries  across  nine  countrie  •  Strategic  importance:  maintaining  integrity  of  our  airplanes    •  Ability  to  compete:  HIGH-­‐  Awards  such  as  Asia-­‐Pacific  Airline   MRO  Opera0on  of  the  Year  by  Avia0on  Week  •  Contributes  to  the  product  quality  that  we  are  known  for    •  However,  requires  significant  resources-­‐  deem  it  necessary     Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  65. 65. Alliance  or  equity  when  nego0a0ng   barriers      Alliance  •  Cross-­‐border  regula0ons  restrict  it  to  minority  stakes   when  purchasing  equity    •  Unsuccessful  investments  in  Air  New  Zealand  and   Virgin  Atlan0c.  •  Can  achieve  open  skies  agreement  with  alliance   economic  agreement  (eg:  India)  •  No  role  to  play  in  the  strategy  forma0on  and  policy   decisions,  as  well  as  crea0ng  real  synergies  that  have   las0ng  value       Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  66. 66. Back  up  :  Passenger  load  factor  Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  67. 67. WACC  Weighted Average Cost of CapitalWACC = KD (1-T) (D/V)+ KP (P/V) + KE (E/V)I. Cost of Debt (Kd): Estimated All-In Cost for Company 8.00% Effective Tax Rate (a) 20.00% *ASSUME NO DEBT Kd = 8.0% * (1- 20.0%) = 6.40%II. Cost of Preferred (Kp): Estimated All-In Cost for Company (b) 0.00%III. Cost of Equity (Ke): Risk Free Rate (10-year T-Bond Yield) 1.98% Source: http://www.tradingeconomics.com/Economics/Government-Bond-Yield.aspx?Symbol=SGY Target Beta (c) 0.78 Source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html Market Return Market Risk Premium (d) 4.50% Source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html Small Stock Premium (e) 0.00% Country Risk Premium 0.00% Ke 5.49%IV. Weighted Average Cost of Capital (K): D/V 5.95% Total Assets 22484.3 P/V Total Debt 1338.9 E/V 94.05% Total Equity 21145.4 WACC 5.54% Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  68. 68. ACE  Income  Statement  SGD  Million   2010   2011   2012   2013   2014Accentuate   440.92   460.76   483.79   510.40   541.03Cul0vate   55.11   57.59   120.95   127.60   202.89Enhance   114.41   133.40   154.41   178.15   189.90TOTAL  REVENUES  FROM  ACE   610.44   651.75   759.15   816.15   933.82        Addi0onal  Staff  Costs   93.47   100.00   107.42   115.89   123.02Addi0onal  Fuel  Costs   195.35   209.01   224.51   242.22   257.13        TOTAL  EXTERNAL  EXPENSES   288.82   309.02   331.92   358.11   380.15        EBITDA   321.62   342.74   427.23   458.04   553.67Deprecia0on,  Amor0za0on  &  Impairment   39.91   33.01   35.41   38.31   40.62EBIT   281.71   309.73   391.81   419.73   513.04Taxes  (27.8%)   14.08551274   15.48627031   19.59070138   20.98666314   25.65204864NET  PROFIT   267.62   294.24   372.22   398.75   487.39Plus:  Deprecia0on  &  Amor0sa0on   39.91   33.01   35.41   38.31   40.62Less:  (Increase)  in  Working  Capital   6.596575806   17.14819248   9.101426115   18.78797704CASH  FLOW   308   321   390   428   509Current  Assets   314.5901171   335.8809691   391.2278095   420.6032191   481.2425644Current  Liabili0es   217.1202011   231.8144773   270.0131252   290.2871087   332.138477Net  Working  Capital   97.46991598   104.0664918   121.2146843   130.3161104   149.1040874Change  in  NWC   0   6.596575806   17.14819248   9.101426115   18.78797704 Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  69. 69. NVP  Valuation Summary - Using Perpetuity Growth Rate for Terminal ValueMillionnSGD ProjectedFiscal Year Ended 2010 2011 2012 2013 2014        NET  PROFIT   267.62   294.24   372.22   398.75   487.39   33.0103432 35.4121828 40.6240642Plus:  Deprecia0on  &  Amor0sa0on   39.90898446   4   1  38.3078535   2   6.59657580 17.1481924 9.10142611 18.7879770Less:  (Increase)  in  Working  Capital   0   6   8   5   4           Cash Flow $308 $321 $390 $428 $509         0.95941468 0.92047653 0.88311870 0.84727705     Discount  factor  @  0.042302161142664   0.959414685   5   9   9   8   0.94747044 0.89770025 0.80586574     Discount  factor  @  0.0554418887846186   0.947470449   9   1  0.85054446   1   0.93581995 0.87575898 0.81955273 0.76695380     Discount  factor  @  0.0685816164265732   0.935819955   5   8   6   5       Terminal  Growth   1.50%              Discount Rate 4.23% 5.54% 6.86%Discounted  Cash  Flows           $1,784.00   $1,736.24   $1,690.86          Terminal  Value   $15,802.95   $10,147.08   $7,288.92      NPV $17,586.94 $11,883.32 $8,979.78Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  
  70. 70. Key  issues     Accentuate   Cul0vate   Enhance   Implementa0on  

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