Background of the company and nature of its business
Discuss about the External Environment Analysis of Singapore.
The Singapore Airlines Limited (SIA) is a well-established national airline of Singapore. It has always been a famous airline in the world. It represents the hallmark of the long history of accomplishment and advancement of Singapore ("Corporate info", 2018). This airline company operates at the Singapore Changi Airport. It has its main focus on the Australian and Asian market. It was founded in the year 1947 by Liverpool, the Ocean Steamship Company. The company was expanded overnight after its split from the Malaysia-Singapore Airlines (MSA) in the year 1972 and within the last forty years, it has grown to a position that is unknown to none. In current days, it is one of the biggest and the most successful and notable airlines in the world. Its mission statement states that the Singapore airlines is dedicated towards providing the highest quality air transportation services to its customers as well as maximizing the returns in order to benefit its employees and stakeholders. It consists of a fleet of about 103 aircraft. Some of its reputable fleets include Boeing 777, Boeing 747, and A380 ("Our Heritage", 2018). The main motto of the company is to attain the position of world’s excellent citizen, which holds the responsibility in everything that they do in sustaining and building its excellence in services with strong and powerful commitments towards the environment. The company has received various awards and recognitions for its high level of services. The in-flight services include first class, second class, and the economy class.
The PESTLE analysis records the different vital factors in Political, Economic, Social, Technological, Legal, and Environmental aspects that may have an influence on the business of a company (Kolios and Read 2013). They help the business heads in strategizing and planning their next steps by providing them the view of the present and upcoming external factors, which may have an impact on the company (Zvirblis and Zinkeviciute 2012).
Political factors: The political factors refers to all the government policies like, the intervention degree in the economy and what are the various goods, products and services that the government wants to provide (Contributor, 2018). The government has major influence on the various operations and services of the airline industries. It is more or less because of the fact that near about every country has a ‘national carrier’, that is, airline, which carries the flag of the country, representing the country and has its headquarter in the country’s capital city. The terrorist attack in US in September 11 had a great ramification of profitability in the global airline industry. There are many companies that are still experiencing major losses and threat to their closure. It has not only reduced the domestic travelling of the planes but has also declined the experience of international travelling. At this stage, there were loads of factors that were disappointing the services of almost all the airline companies but still, the performance of the Singapore Airlines was better than its rival companies after the attack. Hence, higher profit margins and better revenues was reported by the Singapore Airlines.
Economic factors: The economic factors comprises of taxation changes, interest rates, economic growth, exchange rates and inflation ("SIA has lost market share and needs new strategy", 2018). The demands for the air travel is generally characterized by the income elasticity, which must be always high (Belobaba, Odoni & Barnhart, 2015). Hence, as the economy of the world is growing, the demand for the air travel too is increasing with the same speed. Singapore Airlines offered to purchase stakes of about 24 percent in the China Eastern Airlines for about 7.2 billion dollars, appeared in vexation since after the major shareholders criticized their deal as unethical. With the same, the Singapore Airlines has also been plagued by various other economic factors or macro level, such as, the rise in the oil prices, the Asian tsunami, outbreak of bird flu and the rising terrorism in the country. However, the major economic risk or threat is the process of Singapore Airlines in its fuel costs. These factors have affected its profitability adversely. In addition to that, in the year 2006, the international airlines industry has undergone a total loss of 500 million dollars or 0.1 % of the revenues by assembling a total loss of 42 billion dollars in the years 2001 and 2006.
Socio-cultural factors: The changes in the social trends have a great impact on the demands of the products of the company and also on the willingness and availability of the individuals to work for the same. It has a heavy impact on the overall operations of the airline business. In 2002, one of the flights of the Singapore Airlines namely the SQ006 at the Taipei’s Chiang Kai-Shek International Airport, has experienced a massive and fatal crash (National Library Board, 2018). The airline authorities have blamed the pilot for that accident. However, the Singapore Airlines took the complete responsibility of the crash by saying that it was because of “pilot error”. It has offered a sum of 400,000 dollars as a compensation to each of the individual’s relatives, who were died in the crash and with the same, it has also met the medical expenses of every injured individual as well. The company has changed all the engine motors of each of their aircraft A380 in order to retain its customers after the fatal accident of 2010. However, still the accident has an impact on the mind of the people and it makes a societal affect on the Singapore airlines as well (Baum, 2015). In addition, the Flu and SARS epidemic of 2009 has resulted in decrease of the stock of Singapore Airlines by 4%, which in turn has raised the traveler’s worries. Apart from this, the Singapore Airlines is a globally recognized company it is considered as a brand that emphasizes professional as well as customer-oriented services.
In the year 1985, Michael Porter has identified the five factors that is said to have impact on the performance of the companies within the market boundaries (Yunna & Yisheng, 2014). They are- the threat of new entrants, the threat of services or substitute products, the bargaining power of the suppliers, that of the buyers and the intensity of market rivalries. They help the company to identify and predict its possible success. The stronger each of these forces are, the higher will be the competitive industry as well as the lower will be the return rate, which can be earned.
The threat of new entrants: The Singapore airline is concerned about its competitors in its business industry, as the industry is very competitive. However, as compared to the other sectors, the threat of new entrants in the airline sector is comparatively weak. Already it has started with the two national carriers- Garuda if Indonesia and Air Canada, pursuing to restrain the Singapore Airline’s entry to the home markets. With the same, the rise of global megacarriers such as the European and the U.S airlines merge and form alliances in order to cut costs ("SIA has lost market share and needs new strategy", 2018). This will intensify the competition for the company to a great extent.
The threat of services and substitute products: With the globalization, there is an increasing investment in the links of transportation in between the major geographical hubs, which includes those that are served by the Singapore Airlines ("External Industrial Environment Analysis for Singapore airline - Business & Economics - The Best Way to Share & Discover Documents - DocGo.Net", 2018). There is also the possibility of high-speed connections railway connections that is prevailing in between major cities of the country Eurasia in near future.
The bargaining power of the suppliers: Bargaining power of the suppliers is very high in the airline industry. The Singapore airline is concerned about this factor. If the fuel or oil price of the jet gets increased, it will affect the whole airline industry. The company will get no option to choose in that case. For example, in the year 4 December 2007, the increase in fuel price has resulted in increase in fuel surcharge for the jet tickets on that day (“Singapore Airlines 2017 outlook:”, 2018). Porter has argued that since the supplier has powerful bargaining power, therefore, relative position of the airline business is very weak.
The bargaining power of the buyers: The bargaining or the buying power of the customers are very high in the industry. Thousands of airline companies are operating in Asian region and therefore, the buyers have various options regarding which airline he wants to fly. However, Porter has argues that since the supplier has powerful bargaining power, therefore, the relative position of the airline business is very weak.
The intensity of market rivalries: There are some rivalries in the vast airline industry. However, it takes place on the basis of route-to-route. The rivalries could be intensive if the routes are well serviced by various airlines such as the Paris to Frankfurt or the London to New York. Apart from this, there are few routes that are monopolized by only few carriers, for example, the Kangaroo Route, which involves connections inn between the Southeast Asia, New Zealand and Australia. As there are less carriers functioning in this route, the competition inclined to be less fierce.
Singapore airlines is doing well in the market as compared to its other competitors but change are necessary in every organization in order to sustain in its top position. Continuous and more efficient improvements are needed in the Singapore airlines so that it could survive in this fast changing and challenging world. Below are few recommendations suggested for the SIA.
- Singapore airlines must always be conscious about its external environment to identify the existing opportunities and threats in its business and to remain competitive. One of the major concerns for the Singapore airlines is the fear of customers because of terrorism, air accidents (crash) and prestige. Singapore Airlines could make use of maximum number of benefits by the current existing alliances and with the same, by equally contributing to its partners by the services and other benefits.
- In current days, the Singapore airlines is operating in many routes including the South East Asian route, East Asian route, South Asian route, and the Australian route. It could also prefer to have less number of partnership in the airline industry and add more destination and more aircrafts. This will help it to develop its customer service, which in turn will sustain its current position as well.
- The Singapore airlines is not working much on its branding and marketing. As a result the customer satisfactory level of its is not so high. Hence, it should continue to work more on its branding and remain competitive by providing excellent services to its customers and continuing to have a strong workforce. This will increase the customer satisfactory level and as well.
- It must differentiate itself more by improving the media and channels of communication, which in turn will improve its net communication plan. The executive officer must dismiss the motiveless and the ineffective mangers or employees from the company and hire employees only to look after the tasks such as scanning the articles, journals, newspapers, magazines, reviews, bulletins, forums and so on in order to become aware of the unseen information and to take appropriate decisions for its future operation and functioning. With the same, it must also select quality managers into its departments to help it deal with various forces in its business environment.
From the above analysis, it can be concluded that though it has an excellent reputation in the financial health, the external environment has enormous influence on the Singapore airlines. However, there is a little danger for the company in terms of competition. The company may succumb to the competition at any time. The PESTLE and Porter’s Five Forces analysis of the company has helped in identifying some of the major barriers in the international, economical and political sectors. Furthermore, the analysis of the external factors has helped in identifying some of the major barriers in the international, economical and political sectors. It has been observed that the oil price is the major and sensitive issue globally and with the passage of time, it is getting in receipt of more instability. For this reason, the power of the supplier is very high. The company needs to develop more new markets and develop the low cost arm to meet the changing demands of the consumers and in order to maintain its current position, the company must concern its external surroundings.
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