Management Accounting Concepts for Singapore Airlines Project

Requirement 1 (30 marks)

Singapore Airlines

This project aims to test your understanding of the management accounting concepts taught in the course and ability to apply them to analyse business issues.

In real life, you will not have complete and unambiguous information to make decisions and therefore you will have to make assumptions in your analysis. E.g. assumptions on how much of an expenditure is variable, appropriate cost of capital, etc.).  You will be graded mainly on your thought process and not so much on the accuracy of the numbers.

For the purpose of this project, consider only the financials of the passenger flown revenue of the full service airline (i.e. parent airline company). Ignore taxation, the cargo/freight division as well as the financials of Silkair and Scoot.  

Requirement 1 (30 marks)

a) Identify the cost drivers of the expenditures of the company listed on Page 53 of the annual report.  Some of the expenditures may have multiple drivers.   

 b) Based on your understanding of the cost behaviour in (a), relevant information from the annual report (e.g. Pg 49) and reasonable assumptions, compute the passenger load factor to breakeven.

Illustration of computation of passenger load factor

Passenger load factor = Passenger-kilometres travelled / Seat-kilometres available

E.g. The airline makes 50 scheduled flights, each of which travels 200 kilometers and has 100 seats, and sells 60 tickets for each flight.

Passenger load factor = (50 x 60 x 200) / (50 x 100 x 200) = 60%

c) Explain how SIA would decide on the mix of first class, business class and economy class in the aircraft to maximise profit.  Support your explanation with an illustration.

Requirement 2 (30 marks)

In the Straits Times’ article dated 4 June 2019, it was reported that Changi and SIA are not the only victims as industry faces headwinds.

(http://global.factiva.com.libproxy.smu.edu.sg/en/du/article.asp?NAPC=S&AccessionNo=STIMES0020190603ef64004t3&xsid=S002sbkMDAn5DEs5DEnM9MrNTEmOTZyMHn0YqYvMq382rbRQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQUFBQQAA) 

The annual report outlines SIA’s transformation efforts and its strategy for the future to stay competitive amid the challenging environment.

Perform a SWOT analysis and assess the effectiveness of one of SIA’s initiatives using the relevant management accounting concepts.

Requirement 3 (40 marks)

Assume SIA wants to replace one of its aging Boeing 747 plane by 2021 by choosing either Boeing A777 or Airbus 350. Use the article (see https://simpleflying.com/777x-vs-a350 ) and other relevant sources, perform a capital budgeting exercise identifying the cash inflows and outflows. Where possible provide justification for your cash flows by referring to the published articles. Use net present value (NPV) to choose which plane the airline should buy.  Identify the non-quantitative factors you have taken into consideration in deciding which plane to buy. For computation purposes round off the amounts to the nearest thousand and if not nearest hundreds.