Sustaining Airline Profitability. Strategic Management and Leadership

Table of Content

Question 1
1.1 Introduction
1.2 Reasons lead Singapore Airline Success
Brand Reputation
Early Disclosure to Competition
Global Revenue Base
Strategy of Alliance and Acquisition
Service Excellence through Staff Development
Cost Leadership Strategy
1.3 PEST Analysis
Political Factor
Economic Factor
Social Factors
Technology Factors
1.4 Cost Leadership Strategic at Singapore Airline

Question 2
2.1 Concept of Strategic Drift
2.2 Case Analysis - Strategic Drift in RIM
2.3 Case Analysis - Strategic Drift in NOKIA
2.4 Suggestion and Conclusion

References

Question 1

1.1 Introduction

The commercial airline is an extremely competitive, safety-sensitive, high technology service industry. People, employees and customers, not products and machines, must be an arena of organization's core competence. (Appelbaum & Fewster, 2003). Sustaining airline profitability, ensuring safety and security, and developing adequate air transportation infrastructure are the important challenges to the airlines.

According to Heracleous et al. (2009), it has never shown as an annual loss since Singapore Airlines (SIA) since its inception as an independent airline. Figure 1.1.1 & 1.1.2 show the financial performance of SIA for 5 financial years starting from 2006-07 to 2010-2011.

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Source: Sinapore Airlines Annual Report 2010-2011.

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Source: Sinapore Airlines Annual Report 2010-2011.

Not only in term of financial performance, SIA, the most awarded airline in the world, recognized innovation and service leader, was listed in Fortune magazine's global 50 most admired companies (Fortune Magazine, 2012). In the following chapters, SIA is selected as a case for analysis the strategic reasons behind that success.

In the following chapters, the strategic reasons that lead SIA success will be discuss with strategic frameworks.

1.2 Reasons lead Singapore Airline Success

This chapter focus on the reasons that contribute the superior performance of Singapore Airline (SIA) and show as below:

Brand Reputation

SIA is one of the five airlines awarded a five star rating in terms of product quality and customer service (Skytrax, 2012) and consistently receives prestigious industry awards. Organizations are continually seeking ways to retain customers and build brand loyalty by enhancing their images (Miles & Mangold, 2005) and SIA's brand building efforts witnessed tremendous success.

Early Disclosure to Competition

The Singapore skies were opened and foreign carriers welcomed and this policy has benefited Singapore, travellers and regional aviation hub, which served by 59 airlines to 109 cities (Tan, 1993). This lack of protection from the Singapore government which cause SIA foresees the competition from foreign carriers in an early stage.

Global Revenue Base

The other key strength for SIA is in term of geographic diversification of revenue and therefore, SIA did not dependent on a specific geographic region for its revenue in order to reduce economic risks. For example, the 9-11 terrorist attacks and Asian economic crisis caused decline in traffic which have less impact on SIA.

Strategy of Alliance and Acquisition

SIA alliance network grew as well as geographic scope with a number of high profile partners such as United, Lufthansa and Scandinavian Airlines (SAS) (Heracleous et al., 2009). The alliance and acquisition allow SIA to extend its geographic reach in order to sustain competitive advantages among competitors.

Service Excellence through Staff Development

SIA's effective strategic human resource management in term of aligning people to strategy. It includes stringent selection and recruitment processes, extensive investment in training and re-training, empowerment of frontline staff to control service quality which were critical to deliver excellent services to its customers.

Cost Leadership Strategy

SIA positioned as a premium carrier with excellence level of service and it focus to deliver premium service to some of the most demanding airline customers, who have sky-high expectations. But SIA stick to cost leadership strategy which deliver excellent service at costs that are within the range of budget carriers in order outperform its competitors.

1.3 PEST Analysis

Political Factor

The airline industry is charcacterised by an usually high degree of government intervention, particularly for international air routes. The reasons for government involvement and the implementation of these severe economic rules on air traffic lay in several aspects such as fear of market failure, national prestige, safeguarding of national defence, or concern about lack of safety due to free competition (Heracleous et al., 2009).

However, in the first half of the 1990s, international air transport experienced significant progress towards a more deregulated industry and thus more liberal markets and intensified competition, by the establishment of the Common European Area (CEAA) and the induction of U.S. "Open Skies" policy (Doganis, 2006; Evan, 2001). As a result, airlines were encourage to grow through mergers and acquisition, otherwise they would lose their traffic rights and limited the growth of business and entrance of new markets.

As mentioned in the previous chapter, lack of protection from Singapore government, SIA alerted in an early stage the competition from foreign carriers. The SIA group has 27 subsidiaries (Singapore Airline, 2008) which include regional carrier Silk Air (100% owned), budget carrier Tiger Airways (49%) and Virgin Atlantic (49%), SIA Engineering Company Limited, Singapore Airlines Cargo Pte Limited. SIA enhance coverage of market segment through merger and acquisitions in order to sustain the competitive advantages.

Economic Factor

The airline industry is characterized by its high dependence on international economic development. In 2000, the burst of dot.com bubble, as well as economic downturn in economies throughout the world, resulted in lower traffic growth than expected, and prophesied a new cyclical crisis in the airline industry (Czipura & Jolly, 2007). However, then the event of 11 September 2011 turned impending crisis into disaster (Doganis, 2006). In the aftermath of the terrorist attacks, traffic and passenger figures, as well as returns, drop massively, resulting in devastating financial results.

In order to overcome problem, SIA follows a strategy of geographic diversification to expand their revenue. For example, SIA signed an agreement with China Cargo Airlines to form a Chinese-foreign equity joint venture company which valued to RMB 328 million to gain a better position for entrance of Chinese market (Singapore Airline, 2011). The SIA's passenger revenue composition shown below is an evidence of diversification.

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Source: Sinapore Airlines Annual Report 2010-2011.

Social Factors

In term of the business travel market, the globalisation of business which requires more business air travel, acted to provoke a steady growing demand of air transportation (Kleymann & Seristo, 2004; Shaw, 2004). Not only business customers, with increasing affluence in western nations, an altered value perception occurred which was reflected in an increasing importance of leisure time and enjoyment of life, and therefore, people tended to travel more frequently to various destinations in the world and thus enhancing their demand for air transport.

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