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[JONATHAN GOH WEIHAN]

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Management and Strategy


Assignment 01
Case Study: Singapore Airlines, Reacting to the Asian Crisis

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[JONATHAN GOH WEIHAN]

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Content Page
Introduction to Essay
Vision Statement of SIA
Mission Statement of SIA
Core Competencies Analysis
Strength Analysis
Weakness Analysis
Opportunity Analysis
Threat Analysis
SWOT Chart
Evaluation of SIAs response
Conclusion

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Introduction
What thought to be a localized currency and financial crisis that started in Thailand during July
1997 spiraled out of control, affecting neighboring countries like Korea, Indonesia and
subsequently the whole of East Asia. Thailand unpegged the Thai Baht from the US dollar when
the dollar appreciated to protect their export. Thailand had an imbalanced loan structure, holding
majority of debts to be repaid in the short term while having minority in the long term. This
caused repayment issues and essentially the bankruptcy of the country.
The airline industry during the economic crisis was suffering from the sharp decline in air travel.
Namely Cathay Pacific, Thai Airways, Korean Air, Qantas and ANA were all seeing a drastic
drop in passenger flow and revenues. All companies were looking into cost cutting measures
such as returning of leased aircrafts, head count reduction, wage freeze, cutting back on
expenditures etc.
It was during this dark period that certain companies made strategic decisions to turn their
companies fate around. These decisions would have had a serious impact (positive or negative)
on their future in years to come.
Singapore Airlines went on the opposite of all their competitors. Instead of cutting back, SIA
performed a product and services launch that cost almost S$500 million including a promotional
Hello Kitty dressed in the SIA stewardess costume to travelers.
SIA diversified their traditional flight routes within Asia and took on more long haul based
flights to Europe and USA.
Simultaneously, top management staff took a wage freeze for the fiscal year to contribute to the
belt tightening measures put in place to cut cost. Deliveries of planned aircrafts were also
deferred at the same time.
This essays aim is to explore the strategic decisions that SIA undertook during this time and
finally to evaluate if these decision were sound.

[JONATHAN GOH WEIHAN]

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Singapore Airlines Vision Statement


Singapore Airlines has a responsibility not only to be an excellent company, but also to be an
excellent citizen of the world by enhancing the lives of the people we touch. With that aim in
mind, we have made many commitments to the arts and education, to our communities, and the
health and welfare of our country's citizens, and those in countries we fly to. With this goal in
mind, we've also made a strong commitment to preserving the environment - and our world for
future generations.
SIA has declared her vision clearly in taking responsibility to be an excellent company motivated
by enhancing the lives of people they contact with. In giving back to the society and committing
to a green initiative, they have aligned their public image and rallying their company philosophy
at the same time.

Singapore Airlines Mission Statement


Singapore Airlines is a global company dedicated to providing air transportation services of
the highest quality and to maximizing returns for the benefits of its shareholders and employees
Staking her claim on being a global company dedicated to providing air transportation services,
SIA has set a clear direction to be a company with global footprint and a clear business focus on
air transportation services. This lays out a basis for business implementation by either striking
out alliances with global partners or acquiring stakes in other companies to increase their market
share globally, while fully focused on businesses directly or indirectly related to air
transportation.
Her philosophy of providing air transportation services of the highest quality would direct and
position SIAs ranking amongst the premium competition. At a time where all competitors were
shunning from spending more money, SIA took the opportunity to invest in services and products
whilst leveraging on the power to negotiate and obtaining better deals. This move affirms her
commitment to quality which later would translate to give SIA a head-start when the crisis
ended.

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SIAs investors and stakeholders interests have been addressed. Profitability is the common
denominator with all investors and SIA has, with this statement directed the entire companys
strategy on focus to generate maximum returns to all stakeholders.
While this could be hard pill to swallow when SIA announced her earnings would drop
significantly in March 1997, the consensus was that all decisions made were not targeted for
mid-term relief but as a long term strategic decision for the business.
Employees have been given a clear message with the statement that should the company reap
profits, they will also be rewarded for their dedication in fulfilling SIAs mission and vision.

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Singapore Airlines Core Competencies


External Perspective:
Analysis of the external environment:
The economic crisis crippled most airlines. Most if not all airline firms were seeing drastic drop
on passenger volumes and revenues. Most firms took up defensive strategies such as divestiture,
liquidation and retrenchment just to keep their costs in check.
The upstream of the airline business would have been badly affected as well where suppliers for
aircrafts and auxiliary products had no further avenue of business.
Porters 5 Forces (as a snapshot during the crisis)
a. Rivalry among Competing Firms:

The competition landscape is intensive. Hungry airlines will resort to price-warring


to secure or gain more passengers

b. Threat of New Entrants:

This was not evident on any new airlines trying to vie for the market share, unless a
merger or acquisition happens between competition firms to form a new entity

c. Threat of Substitute Products:

Full service airlines offering lower cost and budget airlines could possibly disrupt
staple routes

d. Bargaining power of buyers:

Those consumers whom still have ability to spend would have a much wider choice
given that the supply outweighs the demand

e. Bargaining power of Suppliers:

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Suppliers at this stage would have little or no leverage to increase sales. They would
be faced with the same situation and pressure to increase their revenues

Competitive Advantage Summary


The endorsement and financial backing by the governments powerful investment arm (Temasek
Holdings) would lend SIA a credible front for her potential investors.
By making an investment worth S$500 million in the middle of a crisis crippling countries and
economies, SIA has made a bold statement that they are a company well-backed by their
investors in an aligned direction towards the companys future. The confidence exuded to the
market gave affirmation that this company had excellent fundamentals and financial security.
Cash is king at this time and SIA had the spending power to leverage on their upstream.
Singapore was transforming herself to be the choice global air-hub. With the Singapore
government paving the way with the ever-efficient Changi Airport (s), the demand for a
prestigious flag-carrier was a reality and the demand for SIA to keep up and excel world class
standards was omnipresent.

Internal Perspective:
a. Financial:
Ability to be debt free and ability to finance CAPEX purchases such as aircrafts
internally. The company remained profitable and without debt, making her a highly
sort after investment choice by many investors.
b. Physical:
Hosting the youngest fleet among all major carriers (average 3 5 year old). This
physical asset equates to reliability where the fleet needed lesser maintenance (lower

OPEX)
Better fuel efficiency in the times where oil prices are high provides the company
significant savings. SIA Engineering provided a cost effective way to maintain their
fleet without incurring high cost from engaging principles

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Hosting the latest inflight entertainment & technology, superb services such as wide
choice of beverages and meal would attract new customers while frequent flyers
would feel rewarded

c. Human:
Constant upgrading improves the knowledge and skill sets of the employees, while
the top-down engagement retains the competencies within the organization. The
rigorous and arduous training provided by SIA bore fruit to the attentive and
charming Singapore Girl whose image embodied the word service made SIA a
world renowned choice for consumers
d. Intangible:
Branding such as the Singapore Girl well known for excellent service
Airline safety records and young fleet gave passengers a sense of safety
e. Cultural:
During the crisis when top-management voluntarily took a freeze on their annual
increment gives a very good insight into talents that SIA hired to manage the
company. The decision made would have had a top-down impact down the chain on

the commitment and faith in the company


A cultivated culture to constantly provide excellent services and spearhead
innovations

Dynamic View:
While the investment in the products and services was implemented as long term initiative for
the company, SIA was still swimming in the midst of the crisis. Strategies had to be changed and
quick to implement. The organization had to be nimble. SIA changed their strategy to turn to
longer haul flights to USA and Europe. Promotional materials such as the Hello Kitty used to
boost sales. Open orders for aircrafts deliveries were delayed to scale down expenses.
Singapore Airlines Strength Analysis (Internal View)

Strong balance sheet


Credibility of major stakeholders (Temasek, DBS, Citibank, HSBC etc)

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New and latest aircrafts within the fleet (average age of 5 years)
Fuel efficiency with latest technology in aircrafts
Lowered operational and maintenance cost
Singapore Girl branding for excellent service
Latest and updated in-flight entertainment system
Self-sufficient aircraft service center (SIA Engineering) (lower cost to maintain fleet)
First movers advantage (pioneer in services and products launch)

Singapore Airlines Weakness Analysis (Internal View)

Vulnerable since business is too focused on one source of revenue


Lack of growth opportunities by being the leader
High jet fuel prices
Embroiled in a highly competitive market
Size of market has shrunk

Singapore Airlines Opportunity Analysis (External View)

Diversifying from the Asian flight routes to other global markets (long haul flights)
Acquiring competition airlines at a lower price
Enter re-negotiations for capital purchases to leverage on the environment of poor

business and sales


The opportunity to diverse into different market segments to reduce risk of dependence

on one market
Re-possess shares at a lowered price

Singapore Airlines Threat Analysis (External View)

Unknown time span of crisis where the strategic investments decisions might be obsolete

if implemented at the wrong time


Knee jerk reactions by other airlines cut fares to attract volume
Freezing of wages might discourage talents from joining SIA
High possibility of talents poached by competition
Possible of mergers actions from competition that could potentially over-size (in terms
of market share, resources, routes etc) SIA

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SWOT Analysis Chart:

Evaluation of Singapore Airlines Response


After evaluation, instead of pursuing a full defensive strategy adopted by other airlines; SIAs
senior management adopted intensive strategies to pursue Market Development and Product
Development.
I am a firm subscriber to Warren Buffets quote Be fearful when others are greedy and greedy
only when others are fearful. While this is an analogy coined from the stock market investment
perspective, this is applicable to decisions made all the time, including strategic ones. The term
high risk, high gain needs to be coupled with tools such as SWOT, PESTLE, PORTERS 5
Forces etc.

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When the crisis struck, the first instinctive reaction for most was to squirrel away as much
money as possible and cut cost so as to tide through the rainy day.
But opportunities are always present hence resources and strategies are re-evaluated to capitalize
on the situation.
The above tool, SWOT, has correctly (of course not fully) identified that the underlying
fundamentals of SIA is solid. The financial position and backing from a government related
investment vehicle has given SIA the ability to invest more than any of their competitors. The
ability to be able to get the buy-in from stakeholders that their unconventional decisions made
at that time would be a strategic move for the long term itself is concrete enough to show the
trust and faith they put in their top-managements of the company.
Even upon announcement that SIAs earnings would drop and share prices took a beating, the
core investors stayed firm and pull through with the strategic decisions put in place.
The commercial negotiation leverage in such a crisis would have been enormous where
competition amongst key vendors would be akin to cutthroat. SIA was the only company with
money to spend and everyone would want a piece of the pie.
The cost of innovation would also be reduced where newer cutting edge technology could be
purchased at a lower cost with better payment terms. (Aircraft, inflight entertainment systems
etc.)
Conclusion
Threat of a downtrend is ever-present. Stakeholders are always concern about loss of profits.
This is where we need to utilize the tools in place to accurately paint us the most current
environment we are operating in and where we should best allocate our resources.
The ability to be decisive and standing firm through the implementation whilst being flexible to
adapt to the ever-changing landscape is the difference between success and failure.
The results of SIA as of today tells it all, they manage to not only to survive the crisis (and a few
more after), but emerged stronger from each adversity they faced.

[JONATHAN GOH WEIHAN]

[S/N: 02]

[CT0253067]

Reference
http://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html
http://usatoday30.usatoday.com/travel/news/2004-04-07-singapore-hub_x.htm
http://sias.org.sg/index9.php?handler=ir&action=ir_content&ir_content_title_id=36
http://sias.org.sg/index9.php?handler=ir&action=ir_content&ir_content_title_id=35
Business Strategy In Asia: A Casebook By Kulwant Singh, Nitin Pangarkar, Loizos Heracleous
Use the "Insert Citation" button to add citations to this document.

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