Executive Summary
Singapore Airlines is a premium carrier in Asia’s aviation industry. It is associated with excellent services and affordable prices. Its success is mainly attributed to its ability to pursue both cost leadership and differentiation strategies. Currently, its corporate strategy involves investing in aviation related businesses. Its business and functional level strategies focus on enhancing high service quality and achieving cost efficiency.
Singapore airline has been able to offer world class services due to the following reasons. It focuses on both process and product innovation in order to improve product quality. It is also involved in overseas ventures, improving the efficiency of internal communication and promoting a people-centered culture.
It has since launched a subsidiary in Australia, Tiger Airways. Unlike SIA, Tiger Airways is a budget currier whose business model is based on a cost leadership strategy (Tiger Airways, 2011). Tiger Airways concentrates on providing low cost flights to various destinations from Australia by eliminating non-essential costs in its operations. It has not been able to achieve the same level of success as SIA due to the low quality of its services.
Thus it can improve its performance by improving the quality of its services in addition to maintaining the low prices. SIA on the other hand should focus on maintaining low prices, high quality and flexibility.
Introduction
Singapore Airlines (SIA) is one of the most profitable and fast growing airlines in Asia’s aviation industry. Since its inception in 1947, the airline has progressively expanded by increasing its fleet size as well as the number of its routes. By 1993, the firm had the youngest fleet in the industry.
Its success is mainly based on prudent management that is characterized by formulation and implementation of effective operation strategy (Heracleous and Wirts, 2009, pp. 1-6).
This has enabled it to withstand the adverse effects of economic recessions that have been experienced in various parts of the world over the years. This paper focuses on SIA’s operation strategy by analyzing the factors contributing to the airline’s success.
Recommendations on how SIA can develop in future will also be discussed. Finally, the operation strategy of Tiger Airlines Australia, a subsidiary of SIA, will be analyzed and compared to that of SIA.
Factors that Make SIA a World Class Service Provider
SIA is associated with high product quality and excellent customer services. The firm’s mission focuses on offering high quality services that are also affordable to majority of its customers. The firm has thus been able to realize its mission by taking advantage of its strengths which include the following.
Innovation and Development
SIA is committed to investing in a variety of modern technology as well as product and service innovation. Innovation at the company has been achieved through on-going research and development initiatives and overseas ventures. Consequently, SIA has been able to offer new services which include free drinks, a choice of meals, in-flight phones and fax services (Johnston, 1996, p. 510).
It also continues to improve the quality of facilities at Changai Airport to enhance the quality of its services. By staying ahead of its competitors in all aspects of the business, SIA is able to offer world class services.
Overseas Ventures
SIA partnered with Swissair and Delta Airline in 1989 in order to offer high quality flights to various parts of the world (Johnston, 1996, p. 511). The partnership enabled the firm to improve coordination of flight schedules and sharing of airport facilities. Consequently, it has been able to avoid customer dissatisfaction arising from delays and difficulty in connecting to other parts of the world from Singapore.
Customer Services
SIA focuses on offering excellent customer services by encouraging its employees to be very attentive and responsive to customers’ needs. The company is able to distinguish between bad and good services by paying attention to every detail of customers’ needs (Johnston, 1996, p. 512).
In order to maintain excellent customer services, the cabin crews are regularly trained on how to improve the quality of their services. Besides, the quality of the aircrafts’ cabins such as the quality of seats is also improved regularly.
People-Centered Approach
The management aims at developing its human resources in order to enhance the quality of services. It focuses on hiring talented employees who bring new ideas on how to improve the quality of services (Johnston, 1996, p. 512). The human resources department helps employees to improve their skills through training.
Such training programs not only aim at improving existing skills but also aim at creating new ones. Consequently, the employees are able to offer excellent services at all levels in the company.
Efficient Internal Communication
Effective and efficient communication has been achieved at SIA through various newsletters and magazines (Johnston, 1996, p. 513). This has enabled the firm to effectively communicate its strategic objectives to its employees.
The employees are also informed of their performance targets as well as the company’s commitment to improve the quality of services. Thus, teamwork, coordination and quality of services have tremendously improved over the years.
SIA’s Operation Strategy
Operation strategy refers to the “total pattern of decisions which shape the long-term capabilities of any type of operation and their contribution to the overall strategy through the reconciliation of market requirements with operations’ resources” (Dess, 2002, p. 76). Thus, it is the tool used by the management to determine how to offer services to customers. SIA’s operation strategy can be described as follows.
Corporate Level Strategy
The corporate level strategy directs the activities of the firm by defining the long-term goals and objectives to be achieved. It is normally expressed in the company’s mission statement. SIA’s corporate strategy focuses on providing high quality and affordable services. As an airline, SIA concentrates in the business of providing air transportation services from Singapore to various parts of the world.
Consequently, the firm has been investing in air transportation alongside related businesses such as ground handling services, aircraft maintenance and catering services. The related businesses provide supportive services that help in improving the quality of the firm’s air transportation services (Daraban and Fournier. 2008, pp. 15-24).
For instance, the aircraft maintenance segment helps in maintaining the efficiency of the aircrafts while the catering segment provides meals to passengers. Most of the company’s resources are channeled towards improving the transportation segment since it is the core business of the firm.
Business Level Strategy
Business level strategy defines the dimensions along which a firm should compete in its industry as well as the relevant goals and objectives that it should pursue (Feiler and Goodoritch. 2009, pp. 55-64). SIA’s mission is to provide high quality services at competitive prices.
Consequently, it competes along the dimensions of high product quality and competitive prices. The firm’s products are differentiated in terms of their high quality and affordable prices. SIA’s strategic objective thus is to remain profitable and achieve rapid growth through world class services.
Functional Level
Functional level strategy is concerned with how the various functions such as marketing contribute to the overall strategy. It is also concerned with the objectives of the organization’s functions and how resources allocated for such functions should be managed (Hazeldine, 2010, pp. 40-43).
At SIA, the human resources management contributes to the overall strategy by hiring talented employees as well as creating new skills through training. The marketing activities focus on high service quality by paying attention to detail and developing products that meet customers’ needs.
Customer services contribute to the overall strategy by promoting responsiveness to customers’ needs. Finally, the financial management initiatives help in accessing the capital for implementing the overall strategy through acquisitions and partnerships/ joint ventures.
Effectiveness of the Strategy
The effectiveness of SIA’s strategy can be evaluated in terms of the five operation performance objectives namely, cost, quality, speed, dependability and flexibility. SIA has been able to achieve cost effectiveness by flying a young fleet thereby saving fuel and maintenance costs. It has also been able to connect passengers to various destinations at low costs by forming an alliance with Swissair (Johnston, 1996, p. 511).
High product quality has been achieved through product innovation, staff training and investment in modern technology. Quick decision making and execution of various tasks has been realized through effective and efficient internal communication systems.
On-going research and development has enabled the firm to offer consistent services (dependability). Besides, it has enabled the firm to remain flexible in its operations. For example, the airline has aircrafts of different sizes; thus it can easily change the amount of capacity deployed to a particular route as demand changes.
SIA Development in Future: Platts-Gregory Procedure
The Platts-Gregory procedure points out the difference between the requirements of the market and the achieved performance of the company. The difference or gap between the two can be reduced by formulating and implementing an effective operation strategy. The Platts-Gregory is implemented in three stages which can be illustrated by figure 1.
Figure 1
Step One
The company’s current market position is defined at this stage by evaluating the opportunities available to it as well as the threats facing it in the industry. Hence, the market demand facts such as the expected product characteristics, quality, flexibility, lead-time and prices must be assessed (Franke, and John, 2010, pp. 19-26). SIA is a market leader in Singapore’s aviation industry. Currently, it offers exemplary services in the industry.
However, not all customers are satisfied with the quality of its services and thus the firm must consistently improve the quality of its services. Effective and efficient communication and coordination has enabled the firm to reduce the delivery time. Thus the services are provided at an acceptable speed. Extensive investment in research and development has also enabled the firm to maintain flexibility in its operations.
This means that SIA can easily vary its level of production inline with demand dynamics. Even though SIA focuses on providing affordable services, it is not the lowest cost producer in the industry. Low-cost airlines in Singapore are currently the lowest cost producers (Graham, 2009, pp. 306-316).
Consequently, SIA is not able to compete with them on the line of low prices. We can conclude that there is a small difference between customers’ needs and the actual performance of SIA. This means that the actual performance of SIA satisfies the customers’ expectations to a great extent.
Step Two
This stage involves evaluation of the capability of the firm’s operation in terms of its scope, facilities, and capacity. The scope of SIA’s operation enables it to offer a variety of services to its customers. These include in-flight phone and fax services, world class entertainment and efficient connection to a variety of destinations.
SIA also boasts of modern and adequate facilities such as new aircrafts, modern airport lounges and aircraft maintenance facilities. These help it to improve its efficiency and level of customer satisfaction (Morrell, 2008, pp. 61-67).
The management has been able to expand the capacity of the firm through various expansion programs such as acquisition of additional aircrafts, joint ventures and alliances as well as expansion of airport facilities. Thus they have been able to cope with the increase in demand for their services.
Step Three
In step three, new strategies are developed to enable the company compete effectively within its industry. The new strategies will thus be discussed in terms of the market demand facts highlighted in step one. Delivery lead-time can be improved by reducing the time required to provide the services.
For instance, the flight delay and cancelation rates should be reduced to less than 5%. Time limits should be set for delivering in-flight services such as serving drinks (Morrell, 2008, pp. 61-67). For example, such services can be provided within one minute.
Reliability relates to the firm’s consistency in offering particular services to customers. SIA can improve its reliability by identifying a particular range of products and provide them at a standard high quality to the customers (Nicolau, 2010, pp. 254-260). This means that the firm should not compromise on the availability and quality of its products.
Maintaining high levels of flexibility is important due to the seasonal fluctuations in demand for flights. SIA should thus improve its flight schedules in order to serve its route network effectively. Deployment of capacity to particular routes should be informed by the level of demand (Nicolau, 2010, pp. 254-260).
The quality of SIA’s services is currently very high. However, continuous innovation and employee training can help in maintaining or improving the quality of the services. Finally, emphasis must be placed on cost efficiency in order to reduce prices.
The effectiveness of the new strategy should be evaluated in terms of the roles of order winning and qualifying factors. Order winning factors are those that have direct and significant influence on the firm’s ability sell its products (Dess, 2002, p. 143). They include timely arrivals and departures, safety and affordable prices. Order winning factors must be improved for the business to increase its sales.
Qualifying factors are those that are important but have no direct influence on the firm’s ability to sell its products. They include meals and drinks during flights. Qualifying factors must be there so that the firm’s products can be considered by customers. The role of these factors in the products life cycle is illustrated in figure 2.
Competitors
The firm’s products should be compared with those of the competitors by considering the following parameters. The order winning factors should offer crucial advantages to customers. Qualifying factors should be comparable to industry standards. The products should be “consistently and clearly better than the nearest competitor’s products” (Dess, 2002, p. 144). They should also be better than those of most competitors.
SIA’s Current Operation Strategy
SIA has positioned itself as “a premium carrier with high levels of innovation and excellent levels of services” (Heracleous and Wirts, 2009, pp. 1-6). Besides, it has given precedence to profitability over size. The key aspects of its operations include continuous human resources development and rigorous product design. SIA’s strategy at the corporate level involves diversification by investing in related businesses.
Currently, SAI group has 36 subsidiaries and associated businesses. Some of its subsidiaries include “Tiger Airlines, Singapore Airport and Singapore Engineering Company” (Heracleous and Wirts, 2009, pp. 1-6).
SIA is a member of the Star Alliance and has also invested in aviation related businesses in India and China through alliances and joint ventures. The use of modern information technology is an integral part of its strategy. The technology is particularly used to enhance customer services and to improve efficiency.
At the business level, SIA focuses on providing premium services through product differentiation. The high quality product/ services are also provided at prices that are comparable to those of low-cost carriers. Thus SIA pursues “a dual strategy of differentiation and cost leadership” (Harvey, 2010, pp. 287-307). At the functional level, various processes such as marketing are aimed at improving the quality of services and lowering the cost of providing such services.
The five pillars of SIA’s current strategy can be described as follows. First, it focuses on rigorous product design and development. At SIA, the process of designing and developing products is viewed as a structured effort (Heracleous and Wirts, 2009, pp. 1-6). It has a product development department that perfects and adequately tests any changes prior to their introduction.
The department designs new products, tests them and assess customers’ reactions before such products are introduced. Second, SIA concentrates on total innovation. Its aim is “to be just a bit better in all its functions and offerings than its competitors” (Heracleous and Wirts, 2009, pp. 1-6). It focuses on constant incremental innovation which is cost-effective but delivers the desired quality.
Third, SAI aims at achieving strategic synergies through diversification. The subsidiaries act as training grounds and source of learning for employees. Fourth the firm prefers to remain profitable rather than increasing its size. Finally, it concentrates on developing employees through appropriate training.
The current strategy is comparable to the recommendations discussed above since it promotes maintaining low cost in production and enhancing high service quality through differentiation.
The corporate level strategy is also comparable to the recommendations due to the fact that diversification enables the firm to invest in businesses that support its core activity of proving excellent air transportation services (Duvan, 2005, pp. 448-454). Besides, it improves the profitability of the firm thereby creating resources for implementing the overall strategy.
Tiger Airways Australia
Tiger Airways is jointly owned by Tiger Airways holding ltd, Singapore Airlines and Dahlia Investments ltd. Unlike SIA, Tiger Airways is a budget carrier that competes along the dimensions of low costs. Its business model is based on maintaining simplicity in order to achieve the lowest operating costs. It concentrates on evaluating every aspect of its operations in order to eliminate non-essential costs.
Tiger’s strategic objective is to maximize profits by developing a route network that is characterized by a high passenger load factor and prudent management of capacity (Tiger Airways, 2011). Thus the development of Tiger Airways did not follow the operating strategy of SIA. While Tiger Airways concentrates solely on cost leadership, SIA focuses on both cost leadership and differentiation.
Problems Associated with Tiger’s Operation Strategy
SIA went wrong in formulating the operation strategy for Tiger Airways. To begin with, SIA over emphasized the need to maintain low production costs in the industry. While the company managed to provide the lowest prices in Australia, it neglected the need to provide high quality services (Forsyth, 2010, pp. 204-255). This can be explained by the complaints raised by customers and the industry regulator about its poor services.
In 2010 Tiger had a low on-time departure rate of only 73.9% as well as a low on-time arrival of 72.8% (Tiger Airways, 2011). In 2011, it received about four warnings from the industry regulator for failing to comply with the security requirements at various ports in Australia. Consequently, its services were suspended in July 2011 by the Civil Aviation Authority.
The poor services not only led to high levels of customer dissatisfaction but also led to huge losses. After resuming its operations, the airline had to reduce the size of its fleet and route network due to low demand.
The management also failed to correctly judge the level of competition in the industry. When Tiger Airways lowered its prices in order to attract customers, other airlines such as Qantas did the same (McGurk, 2009, pp. 635-652).
Since Tiger was not able to sustain the low prices for long, it found itself introducing extra fees for non-essential services. For example, it introduced a fee for check-in luggage and ticketing services at check-in. The overall effect was an increase in its prices which was against its cost leadership strategy.
There was no focus on staff training and development at Tiger Airlines. Staff development through adequate training and skill improvement programs has been one of the major organizational pillars of SIA (Heracleous and Wirts, 2009, pp. 1-6). Its failure to replicate the same staff development programs at Tiger Airlines can be explained by the mistakes made by the cockpit crews in 2011.
Despite the several warnings issued by the Civil Aviation Authority to Tiger Airline, its pilots kept flying their aircrafts very low at the Sydney Airport. Consequently, they risked causing accidents at the airport and losses to the company. Besides, such mistakes led to low customer confidence on the company’s safety standards.
Need for a Different Approach
SIA should have approached the launch of Tiger Airways differently due to the following reasons. First, the budget carrier business is not well developed in the region. Thus customers are not only interested in low prices but are also emotionally attached to various add-in services such as in-flight drinks (Trethway, 2004, pp. 3-14). Second, the customers are very demanding in terms of their expectations on the quality of services.
Consequently, SIA should have focused on introducing the high service quality at Tiger Airways. Finally, SIA had the resources and technical capability to initiate innovation at Tiger Airways in order to provide high quality low-cost services.
For instance a service department should have been established to design and introduce new products that ensure low operating costs without compromising the quality of services (Trethway, 2004, pp. 3-14).
Recommendations
SIA’s ability to offer world class services is based on its commitment to product and process innovation through research and development. Its success is attributed to the fact that it has been able to simultaneously pursue cost leadership and differentiation strategies. However, it can consider the following recommendations in order to improve its profitability in future.
First, SIA should join new markets through joint ventures and partnerships (Trethway, 2004, pp. 3-14). For instance it can join emerging economies in Asia and Africa which are currently under serviced in order to increase its profits. Second, it should formulate its growth strategies within the strategic foresight framework. This will enable it to identify future customer needs.
Hence it will be able to develop new products and identify new markets to satisfy emerging needs. Finally, it should focus on strengthening its core competencies such as excellent customer services in order to maintain its competitiveness.
Tiger Airways on the other hand should consider the following recommendations. First, it can adopt cooperative growth strategies such as outsourcing alliances and supplier alliances (Trethway, 2004, pp. 3-14). These strategies will enable it to reduce its operating costs by outsourcing non-core activities. Hence it will be able to charge low prices without compromising quality.
Second, it should concentrate on improving the quality of its services in order to attract new customers and retain the existing ones (Trethway, 2004, pp. 3-14). Finally, it should also diversify into related business with the aim of improving its revenues.
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