Sia Case Study Essay Example

in 1965, after Singapore's separation from Malaysia, the airline's equity was split equally between the Malaysian and Singapore governments, leading to its new identity as Malaysia-Singapore Airlines (MSA) Limited.

In 1968, Pierre Balmain designed the sarong kebaya uniform, which introduced the Singapore Girl as an iconic symbol worldwide. As routes expanded, Singapore prioritized international connections, while Malaysia focused on domestic networks within its territories. Consequently, in January 1971, the two governments decided to establish separate national airlines, leading to the discontinuation of MSA operations in October 1972. The result was the emergence of two new airlines: Singapore Airlines (SIA) and Malaysian Airline System.

The newly established SIA had a small fleet of ten aircraft, a staff of 6000, and a route network that covered 22 cities in 18 countries. The airline could not depend on government bailouts as the government shareholder emphasized that it must provide service, generate economic benefits, and make profits independently. The government may support by creating efficient infrastructure, negotiating traffic rights, and maintaining labor peace, but it did not interfere or provide subsidies to SIA. The growth of SIA was swift.

Between 1989 and 2001, the network expanded its reach, encompassing a total of 57 cities in 37 countries. Over time, this growth continued as it included a total of 119 cities across 41 countries. The company's revenues also saw significant growth during this period, starting from S$340 million in the fiscal year of 1972/73 and reaching S$2.7 billion by the fiscal year of 1983/84. Profits followed a similar upward trend, increasing from S$96 million in 1983/84 to almost S$1 billion in 1989.

To decrease their stake in SIA (Singapore International Airlines), the Singapore government

implemented various measures. In 1985, they made shares available for trading on the Singapore stock market and sold shares to employees while conducting private placements abroad. As a result of these actions, their ownership percentage decreased to 63%. Subsequently, the following year witnessed further reduction of government ownership to only 56%, accompanied by an increase in foreign ownership up to a percentage of 27.5%.

The leadership of SIA was headed by Chairman Stephen Lee Ching Yen and Chief Executive Officer Chew Choon Seng. The Board of Directors consisted of seven other members: Dr William Fung Kwok Lun, Euleen Goh Yiu Kiang, David Michael Gonski, James Koh Cher Siang, Christina Ong, Dr Helmut Gunter Wilhelm Panke, and Lucien Wong Yuen Kuai. These nine individuals were involved in various committees including the Board Executive Committee, Board Audit Committee, Board Compensation and Industrial Relations Committee, Board Nominating Committee, and Board Safety and Risk Committee.

The Executive Management team consisted of Chew Choon Seng as CEO, Bey Soo Khiang as Senior EVP for Marketing and Corporate Services, Ng Chin Hwee as EVP for Human Resource and Planning, Mak Swee Wah as EVP for Operation and Services, Tan Pee Teck as Senior VP for Cabin Crew, Tan Chik Quee as Senior VP for Commercial Technology, Mervyn Sirisena as Senior VP for Engineering, Chan Hon Chew as Senior VP for Finance, Gerard Yip Beng Hock as Senior VP for Flight Operations, Christopher Cheng Kian Hai as Senior VP for Human Resources, Yap Kim Wah as Senior VP for Product and Services, and Ng Kian Wah as Senior VP for Sales Regions.

Lee Lik Hsin was the Regional VP for North Asia in the Overseas

regions. The Regional VP for Americas was Lim Wee Kok, while the Regional VP for Europe was Paul Tan Wah Liang. Subhas Menon served as the Regional VP for South West Pacific, and Philip Goh Ser Miang was the Regional VP for West Asia and Africa. Other senior management officers included William Tan Seng Koon, who was the President and CEO of SIA Engineering; Chin Yau Seng, the CEO of SilkAir; and Tan Kai Ping, the President of SIA Cargo. SIA achieved a net profit of S$216 million for the financial year ended 31 March 2010, as stated in the Appendix 1 Financial Statistics.

Passengers carried, revenue passenger-km and passenger yield decreased in the financial year (see Operating Statistics in Appendix 2). Table 1 displays the profit breakdown of the SIA Group. Table 1 SIA Group: Contribution of Profits by Subsidiaries 2009/10 (S$ million) Singapore Airlines SIA Engineering SilkAir SIA Cargo (38. 6) 110. 4 49. 2 (145. 1) 2008/09 (S$ million) 822. 9 112. 6 33. 6 (245. 0) Change (S$ million) -861.5 -2.2 +15.6 +99.9 Source: SIA Group Analyst/Media Briefing FY2009/10 Results

SIA's strength lay in its global operations, which brought in diverse revenue streams and minimized economic risk. Even during the Asian sector's rapid growth from the late 1980s to the Asian financial crisis in 1997, SIA maintained a balanced focus across regions instead of solely prioritizing Asia. As of 2007/08, passenger revenues were distributed as follows: East Asia (28.9%), Europe (21.8%), the Americas (18.7%), South West Pacific (18.3%), and West Asia and Africa (12.3%). This distribution showcased a well-rounded revenue composition spanning various parts of the world.

SIA has always emphasized its dedication to

service excellence, as seen in its investment in staff. The airline is committed to attracting and hiring highly skilled individuals and ensuring they possess the required skills for delivering exceptional service. When SIA commenced operations in 1972, it encountered difficulties distinguishing itself from other airlines due to stringent regulations imposed by the International Air Transport Association (IATA). These regulations encompassed various aspects of in-flight services, such as determining sandwich dimensions and allowable complimentary beverages in economy class.

SIA decided to leave IATA during that period, but in the 1990s, they rejoined when the restructured organization no longer controlled competitive practices. SIA saw advantages from having bold and cautious leaders who made proactive choices, like keeping a modern aircraft fleet and establishing up-to-date airport facilities. Additionally, they invested in hotel and property projects that produced income for SIA.

SIA leaders rejected ideas of expanding into hotel chains and travel agencies, believing that focusing on their core business would allow them to provide the highest quality products and services for their customers. According to the Chairman in 1992, the most difficult task for management has always been staying true to their defined aims and objectives. SIA is committed to the principles of free enterprise, free competition, and exceptional work performance.

SIA implemented a strategy of global expansion through investment in younger airlines to achieve rapid growth. As part of this approach, SIA acquired a stake in an Australian airline with the aim of enhancing its influence and securing a greater portion of traffic on the Kangaroo route from Australia and New Zealand to Europe via Singapore. Unfortunately, SIA's attempts to acquire stakes in both Ansett in 1991 and Qantas in

1994 were unsuccessful.

In 1999, Singapore Airlines (SIA) made an unsuccessful attempt to acquire a 50% stake in Ansett for US$250 million. However, Air New Zealand (ANZ), the other 50% owner of Ansett, exercised its pre-emptive right to buy the stake from News Corp. Despite this setback, SIA turned its attention to ANZ in April 2000 and purchased a maximum allowable 25% stake in the company due to New Zealand government regulations regarding foreign airlines. Unfortunately, Ansett encountered significant difficulties and was placed under administration by ANZ in September 2001.

In October 2001, Singapore Airlines (SIA) reduced its stake in ANZ to 6.47% through a recapitalization package, with the government of New Zealand investing NZ$885 million in ANZ. This stake was subsequently sold at a significant loss. SIA also acquired a 49% stake in Virgin Atlantic Airways in March 2000, with a cost of 600 million pounds, but later sold the shares on the open market due to underperformance. In 2004, SIA entered the low-cost carrier market by investing in a 49% stake in Tiger Airways.

Its partners were Indigo Partners LLC, Irelandia Investments Limited and Temasek Holdings. That stake was reduced to 34.4% in 2010 when Tiger Airways became listed on the Singapore Stock Exchange. Human Resource Management (HRM) played a crucial role in the success of SIA by emphasizing sustained service excellence. The recruitment process for cabin crew applicants included strict selection criteria such as age (with a maximum of 26), academic performance, and physical attributes.

Once applicants have met the requirements, they proceed through several assessments including a group interview, psychometric test, uniform test (which involves wearing the sarong kebaya and being evaluated on posture,

gait, and appearance), water confidence test (involving jumping into a swimming pool from a three-meter height while wearing a life jacket), a two-to-one interview with the Senior Vice President of Cabin Crew and another senior staff member, and a tea party where selected applicants interact with management staff to clarify any doubts and make final decisions.

SIA pilots were subjected to a rigorous recruitment process consisting of two rounds of structured interviews and a computerized pilot selection test, lasting approximately 2 to 4 months. SIA prioritized extensive training, mandating newly hired cabin crew members to undergo a comprehensive four-month course, twice as long as the industry norm. The training program encompassed various subjects such as safety, functional training, grooming, deportment, gourmet food, fine wines, and the art of conversation.

Following a four-month training period, the cabin crew were then placed on a six-month probation and required to undergo additional training at later stages. This additional training aimed to equip them with the skills to provide friendly and warm service while still projecting confidence and authority. SIA pilots who were selected would undergo a 15 to 17-month training program to obtain an Airline Transport Pilot's License (ATPL) with Instrument Rating (IR). They would then undergo further training for 1 to 2 years to become a First Officer.

Regular training was provided to all staff members, including senior vice presidents, in order to help them maintain openness, embrace change and growth, and effectively implement new services introduced by SIA. The SIA Training Centre was established in January 1993 and comprised of the Management Development Centre (MDC), as well as four departments dedicated to Cabin Crew Training, Flight Crew Training, Commercial

Training, and IT Training. The collaboration between management and operational staff was vital for the success of the training programs.

Management staff members were frequently seen as mentors who guided newer staff members instead of being seen as superiors. To promote a corporate outlook, reduce disputes between departments, and encourage change and innovation, managers were regularly rotated among departments to develop a comprehensive understanding of the organization. In Service Delivery Teams at SIA, staff members worked in teams that facilitated effective communication and service delivery. The 6,600 crew members were organized into units of about 13 individuals, each led by a team leader.

Team members would be assigned to fly together frequently in order to establish connections and foster a sense of unity. The team leader served as a mentor and counselor, offering guidance and assistance to the team members. 'Check trainers' oversaw and flew with approximately 12 to 13 teams, providing inspection and support for team development. Additionally, interest groups such as the Performing Arts Circle, Gourmet Circle, Language Circle, and Sports Circle were created to promote employee interests and encourage interaction among staff members.

Frontline staff at SIA were not only responsible for delivering services but their mindset was just as crucial. With more experience, staff members gained soft skills and learned to anticipate customer needs by observing details like body language. SIA trained their frontline staff to have a customer-oriented mindset, encouraging them to go above and beyond. The company believed in empowering staff members to proactively enhance their services.

Frontline staff members were given the authority to increase baggage allowance as needed, from 20kg to 25kg, 30kg, or 50kg. However, any increases had to be

justified and documented. Cabin crew also participated in cross-functional task forces and contributed to areas such as the 'innovation lab', where they generated and tested ideas. SIA understood the importance of motivating employees and had a reward and recognition system in place to encourage service excellence.

One way SIA kept their staff motivated was by implementing various strategies such as introducing pay components based on individual and company performance, offering equity-linked incentives to certain staff members, recognizing the efforts of exceptional employees during meetings and in corporate newsletters, and presenting the Deputy Chairman's Award annually as a form of appreciation from top management for outstanding achievements.

SIA currently operates passenger services to 93 destinations in 38 countries across the globe. These destinations span regions including West, North and Southeast Asia, Africa, Europe, Australia, New Zealand, and North America. (see Figure 1) Additionally, the SIA Group includes SIA Engineering, SIA Cargo, SilkAir (a subsidiary airline of SIA that focuses on regional locations), and Tradewinds Tours and Travels (the tour operating arm of SIA and SilkAir). Furthermore, SIA also holds shares in multiple other enterprises.

In 2009, SIA distributed 730 SATS shares for every 1000 SIA shares held, divesting its 81% stake in Singapore Airport Terminal Services (SATS) to SIA shareholders. This allowed SIA to focus on its core business while empowering SATS to pursue its own opportunities. Figure 1 Singapore Airlines Destination Network Source: SIA Website 7 Fleet SIA prioritized regular investments in new aircraft, enhancing the flying experience through the incorporation of the latest passenger comfort, safety, and facility developments.

New aircrafts brought advancements in technology, making them more fuel-efficient and improving on-time performance. SIA became a pioneer

in the industry by acquiring the A300 Superbus, the B747-300 Big Top, the B757 and the A310-200. It also became the first airline to operate an international commercial flight across the Pacific Ocean using the 747-400 Megatop. In 2004, SIA set a record with the world’s longest flight between Singapore and Los Angeles and later broke its own record with a non-stop flight between Singapore and New York.

SIA acquired the A380, the largest commercial plane in the world, in October 2007. As of July 1, 2010, SIA's passenger fleet included 106 aircrafts with an average age of 6 years and 3 months (see Appendix 3). Additionally, as of March 31, 2010, SIA Cargo's freighter fleet consisted of eleven B747-400s with an average age of eight years and two months. SilkAir's fleet included 11 Airbus A320s and 6 Airbus A319s with an average age of five years and nine months.

SIA offered twelve suites on its A380 aircraft, priced at S$10,500 for the Singapore-Sydney route, which is roughly one-third more expensive than the first-class fare. Moreover, SIA provided first class, business class, and economy class seats like other airlines. Nevertheless, specific flights (such as those between Singapore and New York or Los Angeles) exclusively had business class seats with no availability of economy class seating. Additionally, each of the twelve suites on the A380 aircraft had its own private cabin.

Each cabin featured a 35-inch wide armchair seat crafted by Poltrona Fraun, esteemed Italian artisans, along with a separate bed equipped with turn-down service, luxurious linen, and a full-size pillow. The first-class seats boasted a 35-inch width and were upholstered in exquisite fine-grain leather with elegant mahogany

wood accents. These seats were adjustable to provide both a sundeck lounge position and a completely flat bed position. The table could be easily adjusted to accommodate individual height preferences. Surrounding each seat were specially designed compartments for personal belongings, while a vanity corner with a mirror and drawer was integrated into every seat. In the business class, the seats were exceptionally wide at 30 inches (76 cm), which was almost 50% broader than comparable products in this category. Arranged in a 4-abreast, 1-2-1 layout, every seat possessed direct aisle access. This new Business Class seat seamlessly transformed into a fully-flat bed for optimal sleeping comfort. The innovative design of the economy class seats minimized space intrusion when front passengers reclined, while simultaneously maximizing knee- and leg-room.

The seat had several features such as a conveniently placed handset on the seatback, a reading light that provided personal and nonintrusive illumination, and an in-seat power supply. The meals served in the Suite, first class, and business class were prepared by the prestigious Singapore Airlines International Culinary Panel, which consists of highly acclaimed chefs from around the world. These meals were presented on exquisite tableware specially designed by Givenchy. To enhance the dining experience, a choice of the finest wines hand-picked by a panel of wine experts or an exceptional selection of champagnes and second growth Bordeaux was served in crystal ware.

The menu for economy class passengers, created by SIA’s International Culinary Panel, included a selection of wines, beverages, and ice cream. Additionally, KrisWorld offered entertainment options such as 120 movies, 170 TV shows, 740 CDs, over 20 radio channels, on-demand games, language-learning tools, and travel

guides.

Passengers in the Suite and first class had access to a personal 23-inch LCD screen with the highest resolution available in the industry, along with surround sound and noise-cancelling headphones. Passengers in business class and economy class had personal LCD screens measuring 15.4 inches and 10.6 inches, respectively. In terms of accessories and toiletries, passengers in the Suite, first and business class received sleepwear and bedding by Givenchy, Ferragamo toiletries, and terry-cloth socks and eyeshades. Economy class passengers were provided with fleece blankets and an amenity kit including a toothbrush set and knitted socks for overnight flights exceeding four and a half hours or day flights exceeding eight hours. SIA maintained a consistently positive brand reputation and was among the six airlines (Cathay Pacific Airways, Malaysian Airline System, Qatar Airways, Asiana Airlines, and Kingfisher Airlines) that achieved a five-star rating for customer service and product quality under the Star Ranking system by Skytrax Research.

SIA gained recognition in various areas. It was ranked 17th in Fortune magazine’s list of most admired companies in 2007. Travel + Leisure magazine voted it the world’s best international airline for the last 11 years. Conde Nast magazine named it the world’s best international route airline for the 18th time in the last 19 years. Business Traveller Asia Pacific awarded it the title of the world’s best airline for the last 15 years. Additionally, SIA received the Readers’ Digest Trusted Brands Platinum Award (Airline Category) for the 7th year in a row. A recent study estimated the brand value of S$354. million. The “Singapore Girl” icon, conceptualized as a personification of oriental charm and friendliness, played a crucial role in SIA’s

achievements. SIA put significant effort into careful recruitment and extensive training to bring the icon to life, as highlighted by Dr Cheong Choong Kong, former CEO of SIA. While other service industries embraced a trend of playful informality, such as Virgin Airlines, SIA prioritized comprehensive service staff training to achieve precision and consistency in its service.

The combination of positive reviews from satisfied customers and this created a perception of excellent service and style. SIA's advertising strategy remained consistent as it used the same themes for its global campaign, such as the Singapore Girl icon, the tagline "a great way to fly," and the focus on having a young fleet. Even during periods of economic downturn, SIA continued to heavily invest in advertising. Over its first 21 years, SIA had spent around S$750 million on advertising, and its current advertising account was estimated to be worth S$50 million per year.

The company has collaborated with brands such as Givenchy, Salvatore Ferragamo, and L’Occitane, resulting in the incorporation of their products and amenities for passengers. In January 2007, SIA solicited offers for its advertising account, previously managed by Batey Ads, the agency responsible for creating the renowned Singapore Girl icon in 1972. The Singapore Girl's outfit and promotional slogan have undergone minimal alterations since its inception. SIA's decision to explore new advertising concepts sparked a contentious discussion on whether to maintain or modify the Singapore Girl image.

SIA management was concerned that in the ever-evolving world of information and communications technology, SIA should not lose touch with consumers. The question arose: should SIA adopt a new image for the new IT era? Those in favor of keeping the Singapore

Girl image highlighted the potential negative consequences of changing a carefully constructed image that had proven successful for many years. However, critics argued that the portrayal of the Singapore Girl was sexist and portrayed an outdated perspective of a submissive Asian woman that was no longer relevant in contemporary society.

The airlines have integrated the internet into their distribution channels. Travelers have the option to gather information and book flights through travel agents, travel websites like Expedia, or airline websites. In 1988, SIA and Cathay Pacific created ABACUS, an Asian CRS headquartered in Singapore. Nine other airlines later joined them to form ABACUS International Holdings.

The Asian airlines collectively held 65% of this CRS with SABRE, while the American Airlines CRS held the other 35%. In 1999, ABACUS launched the Alliance Manager product, which was specifically designed for the STAR and OneWorld Alliances. This product aimed to provide travel agents with quick and easy access to information about routes operated by alliance members. ABACUS offered seamless connections to 720 destinations across more than 112 countries within the STAR Alliance. Additionally, it provided travel services from 316 airlines, 52,000 hotel properties, and 50 car rental companies. The included systems were Kriscom, Krismax, SQ-eTravel, and SIA.

Mobile bookings by travel agents were processed through a CRS, which connected to Kriscom, SIA's in-house system for yield management and also handling SIA's bookings. Krismax served as a yield management and forecasting system, enabling SIA to optimize seat capacity based on customer waitlisting. SIA launched SQ-eTravel, its own internet booking site, where passengers could reserve flights, pre-order meals, view seating arrangements, and select preferred seats. Additionally, SIA introduced SIA Mobile in 2009, enabling

customers to book flights and access KrisFlyer services via specific mobile devices such as Blackberry or iPhones.

They also had the option of choosing seats and checking in using their mobile devices. In 1989, SIA was a leader in establishing alliances in the airline industry, specifically the Global Excellence Alliance (GEC) with Delta Airlines and Swissair. The primary motive behind this alliance was to bypass regulatory obstacles. European or Asian airlines were not allowed to transport passengers domestically within the US (such as flying from New York to Los Angeles), as these rights were exclusively granted to US carriers.

The alliance between the US carrier and the non-US partner resulted in mutual benefits. The US carrier gained access to the European or Asian network, while the non-US partner gained access to the US network through code sharing. The alliance was strengthened by the small cross-equity stakes held by each airline (SIA held 5% of Delta and 2.5% of Swissair). Additionally, the alliance generated increased sales by coordinating schedules and enabled savings and flexibility by sharing groundhandling facilities and exchanging cabin crew. Furthermore, there were cost savings from sharing sales and checking office expenses.

The GEC alliance disbanded in November 1997 due to disagreements among its three partners. In 1999, SIA joined the STAR Alliance, which was established in 1997 and consisted of Lufthansa, United Airlines, Thai Airways, Air Canada, and Scandinavian Airlines. Currently, the STAR Alliance comprises 28 members and operates a total of 4,027 aircrafts with 405,000 employees serving approximately 627.52 million passengers annually. The alliance generates sales revenue totaling US$156.8 billion and runs daily departures from 1,172 airports amounting to 21,200 flights per day. It possesses

a network of 990 lounges across operations in 181 countries.
Regarding market and industry overview, the aviation industry began in 1912 with the inaugural scheduled airline flight.

Aviation technology had limited progress in the following thirty years. But, in the 1950s, turbo-prop engine aircraft were introduced, resulting in industry growth in productivity, reach, and capacity. The advancement continued to accelerate in the 1960s with the development of jet engines. Currently, the aviation industry plays a crucial role in the global economy, particularly through exports and tourism. It is estimated that it contributes around 7.5% to the world's gross domestic product (GDP) and employs approximately 32 million people.

Despite this, the industry experienced a surplus of capacity between 1985 and 2005, leading to lower yields and profitability compared to other industries. However, despite increasing capacity since 2005, the demand has not been able to keep up (see Figure 2). The industry's profitability has been inconsistent and volatile during the period from 1995 to 2009 as indicated by its profit and loss performance (see Figure 3).

AFTK = available freight tonne kilometers; ASK = available seat kilometers Source: IATA Financial Forecast Presentation 2010 Figure 3 Global Commercial Airline Profitability Source: IATA Financial Forecast Presentation 2010 13 Characteristics of the Aviation Industry Government Intervention The aviation industry was characterized by high government intervention due to several reasons, including patriotism, strategic importance of the sector (in terms of economy and national security), and safety of passengers. International flight routes and frequencies usually required approval from host and home governments, unless countries had signed "open skies" agreements with each other. Local governments also restricted foreign investors from purchasing equity stakes in airline companies. Governments

also provided subsidies to poorly performing airlines. However, in recent times, deregulation has become a trend, with the US being the first country to implement deregulation of its internal airline market in 1978. Factors Beyond Airlines' Control Various factors were beyond the control of companies in the aviation industry.

Oil prices were influenced by various factors, such as demand and supply, which in turn were affected by geological and socio-economic conditions. Historically, oil prices were measured in US dollars despite many international airlines earning majority of their revenue in different currencies. The significant rise in oil prices since 2003 had a major impact on airlines' performance due to fuel expenses accounting for 30% of their operating costs in 2007. Furthermore, governments imposed landing and aircraft parking fees that added to the financial burden faced by airlines.

Factors such as local infrastructure, events like terrorism or socio-political unrest, and complexities of operations influenced the profitability of airlines. The perishable nature of flight seats, the seasonal and cyclical demand for seats, and the long decision-making time frames added to the complexity of the airline business. While airlines utilized yield management and price discrimination methods, there were also tendencies towards destructive price competition that ultimately reduced profitability.

Managing airline capacities presented challenges due to varying demand throughout different time periods. Executives had to address long-term considerations, such as acquiring new aircrafts, which required substantial investments and lead times. Anticipating future trends, they had to make lasting commitments. The cost structure of airlines encompassed variable direct operating costs, fixed direct operating costs, and indirect operating costs.

The text describes three categories of expenses. The first category includes fuel expenses, flight crew allowances, direct

engineering costs, airport and en-route charges, and passenger service costs. The second category includes aircraft depreciation and rental, flight and cabin crew salaries, and engineering overheads. The last category consists of route- and product-related costs, such as passenger service staff salaries.