singapore airlines report on strategic alliance and political risk | Airlines | Strategic Management

ASSIGNMENT 2: INTERNATIONAL BUSINESS STRATEGY SINGAPORE AIRLINES GROUP: A CASE STUDY PRESENTED TO: Ms ADLINA AHMAD BY: SANKET DAGA

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TABLE OF CONTENTS: 1.0 Political Issues (Problem identification): 1.1 Political strategies…………………………………………………….4 1.2 SIA signs skies………………………………………………….4 1.3 USA fails………………………………………………….4 1.4 China eastern bid……………………………………………...4 2.0 Alternative Solutions: 2.1 Open skies...........................................................................................5 2.2 Establish new markets………………………….................................5 2.3 Government influence…………………….........................................5 2.4 Fleet expansion…………………………............................................5 2.5 Improving relations.............................................................................5 3.0 Recommendations……………………………………………………...……6 4.0 Implementations……………………………………………………………..6 5.0 Strategic Alliances (Problem identification): 5.1 Star Alliance.........................................................................................6 5.2 “WOW” Cargo Alliance.......................................................................7 5.3 Cost Reductions....................................................................................7 5.4 Disadvantages Asian markets: SIA in Asia.........................................7 5.5 SIA might face problems in the future: Alliance mergers……….…..7 5.6 Lack of clear goals and objectives.......................................................7 6.0 Solutions for Strategic Alliance: 6.1Consider Neighbor Countries...............................................................7 6.2 Maintain current Alliances…………………………………………..8 6.3 Strategy...............................................................................................8 6.4 New Alliances………………………………………………………..8 6.5 Acquiring stake....................................................................................8 6.6 Franchising..........................................................................................8 6.7 Exclusivity of the Airline\...................................................................8 6.8 Alliance and Strategies………………………………………………8 7.0Recommendation……………………………………………………………9

open expansion airline

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8.0 Implementation……………………………………………………………..9 9.0 References…………………………………………………………………10 EXECUTIVE SUMMARY: This report is to outline problems related to political strategies and strategic alliances which Singapore Airlines is currently facing or might face in near future. Firstly problems related to political strategies were identified, the findings from various sources revealed that SIA could face problems entering new markets like China and increase market share in existing network because of government policies on protectionism in other countries. Later the report also focuses on Singapore airline group’s strategic alliance relations with other airline companies. SIA has definitely benefited from the alliance partners for entering new markets. There are some problems that SIA can face in the future, by the lack of commitment from other partners and differences in their goals and strategies. Alternative solutions, recommendations and also ideas on how to implement the solutions to enter new markets, how to handle with political strategies and how to choose partners have been provided in this report which could be taken in consideration which would also help SIA to achieve further success.

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1.0 PROBLEM IDENTIFICATION: 1.1 Political strategies: The emergence of collaborative strategies: development of new markets, air agreements and airline alliances Hamel et al. noted the need to collaborate with one's competitors to win (Hamel et al., 1989). The 1990s saw the emergence of many collaborative strategies and arrangements on the Asia Pacific air travel scene in the areas of development of new markets, air agreements and airline alliances. In the airline industry, besides being profitable, good political and negotiation skills are required to open new markets, negotiate air agreements and develop airline alliances. 1.2 Singapore signs open skies: In 1997, Singapore successfully concluded open skies agreements with three countries. Singapore signed its first open skies agreement with the USA, for cargo, the first Asian country to do so. Then later in the same year it also signed an open skies agreement with New Zealand and Brunei. The agreement was welcomed by Singapore airlines and air new Zealand, which also had entered into an alliance (Straits Times, 1997, p.60) 1.3 USA expansion fails: SIA is targeting the USA. SIA currently flies only to three cities. Singapore airlines is facing numerous political issues in USA, In almost all the cases for expansion, the general sentiment is that the USA expects far more than it is prepared to concede. Though US Transportation Secretary Federico Pena argued with irrefutable logic that ``the economic pie gets bigger when you open markets and compete'', the affected parties at the other end inevitably pointed out that the biggest slice seemed to be reserved for the USA (Straits Times, 1997a, p. 68). This clearly says that airlines in the US are at advantage over SIA, when it comes to starting or expanding current operations in the United States. SIA is also facing problems with flying to US via Australia; the route is currently dominated by national carrier Qantas airways and UAL Corp's united airlines due to a policy of only allowing Australian and US carriers to fly the route. The Australian and US governments signed an open-skies agreement, allowing Australian or US-owned airlines to fly freely between the two countries, earlier this year. But the route is still closed to outside players such as Singapore Airlines. (Australian news.com) 1.4 Singapore Airlines bid for China Eastern Airlines unsuccessful According to the International Herald Tribune, A bid made by Singapore Airlines for a 24% stake in China Eastern Airlines was turned down by minority shareholders on

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Wednesday. A bid by Air China for the company is likely to be larger than that of Singapore Airlines and may be supported by Cathay Pacific, who is in a crossshareholding relationship with China National Aviation Corporation, the parent company of Air China. Air China has blocked SIA's buy-in of China Eastern in a political maneuver that has also led to a shake-up at the CAAC .An extraordinary game of politics has hit China's civil aviation sector, with Air China successfully derailing a deal for Singapore Airlines to buy into China Eastern Airlines and setting itself up for a rival bid of its own, possibly with Cathay Pacific Airways. (Ionides 2008) 2.0 ALTERNATIVE SOLUTIONS: 2.1 open skies: The recently signed open-skies agreement with the USA will also offer growth opportunities for SIA in the longer term. SIA is now free to fly to any city in the USA, where previously it had been confined to ten. It can also fly from the USA to thirdcountry destinations, like South America. (Chan, 2000) 2.2 Establish new markets: SIA should try to establish the South American and the Middle East, and more Asian routes. Through bilateral and multilateral air agreements, In the 1990s, US carriers were able to enjoy immense success in Asia. A key contributing factor was their wellestablished market entry structure in Asia, through air agreements concluded in the 1950s. Structure must follow strategy (Chandler, 1962). 2.3 Government influence: Because many airlines are still government-owned and much of the trade in aviation services is still controlled by governments, SIA CEO, Dr Cheong Choon Kong lamented in 1997 that ``for no rational reason, the aviation industry is not game to be like other industry''. He further pointed out that bilateral air agreements are made by governments, and this accounts for why the aviation industry is so different from any other industry. (Chan, 2000) 2.4 Fleet expansion: Another solution explored by SIA is to look for an aircraft that can fly nonstop to the USA. (Mockler, 2001) According to noted aviation expert Michael Boyd, in the long term this would present tremendous opportunities for SIA. Considering this option SIA has started operating and ordering more of Airbus A340-500 for long haul flights. The flight from Los Angeles to Singapore's Changi airport and the distance is more than 9,000 miles (Seattlepi.com).So therefore it does not need to go Via Australia or any other European country. 2.5 Improving relations: SIA might influence the government of other nations by helping them improve their tourism or promoting destinations of a particular country. For e.g. According to the

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Indonesian Ministry of culture and tourism this year “Singapore Airlines has signed a Memorandum of Understanding alongside the Indonesian Ministry of Culture and Tourism (IMCT) to boost visitor arrivals to Indonesia”. Singapore Airlines will contribute to the movement through air travel, rebated cargo and waiver of excess baggage charges. This new MOU will cement our already strong ties,” Singapore Airlines Executive Vice President Marketing & the Regions, Mr. Huang Cheng Eng said. 3.0 Recommendations: • •

SIA can seek help from the government since the government has a 55% stake in the airline for influencing some countries. SIA can also improve their relationships with countries where they are or they might face a problem by investing in other sectors. like starting some new venture like joint venturing in catering, ground services
The main advantage of signing more treaties is that this policy, in the short run, would be to the consumer. As the number of competitors in a market increases, competition will probably focus on price and flight availability.

Building tourism, for e.g. connecting flights from partner’s country to countries where the partner’s national carriers do not operate like Indonesia to other destinations Via Singapore.

4.0 Implementations: • • • SIA should implement these strategies within the next 2 years. The Chairman or the CEO can influence the government to approach the other countries e.g. China They can influence the government by proving that SIA will achieve more growth and company’s stakeholders and also for the country will be benefited.

5.0 STRATEGIC ALLAINCE: 5.1 Star Alliance: Develop and improve operations, facilities and processes, and provide access to new capabilities, new knowledge and new technologies; (Bissesseur, 1996) Star Alliance, An alliance of 15 airlines, including United Airlines, Lufthansa, and Singapore Airlines; Thai airways, are some major airlines to mention are a part of the star alliance. These contractual linkages are designed to meet their special needs for expanding rapidly globally through marketing linkages, without incurring the costs involved in major fleet investments. (Brannigan, Field &Thomas, 2000) 5.2 Cargo alliance with Lufthansa: The new partnership between Lufthansa, Singapore airlines and SAS cargo, This new operation which will be marketed under the brand name “WOW” ostensibly to convey a

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sense of excitement which will be expanded this year to include all the carriers’ services as well as cargo handling and information technology. The alliance will enable both airlines to expand their markets all over the world where they did not have a presence earlier. ( Armbruster, 2002) 5.3 Cost Reduction: SIA is increasing its profits by starting new alliances with more airlines SIA can have the benefits of attaining the Economies of scale (through joint operations of air and ground services) and scope (Through increased reach and efficient connections) and increased traffic density (through network expansion and additional traffic feed). (Burton and Hanlon, 1994; Doganis, 1994, 2001). 5.4 Disadvantages Asian markets: SIA competition with Asian airlines. The alliance might reduce competition only in certain routes. If the alliance is in the same region it might become a competitor indirectly. According to the business week (Asian business), Thai Airways could give Singapore Airlines a run for their money. Thai Airways, which carried 12 million passengers and 405 million tons of cargo, last year -making it the sixth-largest carrier in Asia -- is half the size of Singapore. But the airline could become a real competitor in the region. 5.5 SIA might face problems in the future: Singapore airlines have an alliance with united airlines, which is now operating under bankruptcy protection and this alliance might face difficulties in the near future in the Trans Atlantic routes and also might have a reduction in the market share in the US sector. Because there will be bigger carriers emerging from each group of alliances. (Flôres Jr, 1998) Big giants of the airline industry are merging and will soon become a threat to other airlines. Northwest and Delta announced their long Awaited merger this year in April, a combined enterprise worth $17.7 billion that from day one will serve 390 destinations in 67 countries. (Commercial appeal news, April 2008) 5.6 Lack of clear goals and objectives SIA has had and might face this problem of having a partner whose lacks of clear goals and objectives. SIA faced problems with the American carrier Delta and Swiss air and had to finally leave the tri alliance. Major reasons for such failure are dissimilar objectives, inability to share risk and lack of trust. Many managers enter into alliances without properly researching the basic principles of cooperation (Elmuti & Kathawala, 2001).

6.0 SOLUTIONS FOR STRATEGIC ALLAINCE: 6.1Consider Neighbor Countries:

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SIA could take in consideration about all the alternatives, for e.g. SIA could alliance with neighboring countries of countries where they are not able to access. Building alliances as a strategy becomes necessary for many airlines to stay competitive and gain access to a global market too huge for any existing airline to dominate (Johnstone, 1996). 6.2 Maintain current Alliances: SIA should try at its maximum level to maintain the alliance Its goal should be to align itself with various partners that offer, in combination, the greatest potential for traffic feed, economies, access to new markets and stay with current ones (Thomas, 1997). 6.3 Strategy – unlike its competitors, Emirates has preferred to ‘‘fly solo’’ and not join in any of the air alliances that other carriers belong to, such as American’s Advantage and Singapore Airline’s Star Alliance. Singapore airline have the financial back up to buy more planes and to increase their market share so SIA could try maximizing their flights from Singapore. And strong governmental support with geographical benefits might assist in its surge into sustaining the top rank of global airline operators. (Sull, 2005) 6.4 New Alliances: SIA starting new alliances and signing more agreements in different sectors like Middle East and South America will lead to more profits. Youssef and Hansen (1994) put that alliances had the potential to stop competition that could otherwise have occurred from airlines that sought to increase their market share through internal expansion. 6.5 Acquiring stake: SIA can also acquire control of an established carrier provides a quick and easy means for entry into what previously were foreign markets (Williams, 1994). Therefore it can probably offer united airlines for a merger which would benefit both the airlines. 6.6 Franchising: To acquire large minority shareholdings in prospective partners requires substantial capital. SIA is also taking the alliance concept another step further into what is called Franchising (Hanlon, 1996). 6.7 Exclusivity of the Airline: Maintain the exclusivity of the airline, by service and new innovations, so other major giants can be interested in creating an alliance with SIA. SIA has always maintained the philosophy of putting the customer first. And also as Mr. Michael Tan of SIA says “an airline must be a service innovator rather than a price leader”. (Wirtz and Johnston, 2003) 6.8 Alliance and Strategies: Alliances provide the types of relationship foundations for serving customers’ needs when organizations need to have a high level of information exchange, integration, trust, and cooperation. SIA should remember to make alliances fit the overall strategy, not make their strategy fit the alliance. In other words, the way in which each alliance member adds value should be carefully identified and monitored in order to fully leverage the benefits of an alliance. (Glisson, et al, 1996)

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7.0Recommendation: • • • • • SIA should try buying some stocks of partner airlines. This will benefit them in future expansion. SIA should start acquiring small and middle players in the airline industry. For e.g. Alitalia in Europe, and revive these type of airlines which does not have a major market share in Europe. SIA can utilize the most number of benefits by the existing alliances and by equally contributing to the partners in terms of services and other benefits. SIA can also prefer to fly solo and have fewer partners in the industry and add the destination, more aircrafts, customer service which will make them sustain their position of being the best. SIA should probably take United Airlines into consideration when planning for future expansion. They might agree for a merger since they are already an alliance.

8.0 Implementation: • • • SIA can achieve these targets in a time span of 3-5 years. Because it will take time for expansion. . The expansion plan and other major decisions have to be made by the board of directors with the help of technical advisers. SIA must do tremendous research about partners before taking any decision.

Word Count: 2187

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9.0 References: Armbruster, W.( 2002) Cargo alliances catch on, Journal of commerce, pp 90-91 Bissesseur, A. (1996) the identification and analysis of the critical success factors of Strategic airline alliances. PhD thesis, Cranfield University. Brannigan, M. (2000)``Delta, Air France to unveil accord with other airlines'', The Wall Street Journal, 22 June, p. B16. Burton, John and Hanlon, Pat; Airline Alliances: Cooperating to Compete?; Journal of Air Transport Management, 1994, 1(4), pp.: 209-227. Chan, D. (2000) Air Wars in Asia: Competitive and Collaborative Strategies and Tactics in Action. Journal of Management Development, Vol. 19 No. 6, 2000, pp. 473-488. Chandler, A.D. Jr (1962) Strategy and Structure, The MIT Press, Cambridge, MA and London. Elmuti, D. & Kathawala Y. (2001) “An overview of strategic alliances” Journal of Management Decision, Vol.39, No.3, pg.205 Flôres Jr., Renato G.; Competition and Trade in Services: The Airlines’ Global Alliances; World Economy, November 1998, 21(8), pp.: 1095-1108. Glisson, L.M., William A., Harris, J.R., Aiss, J.D.L. (1996) Cunningham Airline industry strategic alliances: marketing and policy implications, International Journal of Physical Distribution & Logistics Management, Vol. 26 (3), pp. 26-34. Hanlon, P. (1996) Global Airlines: Competition in a Transnationality Industry, Butterworth-Heinemann Ltd, Oxford. Ionides, N. (2008) SIA-China Eastern deal derailed. Journal of Airline Business. Vol. 24 Issue 2, p24-24 Johnstone, H. (1996) ``Partnerships Up in the Air'', Asian Business, August, p. 53. Mockler, R.J. (2001), “Making decisions on enterprise-wide strategic alignment in multinational alliances”, Journal of Management Decision pp 90-98. Sull, D.N., Ghoshal, S. and Monteiro, F. (2005), ‘‘the hub of the world’’, Business Strategy Review, spring, pp. 35-40, ISSN: 0955-6419.

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Thomas, M.L. (1997). A Portfolio Management Approach to Strategic Airline Planning: An Exploratory Investigative Study on Services Management. European University Studies: Series 5, Economics and Management. Vol. 2052. Proceedings of the Eastern Asia Society for Transportation Studies, Vol. 5, pp. 545 - 556, 2005 556. Williams, G. (1994), The Airline Industry and the Impact of Deregulation, Ash gate Publishing Company, London. Wirtz, J. and Johnston, R. (2003), “Singapore Airlines: what it takes to sustain service excellence – a senior management perspective”, Managing Service Quality, Vol. 13 No. 1, pp. 10-19. Youssef, Waleed and Hansen, Mark; Consequences of Strategic Alliances between International Airlines: The case of Swissair and SAS; Transportation Research-A, 28(5), 1994, pp.: 415-431. http://www.iht.com/articles/ap/2008/09/10/business/AS-China-Eastern-Airlines.php accessed on September 16th 2008. http://www.travelmole.com/stories/1124284.php accessed on September 16th 2008. http://seattlepi.nwsource.com/business/159226_boeairbus04.html accessed on 20th September 2008. http://indonesia-tourism.com/news/2008/08/26/singapore-airlines-shows-support-toboost-tourism-to-indonesia/ accessed on 21st September 2008. http://www.commercialappeal.com/news/2008/apr/14/delta-northwest-directors-signairlines-combinatio/ accessed on 21st September 2008. http://www.businessweek.com/magazine/content/03_47/b3859069.htm accessed on September 22, 2008 http://www.abc.net.au/news/newsitems/200506/s1398380.htm accessed on September 21, 2008 www.theaustralian.news.com.au/story/0,25197,23980774-23349,00.html accessed on September 20th 2008.

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