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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 open
skies………………………………………………….4
1.3 USA expansion
fails………………………………………………….4
1.4 China eastern airline
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

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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 cross-
shareholding 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 third-
country 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 well-
established 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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Brannigan, M. (2000)``Delta, Air France to unveil accord with other airlines'', The Wall
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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
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Glisson, L.M., William A., Harris, J.R., Aiss, J.D.L. (1996) Cunningham Airline industry
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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
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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
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