External Environment Analysis of Airlines †MyAssignmenthelp.com

Question: Discuss about the External Environment Analysis of Airlines. Answer: Introduction: Singapore Airlines Limited (SIA) is an airline transportation company based at Singapore.The airline group officially started its operations in the year 1972. During its initial formation years, SIA focused on consolidating its position as the national carrier of the island city by extending its international route networks. The airline also increased its fleet size by incorporating bigger and better jet aircrafts like Boeing 747, Boeing 777, Airbus A380, etc. The firm has made significant investments in its brand value by stressing on the great cabin service that is provided on the SIA flights. SIA has successfully gained a good reputation for its excellentservicequality that is provided to its airline customers by paying keen attention to their specific needs and adopting a progressive approach to sustain in the changing market (Pearson, PitfieldRyley, 2015). The main focus of this assignment is to understand the various external elements which have a bearing on the performance and profitability of the airline. It has successfully been providing quality services to its customers and it has effectively adapted itself in the prevailing market scenario. SIA has effectively developedits competitive advantagesthat help it to sustain in a productive manner in the airline sector (Alagarasan, et al., 2015). The external factors that have an impact on its profits and performance have been analyzed including political, environmental, social, technological, legal and economic aspects. The various opportunities and threats that the firm faces in the current business environment have been identified and discussed. The below graph highlights the revenue trend of SIA group in last five years. It reveals the airline has continuously given a consistent performance irrespective of the changing market. This indicates that the firm is agile and adapts quickly to the changing and unpredictable market environment. External environment analysis As per Heracleous Wirtz, 2014, airline sector has always been a large and growing industry which has a vital influence on the economy of its nation. It facilitates the growth in the economy, world trade, national and international investments, tourism, etc. Sothe carrier industry plays a central role in the current global scene and many industries are directly or indirectly affected by its performance.In the Asia context,the aviation industryrelating to the commercial flights has dramatically grownin the recent times (Heracleous Wirtz, 2014). Albert Beatty, 2014 said that it is vital to identify and understand all the elements that influence the performance of a concern in its related industry (Albert Beatty, 2014). This section has been designed with the objective to answer the key questions that arise with regard to the various external factors that dominate and influence the Singapore Airlines Limited in the airline industry. The various factors of the firm that play a crucial role have been critically elaboratedso that the strategic choices and decisions of SIAcan be understood and the reason for its sustainable expansion can becomprehended in a simpler manner (Anderson, et al., 2015). PESTEL Analysis Political and Legal The nationalpolitical scenario of Singapore has significant impact on the performance of Singapore Airlines. Since the commercial carrier represents Singapore itself, it receives good support from the government. The lack of government support can affect the overall performance of the airline (Barnes, 2016). The airline receives support relating to safety and security policies, infrastructure related issues, consumer and passenger rights, etc which simplifies this aspect of the external scenario. If the government doesnt involve itself in the policy process, the passengers and overall airline business might be at the receiving end. Since the carbon dioxide emission is highest through air transport various political leaders encourage the public to use road travel mode like buses and cars since it has lower impact on the health aspects of the masses. The changes that occur in the legal framework of the location can have vital impact on the business of SIA. Different government bodies introduce different legal obligations which must be followed by all the firms that operate in the nation. After the terrorist attack of September 11, 2001 the legal regulations have become strict in all parts of the world. Major changes have taken place in the methods adopted for passenger screening and checking that is conducted during air travel (Berg, et al., 2015). Economic According to Bhimani, et al., 2013, any major airline company functions across different national economic border. Thus the airlines are subject to a number of national and global economies. One vital economic change that impacts the productivity level of the Singapore airlines is the rise in the fuel cost. The firm adopts a premium pricing strategy so it might lower the burden of the increasing fuel expenses that are incurred by the company (Bhimani, et al., 2013). In order to have a check over the increasing fuel costs SIA has implemented a comprehensive fuel productivity initiative. The above graph shows the average cost implication of the SIA. The major cost is incurred on fuel, so any economic policy relating to the fluctuation in fuel prices has significant impact on SIAs productivity. The fuel cost has been rising upwards since there is uncertainty around global oil production level.SIA has contract with Brent till 2022 and it covers about 33 percent to 39 percent of its estimated fuel annual consumption at the average of 53$ to 59$ a barrel. About 26 percent of SIAs total expenditure incurred last quarter of 2016 was due to jet fuel cost. The graph shows the GDP trend and the sector wise trend in Singapore and reflects that the transportation storage sector contributes to 5.4% to the total economy. Environmental There is high value of environmental friendly services by both government bodies and the customer section. Singapore Airlines takes this aspect into consideration and believes that its air transportation service should be of highest quality since it has a long-term responsibility to help in maintaining the natural environment. The importance to abide by the environmental policies and laws are likely to increase in future due to the national carbon emission reduction objective (Buono, 2015). SIA adopts sustainable practices to make sure that its operations are conducted in a responsible manner. The Airline follows strict rules relating to carbon emission, noise pollution, consumption of resources, etc. Technological Technological innovations play a key role in the aviation industry since the industry involves long haul passenger carrier travel. Mostly airline service providers spend high funds on the research and development aspects to update the use of technology in their operations. The Singapore Airlines spends considerable amount of money to introduce new fleet with latest cabin products so that their sales and customer base can improve (Cao, 2013). It believes in providing high quality experience to its passengers by regularly updating its technological aspects. This environmental aspect provides both opportunities and threat for a firm. SIA has been able to use this factor to its advantage by spending millions on RD to be technologically inclined (Fetherman, 2013). Social The changes that take place in the social front have a strong influence on the performance of any industry and its participants. The changing social trends impacts heavily on the operations of the Singapore airlines. Mostly wealthy people prefer to travel to faraway destinations but this trend has changed since a few decades and now less wealthy people are also spending money to visit to tropical and exotic locations (Fincham, MoheSeidl, 2013). This feature has an impact on the Singapore airline performance in the market. This factor posed a threat o SIAs operations since it believes in premium pricing and it has forced it to enter market that caters to the needs of middle income group consumers. The above graphical representation shows the international visitor arrival trend in Singapore city. There is slight increase in the number of visitors in 1015 as compared to the previous year. This shows that now people from middle-income group are also spending money on travel to exotic places. Porters Five Forces analysis Michael Porters five force analyses is vital since it acts as a tool to study the elements like suppliers, consumers, rivals, new entrants and substitutes which affect the productivity of a firm. This model is adopted to assess the competitive status in the industry and focuses on the pattern of the external elements. It is vital to understand the various factors which need to be checked by SIA in order to continue a positive and strong performance in the industry (Hillier, 2015). This analysis is vital to make necessary changes in the strategic planning of the firm and have a competitive advantage in the industry. Threat of new entrants This aspect analyses the attractiveness of an industry which might encourage new firms to enter and function in the particular industry. In the commercial airline industry, the threat of new entrants is weak (Loucks, et al., 2017). The scope of new players entering the scene is limited since it requires huge investments and there is high congestion of the airports in large regional hubs. Intensity of Industry rivalry The study of the competition from existing airline companies is vital for Singapore Airline. It has vital impact on its customer base and its productivity in the market. There is high intensity of competition in the airline industry. The growth in the existing airline carriers increases the air traffic (Mishra, 2013). The current carrier firms need to focus on the price-cutting mechanism in order to capture a greater portion of the market share. The main competitors of SIA include AirAsia, Cebu Pacific, etc that focus on their low-cost advantage. Since the demand is rising in this industry, the number of flights by airlines is also on rise. Example Around 40 flights connect Singapore and Kuala Lumpur on a daily basis. Stiff competition shows that SIAs customers have fallen by 12percent since 2008. In 2017 Air Serbi has been named as market leader by Air Transport World. It is a direct rival of SIA on global platform based on innovative product, service and strategies. Threat of substitutes This element of the five force model analyses the alternative option that is with the customers and can be used to move from a particular concern and its operation. The threat of substitute in the airline service industry relating to SIAsshort-destination business is relatively moderate (Muhamad, 2013). Passengers can opt for rail services instead of traveling by an airline. In case of long-destination flights, SIA faces threat at a global level from global carriers. Bargaining power of Buyers The bargaining power of buyers refers to the strong position that they acquire as compared to their supplier of goods or services. In the commercial airline industry, the bargaining power of the customers i.e. the buyers is mostly moderate (Suh, et al., 2013). The cost of switching between one airline firms to another is very low and also the prices set and charged by most of the airline service providers is similar.Mostly passengers remain loyal to their particular preferred airline. Bargaining power of Suppliers It highlights the impact of the suppliers service on a firms productivity in the respective industry.Generally in the transportation industry the suppliers have a strong bargaining power (Taylor, 2013). The huge fleet of the Singapore airlines is dependent on a number of suppliers for machinery functioning, maintenance activities, fuel needs, etc. With little number of suppliers in the industry SIA depends largely on its specific set of service providers. The Singapore Airlines has beensuccessfully maintaininga competitive position in the airline industry since its establishment and operation. The issue that the firm faces relates to the implementation of strategy in order to retain its strong hold on the market share. Its regularmodification of the structure of its strategic management model is crucial for continuing its sustainable streak as the best airline of Singapore and around the globe. It needs to conduct regular analysis of the external factors which could have an impact on its internal environment and its overall operations and profit-yielding capacity.(Heracleous Wirtz, 2014). Since the market environment is highly uncertain and unpredictable, a new threat might occur from any side and disrupt the normal operations of the airline firm. So it is vital to understand the changes that take place in the external world and its power to change the operation model of the particular airline firm (Fetherman, 2013). Since it has experienced the changing environment since a number of decades, this is not a new issue for SIA but it is crucial for the firm to remain agile while operating in the industry so that no competitor can take advantage of the situation and threaten its current market leadership position. SIA also needs to regularly update its model keeping in mind the changing technological surrounding prevalent in the industry. The graph above highlights that the fuel productivity of the Singapore Airline had declined as compared to previous year as per 2015-16 data. So the firm needs to focus on measures to increase its fuel efficiency. Conclusion The Singapore airlines must keep on updating its strategic approach by considering all the internal as well as external factors which have an influence on its operations and productivity in the airline industry. It can focus on more strategies to reduce the impact of rising fuel costs by trying to explore fuel suppliers in the industry. Its focus on the consumers and their experience should continue so that its customer base can be expanded further. The airline might also look into methods like reducing its fleet size, disposingold aircraftsat a profitable rate so that its rising costs can be curtailed which is one of its major issues at the moment. In any industry, the role of critical analysis of the external business environment is vital for the effective and sustainable performance of an organization. The airline industry is a vital industry and affects the overall health of the economy. The Singapore Airlines Limited has been the focus point and its external factors have been thoroughly analyzed using the PESTEL Model and Poters Five Force Analysis framework. It helps in understanding the strategic model of the Airline firm which has helped it to be a market leader in the industry for a very long time. Its focus on its high quality of service has helped it to maintain a strong leadership position in the airline industry. Its changing strategic plan plays a crucial role in helping the firm to adapt in the ever-changing business environment. References Alagarasan, V., Huacarpuma, R.C., Lima, S.R. and Dean, W., 2015.API Management Introduction and Principles.Forrester research. Albert, M. and Beatty, B.J., 2014.Flipping the classroom applications to curriculum redesign for an introduction to management course: Impact on grades.Journal of Education for Business,89(8), pp.419-424. 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