W26385_pcu (1).pdf V X C O File | C:/Users/User/Downloads/W26385_pcu%20(1).pdf ES E W26385_pcu (1).pdf 1 / 12 70% + Page 2 W26385 IVEy Publishing BONUS university as seventy countries. In 2001, Singapore also became a party to the Multilateral Agreement on the W26385 Liberalization of International Air Transportation, a landmark multilateral open-skies agreement to liberalize international air transport." The bilateral and multilateral air service agreements exposed SIA to more competition because international airlines were keen to fly in and out of Singapore, but the agreements SINGAPORE AIRLINES: SURVIVING THE COVID-19 PANDEMIC' also offered SIA opportunities to gain new customers and develop a strong reputation. The airline's development was closely tied to Singapore's economic development. The Singapore Professor Nitin Pangarkar wrote this case solely to provide material for class discussion. The authors do not intend to ilustrate either government invested heavily in building an excellent infrastructure in the form of the Changi Airport. The effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying and from 5/9/2022 to 8/9/2022 and from 5/9/2022 to 8/9/2022 country's robust economic performance, with high levels of trade and investment flowing in and out of information to protect confidentiality. Singapore, boosted the number of business travellers who formed a key clientele for SIA. Singapore's This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any under foy any means without the tourist-friendly policies also attracted several million tourists every year." permission of the copyright holder. Reproduction of this material is no organization. To order copies or request permission to ferials contact ley Publishing Ivey Business School Western University. London, Ontario, Canada, NGG ON1; (1) 519.661.3208; (e) cases@ivey.ca; www.iveypublishing.ca. Our goal is to publish Since its inception, SIA had recognized the importance of training in its strategy of becoming a premium hest quality; submit any errata to publishcases carrier; hence, it allocated substantial resources to it. By 2021, it operated the Singapore Airlines Academy, Copyright @ 2022, National University of Singapore and Ivey Business School Foundation Version: 2022-04-12 which not only trained SIA's own employees in various aspects, including service excellence, but also offered its expertise to organizations in a variety of industries ranging from logistics, hospitality, retail, and food and beverage to health care, banking and finance, automotive, and education. 10 In August 2021, Singapore Airlines Group (SIA) was at a critical juncture in its history. The COVID-19 jolation pandemic that had been raging around the world since early 2020 had ground commercial travel to an SIA was also open-minded in its pursuit of innovative ideas to improve its customer service, borrowing not almost complete halt, forcing SIA to idle most of its planes (see Exhibit 1). For the 2020/21 financial year, only from airlines, but from other industries as well, such as hotels and restaurants. " Over the first thirty SIA's passenger revenues had declined 94.7 per cent to S$684.7 million, although the decline was partially years of its existence, SIA pioneered a number of service innovations in the airline industry. In 1999, it ers is a copyright offset by a 38.8 per cent increase in revenues from cargo and mail, which earned $2.8 billion. Overall, became the first airline in the world to offer Dolby Headpho "surround sound" as a new feature of its revenues had declined by 76 per cent, resulting in a loss of $4.27 billion.' The massive bleed of cash because inflight entertainment. SIA also pioneered what was then a cutting-edge entertainment system, Kris World. in ORGANIZATIONAL THEORY at Memorial University of Newfor of the back-to-back yearly losses had forced the group to issue new capital, thus diluting the stake of its KrisWorld included twenty-two video channels; video games; and Reuters Teletext news, which was updated hourly. By early 2008, Kris World was offering 1,000 entertainment options across the various fare Use outside these parameters is a copyright violation. existing shareholders (see Exhibit 2).4 categories. SIA was also the first airline to put the A380, a 555-seat superjumbo jet, into service."? SIA's results had improved for the quarter ending June 2021, but the emergence of new virus variants and continued travel restrictions meant that SIA needed to make critical decisions that would have implications Building a strong brand reputation formed the other leg of SIA's differentiation strategy. To this end, the for its short-term survival and long-term performance. airline paid great attention to developing advertising campaigns that highlighted its young fleet, providing connectivity through its extensive network, and offering an exceptional inflight experience provided by its Use of well-trained crew." SIA's attention to details also helped its branding. For instance, SIA hired noted French HISTORICAL BACKGROUND, STRATEGY, AND PERFORMANCE designer Pierre Balmain to design a distinctive uniform (the sarong kebaya) for its female crew members. Over time, the "Singapore Girl" came to embody "the caring aspect, the graciousness, warmth and SIA's roots went back to the formation of Malayan Airways Lid., which had its first flight from Singapore's efficiency of the brand."14 Kallang Airport in 1947. In 1966, Malaysia-Singapore Airlines, a joint venture of the governments of Singapore and Malaysia, became the successor to Malayan Airways. In 1972, Malaysia-Singapore Airlines split into two, In a typical year, SIA won numerous accolades for its superior service. For example, in 2020, it won twenty- with Malaysia Airlines System focusing mostly on domestic and short-haul routes and SIA focusing on six awards from international panels, including DestinAsian's Readers' Choice Award for "Best Airlines international and long-haul routes.' The Singapore government provided the initial base of capital to SIA, and Overall," awarded to SIA for the fifteenth consecutive year, and Travel+Leisure's "World's Best Authorized for use only by Richard George in almost 50 years after SIA's separation from Malaysia Singapore Airlines, the government continued to hold as International Airlines," awarded for the twenty-fifth year. 15 much as 56 per cent of equity in the airline through its investment vehicle, Temasek Holdings. SIA managed to keep its costs relatively low while maintaining high levels of differentiation. Its young Because SIA was based in a city-state without a hinterland, it lacked the cushion of a baseload of domestic fleet helped it achieve both differentiation and low costs because younger planes were more fuel efficient, Authorized for us demand. Instead, SIA made the strategic decision at its inception to distinguish itself by becoming needed less maintenance, and had fewer unanticipated breakdowns. SIA also managed to avoid high staff premium carrier offering differentiated services. Even as a young airline, it placed several large orders for costs while maintaining good service levels, partly because it was based in Asia, which had lower wage the latest planes, thus creating a buzz in the industry and taking the first step toward creating a global rates, and because it had invested in improving employee productivity. This successful balance was the reputation and a premium image in customers' minds.' secret to SIA's consistently good profitability over more than forty years. 16 Recognizing that open-skies agreements were critical to establishing Singapore as a hub in the Asia Pacific, Although the premium airline operations formed SIA's core business, the group also had several other the Singapore government proactively pursued such agreements. By 2021, it had agreements with as many operations, including a regional airline that flew to mostly holiday destinations (formerly SilkAir Singapore Type here to search O O a 99+ W 5:18 PM 03-Aug-22 19W26385_pcu (1).pdf V X C O File | C:/Users/User/Downloads/W26385_pcu%20(1).pdf E W26385_pcu (1).pdf 3 / 12 70% + Page 3 W26385 Page 4 W26385 Pte. Ltd., which was merged with the Singapore Airlines brand in February 2021) and budget airline Scoot Even in late 2021, more than twenty-one months after the start of crisis, travel restrictions remained in place Tigerair Pte. Ltd. (which included the former Tiger Airways, SIA's first venture into the budget airline in many parts of the world, especially Asia," which was of special relevance to SIA because a large space), as well as stakes in an engineering company (SIA Engineering Company Ltd.) and a ground proportion of its flights connected Asian cities to one other and to the rest of the world. handling company (SATS Ltd.)." As the volume of travel dried up, several airlines faced liquidity issues. In response, major carriers such as United Airlines announced layoffs of pilots and flight attendants and entered sale and leaseback agreements THE COVID-19 PANDEMIC AND THE AIRLINE INDUSTRY to increase financial flexibility. "Even airlines that were performing well before the crisis, such as Emirates, postponed or cancelled discretionary expenditures to reduce their operating expenses." Other airlines had On December 31, 2019, the Chinese government confirmed that dozens of people were being treated in d from 5/9/2022 to 8/9/2022 to resort to drastic actions such as entering administration or even declaring bankruptcy. These airlines land from 5/9/2022 to 8/9/2022 Wuhan for infection by a new virus. The first death was reported on January 11, 2020. Within the next included some of the largest in Latin America, such as Aeromexico, Avianca, and LATAM, as well as week, several countries, including Japan, South Korea, Thailand, and the United States, had confirmed notable airlines such as Thai Airways, Virgin Australia, South African Airways, and Flybe.?! cases, and on January 30, 2020, the World Health Organization (WHO) declared the virus as a global health emergency. In February 2020, WHO named the disease caused by the virus as COVID-19. 18 Unlike airlines that were able to fall back on demand from domestic travel, the situation was far more challenging for SIA because Singapore had no hinterland. The situation forced SIA to ground 96 per cent Over the next few months, the pandemic spread rapidly in the rest of the world, and by the end of March 2020, of its fleet, or 138 out of 147 planes." When he announced the drastic cost-cutting measures that SIA was there were more than 857,000 cases around the world." As the hospitalizations and the death toll mounted, forced to take, the group's chief executive officer, Goh Choon Pong, called it "the greatest challenge in the versity of Newfou governments around the world clamped down on travel in a bid to prevent the spread of the virus, which took place SIA's Group's existence." Even when there was a small bour ounce-back in revenues bec ause of an increase through human contact. By April 2020, over one hun d instituted full or partial lockdowns. 20 in essential flights and transport of essential cargo such as masks, the revenues remained a small proportion of the pre-pandemic numbers. 34 COVID-19 first reached Singapore on January 23, 2020, with the arrival of a 66-year-old Chinese tourist from Wuhan."By the end of February, the number of daily new COVID-19 cases in Singapore had quickly s is a copyright violation risen to more than one hundred.22 SIA'S RESPONSE RY at Me Even before the crisis, the airline industry had struggled to make consistent profits because it was buffeted In the face of this crisis, Goh and his team at SIA devised several key strategies based on three broad thrusts: by forces such as severe competition (including from state-supported or subsidized players); demand reducing costs, generating new revenue streams, and fortifying SIA's balance sheet. Use outside these parameters is a copyright violation . fluctuations because of factors outside airlines' control (such as economic cycles, events impacting public health such as the severe acute respiratory syndrome [SARS] epidemic in 2003, and geopolitical events in ORGANIZATIONAL THEORY at Me With demand plummeting, the first and foremost concern for SIA was cutting costs to reduce the cash bleed. such as wars); and unpredictable oil prices. The COVID-19 pandemic, however, proved to be a cataclysmic Initially, the company had a two-pronged strategy: implement pay cuts for employees, with senior managers event unlike any other in recent memory.23 taking larger pay cuts, and retire eligible staff early."However, by September 2020, SIA had to resort to layoffs. Although the layoffs were widely anticipated in view of the plunging travel demand, it was a "painfully difficult As airports around the world closed, travel-especially international travel-plunged, decimating airline Use ou decision" for Goh, the toughest one that he had had to make in his thirty years at SIA. Eventually, SIA eliminated revenues. In January 2021, the International Civil Aviation Organization reported that, for the year 2020, 4,300 jobs, of which 2,400 were job cuts; the rest were hiring freezes and early retirements.36 seat capacity fell by 50 per cent, passenger numbers dropped by 60 per cent (to 1.8 billion versus 4.5 billion in 2019), and revenue losses totalled US$370 billion (see Exhibit 3). The fall in international traffic was SIA also tried to limit future expenses by deferring projects that were non-essential and negotiating with even more pronounced, at 74 per cent, to 1.5 billion passengers, and Asia Pacific experienced the largest aircraft manufacturers to reschedule payments for SIA's existing aircraft orders." It forged agreements with declines in number of passengers (916 million) and revenues (US$ 120 billion). 24 Airbus SE and the Boeing Company to defer capital expenditures of more than $4 billion for the 2020/21 and 2021/22 financial years (see Exhibit 4). In a mutually beneficial arrangement, SIA cabin crew were According to the International Air Transport Association (IATA), up to US$200 billion of financial aid and redeployed to other sectors such as low-risk general wards of hospitals. The Jobs Support Scheme launched Authorized for use only by Richard George in cash injections were needed to save the global airlines industry from collapse. In November 2020, by the government of Singapore covered 75 per cent of the monthly salary of the flight attendants, with the Alexandre de Juniac, IATA's director general declared, remaining 25 per cent paid by the hospitals.3 SIA also declined to join the India-based Tata Group in its Authorized for use only by Ri bid to acquire India's struggling national carrier, Air India." This crisis is devastating and unrelenting. .. . Airlines have cut costs 45.8% but revenues are down 60.9%. The result is that airlines will lose [US]$66 for every passenger carried this year for a total As well, SIA looked to several alternatives to generate revenues. It converted some of its flights to transport net loss of $1 18.5 billion. This loss will be reduced sharply by $80 billion in 2021. But the prospect essential goods such as masks, medicines, or other goods that were in high demand." Similar to airlines in of losing $38.7 billion next year is nothing to celebrate. We need to get borders safely re-opened Japan, Australia, Taiwan, and Brunei, SIA considered "flights to nowhere"-scenic flights that began and without quarantine so that people will fly again. And with airlines expected to bleed cash at least ended at Singapore's Changi Airport." But many environmentalists and concerned citizens argued that until the fourth quarter of 2021, there is no time to lose. "flights to nowhere" entailed carbon-intensive travel without any real purpose and were merely a "stop-gap measure that distracts from the policy and value shifts necessary to mitigate the climate crisis." SIA executives attempted to explain that there were other less visible benefits to these flights-such as helping Type here to search O a 99+ W 5:18 PM 03-Aug-22 19W26385_pcu (1).pdf V X C O File | C:/Users/User/Downloads/W26385_pcu%20(1).pdf ES E W26385_pcu (1).pdf 5 / 12 70% + Page 5 W26385 Page 6 W26385 pilots and the crew staff gain crucial flight experience and continuing service on the aircraft's equipment- possibility that some business meetings would continue online even when pandemic restrictions were eased, but the explanations did not gain much acceptance, and SIA cancelled the flights.43 thus reducing the long-term demand for business travel, an attractive customer segment for the airlines.$3 Another SIA strategy, "Discover Your Singapore Airlines," proved to be less controversial and more Technology did not offer any substitute for leisure travel; hence, the post-pandemic pent-up demand for successful. It involved customers dining on board an A380 Airbus specially converted into a restaurant and leisure travel could be substantial. Even in this scenario, however, full-service airlines such as SIA faced a parked at Changi Airport; visiting the SIA Training Centre; and purchasing inflight meals, to be delivered few challenges. First, leisure travellers were typically price conscious and attracting them would often mean to their homes." All the available seats for the dining event were sold out within 30 minutes of opening the discounting fares and diluting yields. Second, it was quite likely that a good proportion of leisure travel bookings, and SIA even added two additional dates to open more slots." Visitors opting for the tour of the demand would go to budget carriers such as Air Asia. While SIA had its own budget brand (Scoot), it was d from 5/9/2022 to 8/9/2022. SIA Training Centre were able to view flight simulators, interact with the crew, and take part in several neither a leading player nor consistently profitable in its relatively short history.$4 activities. For an additional charge, visitors could also test the flight simulators and enjoy a wine appreciation session. In addition to generating additional revenue (albeit a small one compared to the lost Concerns about the ecological environment could also impact the future demand for air travel. Air travel had revenues), SIA hoped to remain engaged with its customers through these initiatives." been identified as having a large carbon footprint; flight emissions contributed 2.4 per cent of all carbon dioxide versity of Newfoundland from 5/9/2022 to 8/9/2022 emissions in 2018." Based on the assumption that airlines would not make big technological breakthroughs and that other industries would continue to reduce their carbon footprints, the International Civil Aviation CAPITAL RAISING Organization estimated that aviation would contribute 27 per cent to global emissions by 2050. Many environmentalists were opposed to air travel other than for essential purposes, and if the environmental concerns versity of Newlou Given the cash bleed, SIA had to strengthen its financial position and balance sheet. On June 5, 2020, it became widespread, the demand for air travel would be adversely affected. While the environmental impact successfully raised $8.8 billion using a combination of new ordinary shares and 10-year mandatory could be partially mitigated by adopting ever newer planes and technologies, such acquisitions could be capital convertible bonds (MCBs)." The MCBs (worth $3.5 billion) accrued interest that was payable on ntensive, and it could be several years before the new technologies materialized." redemption; the interest rate on unredeemed bonds increased over time to a maximum value of $1.806 at a copyright violation the end of the tenth year. SIA had the option of choosing when the bonds could be redeemed and whether Another key trend in the airline industry was the need for greater safety and hygiene, which would affect to convert unredeemed MCBs into equity shares at the end of the tenure at a pre-fixed price of $4.84 per airlines in many ways. Beyond the direct impact of additional expenditures (e.g., the use of HEPA filters share. One analyst estimated that the equity issued raised the number of SIA's shares from 1.185 billion to that could remove even the smallest particles and droplets from cabin air), greater safety and hygiene could 2.965 billion. If the MCBs were converted into shares at the end of the tenth year, the share count would also reduce operational efficiency; for example, social distancing would slow the boarding and deplaning further increase to 3.6 billion. 4 process, and deep cleaning would increase the turnaround time for flights. There were also additional Use outside the se parameters is a copyright violation. implications for airlines such as SIA that pursued a service-based differentiation strategy. If flight attendants Of the $8.8 billion raised under the rights issue, SIA planned to use $3.7 billion as operating cash flows to in ORGANIZATIONAL THEORY at Me donned personal protective equipment, it could potentially dilute the Singapore Girl image, which was fund items such as fixed costs and other operating expenses, put $3.3 billion toward aircraft purchases and inextricably linked with SIA's perception of superior service. Constraints on inflight service such as the aircraft-related payments, and use $1.8 billion for debt servicing and other contractual payments. type of meal service that could be offered, although less likely to be implemented in the long term, could Shareholders also voted to allow the airline to issue up to $6.2 billion of additional MCBs on similar terms, further challenge SIA's ability to maintain differentiation through service. to be offered to shareholders through one or more rights issues later." The additional rights issue for $6.2 billion was launched and completed in May 2021. If the MCBs were not redeemed before maturity and The group had been proactive with safety and hygiene and had been recognized by Airline Passenger were instead converted into shares, the issue would further increase SIA's share count to 6.446 billion. Experience Association (APEX) and SimpliFlying for its efforts with a diamond rating-the highest During the same month, the company also raised $2 billion from the sale and leaseback of eleven planes."! attainable-for both its brands, SIA and Scoot.Whether this would help its brand reputation or its results in the long term remained unclear. SIA was also aided by the Singapore government, which announced support measures to mitigate the impact of COVID-19 on the aviation sector. The government pledged more than $750 million to support SIA also faced several challenges that were specific to its own strategy and situation. A key challenge local wages and to fund measures such as rebates on landing and parking charges, rental relief for airlines, related to fleet renewal. SIA had always taken pride in having one of the youngest fleets in the industry Authorized for use only by Richard George in ground handlers, and cargo agents.$2 Although it meant that SIA had to incur heavy capital expenditures, a younger fleet also saved money on maintenance and fuel." For the 2020/21 year, because of the pandemic, the group had registered a charge of $1.734 billion for forty-five surplus aircraft," and the group had adjusted its planned capital expenditures THE ROAD AHEAD Authorized for use on significantly for the 2020/21 and 2021/22 years in view of the new environment. But SIA had not moderated capital expenditures for the financial year 2023/24 and beyond, which could prove to be challenging unless SIA faced a challenging road ahead. Many of the environmental changes that had happened over the international travel bounced back strongly (see Exhibit 4). previous two years were likely to adversely impact the industry and, thus, the company. These included the widespread adoption of video conferencing, concerns about the environmental impact of air travel, and Singapore government policy on the management of the pandemic posed yet another challenge. While the more stringent health and safety regulations. low number of deaths caused by COVID-19 in Singapore was a source of pride for the country and government, the continued pursuit of low numbers-especially through strict border control measures- The pandemic had accelerated the adoption of video conferencing tools such as Zoom, Skype, Microsoft would hurt travel volumes." There was also a real possibility that other airlines, such as Qatar Airways and Teams, and Google Meet. The rapid improvement in these tools' capabilities meant that there was a good Type here to search O a 99+ W 5:18 PM 03-Aug-22 19W26385_pcu (1).pdf V X C O File | C:/Users/User/Downloads/W26385_pcu%20(1).pdf ES E W26385_pcu (1).pdf 7 / 12 70% + Page 7 W26385 Page 8 W26385 Emirates, whose home countries were less strict than Singapore on the border control measures, would be EXHIBIT 1: ANNUAL GROWTH IN GLOBAL AIR TRAFFIC DEMAND FROM 2006-2021 able to forge ahead of SIA. 62 10 Because of multiple capital-raising efforts, SIA's balance sheet had become structurally different (with lower retained earnings and a higher base of equity) over the course of the pandemic, posing a challenge in 26 delivering returns on the group's share price. If the pandemic dragged on and the enlarged based of equity capital was eroded, future fleet acquisitions might need to be financed with debt, thus raising the interest 20 burden and financial risk. 6.9 19 8 6.3 5.3 3./ 1 7.5 8.1 7.3 and from 5/9/2022 to 8/9/2022. 2.4 -1.2 4.1 4.1 -65.9 and from 5/9/2022 to 8/9/2022 Another difficult decision regarded the hedging of fuel contracts. While hedging protected SIA from 2009 increasing fuel prices, it could lead to losses when fuel prices fell or were depressed. Recently, SIA had 2007 2009 2010 4017 2013 2014 2015 2016