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IB BUSINESS MANAGEMENT HL

Response To Relaxation Of Open Skies Policy By Singapore And Malaysian Airlines To Increase Market Share.

UPDATED ON - 26 APR 2020
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This Research Project aims to raise the impending issue of the relaxation of the airline policy between Singapore and Malaysia. The proposed legislation will enable budget carriers to operate between Singapore and Kuala Lumpur under a new ‘Open‐ Skies’ policy. The current policy only allows Singapore Airlines and Malaysian Airlines to operate between the two capital cities. This Research Project aims to analyze the impact of the policy on Singapore Airlines, and the necessary steps that they could take so that sales do not diminish.

The author developed the Research Project’s main points. Primary research was also conducted via the means of an online survey. Secondary research was conducted via newspaper articles and flight searches.

The primary research revealed that Singapore Airlines would lose 25% of passengers if the budget airlines were to operate between the cities. Suggestions to Singapore Airlines include: providing passengers with free transportation into Kuala Lumpur, providing bonus frequent flyer miles, reducing overheads or as a last resort: reduction of ticket prices. Singapore Airlines, being an established brand would not need excessive persuasion to convince customers to choose their brand. They can also provide packaged holidays in Kuala Lumpur, which would work out to be cheaper for the customer thus encouraging sales.

 

Introduction

Background

Singapore International Airline’s (SIA) first flight was in 1947, and it was incorporated as Malayan Airways1. Today it has expanded to be one of the world’s most well-known airlines. Additionally, it is one of the selected few airlines that are denoted as a five-star airline by the Skytrax travel rating. Singapore Airlines is now a household name in Singapore where it is known as the world’s best airline. Singapore Airlines has grown rapidly in its recent history, incorporating the newest aircraft and is known for its impressive in‐flight service. One of its successful marketing campaigns is the first flight of the new Airbus Jumbo jet, the A380, which will be performed by them. Further to that, they have been recently awarded the prestigious Skytrax Airline of the Year Award for 2007.

 

This research project will focus on the following question:

How can Singapore International Airlines respond to the relaxation of the ‘open-skies’ policy between Singapore and Malaysia to maintain or increase its market share in Singapore to Kuala Lumpur route?

An open‐skies policy is an agreement between two or more countries to encourage more carriers to fly between them. A closed‐skies policy limits the number of carriers or flights that are allowed to operate between the two or more countries. In the case of Singapore and Malaysia, they currently operate a very restricted closed‐skies policy in which, only Singapore Airlines and Malaysian Airlines are allowed to operate on major routes between the countries. If the proposed relaxation in 2008 does occur, there would be no restrictions on carriers that will be allowed to operate between Singapore and Kuala Lumpur.

Market research will be essential in determining the state of the market’s demands and preferences for the sector of Singapore to Kuala Lumpur. This will be done in the form of questionnaires, which will be distributed on the Internet as it will reach a wider geographical sample, and will not be restricted to Singaporean Interviewees. Doing so determines the market trends which in turn aids to give a better representation of the market.

 

Main Research Findings

After conducting this survey online, it revealed a variety of answers. A random selection of 16 people took part in this survey. It publicized that 62% of the sample travel to Kuala Lumpur by plane while, 25%, and 12% choose to travel by car and coach respectively. This tells us that the most preferred route to Kuala Lumpur is by plane. The market share for Singapore Airlines, on this route, is 50% in the flying sector, which makes it a market leader. The remaining 19% choose to travel by Malaysian  Airlines and 31% do not fly. When asked why they would prefer to travel in Malaysian Airlines, the reasons were that they are members of the Malaysian Airlines frequent flyer program, Enrich. Also, that Malaysian Airlines is cheaper to fly than Singapore Airlines. When most people were asked about why they would not fly between the two cities, they responded that flying is too expensive and when compared, the combined time taken to travel to the airport and fly is along with similar timeframes to taking the bus or car. The next question asked if budget airlines were allowed to travel on this sector, what would their new choice of airline be, the answer of which is that 38% would travel by Singapore Airlines, 56% would choose a budget carrier, and 6% would choose Malaysian Airlines. When asked why passengers would fly Singapore Airlines, compared to other carriers, they respond with a multitude of reasons ranging from their frequent flyer program, Krisflyer, convenience, safety, service, and comfort.

The results of the survey are in Appendix A

 

Analysis and Discussions

The results, which were obtained from the surveys, showed that Singapore Airlines has a 50% market share on the sector of Singapore to Kuala Lumpur. The sector is shared by Singapore Airlines and Malaysian Airlines as governed by the law that only allows these two airlines to operate on this route. Between the two airlines, Singapore Airlines has a 73% market share, compared to Malaysian Airlines, which only has a 27% market share.

 

 

 

 

This indicates Singapore Airlines’ market dominance in the sector. Singapore Airlines does not need to consider Malaysian airlines as its competitor at the moment as the revenue that is generated from this route is shared equally between the two carriers, which is convenient for both carriers2. However given by the further questions asked to the market, it appears that the potential market share for Singapore Airlines can drop to 38%. This is a substantial drop in numbers for Singapore Airlines, as it can be seen as threatening to its market share. Singapore Airlines can anticipate this drop of numbers and it should make plans to avert the problems that could come following the change of legislation that will allow other carriers to operate regularly scheduled commercial airlines between this popular route.

The survey has revealed that the cost of the ticket is the single most important factor when deciding on airline tickets between this city pair. For example, on the 9th of March 2008, Singapore Airline’s fare for a  one‐way flight to Kuala Lumpur from Singapore is S$2163. While on the other hand, a bus journey on the same route would be S$14.954. It can be observed that there is a significantly large difference in price between Singapore Airlines and using the bus. This contributes to the deciding factor that passengers use when purchasing tickets and making the decision between using a mainstream carrier or using the cheaper alternative which is the bus. There are advantages to using the bus, which would not be overcome, by using an airline. In Kuala Lumpur, the airport is at a significant distance from the airport with a journey time of approximately one hour. This contributes to the travelling time that is undertaken by a passenger. Whereas on the other hand, a coach service stops in the city centre, which helps the passenger reach the destination quicker. On the overall travelling time, a bus has a journey time of about 5 hours from Singapore to Kuala Lumpur, not taking into account traffic jams and other unforeseen circumstances. On the same route by air, a passenger needs to be at the airport at least 2 hours before departure, a flying time of 1 hour, procedures after landing would take approximately a half-hour and a transit time from the airport to the city which takes 1 hour, which would approximately give a total travelling time of 4.5  hours. Comparatively, the advantages of using the bus can be seen, as it is much cheaper than using an airline, while the opportunity of the cost of using the bus would be spending a half-hour more. Also, a bus would be more convenient as it can be taken from within the main city whereby the airport is usually at a distance from the city.

 

 

 

 

Singapore Airlines' main concern at the moment would be about how to retain passengers while keeping fares at either the same cost of maybe reducing the cost further to accommodate the threat of the competition. The competition, in this case, would mainly be Jetstar Asia and AirAsia. Presently, Singapore Airlines jointly owns Tiger Airways so albeit, there would not be a large threat from them compared to other budget carriers per se, compared to AirAsia who has been lobbying to open this air route5. It has been hinted that the prices would match the current coach price, which could be seen as a threat to Singapore Airline’s market share in this sector. The budget airline competition can be seen as a rising concern to Singapore Airlines, not only in this sector but also across Asia and other parts of Oceania. Airlines such as Tiger Airways have set up a base there to operate local flights within Australia. Jetstar and Tiger Airways are also operating flights from Singapore to Perth, Cairns, and Darwin.

 

At the moment, since Kuala Lumpur International Airport is at a distance from the main city, they could offer passengers free tickets on the KLIA express train that takes them into the city. Likewise, business class and first-class passengers could be offered a free drop off to their respective locations in Kuala Lumpur city. Incentives like these would help passengers make their choice between Singapore Airlines and other low-cost carriers. Another option that is available to Singapore Airlines to cut costs is to streamline the services that are offered to passengers, as in reducing the onboard catering or introducing buy onboard services, so that they may be able to retain the costs of catering, which would result in reducing the ticket prices. Even by implementing such a procedure, they would not compromise on the comfort aspect, as they would still operate the standard Singapore Airlines aircraft. The best way to capture the passengers on these routes would be to reduce the premium price that they charge as the main reason that Singapore Airlines would face a reduction in passenger numbers would be if they kept up the prices that they currently charge for this route. Another reason why Singapore Airline customers would remain with them is because of their Frequent Flyer program, KrisFlyer. Therefore some passengers would be loyal to these airlines, regardless of their cost. Singapore Airlines could also give passengers more frequent flyer miles on this route than usual, or offer bonuses and run promotions. Singapore Airlines can also initiate a corporate travel scheme, as usually corporate travel is undertaken under full-service legacy airlines instead of low-cost carriers. Singapore Airlines may be able to provide a further discount, then what is usually offered to corporate customers, to passengers travelling on this Aboobaker Siddiq Omar 2114‐005 Word Count: 1,982 12 specific route. This would garner interest from corporate travel users. Singapore Airlines is also able to provide packages to passengers and tour companies wherein they provide airfare and accommodation to destinations in `Malaysia. By providing such a service, Singapore Airlines would be able to get quantity discounts from hotels, which would lower costs, and in turn, lower the whole package cost. In this fashion, they would be able to retain a profit while adhering to passenger needs at only a marginally higher cost. This would prove beneficial, as instead of losing customers to rival airlines, they would be able to retain their patrons while only losing a fraction of profits on this route.

 

Conclusions and recommendations for Company:

The survey results showed that Singapore Airlines can face a market share loss when the restrictions for air operations have been lifted between Singapore and Malaysia. Steps have to be taken to avert the problems that can follow when the restriction is lifted. The main factor that was identified that would be a problem is the issue of ticket costs. Currently, ticket prices are extortionate and this is a point identified by many survey answerers. Singapore Airlines should look into reducing the ticket prices, which can be the breaking point in deciding who to fly on this sector. They can do this by reducing the onboard amenities that they currently provide. They can also increase passengers by providing other amenities and extras that would convince passengers into thinking that the tickets prices are not high. Such amenities could include offering passengers with free transport into Kuala Lumpur city. They could also initiate corporate travel schemes, offer tour packages or they could also provide extra frequent flyer miles on this route. By implementing such procedures, Singapore Airlines can regain passenger numbers that they would lose to the budget carriers.

As of November 2007, Budget Carriers have been allowed to operate between the capital cities, and the first flights took place on the 1st of February. This Research Project was written in July 20076.

        Appendix A

1. What is your usual mode of transport between Singapore and Kuala Lumpur?

Car                                                                                                                         4(25%)

Plane                                                                                                                    10(62%)

Coach                                                                                                                    2(12%)

2. If you fly between the routes of Singapore to Kuala Lumpur, which Airline do you fly regularly?

Singapore Airlines                                                                                                8(50%)

Malaysian Airlines                                                                                                3(19%)

I don't fly                                                                                                               5(31%)

3. If answered 'Malaysian Airlines', why do you fly Malaysian airlines over Singapore airlines?

I am a member of the Enrich so I get points.

N/A
Less expensive

4. If answered 'I do not fly' above, why do you not fly between KL and Singapore?

Too short a distance

N/A
Not worth the cost due to the distance. Will consider if prices are lower

Too costly, time is taken inclusive of check‐in and travelling from the airport to the city is roughly equivalent to that of taking a coach.

Because using planes is too expensive

5. If budget carriers were to introduce services on the Singapore­Kuala Lumpur sector, would you prefer to fly on a Budget Carrier or a full-service carrier such as Singapore Airlines?

Singapore Airlines                                                                                                                     6(38%)

Budget Carriers                                                                                                    9(56%)

Malaysian Airlines                                                                                                1(6%)

6. If answered budget to 5, Why would you fly a budget airline over Singapore Airlines?

To economize obviously

Cheaper
It makes more sense economic wise

Well obviously, it's cheaper

Cheaper
Cheaper if Safety norms adhered to

A short hop, no need for that much service. Just get me there quickly and cheaply will do.

For a short-haul flight, cheaper is better!

Cheaper

7. If answered Singapore to 5, why would you fly Singapore airlines?

Frequent Flyer miles
Convenience, as I fly SQ from my home country.

Class & safety

Excellent service, decent fares, and FF miles :)

SQ provides fantastic service and comfort over budget airlines. IMO, it has an edge over MH too.

There was no response allowed for "Depends on the price". It is such a short flight, the price will be my only factor.
Full-service airline with excellent service.

8. What is your opinion regarding Budget air travel?

A great introduction to the airline industry. As long as they keep their planes well maintained, I have no objections to them

It’s a great way to save

It’s good
I haven't tried it but so far I guess it's for those passengers who rather go for value for money rather than quality.
It's fine for short trips; at least the price tags are tolerable.

Cannot live without it, it is not always reliable but it is not that often that we fly full-service carriers. they are a definite godsend during peak seasons, but service carriers
are still my first choice It has its place for short flights, as long as fares are truly low. Which often, I have found, they are not, when compared to full-service carriers.
Certainly would not fly them to secondary airports that end up costing you more money, to get to/from the city than from the main airport.

Is good
Good move. Helps more people travel faster & cheaper.

It's not a bad idea, but I get worried when they start pushing legacy carriers out.

Appendix B

SWOT ANALYSIS:

Strengths

‐Excellent world‐class service

‐Well connected to the rest of the world

‐No other competitor on Singapore‐

KL route with the same level of service

‐Won multiple awards for service/ schedule/

food7.

Weaknesses

‐Expensive than other carriers

‐Not a lot more potential to expand
in the world terms of routes as is
already connected to major areas.

‐Lack of space to expand services in

Singapore airport.

Opportunities

‐Increased population in Singapore increases its business

‐ Using new aircraft to improve efficiency
and comfort in‐flight.

‐Use their reputation to expand sales

on further routes.

Threats

‐New open skies aviation policy

‐More budget carriers on the route.

‐Other 5 star airlines, offering a better service?

 

Appendix C:

Singapore Airlines History:

From  First Flight to Soaring  Height

The history of Singapore Airlines dates back to 1 May 1947, when a  Malayan Airways Limited Airspeed Consul took off from Singapore's Kallang Airport on the first of three scheduled flights a week to Kuala Lumpur, Ipoh, and Penang.

Over the next two decades, the Airline steadily acquired more planes. There were additions of the DC-4 Skymaster, Vickers Viscount, Lockheed Super Constellation, Bristol Britania, Comet IV, and the Fokker F27.

On 16 September 1963, the Federation of Malaysia was born and the Airline became known as Malaysian Airways Limited. In May 1966, it became Malaysia Singapore Airlines.

Later, the new look of the Airline evolved further with its first Boeings three B707s, then a fleet of B737s.

In 1972, Malaysia Singapore Airlines split up to become two entities Singapore Airlines and the Malaysian Airline System.

This change was used to launch a new, more modern service approach on the airline. To house a special fleet of B747s, B7272s, and DC-10s, the new Singapore Airlines also boasted a new airfreight terminal and a B747 hanger.

Newspaper article from the Today paper, used for reference:

Leong Wee Keat                                            Counterpart in Bangkok yesterday. "If                                 you fly to from Singapore is very 

weekeat@mediacorp.com.sg                        should not be confined to Singapore -kl                               small."

The buzz has been building for a while,        sector. It should be Singapore_ Kl                                    

But Singa[pore and Malaysia yesterday        Malaysia, and there are other points in                             Despite that, the pie than all carriers

gave their clearest signal that cheaper        Malaysia."                                                                           have their eyes on is the lucrative KL-flights to Kuala Lumpur KL- 

flights to Kuala Lumpur (KL)- and Malaysia's Transport Minister Chan                                   Singapore route.

the rest of Malaysia as well -will                    Kong Choy said the move would                                        Under the current air service

become a reality this year, a move                Benefit not just airlines but boost trade                              Arrangement, all air traffic rights

that would benefit both travellers                 And tourism as well.                                                            between both countries have been fully

airlines.                                                                                                                                                    used up- hogged mainly by

                                                                                                                                                                Singapore Airlines and Malaysia

The transport ministers of both                     Flight International's regional                                            Airlines (MAS). They operate over 200

countries said yesterday that their                 Managing editor Nicholas Ionides told                              Flights a week, usually at 80 to 90 per

aviation sectors will be opened up                 Today that this could open up more                                 Cent of capacity, and share the

even before the Association of South-            routes and services for low-cost                                     Revenue from the route equally.

east Asian Nations' open skies target            Carriers to secondary destinations in                                Already, low-cost carriers (LCCs) have

of 2008.                                                            Malaysia.                                                                        laid down a challenge. Last month,

                                                                                                                                                                AirAsia's chief Tony Fernandes said the

"We should do it early," said                            "Singapore and Malaysia are two                                    Airline could operate 22 flights a day-

Singapore's Transport Minister                           markets that are screaming for more                           with prices for one-way tickets starting

Raymond Lim, who met his Malaysian                flights to be added," he said, "The

from $60-if granted access to the                        Number of Malaysian destinations that 

Routs. Singapore's Tiger Airways has                Meet next month to iron out details.

also said it would be able to match

fares offered by coaches.

Currently, a round-trip ticket from

Singapore to KL costs about $400,

including taxes- for a trip that takes

 under an hour each way.

The liberalisation could harm MAS, said

aviation analyst Shukor Yusof.

"Something like 10 per cent of their

revenue comes from this Singapore-KL

route."

But Mr Ionides felt that the move

would grow the overall size of the

The market as LCCs brought in new classes

of passengers.

Transport officials from both sides will

Singapore Airlines Flight search for fares:

Select your outbound and return flights below.

Please note that Suites are only offered on flights operated by the A380 aircraft.

 

 

 

 

 

 

 

 

 

 

 

Bus fares between the 2 cities:

Transnasional Coach Services

from

Economy Coach 

Singapore Lavender 

Street

to

Puduraya Bus Station, Kuala 

Lumpur

(03) 2070 33 00 or (03)2078 2563

8.30 am 10.00 am

12.00nn 1.30pm

3.00pm 5.00pm

8.00 pm 11.00pm

travel time: 6hrs

Daily 

S $ 14.95

/RM30.00

from

Economy Coach 

Singapore Lavender 

Street 02 -6294 7035

to

Tourist Information Centre(MTC),

109 Jalan Ampang, Kuala  Lumpur

(03)2161 1864

9.00 am 11.00 am

4.30 pm 6.30 pm

travel time: 6hrs

Daily 

S $ 30.00

/RM60.00

Please Note: Change to fares and time schedules are at the discretion of the bus/coach operators. The schedule and fares provided by journeymalysia.com act only as a guide. 

 

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