E AS101 TMA Tanjoonkiat Q1870884 PDF

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Name: Tan Joon Kiat PI number: Q1870884 Insitution: Singapore University of Social Sciences Course Title: EAS 101 - Aerospace Management Assignment: Tutor-Marked Assignment (TMA) Submission Date: 05 October 2018, 2355hrs

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Content Introduction................................................................................................................................3 (A.1) Scoot..................................................................................................................................3 (A.2) JetStar................................................................................................................................4 (A.3) Competitive advantages....................................................................................................5 (B.1) SIA’s financial statements for 2016 – 2017 & 2017 – 2018...............................................6 (B.2) Financial Ratios..................................................................................................................7 (B.2.1) Profitability Ratios.......................................................................................................7 (B.2.2) Liquidity Ratios............................................................................................................8 (B.2.3) Leverage Ratios...........................................................................................................9 (B.2.4) Working Capital...........................................................................................................9 (B.3) Conclusion.........................................................................................................................9 (C.1) Singapore Airlines (SIA)....................................................................................................11 (C.2) Qantas Airways................................................................................................................12 (C.3) Competitive Advantages..................................................................................................13 (D.1) Pressure from Low-Cost Carriers (LCCs)..........................................................................14 (D.2) Measures that the full-service airlines could adopt.......................................................15 (D.3) Quote of real example implemented & recommendation..............................................16 Annexes....................................................................................................................................17 References................................................................................................................................23

Introduction Based on the past 15 years of tremendous growth in Asia’s low-cost carriers (LCC), changing in regional aviation landscape, bringing affordable air travel to Asia and Regions beyond, I 2

will be covering different aspects of airlines be it LCC or full-service airlines, using methods like SWOT analysis and Ansoff Growth Matrix.

(A.1) Scoot Scoot is a Singaporean low-cost airline owned by Singapore Airlines through its subsidiary Budget Aviation Holdings. It focuses on Cities like Taiwan Taoyuan International Airport and uses Kris Flyer program. Strengths 1. Affiliations with reputable Singapore Airlines (SIA), providing assurance to consumers as for their strong financial backgrounds. 2. Only airline in the low-cost carrier industry that have premium cabin options that provides comfortable seats apart from budget economy seats. 3. Collaborations with Tigerair allows easier transition between them, not needing to pass through immigration and able to collect their belongings before second flight. 4. Strong social media presence, such as Facebook and YouTube. Weaknesses 1. Technical issues on digital font where instances, sever crashes during the running of virtual flight game, which allowed participants to win a sum of money. Likewise, for handling large traffic at the airline’s website. 2. Less established brand presence due to late founding in 2011. Opportunities 1. Fifth terminal at airport provides potentially higher flight frequencies. 2. Increasing demand for budget flights as consumer trends to seek cheaper options. 3. Increasing importance of social media allows Scoot to direct their focus on platforms like Facebook and YouTube. Threats 1. Rising operational costs due to the rise in fuel costs in recent years since 2015. 2. Rising inflation rates causes customers to limit their frequency of travelling. 3

3. Competition with older airlines due to their awareness amongst consumers.

(A.2) JetStar Meanwhile, JetStar is an Australian low-cost airline wholly owned subsidiary of Qantas, created respond to the threat posed by low-cost airline Virgin Blue. It focuses on cities like Adelaide, Denpasar and Perth Airport, and uses Qantas frequent-flyer program. Strengths 1. One of the top three servicing providers as due its extensive domestic and regional presence. 2. Loyal customers due its low pricing and brand reputation. 3. Qantas’ tag as ‘Safest Carrier in the world’. Weaknesses 1. High cost in maintenance due to non-employment of resources and employees. 2. Employees dissatisfaction in low wages that can be susceptible to strike. Opportunities 1. Expansion of routes in the regional areas. 2. Increase in share of Business travellers. 3. Expected increase in the Trans-Tasman routes (Australia and New Zealand). Threats 1. Fierce competition from other low-cost carriers. 2. Revise of regulations development in Australia’s Civil Aviation Safety Authority (CASA) in 2018 may lead to losses. 3. Rising fuel costs that may result in higher operational costs.

(A.3) Competitive advantages Similarities

1. Both are 3-star low-cost carriers that offer low prices that are value for money. 4

2. Both have dedicated promotional deal pages. 3. Both have strong financial background; Scoot-SIA & Jetstar-Qantas.

Advantages of Scoot over Jetstar 1. Scoot provides further destination flights like Europe and Middle East, while Jetstar only cover Asia and the Pacific and America (Honolulu). 2. Scoot allows more carry-on bags of 2 x carry-on bags of 10kg total compared to Jetstar’s 1 x carry on-bags of 7kg total. 3. Scoot has entertainment like movies and TV on all flights while Jetstar does not. 4. Scoot offers Wi-Fi availability for purchase on flights while Jetstar does not. 5. Scoot-in-Silence quiet zone for all its 787 Dreamliners that does not allow children under 12. 6. Higher customer rating at 6 out of 10, compared to Jetstar falling behind 5 out of 10.

Advantages of Jetstar over Scoot 1. Jetstar flies to-and-fro more destinations 80+ compared to Scoot 40+ 2. Jetstar offers price matching that allows refund on the differences plus 10% while Scoot does not. 3. Jetstar offers additional online chat platform while Scoot only provides phone and email platform. 4. Jetstar offers more payment options like: Diners Club, eNets, UATP. Conclusion, based on consumer needs and demands in certain areas, they can make their choices between which low-cost carrier airlines they would prefer over another.

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(B.1) SIA’s financial statements for 2016 – 2017 & 2017 – 2018

Singapore Airlines Financial Year 2016/17 Balance Sheet Total Assets 24,720.0 Total Liabilities 11,249.8 Total Equities 13,470.2 Profitability Ratios Gross Profit Margin (%) *Operating Profit Margin (%) 4.19 Pre-Tax Profit Margin (%) 3.49 *Net Profit Margin (%) 2.97 Return of Equity (ROE) % 3.28 Return of Assets (ROA) % 1.79 Liquidity Ratios *Current Ratio 0.91 Quick Ratio (Acid Test Ratio) 0.84 Cash Ratio 0.67 Leverage Ratios *Debt Ratio 0.46 Debt to Equity Ratio 0.13 Working Capital (-588.6) “ * “ – Important ratios to take note.

Financial Year

Growth

2017/18

(percentage, %)

27,549.2 12,919.9 14,619.3

+ 11.45 - 14.85 ** + 8.53

6.69 6.97 5.93 6.41 3.40

+ 59.67 + 99.71 + 99.66 + 95.43 + 89.94

0.76 0.70 0.50

- 16.48 - 16.67 - 25.37

0.47 0.22 (-1,581.1)

- 2.17 ** - 69.23 ** - 168.62

“ ** “ – Increase in growth but however, negative for the company

(B.2) Financial Ratios Based on the statistics given in Annex 12, I will be concluding the financial ratio which then after will show SIA’s financial position and financial performance.

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They are broken down to 3 categories:

(B.2.1) Profitability Ratios a. Gross profit Margin (%) =

{(

Gross Profit =Total Sales , Revenue – Cost of Goods ) x 100 Total Sales , Revenue

}

No Gross Profit figure in SIA’s Financial Statement,  No Gross Profit Margin.

For manufacturing or retail companies, COGS is easily defined. However, for some industries like SIA in this case, there is no COGS.

b. Operating Profit Margin (%) =

Operating Profit=

=

Gross Profit− ( Operating Expenses=Selling , General∧ Admin Expenses ( SG∧ A ) ) x1 Total Sales , Revenue {¿

622.8 x 100 14,868.5

,

= 4.19% (2017)

,

1,057.3 x 100 15,806.1

6.69% (2018)

c. Pre-Tax Profit Margin (%) =

( Pre−Tax Profit={Operating Profit− ( One−off expenses+ Interest )} {¿

=

¿ x 100 } TotalSales , Revenue

518.6 x 100 14,868.5

= 3.49% (2017)

, ,

d. Net Profit Margin (%) = {

=

441.9 x 100 14,868.5

1,101.0 x 100 15,806.1

6.97% (2018)

( Net profit =Pre−Tax profit – Tax ) x 100 } Total Sales , Revenue ,

936.8 x 100 15,806.1

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= 2.97% (2017)

,

e. Return on Equity (ROE) (%) = (

=

Net Profit x 100) ' Shareholder s Equity

441.9 x 100 13,470.2 ,

Return on Assets (ROA) (%) = (

=

936.8 x 100 14,619.3

,

= 3.28% (2017)

f.

5.93% (2018)

6.41% (2018) Net Profit x 100) Total Assets

441.9 x 100 (5,700.0+ 16,433.3 + 423. 5 + 1,056.9+160.2 + 405.7 + 479.3 + 61.1)

(2017) ,

936.8 x 100 (4,968.3+ 19,824.6+ 435.3+1,048.8 + 150.6+346.0+722.7 + 52.9)

= 1.79% (2017)

,

(2018) ,

3.40% (2018)

(B.2.2) Liquidity Ratios Current Assets a. Current Ratio = Current Liabilities ) ¿ 5,700.0 6,288.6

=

= 0.91 (2017)

4,968.3 6,549.4

, ,

0.76 (2018)

b. Quick Ratio / Acid Test Ratio = {

=

(Liquid Assets=Current Assets− (Inventories∧Prepaid Expenses )) } Current Liabilities (5,700− (178.4 +211.0 )) 6,288.6

,

(4,968.3− ( 179.3 + 184.6 ) ) 6,549.4

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= 0.84 (2017)

c. Cash Ratio = {

,

0.70 (2018)

( Cash+ Cash Equivalents+Invested Funds ) } Current Liabilities

= for this case, Current Assets−(Tradedebtors + Deposits∧other debtors+ Prepayments ) Current Liabilities

=

57,00.0−( 1,144.6 + 127.4 +211.0 ) ¿ ¿ ¿

,

4,968.3−( 184.6+ 87.8+1,402.2) ¿ ¿ ¿ = 0.67 (2017)

,

0.50 (2018)

(B.2.3) Leverage Ratios a. Debt Ratio = ( =

Total Liabilities ) Total Assets

(6,288.6+ 234.5+ 1,890.5+ 1,794.7+910.3+131.2) (5,700.0+ 16,433.3+423. 5 + 1,056.9+160.2 + 405.7 + 479.3+61.1)

(2017) , (6,549.4+123.3+ 2,122.7+3,199.8+ 821.5 + 113.2) (4,968.3+ 19,824.6+ 435.3+1,048.8 + 150.6+346.0+722.7 + 52.9) (2018) , = 0.46 (2017)

b. Debt to Equity Ratio = (

=

,

LongTerm Debt ) Share Holders Equity

1,794.7 13,470.2

= 0.13 (2017)

0.47 (2018)

, ,

3,199.8 14,619.3

0.22 (2018)

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(B.2.4) Working Capital

Working Assets=Current Assets−Current Liabilities = 4,968.3 −6,549.4 = -1,581.1 (2017)

, ,

5,700.0−6,288.6

-588.6 (2018)

(B.3) Conclusion Based on the data I have calculated, it shows that Singapore Airline has drop in liquidity ratios and have more negative working capital than before. SIA have been undergoing transformation in terms of how they run, putting way more on investments trying to further improve the company.

Singapore Airlines has funded in heavy investments into digital development, the creation of its “transformation office”. Developing of the new e-commerce channel through “KrisShop”. At the same time, through digital blueprint launch of “KrisPay”. Similarly, the launch of new initiatives such as a beta chatbot named “Kris”.

These will create opportunities for the company, thus increasing all the remaining elements: Total Assets, Total Equities, Profitability Ratios. Current Global Industry Current Singapore Airlines Operating Profit Margin (%) 8.1 6.69 Net Profit Margin (%) 4.7 5.93 * Information based on International Air Transport Association (IATA) and CSI-Market

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Current Ratio Debt Ratio

Current Global Ind. 2-3 -

Excessive Debt > 0.65

Current SIA 0.76 (- 16.48%) 0.47 (- 2.17%)

Looking at the financial performance, it’s operating profit margin is lower than the current global airline industry by -1.41. However, it’s net profit margin is higher than the global airline industry by +1.23. On the other hand, based on its current ratio and debt ratio, there is a decrease in growth of - 16.48% and - 2.17% as compared to the previous year. This shows that Singapore Airlines is heavier in debt than before, and unable to liquid their assets based on the heavy investments brought in, which may potentially have difficulty in covering obligations. In my opinion, Singapore Airlines is not doing much better than before as of current state. However, in the coming years with the investments and development in place, Singapore Airlines will still potentially grow towards the better.

(C.1) Singapore Airlines (SIA) SIA is the official flag carrier of Singapore for the past 7-decades, with its hub at Singapore Changi Airport. The airline uses the Singapore Girl as its central figure in corporate branding. Strengths 1. As of 2018, ranked 2nd & 3rd for world's best airline for long-haul & business trip, while winning top three spot in other categories in the same year including "Best First Class", "Best First-Class Airline Seat" and "Best Airline in Asia". 2. High level of service quality. Available luxury suites in A380 aircraft that provides separate shared bathrooms for passengers, personalized gourmet dishes for passengers, and even seating arrangement are specially designed by a French designer ‘Jean Coste’ which can be converted to beds if needed. 3. Effective distribution of “4-3-3” rule of spending, where airline spends 40% on training of employees, 30% on processing management and re-engineering, and the remaining 30% on new product creation.

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4. Effective frequent flier program which engages and value customers who frequently travel, in addition, perks to those who choose a luxury class. 5. Free In-flight food + Entertainment + 30kg check-in baggage for Economy Lite class. Weaknesses 1. Active competition from low-cost carriers, causing poor margins to Singapore Airlines as costs are beyond control but demand is not going up. 2. Low capacity issue in comparison to other competitors like Emirates Airline and Qatar Airways, as there is always demand fluctuations. 3. Perception of being an expensive airline. Opportunities 1. Travellers with preference for comfortable air travel will consider Singapore Airlines, meanwhile even if they do not, there is still low-cost operations by Scoot. 2. Expanding partnerships and the upcoming fifth terminal at Changi Airport provides potentially higher flight frequencies.

Threats 1. Strong competition in the region with major carriers like China Southern, Eastern Airlines and Qantas Airways. 2. Fluctuation of aviation turbine fuel prices may result in higher operational costs.

(C.2) Qantas Airways Qantas Airways is the official flag carrier of Australia and its largest airline by fleet size, international flights, and international destinations. It has 3hubs, Sydney Airport, Brisbane Airport, and Melbourne Airport. They also use Qantas Frequent-Flyer program and are the alliance with Oneworld. Strengths 1. Strong dominance in the Australia market and public relations. 2. Growing presence in global market through partnerships as well, with consistent growth of revenue.

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3. Successful in cost-cutting of $ 2 billion of its annual costs over the past three years. 4. Great service quality which includes SMS check-in, expanded in-flight entertainment options, customized meals, food & beverages option. Weaknesses 1. Unionization problem in Australia, such as approaches to Transport Workers Union and Australian Licenced Aircraft Engineers Association. 2. Low profits in international flights ever since being the official flag carrier of Australia. 3. Difficulty in balancing profit and demand in right price strategy for operating longdistance flights. Opportunities 1. Increase in surge for business travellers, creating scope for revenues from both economy and business class. 2. Loyalty programs and digital marketing that may potentially benefit airline. Threats 1. Increasing competition from Asia carriers like Singapore Airlines (SIA). 2. Management of costs for volatility in fuel and foreign exchange poses a critical threat to the airline today.

(C.3) Competitive Advantages Similarities 1. Both fly to all major centres like Europe, Middle East and Asia. 2. Both are full-service carrier offers variety of flight class options 3. Both have generous economy baggage allowances (up to 7kg hand-carry & up to 30kg check-in baggage) 4. Both provides large variety of in-flight entertainments, meals of choices onboard, serves alcohol and able to book multi-city fares with round the world fares. Advantages of SIA over Qantas 1. SIA 5 Star Airline, over 4 stars Qantas, certified by Airline Rating by Skytrax. 13

2. Better seat comfort and personal space, where Long-Haul Economy Class Seat Pitch & Width of 32-34 & 17.5-19, while Qantas 31-32 & 17-17.5 3. Excellent premium check-in facilities, priority baggage airport services at Changi Airport compared to Sydney Airport. 4. Outstanding in-service skills and proficiency for cabin staff service over Qantas. 5. Magnificent language skills and personalization of service over Qantas. 6. Better choice for both long/short haul given the certified airline rating. Advantages of Qantas over SIA 1. Offers many more Australian destinations than SIA, like Gold Coast, Newcastle, Kangaroo Island, Devonport, etc. 2. Provides cheaper/best price with “flexible with dates” options available to help compare prices on surrounding dates. 3. Dominant in Australia market, with favourable international flight deals and excellent deals between Europe and Australia. (Generally better deal if travelling within Australia as compared to Singapore Airlines) Conclusion, based on consumer demand whether they are traveling to on long/short haul, the area of destination, budget on hand, personal comfort level, they can make their choice.

(D.1) Pressure from Low-Cost Carriers (LCCs)

With reference to Annex 1 & 11, it shows that expansion of LCCs has and will continue exerting pressure on their loading factor and yields.

Why is that so? 1. LCC’s capabilities of connecting conventional point-to-point travel between cities in South, East and Sout...