Posted: February 26th, 2023

human resource–leadership（case study）

Summary of Assessment Method: Individual 2,000 words written report + a 500-word executive summary, evaluating a strategy for motivating and engaging workers in an organization, based on a global business case study.

 

Students will prepare an assignment that evaluates a strategy for motivating and engaging workers in an organization in the business case study assigned individually.

 

The Business Case Resolution (100% of total grade)

 

The Business Case Resolution should have no more than a 500-word executive summary and a 2’000-word main text.

 

It should comprise of the following key components:

 

I) A 500-word Executive Summary

II) Report:

 

Part 1. Selected HR practice related to leading success through human capital: critical literature review of a selected a selected Leadership topic, Organizational Behaviour (OB) aspect, a specific Human Resource (HR) management practice, for example Dysfunctional Leadership, such an OB aspect as Stress or Motivation, or such an HR practice as Recruitment, Selection, Training, Appraisal, Development, Compensation, Employee Relations, or alike (1’200 words minimum).

 

Part 2. Critical analysis of the business case (500 words minimum)

Part 2.a) Business case summary (200 words minimum).

Part 2.b) Identification of the strategy for motivating and engaging workers in an organization (50 words minimum).

Part 2.d) Description of a selected HR practice for leading success through human capital and evaluation of its relevance/effectiveness; justification of such evaluation by referring to the case study and the literature reviewed (250 words minimum).

Part 3: Global conclusion about the effectiveness of current strategy for motivating and engaging workers (300 words minimum)

 

d. Reference list, using at least 5 literature sources (using only English based literature from credible sources, such as a book chapter, a professional association review, or an academic journal article)

 

The coursework should follow the assessment brief. Please ensure that you do cite correctly the adequate number of references and follow the below guidelines in order not to lose any points for presentation elements unnecessarily:

1.       Font size 12, Times New Roman

2.       Spacing 1.5

3.       Names of all the students including their student numbers need to appear on the cover page

4.       Word count needs to appear on the cover page

5.       A contents page also needs to be included

6.       Main text pages need to be numbered and the topic also included in a footnote

7.       Word count should not include cover page, contents’ page, appendices, reference list, only the main text

8.    Use a variety of credible and academic references and strictly follow the Harvard referencing style

9.       Ensure that you do utilize the e-resources available to you such as Emerald, EBSCO etc.

Leadership 1

Cesar Ritz Colleges Switzerland

Master of Arts in Entrepreneurship for the Global Hospitality and Tourism Industry

The Business Case Resolution–Leadership Model Critical Analysis of Pho Hoa
Dorchester

Submitted on:

Friday 26 February 2021

By: Ruiduo Mei

Student Number: 744044

Student ID: 100563617

Word Count: 2465

Submit to: Alessandro Cavelzani

7HO740 Leading Success through Human Capital

Leadership 2

Table of Contents
Executive Summary…………………………………………………………………………………………. 3
1.0 Literature Review………………………………………………………………………………………..3
1.1 Leadership……………………………………………………………………………………………… 3
1.2 Situational Leadership Theory………………………………………………………………….. 4
1.3 Path-Goal Theory……………………………………………………………………………………. 6
1.4 Four-Drive Theory……………………………………………………………………………………8

2.0 Case Analysis…………………………………………………………………………………………….. 9
2.1 Case Summary…………………………………………………………………………………………9
2.2 The Leadership in the Case…………………………………………………………………….. 10
2.3 Evaluation……………………………………………………………………………………………..10

3.0 Recommendations…………………………………………………………………………………….. 12
Reference List…………………………………………………………………………………………………13

Leadership 3

Executive Summary

This report is about a critical analysis of leadership in the case of Pho Hoa Dorchester,

a Vietnamese restaurant. This report adopts the method of literature review. This

report reviews the literature from four dimensions: leadership, situational leadership

theory, path-goal theory and four-drives theory. Then the case is analyzed and

evaluated according to the relevant theories in the literature review, and

recommendations are given. The results show that the situational leadership theory is

not applicable to this case because of the influence of Vietnamese culture on

employees’ leadership style preference. The path-goal theory and the four-drives

theory can provide recommendations for the management of Tam. Based on the

path-goal theory, most employees of Pho Hoa Dorchester belong to the submissive,

which requires Tam to adopt the guiding leadership style for the directive. In terms of

the four driving forces, Tam lacks the consideration of comprehend and defend, and

needs to incorporate them into the development of the action plan.

1.0 Literature Review

1.1 Leadership

Leadership is the art of mobilizing people to work for a shared vision (Wang,

Chontawan and Nantsupawat, 2011). It is the art covering foresight and planning,

communication and coordination. Harold Koontz believes that the essence of

leadership is power (Koontz and Weihrich, 2010). The concept of leadership evolved

from leaders. In the early studies, the research on leadership is mainly focused on

leadership characteristics, leadership mode, leadership behaviour, leadership style and

leadership contingency. In earlier research, generally regard lead as the process in

which leaders exert influence on followers (Kark and Shamir,

2013).

The sum of

influences power generated in this process is leadership. And this kind of influences

power is usually based on professional knowledge, people respect and personal traits

to achieve organizational goals by influencing followers’ behaviour (Oc and Bashshur,

2013).

Leadership 4

Leadership traits theory is about discovering the commonalities of outstanding leaders.

W.Henry points out that successful leaders should possess twelve qualities, such as

good organizational ability, self-confidence and quick thinking (Henry, 1998). This

point is supported by C.A.Gibb’s work. C.A.Gabb found that leaders with excellent

leadership tend to possess seven traits, such as intelligence and eloquence (Gibb,

1947). However, in general, leadership trait theory has some limitations. There is no

single trait that is a sure predictor of excellent leadership. Because it ignores the

relationship between leadership effectiveness and the employees and the situation

they are in.

The emergence of transformational leadership theory has brought change.

Transformational leadership refers to the leadership that stimulates and expands the

high-level demands of employees by making employees realize the significance and

responsibility of the tasks they undertake, so as to make them put the organization

interests above their interests (Wang, Chontawan and Nantsupawat, 2011). The

emergence of this theory indicates that scholars gradually shift the focus of research

to the collective’s characteristics and its relationship with a specific situation. The

following, this report will conduct a literature review from three aspects: situational

leadership theory, path-goal theory and four-drive theory.

1.2 Situational Leadership Theory

Situational leadership theory, which emphasizes that in varying situations, leaders

need to adjust their leadership style to adapt to different requirements in specific

situations (Northouse, 2021). Different from traditional leadership theories, situational

leadership theory breaks the outdated thinking mode of binary epistemology, which

emphasizes more that leaders should be flexible.

Ken Blanchard believes that every employee has their career path and personality

traits. Therefore, different employees need to match different leadership styles.

Leadership 5

Similarly, the same employee needs different leadership styles in different

development stages and different work tasks (Blanchard, 2018). Therefore, based on

the leadership life cycle, he and Paul. Hersey divided leadership styles into four

leadership styles from two dimensions: directive and supportive (Figure 1).

Figure 1: Situational Leadership Styles

Source: atodorov, 2014

Among the four leadership styles, employees are also divided into four different

development stages. New employees are usually at D1, and they are not fully

prepared for the job. Leaders need to take a directing approach to guide employees.

Leaders need to tell employees exactly what needs to be done and how to do it. When

employees are in D2, the leader needs to take a coaching approach to help employees.

Make employees achieve a certain level of confidence and ability, to improve

Leadership 6

productivity and work efficiency, become high-performance employees; When

employees are in D3, the leader needs to take a supporting approach to match. Usually,

employees have the certain ability but lack confidence at this stage, so they need

psychological and atmospheric support and encouragement from leaders to help them

establish confidence. When employees are in the D4 stage, leaders should adopt a

delegating approach, and give full authorization and trust to employees. In order to

obtain the best work effect, employees are fully responsible for tasks (Lynch, 2015).

In summary, an excellent situational leader needs three core competencies: Judgment,

flexibility and building good partnerships. There is no best leadership style, only the

most appropriate leadership style. Only by correctly judging the stage employees are

in, and flexibly adjusting the leadership style accordingly, and reaching an agreement

with the individual development stage of employees, can the organization achieve the

best performance.

However, situational leadership theory also has a limitation. Demographic

characteristics will influence employees’ preference for leaders’ leadership style

(Northouse, 2021). Situational leadership theory doesn’t take this into account.

1.3 Path-Goal Theory

Path-goal theory is a contingency theory developed by Robert House. The theory aims

to explain how to motivate employees to achieve specified goals. This theory is based

on expectation theory and situational leadership styles (Northouse, 2021). In other

words, excellent leaders need to help employees by clearly identifying their work

goals and paths to their achievement, removing potential obstacles and providing

support, making it easier for employees to do their work (Figure 2).

Leadership 7

Figure 2: Path-Goal Theory

Source: Confluence, 2018

According to path-goal theory, leaders’ behaviour patterns can be divided into four

types: directive, supportive, participative and achievement-oriented. And according to

personality characteristics, employees can be divided into four types: team,

submissive, dominant and self-judgmental. Team-based employees need to match

supportive leaders. They want to be cared for, and a warm environment can increase

their enthusiasm for work. Submissive employees need to match directive leaders.

They need straightforward task’s objectives and structure. Dominant employees need

to match participative leaders. Let them participate in specific jobs and express their

views. Self-judgmental needs to match achievement-oriented leaders. Make them

passionate about the challenges they need to accomplish (Li, Liu and Luo, 2018).

In general, the application of path-goal theory follows a specific procedure. Firstly,

the leader needs to make a correct judgment on the personality characteristics of

employees; Secondly, the leader should have an accurate understanding of the goal

and environment of the task; Finally, leaders should adopt appropriate incentive

measures according to the changes in the actual situation.

Leadership 8

The path-goal theory also has some limitations. In path-goal theory, the leader bears

most of the responsibility (Northouse, 2021). It is easy for employees to become too

dependent and lose the ability to carry out tasks independently.

1.4 Four-Drive Theory

The four-drive theory refers to the four basic emotional drives of human beings:

acquire, bond, comprehend and defend (Meske, Junglas and Stieglitz, 2019). These

four drives underlie everything people do. Leaders should also follow these four

drives to motivate employees. Roy Choudhury believes that if one of the driving

forces is weak, even if the other three are strong, the overall incentive degree of

employees will be significantly reduced (Shafi, Khemka and Roy Choudhury, 2015).

Therefore, to achieve optimal performance, leaders should not ignore anyone driving

force.

Corresponding to these four driving forces, there are also four indicators to measure

employees’ motivation: engagement, satisfaction, commitment and intention to quit

(Harisa Putri and Ronald Setianan, 2019). Chalofsky and Krishna found that bond

driving force had the most significant impact on employees commitment.

Comprehend driving force is closely related to engagement (Chalofsky and Krishna,

2009).

In general, if an organization can coordinate all the four driving forces well, it can

maximize the overall motivation of employees, to improve organizational

performance. The four driving forces are independent of each other. There is no

primary or secondary one, and they cannot be substituted for each other.

Leadership 9

2.0 Case Analysis

2.1 Case Summary

This case mainly tells a story about a family business of Pho Hoa Restaurant in

Dorchester. Thanh Le is the founder of the restaurant. He joined Pho Hoa Noodle

Soup as a franchise in 1992, and to establish Pho Hoa Dorchester. He now wants to

hand over the restaurant to his eldest son, Tam Le, and enjoy his retirement. His eldest

son, Tam, has been helping the restaurant since he was a child and has accumulated 15

years of experience. He is now the general manager of the restaurant. Before

becoming the general manager of Pho Hoa Dorchester, he studied for an MBA and

gained operational experience at other restaurants. Duong Le is Tam’s uncle. Has rich

experience in restaurant operation. He currently serves as the unofficial front-of-house

manager at Pho Hoa Dorchester. At the same time, when the kitchen needs help will

also be involved in the kitchen.

Currently, Tam faces three significant problems before taking over Pho Hoa

Dorchester. The first is how to build effective leadership in the employees. Tam and

his family are of Vietnamese descent, as are the restaurant’s employees. In Vietnamese

culture, respect and obedience are mainly based on age. Tam is younger than all of the

restaurant’s key employees. He worried that he would not establish effective

leadership when he took over the restaurant.

The second problem is how to overcome cultural barriers in the process of improving

restaurant operations. Due to the influence of Vietnamese culture, the waiters in the

restaurant are very resistant to having a positive interaction with customers. This will

undoubtedly reduce the efficiency and performance of the restaurant, and reduce the

income of the restaurant.

The final question is how to establish a structured organizational and management

strategy. Tam’s father, Thanh, runs the restaurant by instinct and experience. There is

no formal organizational structure and management process for both the

Leadership 10

front-of-house and the restaurant’s kitchen, and it is the most uncomplicated

management by the most veteran employees. For example, Tam’s uncle.

2.2 The Leadership in the Case

In this case, Tam’s father relied on his intuition and experience to manage his

employees. The employees obeyed his instructions unconditionally, based on respect

for the elders in Vietnamese culture. Since Tam was younger than all the key

employees, it was challenging for him to establish effective leadership after he took

over the restaurant. In this case, Tam used the strategy of improving the restaurant

environment and raising the salary to motivate employees in another restaurant

before.

2.3 Evaluation

Under the Situational Leadership Theory, Tam’s father, Thanh, had used a directing

leadership style for managing his employees in this case. Give them clear work

instructions, and the employee obeys his absolute authority. Thanh’s leadership is

based mostly on people respect. In Vietnamese culture, elders are treated with

unconditional respect from others.

In terms of personal development stages, Pho Hoa Dorchester employees are mostly

in the D1 or D2 stage. They don’t have a lot of relevant work experience. They needed

to match the directing leadership style, which was also consistent with Thanh’s

leadership style. But for the few back kitchen workers and Tam’s uncle Duong, they

are all in the D4 stage. They have a wealth of relevant work experience. Directing did

not match the leadership style they required. They need to match Delegating

leadership style.

However, for Tam, the situational leadership theory is not applicable. Because the

Leadership 11

situational leadership theory does not consider the influence of employee

demographic characteristics on leadership style preference. In this case, the

employees were all of Vietnamese origin. Tam was too young to gain their respect.

Even if he has good expertise. This weakens Tam’s power and prevents him from

establishing effective leadership.

The path-goal theory is more applicable to this case. Tam’s plan list shows that he has

defined the goals that employees need to achieve and the essential path to

implementing the goals (Figure 3). Increasing revenue is the goal, improving service

quality and achieving consistency is the path. Tam is also well aware that he needs to

overcome cultural barriers to achieve his goals. Based on this, he developed incentive

and support programs, such as raising salaries, training employees and optimizing

working conditions.

Figure 3: Tam’s To-Do List

Source: Pho Hoa Dorchester, 2017

But based on the four-drives theory, Tam’s plan does not take into account the

comprehend and defend aspects. He’s only thinking about acquire. And the bond

based on Vietnamese culture is always there. In the four-drives theory, all four driving

forces need to be considered. The weakness of any one of the driving forces will

reduce the overall motivation of employees.

Leadership 12

3.0 Recommendations

In this case, Tam has excellent judgment and decision. Have a clear understanding of

the goal and paths. Based on the path-goal theory and the four-drives theory, four

recommendations will be given for the problems Tam faces.

First of all, since most of Pho Hoa Dorchester’s employees are submissive, Tam can

manage them with a directive leadership style. Set clear and understandable goals and

procedures for their work. And set up practical indicators for regular supervision and

management. But for a small number of kitchen employees and his uncle, Tam needs

to adopt the style of achievement-oriented leadership style to manage. Set high goals

and give them more autonomy. Employees lack respect for Tam due to cultural factors.

Tam can enhance his power by leveraging his expertise and great personality traits, so

as to build effective leadership.

Secondly, for cultural barriers in the operation process, Tam can design the culture of

its restaurant based on the Vietnamese culture. To convey a sense of identity to the

staff and improve the stability of the restaurant. Moreover, Tam can design reasonable

training and reward policies to motivate employees to break through cultural barriers

and enhance the quality of service.

Thirdly, Tam should let employees understand their importance and significance to

the restaurant, so that they feel they have contributed to the restaurant. And design

transparent and fair process and mechanism, and build trust with employees.

Last but not least, Tam also needs to survey employees satisfaction and feedback

regularly. So that he can adjust accordingly at any time. Because employees are not

immutable, when their development level changes, their demand for leadership style

will also change. Tam needs to adapt his leadership style to their changes continually.

A good leader is often a fickle person. He will adjust his leadership style in time

according to the employees’ development and changes in the environment.

Leadership 13

Reference List:
Blanchard, K., 2018. Leading at a Higher Level: Blanchard on Leadership and
Creating High Performing Organizations. 3rd ed. FT Press, pp.46-167.

Chalofsky, N. and Krishna, V., 2009. Meaningfulness, Commitment, and
Engagement:The Intersection of a Deeper Level of Intrinsic Motivation. Advances in
Developing Human Resources, 11(2), pp.189-203.

Gibb, C., 1947. The principles and traits of leadership. The Journal of Abnormal and
Social Psychology, 42(3), pp.267-284.

Harisa Putri, W. and Ronald Setianan, A., 2019. Job enrichment, organizational
commitment, and intention to quit: the mediating role of employee
engagement. Problems and Perspectives in Management, 17(2), pp.518-526.

Henry, W., 1998. Science, Politics, and the Politics of Science: The Use and Misuse of
Empirically Validated Treatment Research. Psychotherapy Research, 8(2),
pp.126-140.

Kark, R. and Shamir, B., 2013. The Dual Effect of Transformational Leadership:
Priming Relational and Collective Selves and Further Effects on
Followers. Transformational and Charismatic Leadership: The Road Ahead 10th
Anniversary Edition, pp.77-101.

Koontz, H. and Weihrich, H., 2010. Essentials of management. 1st ed. New Delhi:
Tata McGraw Hill Education Private Ltd., pp.309-332.

Li, G., Liu, H. and Luo, Y., 2018. Directive versus participative leadership:
Dispositional antecedents and team consequences. Journal of Occupational and
Organizational Psychology, 91(3), pp.645-664.

Lynch, B., 2015. Partnering for performance in situational leadership: a
person-centred leadership approach. International Practice Development Journal,
5(Suppl), pp.1-10.

Meske, C., Junglas, I. and Stieglitz, S., 2019. Explaining the emergence of hedonic
motivations in enterprise social networks and their impact on sustainable user
engagement. Journal of Enterprise Information Management, 32(3), pp.436-456.

Northouse, P., 2021. Leadership: Theory and practice. 2nd ed. [S.l.]: SAGE
PUBLICATIONS, pp.89-146.

Oc, B. and Bashshur, M., 2013. Followership, leadership and social influence. The
Leadership Quarterly, 24(6), pp.919-934.

Shafi, A., Khemka, M. and Roy Choudhury, S., 2015. A new approach to motivation:
Four-drive model. Journal of Human Behavior in the Social Environment, 26(2),
pp.217-226.

Wang, X., Chontawan, R. and Nantsupawat, R., 2011. Transformational leadership:

Leadership 14

effect on the job satisfaction of Registered Nurses in a hospital in China. Journal of
Advanced Nursing, 68(2), pp.444-451.

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TB0173

Copyright © 2001 Thunderbird, The American Graduate School of International Management. All rights reserved.
This case was prepared by Professor Kannan Ramaswamy, with research assistance from Mr. Manesh Modi, MIM2000,
for the purpose of classroom discussion only, and not to indicate either effective or ineffective management.

Singapore International Airlines:
Strategy with a Smile

Mr. Cheong Choong Kong, the CEO of Singapore International Airlines (SIA) put away his papers as
the SIA Megatop circled to land at Changi International Airport in Singapore. He could see the mag-
nificent lights of the city as it prepared for the much-awaited arrival of the new millennium just two
weeks away. Singapore had promised a spectacular show because it would be among the first countries to
welcome the New Year. Mr. Kong was returning from meetings in London with Mr. Richard Branson,
CEO of Virgin Atlantic Airways. The two companies had been exploring the potential for a formal
equity alliance. While he was happy with the performance of the company under his leadership, he
knew that much remained to be done. The next sequence of strategic moves would be crucial in cement-
ing SIA’s meteoric rise.

SIA had managed to weather the storms of declining traffic and yields especially in the Asian
region. The regional economies had been showing signs of a nascent recovery. However, the economic
recovery was by no means complete. For example, Japan was still unsteady and the other Asian tige

rs

were tentative at best. Some of the quintessential sources of competitive advantage for SIA were increas-
ingly coming under fire. Labor costs had been showing a remarkable upward trend, growing along with
the prosperity of Singapore itself. Specialized labor was difficult to find locally, and when available
proved to be much more expensive than before. This could not have happened at a worse time since the
main competitors were showing signs of cost-based competition and the customer was increasingly
attracted to low fares. This posed a dilemma for SIA, which had traditionally relied on Singaporean
personnel for most of its operations. Looking overseas for specialized talent, although not new for SIA,
could have strong political and economic ramifications that had not been fathomed as yet.

Competitors had been quick to copy many of the remarkable service innovations pioneered by
SIA. The avenues for tangible differentiation that SIA had used in the past to set itself apart had soon
become the norm. Every major air carrier now offered a choice of meals in economy class, innovative
entertainment options in the cabins, and all the trappings of luxury that used to be the sole domain of
SIA. Of particular concern was the increasing competition from international carriers headquartered in
neighboring countries such as Thai Airways, Cathay Pacific, Malaysian, and Qantas. These carriers had
learnt to duplicate some of the key features of SIA’s competitive strategy from recruitment to in-flight
service and fleet management. Thus, there were fewer and fewer avenues left for SIA to distinguish itself
from the others. This placed growing pressure on the firm to refine its differentiation strategy.

In the international markets, alliances had become a way of life. It was probably the only reason-
able way to realize global aspirations. After weighing these factors for a considerable time, SIA had
recently joined the well-acclaimed Star Alliance. It was also pursuing numerous other partnerships with
other carriers as well as exploring direct investment options as a means of growth in overseas markets.
While this positioned SIA to take advantage of the booming markets for travel in Europe and the
United States, it raised concerns among SIA’s loyal clientele. There was some apprehension about the
ability of the other partners to be able to live up to the standards that SIA had set. Should there be

December 21, 2001

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2 TB0173

significant differences in service quality across network partners, some feared that SIA’s sterling reputa-
tion and brand image in the airline industry could be tarnished. There was indeed a lot riding on the
partnerships that SIA had entered or might enter in the near future.

The International Airline Industry

The airline industry had traditionally remained fragmented primarily due to the limiting effects of
national and international regulations. Enforced in the form of landing rights and associated competi-
tive constraints, even large airline companies had only been able to develop dominance over their own
regional markets at best. With the exception of the United States, dominant national flag carriers,
typically owned by the national governments, had remained the only international representatives of
their countries. However, the competitive dynamics in this industry had started to change dramatically
in recent years. Deregulation, privatization, and the advent of new technologies have started to reshape
the industry on a global level.

The United States deregulated its airlines in 1978 and had since witnessed heightened competi-
tion and aggressive jockeying for market position. Europe entered the throes of a similar escalation of
competition following the creation of the European Union and the disbanding of country-specific
barriers to free market competition among air carriers. In Asia, deregulation occurred in fits and starts
with some major regions allowing greater access to foreign carriers. For example, India, a regional mar-
ket of some significance, announced that it would privatize its state-owned airline company. It had
already allowed its traditionally domestic airline to compete against its international air carrier in many
of the regional markets comprising neighboring countries. Japan made major strides in deregulation
after selling off its shares in the then state-owned Japan Airlines and permitted All Nippon Airways to
serve international markets. In Latin America, many of the smaller national flag carriers were privatized.
Countries such as Mexico and Argentina infused significant levels of market competition in their airline
industries by removing anti-competitive barriers and privatizing their national airlines Mexicana and
Aerolineas Argentinas.

The trend seemed certain to gain further momentum and open skies might be closer to reality
than ever before. The major European nations were already in discussions with the United States to
implement an open Trans-Atlantic market area where landing rights would be determined by free mar-
ket forces rather than regulatory policy. Open skies agreements are bilateral agreements between coun-
tries that agree to provide landing and take-off facilities for air carriers originating in any of the partner
countries. Such an agreement does not have the typical restrictions related to landing rights that are
determined on a city-pair basis. For example, Singapore and the U.S. had signed an open skies agree-
ment under which a Singapore carrier could travel to any destination city in the U.S. and vice versa
(Exhibit I provides a list of countries that negotiated open skies agreements with the U.S.).

The twin trends of privatization and deregulation resulted in an increasingly global approach to
strategic positioning in this industry. Although most large carriers still retained their regional domi-
nance, many forged alliances with other leading carriers to offer seamless services across wider geo-
graphic areas. These alliances made most of the larger airline companies de facto global organizations.
With increasing geographic reach and decreasing regulatory barriers, many of the regions were witness-
ing acute competition often in the form of fare wars. Consumers in general became much more price
sensitive than ever before. In attempting to keep up with the competition, many carriers upgraded their
service offerings contributing to declining yields in a price-conscious market. Chronic excess capacity
worldwide only exacerbated this situation.

Not surprisingly, there was a decline in passenger revenue yield in all geographic regions and the
airlines were fighting an uphill battle to extract higher levels of efficiencies from their operating struc-
tures. (Exhibit II provides data on financial and operating statistics for the leading carriers by geo-
graphic region.) For example, passenger yield dropped by 1.9% and 2.5% in 1998 and 1999, respec-
tively, in Europe and 0.8% and 1.5% in North America during the same period. The drop was far more

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TB0173 3

significant in the Asia-Pacific region where the yields fell by 3.9% and 4.1% in 1998 and 1999. A
geographic region-wise summary of key trends in passenger traffic, growth potential, and major players
follows.

North America

The North American region in general and the United States in particular is by far the most significant
arena of competition in the international aviation industry. According to Air Transport World, a leading
industry journal, U.S. traffic accounted for close to 40% of worldwide revenues and revenue passenger
kilometers between 1997 and 1999 (see Exhibit III). American Airlines, Delta Airlines, and United
Airlines, who collectively accounted for roughly 58% of total U.S. airline revenues in 1999, dominated
this market. Northwest Airlines, U.S. Airways, and Continental formed the second tier of the majors
accounting for approximately 29% of total revenues for U.S. carriers. Although most of these large
carriers had carved out significant regional markets in the U.S. where they continue to dominate, many
are looking to alliances with overseas carriers to help meet growth targets. This was especially critical
since U.S. airline companies witnessed a 16% decline in profitability in 1998 alone. A large part of the
decline was blamed on operational inefficiencies and increases in input costs. For example, personnel
costs had increased by 3% between 1997 and 1999. Increases in oil prices, it was feared, would further
erode profit margins since all cost increases could not be passed along to consumers who were already
price sensitive.

Europe

The European region was poised to grow between 5% and 6% annually between 2000 and 2001 ac-
cording to ICAO (International Civil Aviation Organization) estimates. In 1999 this region accounted
for 26% of total revenue passenger kilometers worldwide placing it second to the North American
market. Much of the region remained fragmented in terms of market dominance although a small
group of leaders had started establishing control over key routes. British Airways and Lufthansa com-
prised the top tier of this market and accounted for roughly 45% of total 1999 revenue passenger
kilometers in the region while KLM, Iberia, Swissair, SAS, and Sabena formed the second tier with a
little over 37%. With the enactment of the EU (European Union) standards, all regulatory barriers had
virtually evaporated between member countries. As a consequence, the market shares of national carriers
in their own home markets fell by close to 15% on average between 1993 and 1998. The move to fare-
based competition was still in its infancy. It was estimated that only 2% of Europe’s travelers chose to fly
on low-cost carriers as opposed to 18% in the U.S. This may be an indication of the potential for low-
cost competition in Europe.

Asia-Pacific Region

By 1999, traffic in the Asian region had become quite important to the overall success of the air trans-
portation industry. Collectively, this region represented 24% of worldwide revenue passenger kilome-
ters. The ICAO estimated that the Asia-Pacific region had grown annually by 9.7% over the last ten
years. This upward trend was expected to continue albeit at slightly lower levels, moderating between
6%-7% until 2001. Trans-Pacific traffic was expected to grow at 6.6% and intra-Asia-Pacific traffic by
5%. Some analysts predicted that Asia would play a key role in over half of the top twenty international
markets ranked in terms of revenue passenger miles by 2002 (see Exhibit IV).

The aviation market in Asia, while similar to Europe of the pre-EU era, did indeed have some
dominant players. Japan Airlines and Singapore Airlines were the clear leaders and together accounted
for 40% of the market share. The second tier included Cathay Pacific, Thai, and Korean Air, which
comprised 33% of the market.1 Asian carriers in general had significantly lower operating costs com-
pared to their American and European counterparts. For example, in 1998, according to Warburg,

1 World Airlines in Review, Interavia Business & Technology, June 1999.

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Dillon & Read, personnel costs for North American carriers accounted for approximately 32% of total
revenues. For European carriers, it was 21%. However, for the Asia-Pacific carriers, it was only 17%.
Most of the Asian carriers also had much higher labor productivity levels and lower unit labor costs than
airlines in North America or Europe (see Exhibit V). This location-specific advantage was a primary
reason why carriers from other regions were setting up significant hub operations in the Asia-Pacific
region. While the yields for many carriers such as China Airlines, Korean Air, Thai, and Malaysian, the
second and third tier competitors, were much lower than international levels, the top tier carriers such as
Japan Airlines, and Singapore Airlines had yields consistent with their North American and European
counterparts. The avenues for differentiating airline services in this region were shrinking. The elite
carriers who had built a reputation for superlative service such as Singapore Airlines were now facing
stiff competition from carriers such as Thai Airways and Cathay Pacific who had geared to deliver
similar services. Thus, differentiation was becoming much more demanding and difficult to sustain.

The Rise of Alliances

By the late 1990s alliances between air carriers in different parts of the world had become the norm
rather than the exception. The initial drive to find alliance partners could be traced to the historic
strategic moves by KLM and Northwest in 1992 to partner and begin offering code share services. This
arrangement gave KLM a foothold in the rapidly growing U.S. market and allowed Northwest to ex-
pand its horizons in Europe. Today, most of the leading carriers around the world were part of mega-
alliances which had evolved to include several carriers under a single alliance brand. The Star Alliance,
for example, included ten carriers representing Asia-Pacific, North America, Latin America, and Eu-
rope. Oneworld, a similar network of partnerships, encompasses eight carriers spanning a similar geo-
graphical territory to Star (see Exhibit VI). Alliances such as these were expected to redirect traffic,
increase profitability, help leverage scale economies in operations, and differentiate services in the minds
of consumers who wanted to buy travel services through a single carrier.

While they did seem like a wonderful strategic option even to established carriers, alliances brought
their own set of thorny issues. There were invariably questions relating to level of service across carriers,
safety records of the partners, and willingness to cede control to an alliance. The key issue seemed to be
the difficulty in developing a consensus about how the partners would establish common safety, service,
and performance standards. Further, in the European markets there was a potential for cross-shareholdings
between carriers as privatization accelerated. It was feared that this could create a parallel network that
might undercut alliances. Since individual airlines were typically allowed to negotiate side deals with
other carriers on their own irrespective of their alliance membership, the likelihood of inter-network
rivalry was also high.

Singapore International Airlines: Country and Company

History and Culture of Singapore

Singapore had witnessed bountiful growth and become the envy of many neighboring countries as it
entered the new 21st century. Its per capita GNP increased by a phenomenal 75% between 1990 and
1999 and currently stood at S$39,724.2 This meteoric rise could be directly traced to Mr. Lee Kuan Yew,
the most powerful Prime Minister in Singapore’s history. He was able to tap the patriotic spirit of his
people when he announced his intent to develop Singapore to rival Switzerland in terms of standard of
living. His emphasis on superior education standards, a controlled labor environment, significant out-
lays for training and development, all helped to enhance the quality of human capital. At the end of
1999, Singapore boasted a literacy rate of 93%, among the highest in the region. Singapore’s Confucian
work ethic dovetailed very well with his ambitions. It emphasized responsibilities over rights and placed
enormous value on attributes such as hospitality, caring and service. As a result of these efforts, Singapore

2 Government of Singapore, Department of Statistics, www.singstat.gov.

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today ranked among the best countries in terms of human capital and was often rated among the world’s
friendliest places to do business. Rising standards of living meant higher wages (see Exhibit VII). Coupled
with the small size of the local population and a very low unemployment rate (3.2% in 1998), the
availability of labor was seen as a potential stumbling block in the drive toward further growth. Many of
the larger companies already depended on a sizable number of expatriates from neighboring countries as
well as the West to staff positions.

A staunch believer in free trade and internally driven growth, Mr. Yew made it clear from the start
that the “world does not owe Singapore a living.” For example, in the air transportation sector, Mr. Yew’s
government declared that SIA, although the national carrier, would not receive any subsidies, protec-
tion, financial assistance, or economic benefits from the government. It would have to sink or swim
based on its own resources and ingenuity. Singapore literally adopted a free skies approach whereby
foreign flag carriers from other countries were welcome to serve the city-state without any restrictions.
This meant heightened competition for SIA right from the start. However, the free market philosophy
also resulted in sharper rates of market growth. For example, roughly 35% of the equity base of Singapore
was foreign in origin, and foreign investors owned 17% of all companies in the country, both testaments
to the successful programs that attracted foreign capital and commerce to the island nation.

The tourism industry played a very significant role in the overall development of the country.
Handicapped by the small size and the lack of natural resources, Singapore had to rely on service indus-
tries such as tourism and finance to generate growth. It had always enjoyed an enviable status as an
important geographic hub dating back to the pre-British Colonization era. During its history as a
British colony, Singapore provided an important stop-off point for travelers from Europe and Britain to
the outlying colonies of Australia and New Zealand. Building on this historical reputation, Singapore
evolved into an important Asian tourist hub (see Exhibit VIII).

Singapore International Airlines: The Company

SIA traced its roots to an organization called Malayan Airways that offered its first commercial passen-
ger service in May 1947. The modern incarnation, SIA was born in 1972 when the Malaysia Singapore
Airlines was officially split into two new airline companies, SIA and Malaysian Airlines System (now
called Malaysia Airways). The long association with the Malaysian counterpart had proved to be quite
beneficial to the fledgling company. The crews garnered significant flight experience operating over
rough geographical terrain in Southeast Asia. Their safety records were impeccable. This association also
provided SIA personnel with crucial operating experience ranging from flight operations to matters of
administrative importance. As part of the split, SIA got half the combined assets, most of the overseas
offices, its headquarters building in Singapore, and a fairly new computer reservation system. SIA was
ready to spread its wings in the international aviation industry while its erstwhile partner, Malaysian
Airlines System, was intent on focusing on domestic flights within Malaysia. The choice was actually
pre-determined for SIA since Singapore was a very small city-state with a geographic area of only 240
square miles, smaller than New York City! In early 1999 SIA reached 95 destinations in 43 countries in
Asia, Europe, North America, Middle East, Southwest Pacific, and Africa (see Exhibit IX). Its subsid-
iary Silk Air served feeder routes and reaches 18 destinations in the Southeast Asian region.

SIA had established an enviable record both in terms of its operational performance and its
profitability history. It was one of the few Asian airlines that had continuously posted profits even
during lean years such as the 1990s economic downturns in Asia. Its return on equity (ROE) averaged
roughly 10% over the five-year period prior to 1999, while its return on sales was around 14% during
the same period. These profitability metrics were far more superior to those posted by SIA’s rivals, and in
some cases as high as twice or thrice what the rivals were earning. SIA had positioned itself to execute a
strategy of differentiation, predicated on offering its passengers a level of service that was seldom sur-
passed at the price levels that SIA offered.

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6 TB0173

On the Ground

SIA’s legendary commitment to superior service began on the ground. It built a network of wholly
owned subsidiaries and joint ventures to provide operational support in areas such as catering, terminal
management, and aircraft maintenance. These subsidiaries were largely managed as autonomous enti-
ties that had to bid for orders from the parent and were rated number one in many of their core areas.
The Singapore Airlines Terminal Services (SATS) subsidiary was one of the largest in the group. It
offered a variety of terminal management services including catering, passenger and baggage handling,
and ramp operations. SATS operated one of the largest flight kitchens in the world at Changi Interna-
tional Airport, producing an average of 45,000 meals a day. It had an impressive client list that included
British Airways, Quantas, Lufthansa, and Japan Airlines. It served more than 70% of all airlines flying
into Singapore. SATS had also gone global through joint ventures in Beijing, Hong Kong, Ho Chi
Minh City, Macau, Chennai, Male, Manila, Osaka, and Taipei.

The Changi International Airport was indeed a crown jewel for SIA. Given its status as a national
flag carrier, it occupied pride of place at Changi, an airport that it also managed. The airport itself was
rated among the best in the world by several global organizations. It often got top honors for its people-
handling efficiency and cleanliness. For example, SIA made a promise to deliver a passenger’s baggage
within ten minutes upon arrival in Changi and consistently delivered on that promise. Such a high
standard would be difficult but for the excellence of its subsidiary network, especially SATS. Changi was
also the headquarters of SIA’s Engineering Company, a subsidiary that provided aircraft maintenance
and engine overhaul services. As a testament to its engineering prowess, many global carriers engaged
SIA Engineering to service their fleets. SIA Engineering also had a global presence through joint ven-
tures with reputable companies such as Rolls-Royce and Pratt & Whitney. It was expected that both
SATS and SIA Engineering would be taken public in the near future to give them the independence and
the incentive to grow faster internationally. It was unclear whether this move would dampen the control
that SIA held in these subsidiaries and how it might impact the superior ground operations that these
divisions have been instrumental in building.

The almost obsessive attention to detail began the moment the passenger decided to travel on SIA.
The company was at the forefront of introducing electronic ticketing through its Web site. Online
ticketing was being rolled out across all destinations in its network. To make it easy on the passengers,
the company had introduced automated check-in systems on certain flights that tended to attract a large
number of travelers. It embraced technology in a variety of forms, allowing check-in via e-mail, tele-
phone, and fax. The Silver Kris Lounge that SIA offered its First and Raffles class (business class)
passengers could be best described as “oases of peace and quiet”3 amidst the hustle and bustle of the
airport. It featured an environment with plush armchairs, deep-pile carpeting, aquariums, tropical gar-
dens, and a décor that included original paintings by Singapore artists. Top-of-the-line-business equip-
ment such as computers, fax services, and a stock ticker were standard amenities. It was one of the largest
and most luxurious airport lounges in the world.

Fleet acquisition and management: Singapore Airlines came a very long way from its origins as a
company that had a fleet of just 10 aircraft serving a network of 22 cities. By late 1999 it operated a fleet
of 96 aircraft, almost all of them capable of long-haul, large-capacity flights. It had 37 aircraft on firm
order mostly with Boeing and another 36 on options to acquire should the need arise. It had planned its
fleet acquisitions judiciously such that its fleet was only five years old on average.4 It was the world’s
largest operator of the Boeing 747-400 Megatops, a roomy aircraft capable of long distance flights.
Among the largest air carriers in the world, Delta Airlines came closest to SIA in terms of fleet age with
an average of roughly eight years. Most of the other carriers had large segments of their fleets in the 14+
years range.5 Continuously maintaining youth in its flight operations was no small achievement. It was

3 BBC program.
4 Fleet data and age obtained from www.singaporeair.com.
5 Airline Analyzer, Warburg, Dillon, Read, August 1999.

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7

a facet of competition that SIA took very seriously. It maintained an office in Seattle, Washington, just
to liaise with Boeing designers and oversee the development of new additions to the SIA fleet. Newer
aircraft were typically more fuel efficient and less maintenance intensive than older generations. SIA
used a mix of leasing and outright purchase, primarily during economic lulls, to feed its appetite for new
fleets, thus extracting maximum value for its investment.

SIA emphasized fleet selection because of its strong signaling value. It implicitly tells the potential
customer that s/he can expect top-of-the-line technology, comfortable seating, and a safe trip, all of
which are critical aspects around which differentiation can be built. Keeping up with the changes in
technology allowed SIA to design aircraft interiors that encompassed the latest amenities. For example,
SIA was among the first to offer a personal video screen in every seat, even in its economy class. Its in-
flight entertainment system KrisWorld delivered 22 video channels, 12 audio stereo channels, and ten
Nintendo game channels at every seat, with a Dolby surround sound system that was specially designed
for SIA. Its first class cabins became the gold standard in the industry. They were outfitted with arm-
chair type seats that converted into comfortable beds at the push of a button. Clad in Connolly leather
(the company that supplies leather products to Rolls Royce, Ferrari, and Jaguar) and trimmed in burl
wood, the seats included built-in communication devices and an inflatable air mattress. The cabin crew
provided a “turn-down” service where the bed linen was replaced on long trips. The famous French
fashion house Givenchy designed all the service-ware. SIA tried to convey this air of exclusivity in its
other cabins as well. Even in coach class, the seats were wider than average, with spacious legroom, leg
rests, video screens, and ergonomic headrests. As part of its drive to be a top-notch air carrier, SIA had
gathered several firsts along the way. In 1991, it was the first transcontinental carrier to introduce in-
flight telephones using advanced communications technology. It was the first with the Dolby surround
sound and personal video screens in coach. It was the first to offer fax services in the air. The list goes on.
Plans were under way to upgrade the communications package to allow Internet access while in the air.
It would shortly debut an on-demand entertainment system called WISEMEN in its First and Raffles
class cabins.

The Softer Side of SIA

The company firmly believed that its employees were the primary drivers of the success that it enjoyed
in the marketplace. Through a deft mixture of organizational culture, indoctrination, and ritual, SIA
was able to meld the human assets into a formidable source of competitive advantage. A large number of
its employees came from Singapore and Malaysia. As of 1999 it employed 27,400 people worldwide of
which roughly 11,000 worked in Singapore making SIA the largest private sector employer in the coun-
try. The company established an expansive SIA Training Center in Singapore that served as the focal
point for training programs targeted at cabin crew, commercial staff, flight crew, and flight operations
personnel.

SIA executed a finely tuned recruitment and training strategy to keep its ranks stocked with excep-
tional talent. Most of the employees arrived at the company either through a cadetship (similar to an
internship) program that attracted generalists, or a specialist program geared to functional experts in
areas such as computer services and finance. The cadetship was an intensive on-the-job training pro-
gram that cycled employees through a variety of functions as they moved up the hierarchy. Its commit-
ment to employee training and development was reflected in the fact that it spent roughly 14 times as
much per employee as the average Singapore company. The company instituted a system of proven
controls and mentoring guidelines that helped the employees develop their potential to contribute to
the success of the organization. Over time, this built an enormous sense of camaraderie among the team,
a very strong sense of identity and belonging where the employees truly took pride in their organization.
For example, during the recent economic crisis that plagued Asia, SIA was able to manage without
significantly trimming its workforce because many of its employees willingly turned down their annual
wage increments while improving operational efficiency at the same time.

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The pool of talent with respect to pilots was indeed global in complexion. At last count SIA had
pilots from over fifty countries flying its fleet. Many of these pilots were expatriates drawn by the allure
of flying the latest equipment under professional working conditions at very generous levels of compen-
sation. The company operated its own flying college with campuses in Singapore and Jandakot, Austra-
lia, that focused on improving training efficiency and producing qualified pilots. The college served as
an incubator for developing Singaporean pilots to meet SIA’s growing demands. The company had a
state-of-the-art flight training facility in Singapore which housed eight flight simulators where pilots
were trained. All flight personnel were required to go through mandatory biennial proficiency checks. It
was generally believed that the training programs in this regard were quite well administered as reflected
in the very high levels of safety that the company was able to achieve. It was the long-term intent to
induct more Singapore nationals into the cockpit, a daunting proposition especially since the number of
local pilots available was quite low. This was augmented by graduates of the Singapore Armed Forces
(SAF) which trained pilots for defense purposes. After completion of the mandatory employment with
SAF, some of the trained personnel took up jobs with SIA. The company employed roughly 1,500 flight
crew of whom half were expatriates. Normally, the expatriates were more expensive since the company
had to bear a variety of expenses such as housing, schooling for children, travel, etc., in addition to base
pay.

The complement of cabin crew, numbering roughly 6,000, were chosen through a very rigorous
selection process. SIA considered them to be the “brand ambassadors” who should reflect the high
standards of service excellence that its passengers expected. Although they were drawn from many
ethnicities within the South/Southeast Asian region (mainly Malaysia, India, Japan, Korea, Taiwan, and
Indonesia), they were mostly Singaporean. Of late, this recruitment strategy had posed a stumbling
block since the pool of available talent within Singapore was insufficient to draw from. Given the fact
that SIA had some of the lowest labor costs among leading carriers, this home-based cost advantage had
proven to be a critical ingredient in the success of the company. Any fall-off in the availability of local
talent could adversely impact operating costs, especially if it necessitated the recruitment of expatriate
personnel. Such a move would also raise questions about how globalizing its workforce would fit in with
its historic branding approach, the Singapore Girl. When SIA was formed, it had to compete against
other airlines that had much more sophisticated fleets and passenger options. In combating this handi-
cap and to distinguish itself in the marketplace, SIA launched the Singapore Girl as the embodiment of
caring, comfortable, hospitable service. It also played well to the oriental mystique that was then preva-
lent in the Western world where the company sought to establish a footing.

The image of the Singapore Girl was carefully nurtured. It began with a rigorous selection process
and extensive training soon thereafter. The training program emphasized aspects such as passenger han-
dling, social etiquette, and grooming. While no different on the surface from other competitors, the SIA
program was far more intense and demanding. For starters, it lasted much longer than competitors’
training programs and embraced some non-traditional aspects. For example, many of its cabin crew
spent extensive periods of their training program in homes for the aged to gain a better appreciation of
the special needs of this fast-growing passenger segment. The company’s approach to molding attitudes
and service-oriented behaviors transcended mere internalization of a set of physical practices, and do’s
and don’ts by the cabin crew. The arduous training process was to be repeated periodically through
preplanned refresher courses so that the crew could get acquainted with new cabin management tech-
nologies and service standards. Once in the fold of the organization, there was a marked effort on the
part of management and staff to help each employee perform at his/her best potential. Various practices
such as detailed performance reviews and feedback at all levels, career counseling, and performance-
based reward systems were designed toward this end. SIA’s in-cabin service became legendary, the stan-
dard that even other airlines aspired to reach. In a recent survey by Condé Nast Traveler, a well-respected
travel magazine, SIA was ranked overall as the Best International Airline. This was the 10th time that SIA
was chosen for the prestigious honor in eleven years that the award had been given. The respondents
rated SIA’s cabin service as the best in the world, a testament to the company’s emphasis on excellence in
this arena. Such awards were nothing new for SIA which had garnered over a hundred from august
organizations such as Zagat, Condé Nast, Business Traveller, OAG Worldwide, ASEAN (Association of

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TB0173 9

South East Asian Nations) Tourism Association, and Asia Money. In January of 1999 alone, the com-
pany won an astounding 23 awards.

Competing in the New Millennium

By the late 1990s, competition in the airline business had become decidedly global, although very few
carriers could legitimately claim to be global carriers. Carriers in the Asia-Pacific region had taken a page
from the SIA playbook in offering premium services at consistently low fares. Those in Europe and
North America had strengthened their positions through alliances. SIA had already taken some impor-
tant steps to fortify its position globally. It had recently decided to join the Star Alliance, a powerful
network of carriers that included Lufthansa, United, Ansett, Air New Zealand, All Nippon Airways,
South Africa Airways, Air Canada, Thai, Varig, and SAS. It was believed that this would allow the
members to offer code-sharing services, fine tune traffic flows to increase revenues and efficiency, and
combine their buying power to negotiate favorable terms for securing inputs. Translated from an SIA
perspective, this could open up several destinations that SIA did not yet serve. It could take advantage of
code sharing to carry a greater number of passengers to destinations within Europe and the United
States. For example, as of 1999 it served only three major cities in the U.S., Los Angeles, San Francisco,
and New York. Hence, the relationship with United could extend that limited set of destinations to
encompass a considerably larger number of primary and secondary cities. A similar argument could be
made with respect to leveraging the new relationship with Varig to fly to more destinations in South
America, a region that was not well represented in SIA’s route structure. However, despite the obvious
advantages, the alliance network did bring with it some concerns.

Thai Airlines, the nearest geographical neighbor for SIA in the alliance, announced its intent to
step down from the Star Alliance since it believed that the relationship would not serve its best interests
after SIA was allowed to join. This could indicate some simmering rivalry in the region where Thai was
taking active steps to upgrade its service levels and had reached a position where its service would be
rated quite highly. From the perspective of loyal SIA passengers, it remained to be seen whether the
other network carriers would be able to rise to the levels of SIA’s hallmark service standards. Should
there be shortfalls, it is quite likely that the brand image that SIA has so carefully nourished could be
tarnished, especially among its loyal First and Business Class passengers. In essence, joining a network
amounted to delegating some aspects of brand management to the collective group of companies such
that the identity of the network would transcend the individual identities of the members. The loss of
control over some key decisions such as scheduling and flight frequency could also pose challenges in
the future. It also raised critical questions about the imitability of core competences. Would the partner
firms be able to learn more about the critical aspects of SIA’s recipe for sustainable competitive advan-
tage? An alliance is usually not designed to last forever and hence should the partners learn first-hand
about SIA’s operations, it might be disadvantageous to SIA should the alliance be dissolved.

In balancing growth potential against the ability to control the alliance, SIA was considering
equity investments. It acquired an 8.3% equity stake in Air New Zealand to cement a long partnership
with the New Zealand carrier. Since Air New Zealand already owned 50% of Ansett Airways, SIA would
have the benefit of the additional alliance with Ansett as well. It was expected that these moves would
strengthen SIA’s position in the Australasia market that was growing significantly.

Mr. Kong believed it was in SIA’s best interest to pursue an equity investment in Virgin Airways as
a further step toward achieving global status. His team discussed an investment proposal under which
SIA would acquire 49% of Virgin Atlantic for roughly $975 million. This represented a valuation that
was equivalent to four times prevailing market value for Virgin and about 1.2 times of Virgin’s sales
revenues.6 In return, SIA would gain access to the lucrative trans-Atlantic sector between the U.S. and
U.K., thus entering an arena that SIA could not enter previously given the roadblocks imposed by the
British Government. It would also obtain landing slots at Heathrow. The route structures of the two

6 HSBC report, Feb. 7, 2000.

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10 TB0173

companies were quite complementary with very little overlap (see Exhibits IX and X). This would
indicate greater potential for increasing revenues through code-sharing flights. While Sir Richard Branson
was slated to continue managing Virgin, SIA had been promised three board memberships. Since both
organizations adopted an almost obsessive attention to customer service and had similar operating
philosophies, it was believed that they would function well as partners. However, Virgin appeared to be
the more free-spirited company of the two and had a reputation as an iconoclast while SIA portrayed a
buttoned-down, conservative image. The Board was sure to raise issues of management compatibility,
price to acquire, control of Virgin Atlantic, and how the new relationship could impact existing rela-
tionships that SIA had built with other carriers. For example, Virgin declared that it would soon launch
a low-cost Virgin Australia division that would compete in the Australian market. This might place SIA
in an awkward position since its ownership in Air New Zealand could technically make it a competitor
to Virgin. Further, Virgin had repeatedly said that it would not join the Star Alliance. This could
potentially pit SIA against Star Alliance members. For example, SIA might want to funnel passengers to
Virgin on its North Atlantic routes instead of United, a Star Alliance partner. Decisions such as this
could muddy the alliance network that SIA currently belongs to. In essence, joining forces with Virgin
might undo some of the benefits of belonging to the Star Alliance.

As Mr. Kong proceeded through Immigration at Changi, he was trying to assemble a mental map
of how he wanted to position SIA in the near future. Besides the strategic issues relating to alliances and
Virgin Atlantic, the mounting competitive intensity in the Asia-Pacific region also required immediate
action. How should SIA continue to differentiate itself from the copycats who seemed to be doing a very
creditable job at imitating SIA in terms of cabin service and amenities? What new signaling devices
could SIA harness to set itself apart from the competition? Should SIA be wedded to the Singapore Girl
concept that had historically helped distinguish their service offerings? Would SIA be able to achieve its
global objectives while holding steady with its recruitment approach that focused primarily on
Singaporeans and Malaysian personnel? Should SIA begin a full-blown strategy analysis based on Internet
technologies that appear to be rewriting the rules of business? How could its potential be harnessed
within SIA?

The chauffeur was holding the door open as Mr. Kong strode to the limousine. Mr. Kong wanted
to get a few winks before the Board meeting tomorrow. It was the best of times for SIA on some fronts,
but there was uncertainty in the air. SIA was at a crossroads in its history. The next few strategic moves
would determine whether it would rise from its status as a very good Asian airline to become a global
player, commanding the respect of the world’s largest carriers.

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TB0173 11

Exhibit I U.S. Open Skies Agreements as of 1999

Americas Asia/Pacific Europe Middle East
Aruba Brunei Austria Jordan
Canada Malaysia Belgium United Arab Emirated
Chile New Zealand Czech Republic Bahrain
Costa Rica Pakistan Denmark
El Salvador Singapore Finland
Guatemala Taiwan Germany
Honduras South Korea Iceland
Dutch Antilles Uzbekistan Italy
Nicaragua Luxembourg
Panama Netherlands
Peru Norway

Romania
Sweden
Switzerland

Source: U.S. Department of State

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12 TB0173

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in

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: A

nn
ua

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or
ts

a
nd

H
SB

C
R

es
ea

rc
h.

Do
Not

C
op

y
or

P
os

t

This document is authorized for use only by Alessandro Cavelzani until May 2012. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

TB0173 13

Ex
hi

bi
t I

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Ke

y
Fin

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nn
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ec

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it

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s

R
es

ea
rc

h,
A

B
N

A
m

ro

Do
Not

C
op

y
or

P
os

t

This document is authorized for use only by Alessandro Cavelzani until May 2012. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

14 TB0173

Ex
hi

bi
t I

I
Ke

y
Fin

an
cia

l a
nd

O
pe

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tin

g
St

at
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te

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85

Do
Not

C
op

y
or

P
os

t

This document is authorized for use only by Alessandro Cavelzani until May 2012. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

TB0173 15

Exhibit III Projected Airline Passenger Traffic Growth

Region 1987 1997 1998 1999 2000 2001
Africa 35.9 56.2 55.2 57.4 60.3 63.5
Asia/Pacific 253.5 639.5 630.1 657.2 696.0 744.0
Europe 494.2 655.2 691.5 721.9 763.1 808.9
Middle East 44.6 76.7 77.7 80.5 84.4 89.3
North America 684.6 1020.4 1042.1 1082.7 1123.9 1175.6
Latin America 76.7 125.1 133.8 139.3 147.2 156.8
World 1589.5 2573.1 2630.4 2739.1 2874.8 3038.0

Revenue Passenger Kilometers—billions

Source: International Civil Aviation Organization.

Exhibit IV Top 20 International Markets Projected Growth in RPMs by Region

Rank Region 1998-2002E 1998-2007E
1 Africa-South America 8.3% 8.2%
2 Northeast Asia – Southwest Asia 8.2% 8.2%
3 Africa – Southwest Asia 7.8% 7.8%
4 Central America – South America 7.7% 7.5%
5 CIS region – International 7.5% 7.3%
6 Europe – South America 7.4% 7.9%
7 Europe – Northeast Asia 7.3% 7.7%
8 Oceania – South America 7.2% 7.1%
9 China – Southwest Asia 7.1% 7.2%
10 Middle East – Northeast Asia 6.9% 7.6%
11 Europe – Southwest Asia 6.7% 6.8%
12 North America – South America 6.6% 6.7%
13 Africa – North America 6.6% 6.9%
14 North America – Southeast Asia 6.5% 6.9%
15 China – Europe 6.4% 6.8%
16 Africa – Middle East 6.2% 6.1%
17 China – Northeast Asia 6.0% 6.6%
18 Southeast Asia – Southwest Asia 5.9% 6.3%
19 Northeast Asia – Southeast Asia 5.7% 6.5%
20 North America – Northeast Asia 5.7% 6.2%

Source: U.S. Dot Form 41, Boeing Corp.

Do
Not

C
op

y
or

P
os

t

This document is authorized for use only by Alessandro Cavelzani until May 2012. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

16 TB0173

Exhibit V Annual Staff Cost Per Employee in the Global Airline Industry

Region/Airline 1999 U.S. $
Europe

Swissair 47,000
KLM 56,000
Air France 58,000
Lufthansa 58,000
British Airways 59,000
SAS 60,000

North America
Air Canada 46,000
American 50,000
Continental 58,000
United 60,000
Northwest 61,000
Delta 68,000
U.S. Airways 75,000

Asia-Pacific
Malaysian Airlines 18,000
Thai Airways 24,000
Air New Zealand 36,000
Korean 38,000
Singapore Airlines 46,000
Qantas 50,000
Cathay 67,000
All Nippon Airways 96,000
JAL 104,000

Note: Data drawn from bar charts deemed approximate.

Source: Warburg, Dillon Read, Airline Analyser, Aug. 1999.

Exhibit VI Major Partners in Global Airline Alliances (1999)

Star Wings Oneworld Delta
Air Canada KLM American Delta
Lufthansa Northwest British Airways Austrian
SAS Alitalia Canadian Sabena
Thai Continental Cathay Pacific Swissair
United Qantas Air France
Varig Finnair
Air New Zealand Iberia
Ansett Australia Lan Chile
All Nippon Airways

Source: Merrill Lynch

Do
Not

C
op

y
or

P
os

t

This document is authorized for use only by Alessandro Cavelzani until May 2012. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

TB0173 17

Exhibit VII Global Comparison of Wages

Country 1989 1991 1993 1995 1997
Malaysia 16.47 189.26 223.22 263.75 293.50
India 18.85 22.85 21.92 27.52 26.64
Singapore 717.46 895.96 1049.62 1246.03 1436.08
Thailand 76.60 94.29 105.80 127.69 151.75
U.S.A 1676.80 1788.80 1878.40 1979.20 2107.20
U.K. 1391.78 1677.35 1881.76 2000.50 2194.38
Germany 1053.33 1060.99 1087.79

Note: All wages are expressed in non-inflation adjusted 2000 U.S. $ per month of employment. They are
average wages across all forms of non-agricultural activities. Service wages are typically higher than averages
shown.

Source: International Labor Organisation, Laborsta Database.

Exhibit VIII

Tourist Arrivals and Outbound Departures to and from Singapore

1993 1997 1998
Tourist Arrivals 6,425,800 7,198,000 6,241,000
Outbound departures 1,587,416 2,391,149 2,197,759
Tourists per capita 1.92 1.76
Departures per capita 0.64 0.61

Source: Government of Singapore, Department of Statistics

.

Primary Regions of Origin of Singapore Bound Tourists, 1998

Region/Country Number
ASEAN 1,878,600
Japan 843,700
Australia 427,200
Taiwan 362,400
U.K. 357,900

Source: Government of Singapore, Department of Statistics

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This document is authorized for use only by Alessandro Cavelzani until May 2012. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

18 TB0173

Exhibit X Route Structure for Virgin Airways

Exhibit IX Route Structure for Singapore Airlines

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This document is authorized for use only by Alessandro Cavelzani until May 2012. Copying or posting is an
infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

TB0173 19

Appendix

Available Ton Kilometer (ATK) A measure of capacity expressed in terms of aircraft payload multiplied
by kilometers flown

Available Seat Kilometers (ASK) A measure of seat capacity available defined by the number of seats
multiplied by kilometers flown

Revenue Ton Kilometers (RTK) The total traffic carriage measured by the revenue generating weight
(in tons) of load carried multiplied by kilometers flown

Revenue Passenger Kilometers (RPK) A passenger traffic measure expressed as the total number of passengers
carried multiplied by kilometers flown

Passenger Load Factor (PLF) Passenger Load Factor in RPKs is expressed as a percentage of ASKs
which indicates utilization of seat capacity (RPK/ASK)

Cargo Load Factor (CLF) Cargo load in RTKs expressed as a percentage of ATKs which indicates
utilization of total capacity

Overall Load Factor (OLF) Total passenger and cargo load expressed as a percentage of total pas-
senger and cargo capacity (ATKs) which indicates utilization of total
capacity

Break-Even Load factor Unit cost per ATK divided by overall yield—provides an indication of
the load factor needed for the airline to break even at the operating
profit level

Yield Amount of revenue generated by each unit of load expressed in cents
per RTK for cargo or cents per RPK for passengers

Unit Cost Expenditure required to produce a unit of capacity expressed in cents
per ATK for cargo or cents per ASK for passengers

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