Singapore Airlines Case Study Report
Lecturer: Balwant singh
Zhou Jiaqi Sheryl | Accounting, Behavior and Organisation | 1 September 2018
Executive SummaryThis report examines SIA current management accounting systems (“MAS”). Organizational structure, business strategy, environmental responsibilities and performance measurement system of SIA is analyzed to gain greater insights of the approach that SIA uses to gather and disseminate information to support the successful implementation of strategy. SIA adopts a decentralized organizational structure which empower the lower levels of management the authority and responsibility of decision making. This allows the company to acquire their goal – a satisfactory return to shareholders.
Table of Contents
TOC o “1-3” h z u Executive Summary PAGEREF _Toc524693055 h 1Introduction PAGEREF _Toc524693056 h 3Background PAGEREF _Toc524693057 h 3Industry PAGEREF _Toc524693058 h 3Competitors PAGEREF _Toc524693059 h 3Strategy PAGEREF _Toc524693060 h 4Mission PAGEREF _Toc524693061 h 4Organisational Structure PAGEREF _Toc524693062 h 5Responsible centres PAGEREF _Toc524693063 h 6Environmental Responsibility PAGEREF _Toc524693064 h 7Performance Measurement System and Rewards PAGEREF _Toc524693065 h 8Approprpiateness of performance measures PAGEREF _Toc524693066 h 10Recommendation PAGEREF _Toc524693067 h 10Conclusion PAGEREF _Toc524693068 h 10References PAGEREF _Toc524693069 h 12
IntroductionBackgroundSIA was founded on 28 January 1972.SIA began with alliance of Malayan Airways Limited on 1 May 1947, by the Ocean Steamship Company of Liverpool, the Straits Steamship Company of Singapore and Imperial Airways. The airline’s maiden voyage was a charter flight from Singapore to Kuala Lumpur on 2 April 1947. The airline continued to expand during the 1940s and 1950s. In 1966, Singapore’s separation from the Federation of Malaysia (Malaya, Singapore, Sabah and Sarawak), resulting in a name change to Malaysia-Singapore Airlines. The following year, there was an expansion in the airline fleet and route, which includes the purchase of the first Boeing aircraft. (National Library Board 2016). Now, Singapore Airlines Limited is the flag carrier airline of Singapore. It is ranked as the world’s best airline for the fourth time in 2018 and ranking amongst the top 15 air carriers for its scale of revenue per passenger per kilometers travelled. Singapore is now one of the largest airline company in Asia. (Singapore Airlines Limited 2018).
IndustrySIA engaged in several industries, which are: Airline Operations, Engineering Services, Cargo Operations and Other Services. Airline Operations offer passenger air transportation whereas, engineering services provides maintenance and overhaul services, line maintenance, technical group handling services, and fleet management programs. Not only that, they also produce cabin equipment, reconditions the galley of the aircraft; providing technical and non-technical handling services; repairs and overhauls aircraft equipment. (Forbes n.d.) The Cargo Operations provides air cargo transportation and related services. Other services include training of pilots, air charters and tour wholesaling (Forbes n.d, para 1)
CompetitorsSIA has several air carriers company competing with its subsidiary companies (SilkAir and Scoot). For example, SilkAir having Tigerair as one of its competitors. (MBA Skool n.d.). However, Tigerair has a weakness that differs from SilkAir and Scoot is that it is not wholly-owned subsidiary (CAPA Centre for Aviation 2014) One of the strongest competitors Singapore Airlines faced is Emirates. (MBA Skool n.d.) They are very similar as they both engaged in a variety of business related to air carriers. StrategyMission’Singapore Airlines is a global company dedicated to providing air transportation services of the highest quality and to maximizing returns for the benefit of its shareholders and employees.’ (Singapore Airlines Limited 2018)
SIA aims to deliver maximization returns for its shareholders and employees which is driven by 5 pillars of its organizational structure. They are – rigorous service design and development, total innovation, profit consciousness ingrained in employees, achieving strategic synergies, and developing staff holistically (Heracleous ; Wirtz 2009). The pillars provide a fundamental strategic alignment for SIA, in which facilitates the competencies of SIA. The ability of being able to achieve a differentiated product or service that is perceived by customers being superior and unique, made SIA a differentiator leader. Detailed strategies are developed at a divisional level to provide subsidiaries a customise growth opportunities for the specific market.
Source: Smart Insights 2018
Every business requires to hold, build, harvest and divest their business to achieve its strategic objectives. A crucial feature of this framework that each business operates independently. Long-term focus is needed for SIA to add value in creation and building businesses to establish a success in this framework.
Organisational StructureOrganisational structure refers to the hierarchical alignment within an organisation (between individuals and groups) with respect to the allocation of tasks, responsibilities and authority and how information in organisation flows (Lunenburg 2o09). SIA utilizes a decentralized structure, whereas the decision-making powers are disseminated down across to subsidiaries in different industries, rather than only the Board of Directions come out with and idea and implement throughout the companies. (Topic 4 Lecture Slides 2018). The key success factor to Singapore Airlines is the elasticity of market demand for high quality service and the proficient management. Source: Business Case Study
SIA also adopt a market-based unites approach where the unit focuses only on the specific market or industry that they are in. (Topic 4 Lecture Slides 2018) They have their constitutional board of directors. (Singapore Airlines Limited 2018)
Source: Singapore Airlines Sustainability Report FY2017/18
For example, the Public Affairs Department. The Public Affairs Department act as an bureau which facilitates the Sustainability Strategic Working Committee (SSWC) in various sustainability-related performance reports. Team consisting department heads from various business units, within SSWC, come together to oversee company’s strategies and initiatives. This market-based structure very applicable for SIA as they own several companies in various industries, for example, SIA Engineering Company.
The size and complexity of SIA resulting them in adopting decentralized approach. With this structure acting as a fundamental, information can flow more efficiently and effectively through the company. Prompt decisions can be made as the coordination between people, activities and resources became more effective and efficient. It is a success for SIA’s decentralized management as there is a clear communications and recognition of responsibility between the work units and directors. SIA is competent to able to measure performance of each work units and there is limitation on the intervention of central management (CEO, Chairman) in local decision-making. (Topic 4 Lecture Slides 2018)
Responsible centresResponsibility Centres are defined as decentralized work units which the management is accountable for distinct types of operating activities (Topic 4 Lecture Slides 2018). Profit centres, cost centres and investment centres are a few types of Responsibility Centre’s management are meant to enhance some financial performance variables (Such as cost, profit, or revenue) (Melumad, Mookherjee & Reichelstein 1992) In SIA organizational structure, profit centres are used as management whereby managers evaluate the degree of influence made by controlling costs and revenues. Even though, SIA emphasize greatly on the service excellence and innovation, managers and staff needs to be also aware of the needs to be profit and cost-effective as this is part of SIA’s culture. SIA being the second highest market capitalization in airline industry is contributed by the company pursuit of profitability, despite to be having a modest revenue as compared to their competitors (Lunenburg 2o09). Under profit centre, performance measures need to be quantitative. (Topic 4 Lecture Slide 2018)
Environmental organizations are defined by the corporate environmental responsibility to reduce or prevent implications of company’s operation, products and facilities (Mazurkiewicz 2004). It can be understood as a joint obligation involving communities, companies and governmental support (Ballantyne & Gerber 1994) Companies are encouraged to improve their environmental performance when the emergence of environmental responsibility in the 1980s (Schaper 2002) There are consequential pressures from different communities (Union Group, environmentalist and Government) (Ballantyne & Gerber 1994). Source: Mazurkiewicz 2004
The above diagram showcases the success factors for a company having an environmental focal point. Company varying in size, culture and the industry that they are in, have a different environmental responsibility. For example, SIA. SIA has many programmes implemented in different stages of their operation like managing issue such as carbon emission. (Singapore Airline Sustainability Report 2018) Retail and services sector companies faces a wide diversity of challenges. However, the impact of such obstacles is smaller as compared to manufacturing sector. This is because, for manufacturing corporate would be advocated for greener method at every stage of operation (incurring more expenses) while retail companies would only need to engage with manufacturer that produce green products (Das 2006). An increase in demand of green products implies that innovative ideas that reduces the productivity costs of going ‘green’, which results in a revenue growth, will be seek by organisations (Mazurkiewicz 2004).
Environmental impacts are more easily measured and evaluated in larger firms. Moreover, larger firms such as SIA have more insights and experience in dealing pressures from stakeholders and tackling the greener business perspective (Schaper 2002)
SIA Group believes that it is their long-term responsibility to protect the environment which coincidentally supports Ballantyne & Gerber approach. (Singapore Airlines Limited 2018) According to Mazurkiewicz (2004), the importance of large corporates turned ‘green’ and understand the various pressures coming from the society perspective in relation to the environment, will result in further success in that industry. One of the environmental initiatives done by SIA is that both commercial and cargo flights’ uses the most fuel-efficient aircrafts and sustainable biofuels. Carbon savings for a flight is estimated 26.676kg of CO2, which is equivalent to planting 680 trees. Another initiative that was initiated by the corporate is waste management. In Financial year 2017/18, over 3,500 tonnes of waste was disposed from office buildings. Any industrial waste generated is separated with general waste and properly disposed with industrial effluents to be treated in government-operated plants. (Singapore Airlines Limited 2018) This greatly demonstrates SIA obligations and dedication to environmental responsibility.
Performance Measurement System and RewardsBoard Compensation and Industrial Relations Committee (“BCIRC”) is entrusted with the duty of inspecting on the general framework of remuneration for the Board and Relevant Key Management personnel and provide recommendations regarding the approval of the framework. Special remuneration packages have been recommended for individual Director and Key Personnel by BCIRC. (Singapore Airlines Limited 2018)
SIA remuneration framework constitutes of a fixed and variable component. Basic salary, the Annual Wage Supplement (“AWS”) and cash allowance are classified under fixed component. Profit-sharing Bonus (“PSB”), Economic Value Added- based Incentive Plan (“EBIP”) and Strategic ; Transformational Initiatives Incentive Plan (“STIP”) are classified under variable component in the framework. The remunerational mix targets to provide an equilibrium between the competitiveness market and long and short-term goals. This remuneration fixates on the connection between SIA’s business strategy, intentional business achievements and motivating performance culture (Singapore Airlines Limted 2018). Fixed annual remuneration maintained a competitive level that attracts the managerial of comparable roles in the company to stay back. Not only that, it showcases each executive’s capabilities and contribution to SIA. (Singapore Airline Limited 2018)
PSB is designed to achieve an equilibrium in Company’s financial objectives and operating performance. Payment of such bonus is based on the targets (previously set for each of KPI)achieved. The managerial are measured based on Profit after taxation and ROE. They are also measured non-financially through talent management, innovation and strategic initiatives (Singapore Airlines Limited 2018). Long term incentives are measured by the TSR over performance period of 3 financial years. TSR is used to measure gains in shareholders’ return and to measure performance as it provides a comparative, external market performance measure. These performance measurements in remuneration framework is associated with SIA objective – the maximization returns for shareholders and employees. This can be justified by the increase in net earnings in FY 2017, an increase in ordinary dividend per share and an increase in ROE.
Source: Singapore Airlines Annual Report 2018
The executives have met all non-financial measurement (retain talent). Source: Singapore Airline Annual Report 2018
Approprpiateness of performance measuresNone of the non-financial measurement has relation with environmental responsibility despite SIA highlighted the importance of individual contributions to environmental responsibility. The remuneration framework is deemed inconsistency as SIA did not consider environmental factors to be part of their performance target. Both environmental and sustainability targets are not in consideration therefore, suggesting that SIA merely caring for environment at a superficial level in order to meet pressures from the stakeholders.
RecommendationSIA Board of Director’s performance measurement systems needs to be updated with environmental responsibility target besides target achievement of the financial and non-financial activities mentioned in this report. Since SIA has acknowledged the importance of sustaining the world through environmental responsibilities and each individual have to play a part for its future. Having environmental responsibility as a target for the senior managerial to meet and improve, this could result in improvement of SIA performance and prevention of any damages cause to the environment.
ConclusionOverall, SIA able collect and communicate important information efficiently and effectively down the organizational structure. Through decentralized and market-based organizational structure, it allows the company and subsidiaries to operate independently and senior managerial can focus on making decision for other major projects in turn improving on the company’s overall performance.
ReferencesBallantyne, R ; Gerber, R 1994, Managerial Conceptions of Environmental Responsibility, The Environmentalist, March, vol 14, no. 1, Issue 1, p. 47-48
Burgman, R ; Clieaf, MV 2012, ‘Total Shareholder Return (TSR) and Management Performance: A Performance Metric Appropriately Used, or Mostly Abused?’, Rotman International Journal of Pension Management, Vol 5 no. 2,
CAPA Centre for Aviation 2014, Singapore Airlines SWOT: challenges continue as competition intensifies as shown by 1QFY2015 results, viewed 3 September 2018, ;https://centreforaviation.com/analysis/reports/singapore-airlines-swot-challenges-continue-as-competition-intensifies-as-shown-by-1qfy2015-results-180289;
FC. Lunenburg 2012, ‘Organizational Structure: Mintzberg’s Framework, International Journal of Scholarly, Academic, Intellectual diversity, vol 14
Heracleous, L ; Wirtz, J 2009, ‘Strategy and organization at Singapore Airlines: Achieving sustainable advantage through dual strategy’, Journal of Air Transport Management, Vol.15(6), pp.274-279
Mazurkiewicz, P 2004, Corporate Environmental Responsibility – Is a common CSR framework possible?, World Bank Group, US, viewed 4 September 2018,;https://siteresources.worldbank.org/EXTDEVCOMSUSDEVT/Resources/csrframework.pdf ;
MBA Skool n.d., Singapore Airlines SWOT Analysis, Competitors ; USP, viewed 2 September 2018, ;https://www.mbaskool.com/brandguide/airlines/344-singapore-airlines.html;
MBA Skool n.d., SilkAir SWOT Analysis, Competitors ; USP, viewed 2 September 2018, ;https://www.mbaskool.com/brandguide/airlines/13189-silkair.html;
Melumad, N, Mookherjee, D ; Reichelstein, S 1992, ‘A theory of responsibility centers’, Journal of Accounting and Economics, Vol 15, no. 4, pp 445-484
National Library Board 2016, Singapore Airlines, viewed 1 September 2018, ;http://eresources.nlb.gov.sg/infopedia/articles/SIP_1705_2010-08-10.html;
Seasia 2018, 10 Largest Airlines in Southeast Asia by Fleet Number, Seasia, viewed 4 September 2018, ;https://seasia.co/2018/04/19/10-largest-airlines-in-southeast-asia-by-fleet-number;
Singapore Airlines Limited 2018, Annual Report FY2017/18, company report, Singapore Airlines Limited, viewed 2 September 2018, ;https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/annualreport1718.pdf;
Singapore Airlines Limited 2018, Sustainability Report FT 2017/18, company report, Singapore Airlines Limited, viewed 2 September 2018, ;https://www.singaporeair.com/saar5/pdf/Investor-Relations/Annual-Report/sustainabilityreport1718.pdf;
Singapore Airlines Limited 2018, SIA Named ‘World’s Best Airline’ in 2018 Skytrax Awards, Viewed 31 August 2018, <https://www.singaporeair.com/en_UK/sg/media-centre/press-release/article/?q=en_UK/2018/July-September/ne2318-180717>
Topic 4 Lecture slides 2018, ACCT1014 Accounting Behaviours and Organisation, Organisational Structure and Responsibility Accounting, RMIT University, Melbourne, Australia