Faculty of Business, Economics & Accounting

Department of Business Studies

HELP Bachelor of Business (HONS)
Year 1 - HUBBU
Semester 1, 2010

Group Assignment





Subject: ECO101MICROECONOMICS

Subject Lecturer/Subject Tutor: Mr K. Chandra, Ms. Shahrina

Students Name & ID: 1. Liong Kar Yan B1001528
2. JenniIer Cheng Hui San B1001443






INTRODUCTION
;er the year, airline industry has been expanding to gi;e a better ser;ice to customer.
Airline industry has been an important mode oI transportation as people can Ily around the
world with it. There ha;e been changes in the market condition that inIluence the airline
industry. Factors that can inIluence the demand Ior airline industry is the income oI consumer.
With a higher income, consumer will demand more and want to ha;e a better li;ing standard.
Besides, price oI air ticket is also a major Iactor that inIluences the demand. Higher price oI
air ticket will causes lesser demand Ior it. Moreo;er taste and preIerence oI consumer can
also aIIect the market. Consumers that like to tra;el will ha;e a higher demand Ior air ticket.
Factor that aIIect producer to supply in the airline industry are technology, the better
technology oI aircraIt the better demand Ior it. With the ad;ancement oI technology, aircraIt
will be better equipped with more seat, bigger space, and Iaster speed. Besides, number oI
producers will also aIIect the airline industry, with more producers coming into the market;
there will be more competition among them. Furthermore, elasticity oI air ticket will also
aIIect the market, Ior businessman, air ticket has little elasticity Ior them, as they need to
tra;el on business purpose, when they need to tra;el they cannot wait till the Ilight ticket got
promotion. For them, Ilight tickets are necessities, so it is price inelastic. As Ior normal
household, Ilight tickets are luxuries, so it is price elastic. Household can choose when to
ha;e ;acation as they like, so they will choose to buy Ilight ticket when there is promotion or
when the price drop.
For this report, we are going to discuss about the market changes Ior Singapore
Airlines Limited. We are going to analyses the market changes Ior this airline o;er the period
oI Ii;e years. Below, we ha;e attached a graph showing the net proIit oI Singapore Airlines


Limited. By using the inIormation Irom the graph, we are going to explain about Iactor that
inIluences their market.

BODY
From the graph, we can see that Singapore Airline operation net proIit has been
increasing Irom year 2006 to year 2007. For the Iinancial year 2006, $1,241 million to year
2007, $2,129 million. Besides, the re;enue oI the company also increases Irom $13,314
million to $ 14,494 million (16 increases). While, expenditure increase Irom $12,128
million to $13,180 million (8.7 increases). perating proIit increase Irom $1,213 million to
$1,314 million (8.3 increases).
For the Iinancial year 2006 to 2007, Singapore Airline Limited has been gaining proIit
as the Parent Airline Company has a strong perIormance. The three major subsidiary
companies are Singapore Airport Terminal Ser;ices (SATS) Group, SIA Engineering
Company (SIAEC), and Singapore Airlines Cargo (SIA Cargo). SATS has a proIit oI $153
million, SIAEC has a proIit oI $102 million and SIA Cargo has a loss oI $32 million in
1241
2129
2049
1062
216
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300
1000
1300
2000
2300
2003/06 2006/07 2007/08 2008/09 2009/10
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Iinancial year 2007. The Parent Airline Company achie;ed an operating proIit oI $1.027
million (57.8).
Besides, the company has gain $119 million Irom the disposal oI aircraIt and other. In
the year, Singapore Airlines has de-commissioned Ii;e Boeing 747-400s and took deli;ery oI
nine Boeing 777-300ERs. For the Iinancial year 2007, the company has recorded 18.346
million passengers being carried. It represents an increase oI 7.9 compare to year 2006
which recorded 16.995 million. This pro;e that a there is a positi;e demand Ior Airline
industry. There was also 7.7 growth oI carriage oI passengers against 2.8 oI capacity
growth. By that, passenger load Iactor increase Irom 3.6 point to 79.2 Ior the Iull year.
;er the year, capacity oI SIA Cargo also grew 4.1 whereas 1.5 grew in Ireight traIIic.
Moreo;er, they also gain $421 million Irom the sale oI SIA Building and SALE and
also extra $247 million Irom one-oII tax writeback. E;en though the price oI a;iation Iuel has
increase 10.5, the proIit earned by Singapore Airline is still increasing as demand Ior air
tra;el remains strong o;er the world. Besides, the route oI Singapore Airline has also been
expanding; they ha;e taken deli;ery oI nine Boeing 777-300ERs o;er the year. This aircraIt
has been un;eiled in ctober 2006 and is part oI an order oI Singapore Airlines` 19 new
cabin products. The Airline`s operating Ileet as at 31 March 2007 was comprised oI 94
passenger aircraIt which are twenty-two B747-400s, sixty-se;en B777s and Ii;e A 340-500s,
with an a;erage oI six year and three months in age.
As Irom the Iinancial year 2007 to 2010, Singapore Airlines has been showing a
decrease in its net proIit throughout the 3 years. The graph shows a decrease oI net proIit
Irom the Iinancial year oI 06/07 to 07/08, with a net proIit oI $2129million and $2049million
respecti;ely. This resulted in a loss oI $80million throughout the speciIic year.


As Ior the Iinancial year oI 07/08 to 08/09, the graph also shows a decrease oI net
proIit earned by the Singapore Airlines, with only $1062million in year 08/09. This shows a
great decline in net proIit compared to the pre;ious year. Singapore experienced a decrease oI
$987million net proIit earned during the speciIied year.
The total net proIit earned by Singapore Airlines continues to drop, showing only a
total net proIit oI $216million in the year 09/10. This shows that the net proIit earned by
Singapore Airlines has decreased by $846million Irom year 08/09 to 09/10.
The decrease in the Singapore Airlines net proIit throughout these 3 years has been
aIIected by a number oI Iactors. For example, one oI the main inputs oI the Singapore
Airlines would be the Iuel Ior airplanes. Fuel price has greatly impacted the business oI the
airline industry. Thus, a change in the Iuel price would aIIect the proIit earned by the airline.
Throughout the 3 years, the instability oI the global Iinancial markets has caused the
decreased in air tra;el. Less people opt to Ily, choosing to take alternati;e routes instead. Due
to the increase oI jet Iuel price which can go up to USD171 per barrel, the ticket price has
also been increased by the airline to maintain their expenses at a stable le;el, without
aIIecting other expenses. This has also aIIected the number oI people who wants to buy the
air ticket. Less people changes their intention Irom wanting to purchase the air ticket, to
cancelling the purchase or opting Ior other ways oI tra;elling.
In addition, as lower Iuel prices reduced expenditure on Iuel by $666 million, this was
oIIset by losses in hedging oI $543 million. This hedging loss includes $112 million losses
resulting as a result oI an early termination oI se;eral Iuel hedging contracts beIore maturity
date. Besides that, combining global economic slowdown and record high Iuel prices will
make this a more challenging year Ior the airline industry. Also, there is a decline in number


oI passengers and an increase in cargo carriage, which similarly, resulted in a loss Ior the
Singapore Airlines.
Besides that, ad;ance bookings ha;e also show that the drop in demand Ior air tra;el
is le;eling out. Howe;er, the probability oI a sustained reco;ery has been set back by
uncertainties as a Iollow up Irom the InIluenza AH1N1 epidemic. The InIluenza AH1N1
epidemic resulted in a huge number oI people opting not to tra;el during the period oI time,
Ior Iear oI contracting the disease. Go;ernment has also discouraged people Irom tra;elling
to pre;ent the spread oI the AH1N1 ;irus.
Howe;er, in the near Iuture, promotional pricing and reduced business tra;el will
keep the airline`s total re;enue under pressure. n the other hand, with price oI jet Iuel
currently at less than halI oI what it was during last year`s peak, there will still be relieI Ior
expenditure. The sa;ings will be oIIset by progressi;e settlement oI Iuel hedges at higher
prices, but the consequential eIIect oI these hedges will decrease o;er the Iollowing years.
The taste and expectations oI customers also plays an important role in the airline
business. As other airline companies are coming up with new and impro;ed ways oI
promoting their airline, and upgrading their ser;ices, Singapore Airlines must also step up on
impro;ing their ser;ices and promotion. This is because iI they pro;ide poor ser;ices to
customers, they will then choose other airline industry instead. As customers want to be
comIortable and be pro;ided the best ser;ice a;ailable with the price they`re paying Ior the
air ticket, the airline do allocate some capital to impro;e on these to keep up with other
airlines.
CONCLUSION