Cornered With Its Wings Clipped

Pros

SIA announced that out of 8 of its new jets, 3 of them will have larger personal space. This is deemed to be a right strategy, as it turn wasted space (low load) into customer value (bigger space). It is expected to enhance the competitiveness of SIA against its rival.

Cons

-However, SIA is too conservative for its own good. Testing out the new strategy on a small scale (3 jets), though limit the cost of failure, gives competitors ample  time to study the effect of the new strategy and to mimic if it turns out to be successful. As a result,  SIA not only  failed to achieve  sustained  strategic competitiveness, it  will also  becomes  a free laboratory for its competitors. Thus, we can expect the latest strategy, which is supposedly  a good one,  to be a fail attempt  for SIA to  regain competitiveness in the industry.

-  Although some analysts claimed that load and revenue would improve as economy recovers, the accompanying hike in oil price would jeopardise the company recovery.

-  The fundamental of SIA business continues to get eroded by competitors who are offering services that are pretty close to SIA yet charges much lower fare e.g. Thai Airway. SIA's new strategy that focus on improving in-flight entertainment shows that its management is running out of ideas to improve the business. Reason being physical attributes of a " product" can be easily copied and provide little sustainted  competitive advantage, thus it is normally the last thing that management wants to depend on for differentiation. The fact that SIA has been focusing on the physical atttribute prove how desperate it is.

-As time and option is running out for SIA management, I expect that the only viable  strategy left for the company to survive  would be to retreat to  top end market where its higher fare can be justified. However to achieve that, SIA would have to shed off it current scale of operation, causing its revenue to fall- though proftiablility might improve should SIA survived the transformation.

Given such bleak prospect, I have SIA a TP of $9.60, this price has already taken into consideration of the strong  brand name that the company possessed.

Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

Author: Rosesyrup

alan_crossx posted: Severe clear air turbulence issue on my SIN-LHR flight (SQ 308). A380 suddenly dropped 50-100ft during breakfast.

Overall, SIA as a group continues to face competitive pressures from other premium carriers, and management has yet to take any concrete steps to invigorate its business prospects. Therefore, we maintain our SELL rating on SIA with an unchanged fair value estimate of S$10.00. (Lim Siyi of OCBC)