1. What are the major elements (mission /vision, objectives and strategies) of Air Asia’s strategy? Vision: To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares. Mission: • To be the best company to work for whereby employees are treated as part of a big family • Create a globally recognized ASEAN brand • To attain the lowest cost so that everyone can fly with Air Asia • Maintain the highest quality product, embracing technology to reduce cost and enhance service levels Objectives: • Provide full fledged training and development to Air Asia pilots, aircraft engineers, cabin crew and guest services staff. • Develop the Academy as an aviation training ground towards fulfilling Air Asia's aspiration in becoming a regional aviation training hub. • Serves as a platform to keep Air Asians on track with the latest industry developments and to incorporate best practices into their operations. Air Asia strategies:
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Safety First: Partnering with the world’s most renowned maintenance providers and complying with the world airline operations.
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High Aircraft Utilization: Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity.
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Low Fare, No Frills: Providing guests with the choice of customizing services without compromising on quality and services.
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Lean Distribution System: Offering a wide and innovative range of distribution channels to make booking and traveling easier.
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Point to Point network: Applying the point to point network keeps operations simple and costs low.
Management/ culture: The corporate culture of the company is flexible, open, strong and team-oriented. Because employees are aware of the company’s core strategy, they actively focus on maintaining low costs, and this leads to high productivity. Employees are rewarded with bonuses based on individual performance. In all, the culture shows enthusiasm, commitment, honesty and transparency amongst staff and with third parties. The management also fosters a non-discriminatory, meritocratic environment that is dedicated to constant high quality. 2. Did these strategies make sense? Air Asia is need to aware and consider with the strategic management. The reason of the airline industry is a unique and complex industry, not just how to reduce cost and make the operational activities running effectively. But, AirAsia needs to come out with the strategy that can make competitive position that the company performs different activities from rivals or performing similar activities in different ways to achieve their business successfully, and the last one is because the effect of globalization and E-commerce becoming an effective tool in a company nowadays. 3. Conduct a SWOT analysis of Air Asia?
Strengths • Air Asia has a very strong management team with strong links with governments and airline industry leaders. This is partly contributed by the diverse background of the executive management teams that consists of industry experts and ex-top government officials. For example, Shin Corp (formerly owned by the family of former Thai Prime Minister – Thaksin Shinawatra) holds a 50% stake in Thai AirAsia. This has helped AirAsia to open up and capture a sizeable market in Thailand. And also, with their strong working relationship with Airbus, they managed to get big discount for aircraft purchase which is also more fuel efficient compared to Boeing 737 planes which is being used by many other airlines •
The management team is also very good in strategy formulation and execution.
The strategy that they have formulated at the beginnings was a clever blend of proven strategies by other low cost airlines is US and Europe. They are Ryanair’s operational strategy (no frills, landing in secondary airport), Southwest’s people strategy (employee comes first) and Easyjet’s branding strategy (linking with other service providers like hotels, car rental). •
AirAsia’s brand name is well established in Asia Pacific.
Besides the normal print media advertising & promotions, AirAsia’s top management also capitalized on promotions through news by being very “media friendly” and freely sharing the latest information on Air Asia as well as the airline industry. Their partnership with other service providers such as hotels and hostels, car rental firms, hospitals (medical tourism), Citibank (AirAsia Citibank card) has created a very unique image among travellers. Alliance with Galileo GDS (Global Distribution System) that enables travel agents from around the world to check flight details and makes bookings have also contributed to their string brand name. Air Asia’s local presence in few countries such as Indonesia (Indonesia AirAsia) and Thailand (Thai AirAsia) has successfully elevated the brand to become a regional brand beyond just Malaysia. The links with Manchester United (one of the world’s most famous football teams) and AT&T Williams Formula One team have further boosted their image to a greater extend beyond just the this region •
Air Asia is the low cost leader in Asia.
With the help of Air Asia Academy, Air Asia has successfully created a “low-cost airline mentality” among their workforce. The workforce is very flexible and high committed and very critical in making AirAsia the lowest cost airline in Asia. • The excellent utilization of IT The excellent utilization of IT have directly contributed to their promotional activities (email alerts and desktop widget which was jointly developed with Microsoft for new promotions), brand building exercise (with over 3 million hits per month and on the most widely surfed booking engines in the world) as well keep the cost low by enabling direct purchase of tickets by consumer thus saving on airline agent fees. Weaknesses • Air Asia does not have its own maintenance, repair and overhaul (MRO) facility. It may be a good strategy when they first started with only Malaysia as the hub and few planes to maintain. But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100 planes currently owned and about another 100 planes to be received in the next few years, AirAsia have to ensure proper and continuous maintenance of the planes which will also help to keep the overall costs low. It is a competitive disadvantage not to have its own MRO facility.
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AirAsia receives a lot complaint from customers on their service.
Examples of complaints are around flight delays, being charged for a lot of things and not able to change flight or get a refund if customers could not make it. Good customer service and management is critical especially when competition is getting intense. •
Fair availability
The availability of AirAsia is not good as traditional airline as it only provide unique aircraft. However, it cannot be the cost leader if it offers customized features or comprehensive support which will result in increasing operational cost. However, focus on a specific customer may avoid straddling. Opportunities There are 2 major events that are taking place now or going to take place in this case study period. First, is the ever-increasing oil price. Second, is the “ASEAN Open Skies” agreement that has been reached. The increasing oil price at the first glance may appear like a threat for AirAsia. But being a low cost leader, AirAsia an upper hand because its cost will be still the lowest among all the regional airlines. Thus, AirAsia has a great opportunity to capture some of the existing customers of full service and other low cost airline’s customers. However, there will be also some reduction in overall travel especially by casual or budget travelers. Second, is the “ASEAN Open Skies” allows unlimited flights among ASEAN’s regional air carriers beginning December 2008. This will definitely increase the competition among the regional airlines. However, with the “first mover” advantage as well as its strengths in management, strategy formulation, strategy execution, strong brand and “low-cost” culture among its workforce, this agreement can be seen as more of an opportunity. There is also some opportunity to partner with other low cost airlines. As Virgin to tap into they exist strengths or competitive advantages such as brand name, landing rights and landing slots (time to land). The population of Asian middle class will be reaching almost 700 million by 2010. This creates a larger market and a huge opportunity for all low cost airlines in this region including AirAsia. Threats • Certain rates like airport departure, security charges and landing charges are beyond the control of airline operators This is a threat to all airlines especially low cost airlines that tries to keep their cost as low as possible. For example, Changi airport in Singapore charges SGD21 for every person who departs from Singapore. • AirAsia’s profit margin is about 30% and this has already attracted many competitors. Most of the full service airlines have or planning to create a low cost subsidiary to compete directly with AirAsia. For example, Singapore Airlines has created a low cost carrier Tiger Airways. • Users’ perception that budget airlines may compromise safety to keep costs low 4. How does the competitive environment of Air Aisa look like? Use Porter’s fiveforces framework to analysis it competitive environment? Threat of new Entrants Threat of new entry is moderate, because it requires high capital to support and government barrier is high such as the air service agreement can build barriers to those new entrants. The degree of barriers to entry depends on the strength of:-
• Customers have a little bit of brand loyalty. If customers of AirAsia do not have brand loyalty, then the threat of new entrants will be very high. But the higher numbers of competitors in the industry also will decrease AirAsia’s customer loyalty. Due to most of the travelers prefer low cost. New competitors which want to come in the industry need to spend a little to compete with AirAsia. • Higher Capital Requirement The airline industry needs large volume of start-up capital. The cost of setting up of offices, buying or leasing air craft, hiring pilots and others staffs like air stewardess and etc incur a high start-up cost. So that, the threat if AirAsia is low. • Offered different product AirAsia offer different product to compare with other competitors in Asia, for example, Bangkok Airways, Tiger Airways, and Air Philippines. • Government Legislation Air Asia very difficult gets a new route from government because Malaysian Airlines System (MAS) has been protected by Malaysia government on the route to Sydney and Seoul Incheon. Therefore, it will affect the time line set by AirAsia and the most important is also influence their profit. Thus, this is the limited of the new entrance duo to government policy. Bargaining Power of suppliers Every industry has someone to play the role as suppliers. Power of the suppliers is important as it will affect the industry. In airline industry, the power of suppliers is quite high since there are only two major suppliers which are Airbus and Boeing hence there are not many choices to airline industry. Nevertheless, the global economic crisis has limited the new entrant and also reducing the upgrade of planes in the immediate future. However, both suppliers provide almost same standard aircrafts and hence the switching to Air Asia is low External Environment Analysis Political Flying outside Malaysia is difficult. Bilateral agreement is one of the obstacles in the way of truly pan-Asia budget carriers. Landing charges at so-called "gateway airports" and navigation charges are often prohibitively expensive, and in key destinations like Bangkok, Beijing, Hong Kong and Singapore there are no cheaper, secondary airports. The budget airline industry in south-east Asia has been underdeveloped because the aviation market is tightly regulated by bilateral air rights agreements. Threat of terrorism, people is afraid to fly after the September 11 terrorist attacks incident. 5. What are the current challenges/ issues facing Air Asia? The issues in AirAsia Company are more focused in the competition of the cost among an airplane industry. AirAsia as an industry company which is more focusing in the low cost carrier airplane industry need to consider making the lowest possible cost to compete with the other competitors in
their airplane industry. To achieve the lowest possible cost, AirAsia Company has some strategy to achieve it. The lowest possible fare that AirAsia was implementing is the best strategy that they are used to compete with their rivals in the airplane industries. AirAsia believes with the lowest fare that they are offering to the customer, they can attract customer more than their rival in the airplane industries. 6. How AirAsia can solve the current issues to be a low cost carrier leader in airplane industry? First is to identify and analyze the SWOT analysis, and than to solve the current issues with some strategies such as Maximized IT and implementing E-commerce in AirAsia business, Operation effectiveness and outstanding efficiency, and the last one is implemented outsourcing in the AirAsia business. 7. Explain the strategy Air Asia follow to solve the issue? The strategy that AirAsia was implementing to make they are being a successful in low cost carrier and can compete with other competitors in this field of business are: • Maximized IT and implementing E-commerce in AirAsia business Nowadays, E-commerce has become a vital strategic management as it is minimizing the expense and cumbersomeness, improved products, and higher profitability. AirAsia is one of the airplane companies, which is implementing E-commerce and maximized their information technology usage to make the efficiency and effectively in their company and make possible low cost carrier in their business. Moreover, to maximize their IT, AirAsia implemented current IT such as yield management system (YMS), computer reservation system (CRS), and enterprise resource planning (ERP) system.
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Yield management system (YMS) as revenue management system it understands, anticipates, and reacts to the behavior of customer to maximize revenues for the organization. In this system, AirAsia used it to takes into account the operating costs and aids AirAsia to optimizes price and allocate capacity to maximize expected revenues. Customer reservation system (CRS) is an integrated web-based reservation and inventory system. It includes Internet; call center, airport departure control and more. It is a direct sales engine that effectively eliminates the middleman (travel agents) and the sales commissions that need to be paid to them. By using this system effectively, efficiency, customer satisfaction, fast and secure in buying a ticket already met. It means the lowest cost can possibly achieve. Enterprise resource planning (ERP) is the system that integrated comprehensive software to make the IT system is more effectively and efficiently. By implementing this package AirAsia is looking to successfully maintain process integrity, reduce financial month-end closing processing times, and speed up reporting and data retrieval processes. • Operation effectiveness and outstanding efficiency
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AirAsia move from the traditional business into modern business by implementing Ecommerce and maximize the information technology (IT) in their business.
The implementation of E-commerce can reduce the cost of travel agents, and less of ticketing paper cost. AirAsia also choose the route by adjusting prices for routes/destinations that have a higher demand when compared to others. AirAsia also trying to reduce by using better maintenance management. • Implemented outsourcing in their business By implemented outsourcing in their business strategy will provide: Cost benefits to AirAsia because it can be eliminated in more resource consumption (time financial). By implemented outsourcing in the IT field, AirAsia also can reduce cost in IT system activities which is can make possible more cost in their business. AirAsia can easily to control all the system that is outsourced to another vendor or company. The control in this strategy also gives benefits because AirAsia function only to be a controlled a system that is AirAsia used. AirAsia also can reduce risk, and it can make AirAsia not spend their financial to cover the risk factor in this strategy. It can give competitive advantage in AirAsia because the strategy can be greater rather than created by AirAsia itself. Some of outsourced example that AirAsia did are in AirAsia computer reservation system (CRS) by Navitaire Open Skies Technology Company, and than implementing enterprise resource planning (ERP) by Microsoft Corporation, and also implementing AirAsia X. By implemented outsourcing better than in house operation, because it can give lowest cost, reduce risk, more effectively and efficiently, and also can easily control by AirAsia and than more fast in AirAsia Company. 8. How does Air Asia attract their customers? With believes to make a low possible fare for to the customer, AirAsia was becoming an Airline company that is chosen by so many customers. The best philosophy of AirAsia ‘now everyone can fly’ means to giving an opportunity to all the people to flight with the lowest possible fare and making them can flight even they only have the less money. More and more people around the region choosing AirAsia as their preferred choice of transport. As Air Asia continuously strives to promote air travel, AirAsia also seek to create excitement amongst their guests with the range of innovative and personalized service. 9. What are the Success factors in AirAsia? Absolute Cost Advantage •
Low cost per average seat kilometer
AirAsia focused on ensuring a competitive cost structure as its main business strategy. It has been able to achieve a cost per average seat kilometer (ASK) of 2.5 cents, half that of Malaysia Airlines and Ryanair and a third that of EasyJet. AirAsia can lease the B737-300s aircraft at a very competitive market rates due to the harsh global market conditions for the second-hand aircrafts because of the September 11th event in 2001. On the other hand, the operating cost of the company is also dropped drastically. •
Low distribution cost
AirAsia focus on Internet bookings and ticketless travel allowed it to lower the distribution cost. •
Attractive ticket price
With the average fare being 40-60 % lower than its full-service competitor, AirAsia has been able to achieve strong market stimulation in the domestic Malaysian air market. For instance, the fare for the trip from Kuala Lumpur to Penang on AirAsia starts from 39 ringgit. Comparing to trip by bus charge 40 ringgit and 80 ringgit by car. The effect of attractive low fare is more travelers switching from bus to air, similar case as Ryanair in Europe. •
Good Management Team
AirAsia value proposition is more sophisticated than Ryanair placing equal emphasis on brand reputation and customer service/people management, by a senior advisor to AisAsia’s top management team. AirAsia pursue a Ryanair operational strategy, Southwest people strategy and an Easyjet branding strategy. 10. What Air Asia does to sustain its competitive advantage in the market?/ Comment on Air Aisa capabilities core competence and competitive advantage, if any. In order to sustain its competitive advantage, AirAsia needs to leverage its competency in creating cost advantages across multiple value chains. Operation effectiveness and outstanding efficiency are the two main characteristics of low cost business including in AirAsia. The demand for lowest cost carrier is will be growing rapidly; it can be the great opportunity for AirAsia Company to run their business. 11. Reasons why AirAsia more stressed to be low cost carrier in airline industry? 1.
AirAsia believes to compete in the airline industry, it must be cost-efficient and profitable, and it must create value. Costs that do not add value must be contained, reduced and even eliminated. 2. Demand for low cost carrier (LCC) industry will keep growing rapidly. 3. And than the best philosophy of AirAsia ‘now everyone can fly’ means to giving an opportunity to all the people to flight with the lowest possible fare. 12. Should AirAsia expand its long haul business and to what extent should AirAsia and AirAsiaX be integrated operationally? AirAsia has had success with its short-haul operations in South-East Asia based on the LCC business model. Some of its greatest achievements have been its excellent cost efficiency, its growth rate, and customer-service awards. AirAsia was able to achieve such cost efficiency due to many factors inherent to a short-haul operation. For example, having no meals on flights (with the option of purchasing food), and only one type of aircraft (decreased maintenance costs) decreases costs. It is debatable whether expanding its operations to the long-haul is profitable or whether it will result in a loss of focus and a decreased margin. AirAsia should stick to its vision to run long-hauls because the company has the capacity to offer these flights at lower costs than competitors. An amalgamation of the AirAsia and AirAsia X brands will reduce brand confusion. However, it is important to expand strategically in order to keep the
integrity of the LCC strategy. I suggest that AirAsia limits its long-hauls to countries with favourable weather conditions and similar socio-economic conditions. Advantages: •
New markets and growth opportunities
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Expansion of trunk routes
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Increases market share
Disadvantages: •
Moves away from successful LCC strategy
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Difficulties with external factors
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Loss of competitive advantage
13. Compaer between the Air Asia and Aire Aisa X ?/ What are the principle differences in Aire Asia and Air Asia X’s operations? Air Asia Low cost haul, no frills
Air Asia X Low cost long haul, no frills
Flying range
Within 4 hours flying times from departing city
More than 4 hours flying time form departing city
Aircraft
Airbus A 320 with 180 seats
Airbus A330 with more than 330 seats
Seat Type
Single seat
Airbus A330 with more than 330 seats
Seat Type
Single seat
Economy seat and XL seat
Seat Option
Free seating with Xpress Boarding option
Assigned seat with advance seat request option
In-flight dining
Range of light meals and snacks available for purchase onboard
Pre-ordered full meals available including Asian, Western, vegetarian and kid’s meal; light snacks also available for purchase onboard
Concept
