Essay Sample about Air Asia

Air Asia carries a number of value chain activities, both primary and support that have aids in the provision of high quality and unique services to customers. These activities are discussed below.

Primary Activities Value chain primary activities are those activities carried out by an organization that are directly related to the production, sales and marketing and distribution of goods and services to the customers.In relation to primary activities, Air Asia focuses on value creation to its services by providing safe and reliable air travels, giving the guests an opportunity to choose from a variety of highly customized services and providing services that offer enjoyable flying experience for the customers (Grant 2010). The company also deploys various marketing strategies and brand development activities such advertising through the internet and increased media coverage to market the low-cost carrier services for the customers. Air Asia uses various media such as television, print and the internet to market its services.The company also ensures maximum press coverage to inform customers about the services on offer (Grant 2010).

Moreover, direct sales are also made through the company’s website and call centre. The use of the internet, website and call centre to market services also significantly helps Air Asia in reducing operational costs, for instance, by eliminating commissions that would be paid to agents. Primary activities relating to outbound logistics at Air Asia include use of a single type of aircraft, the Airbus 350, which helps in the provision of cheap transport services for the customers.Similarly, the company provides minimal customers services, hence reduces costs. However, non-assignment of seats by Air Asia may be inconveniencing to some customers; hence, this strategy may work against its goals.

The company also offers uncomplicated services thus allowing quick turnaround of planes. The main activity for inbound logistics is acquisition of airbuses that are capable of delivering high quality transport services for the customers. In relation to organizational operations, Air Asia contracts and enters into joint ventures with foreign companies such as Thailand Air Asia and Indonesia Air Asia to facilitate the provision of services in foreign countries.Entering into joint ventures helps Air Asia in ensuring that needs of customers in foreign markets are also met effectively.

Air Asia also ensures maximum utilization of aircrafts in order to guarantee low cost services and high productivity. Air Asia also streamlines its operations and applies point-to-point networks in order keep operations simple, hence enhancing the quality of services it offers to the customers. Support Activities Support activities are those activities which provide assistance required for the primary activities to occur.Support activities concern the infrastructure of a company, management of human resources, technological advancements and acquisition of inputs needed for production of goods and services.

Firm infrastructure usually deals with how the company plans and organizes its primary activities. In relation to the firm infrastructure, Air Asia usually outsources services that it cannot provide effectively to the third parties, for example, maintenance of aircrafts. The company also uses information generated by the yield management system (YMS) to plan and schedule needed facilities more effectively.This results into enhanced provision of services.

With regard to management of human resources, Air Asia rewards workers based on their contributions to the organization. The company deploys non-discriminatory recruitment and selection of employees as well as continuous training and development to enhance the capability of workers to provide services that adequately meet needs of the customers. The company also assists employees in understanding the core business strategizes, values and goals. Employees are also guided on how to provide low-cost services to customers without compromising quality.

The use of rewards by Air Asia to motive employees positively contributes to its growth by ensuring that employees are retained within the organization. The rewarding system also helps in ensuring the employees are highly committed and focused to their work. Moreover, rewarding helps Air Asia in ensuring that employees remained satisfied at the workplace. For example, the new employee share ownership scheme (ESOP) scheme helps in motivating workers. According to Pizzi (2009), highly motivated employees usually commit themselves to work, thus leading to the provision of better services.

Air Asia also ensures effective utilization of technology to improve the quality of services it provides. For example, the company uses computer reservation system (CRS) and yield management system (YMS) to assist in the provision of low cost services. Similarly, Air Asia uses a wireless technology to enable effective promotion of services provided by the company through mobiles. The adoption of wireless technology highly boosts the sales and marketing efforts of Air Asia. In relation to procurement, Air Asia acquires core business assets (aircrafts) from identified contractors only.The company procures aircrafts at cheap prices.

The aircrafts are highly capable of providing low-cost services. This facilitates service delivery for the customers. Porter’s five forces analysis: Threat of new Entrants The extent of barriers to entry depends on the strength of: Customer has little brand loyalty. If consumers of Air Asia do not have brand loyalty, then the strength of the threat of new entrants is very high. The high numbers of competitors in the industry also decrease Air Asia customer loyalty. Most of the travellers prefer low cost.

New competitors which want to come in the industry have to spend little to compete with Air Asia. High capital requirement. The industry of airline needs large volume of start-up capital. The cost of setting up of offices, buying or leasing aircraft, hiring pilots and other staffs like air stewardess and etc incur a high start-up cost.

Thus, the threat is low for Air Asia. Different product offered. Air Asia offers different product compared to other competitors in Asia like Bangkok Airways, Tiger Airways, and Air Philippines. Other than the passenger sales ticket, Air Asia also include holiday packages which is affordable around Asia.Air Asia has good connection with hotels and tourism companies around Asia, which it is hard for new competitors to compete.

Low switching costs. Customers do not need to spend more on switching to another airline. The price would not be very significant in differences, which it depends on the availability of competitor’s services and suitability of the flight time that prompts them to switch. Moderate access to distribution channel. Air Asia is the first airline company to enable customer book and purchase air tickets online in Malaysia. This makes its website www.

airasia. com very famous among frequent travellers.Although new competitors can create a website for their company, it is quite difficult to compete with Air Asia website. The website is known of its simplicity and user friendly. Thus, new competitors are difficult to make known their websites to travellers. Strict government regulations.

In obtaining license and permit to operate an airline company is quite restricted. This is because in Malaysia, the airline industry is very competitive already and that the government also wants to protect the interest of its national airline, MAS which is operating on loses a few years back.Rivalry among existing firms The strength of this factor depends on: High numbers of rivals. There are approximately 59 low fares and no frills airlines compete with Air Asia Among of them are Tiger Airways, JAL Express, Jet Star Airways, Air Arabia and etc. Some of the airline does not compete directly with Air Asia, but it competes indirectly in routes that Air Asia does not fly. Thus, the higher the number of competitors, the more fierce the competition.

High fixed cost. The airline industry incurs high fixed cost which consists of finance cost, hire purchase, and staff costs.The airline companies have to gain more market share to cover the fixed costs. In doing that, constant price reduction is done by them to compete with others. Thus, the rivalry is strong. Customers easily switch.

The nature of airline industry is that customer’s priority is to look at price and flight schedule that suits them the best when buying air tickets. The main purpose of using the airline services is to get to the destination intended. Customers can switch to other airline easily which makes the industry so competitive. High exit cost. It is hard for an airline company to exit the industry.

It is because the cost is high in paying the loans, staff retrenchment and flight cancellation refunds. Even making losses, the companies have to get running to cope with fixed costs. This makes the industry very competitive. Products are similar. As mentioned earlier, the main purpose of using airline services is to reach the destination. Every airline provides similar services to customers.

Though Air Asia provides other added services like hotel booking, and tour packages, it is subject to the customer’s choice. An industry with similar products offered is highly competitive Threat of Substitutes product.Easy to switch. There are about 59 low cost airlines competing in the industry. The airlines serve over one hundred cities and islands across the sub-continental regions of South Asia, Southeast Asia and Northeast Asia.

Although some of the budget carriers only fly domestic routes within the country of origin, while only a few operates international routes connecting nearby countries, customers will always look for alternatives. Performance of substitutes. Performance of other airlines are quite similar with Air Asia given there is no obvious product differentiation.Performance of airlines normally consists of the accuracy of take off time, aircraft performance and staff services. So far, Air Asia had constantly reviewed its performance and improved its services. Relative price.

The prices of substitutes are about the same with Air Asia. Some of the airlines offers cheaper price to achieve profitable passenger loads. The price offered depends on the time gap between the booking date and flight date. The longer the date, the cheaper will be the price. If the tickets are purchased last minutes, the price will be about the same with premium airlines like MAS and Singapore Airlines.

Thus, in this situation customers would switch to the premium airlines. Bargaining power of buyers No significant product differentiation. The only difference Air Asia product with others airlines is the holiday packages offered. Most of the low cost airlines concentrate on providing flight services only to customers. There is some offers hotel booking at the city that the airline flies to. However, Air Asia makes the difference by providing holiday packages like example 3 days and 2 nights to Bali at RM 800 per pax includes flight ticket, accommodation and travel guides.

For customers who do not want to follow the travel agencies and enjoys freedom, they will look for Air Asia packages, but the customer’s portion of this type is small. Thus the bargaining power of buyers is strong as the main thing they look for is to fly to destinations. Low switching costs. Cost of switching to other airlines is low, so bargaining power of buyers is strong. Air Asia is not the only airlines operates in Asia.

Other than that the price offered by other competitors are not much different. The customer choice is subject to their convenience and flight schedule that fit them best.Portion of buyers expenditure on airline is moderate. This factor depends on portions of income an individual earns.

The higher the portion, the more the customer look for cheaper price and thus, the stronger the bargaining power of buyers. E. g. when a student without earning any income, will look for the cheapest price available as the portion of his expenditure will be very substantial.

Customers have access to market information. The IT world had emerged since 20th century. Many big and success companies in the world uses IT and e-commerce to operate.Without IT, the business had boundaries and international business will be prohibited. With worldwide web, information can be gathered on one click.

Customer’s access to the current airline market information is easy and available all the time. The airline companies have less room for negotiation. Thus, customers had strong bargaining power. Buyer’s power concentration in many hands.

Most of the airline company customers are individual travellers, only some travel in groups. So the air tickets are purchased individually. The airline companies are not relying on a few groups of customers only.Thus, the bargaining power of buyer is strong, Bargaining Power of Suppliers Supplier concentration in a few hands. The supplier of airline companies is the fuel supplier, foods supplier, merchandise supplier and aircraft supplier. There are few suppliers in the market, e.

g the aircraft supplier; the companies are either Airbus or Boeing. In this case the power of supplier is strong. Other supplier like foods supplier and fuel supplier, the term of the supply must be based on the market condition. The supplier cannot increase too much of its price or risk losing long term business with the aircraft companies.High switching costs. Most of Air Asia aircraft are Airbus models.

Previously the company used Boeing models, which they lease it and the company had since phased out most of the models and replace with Airbus. If Air Asia is to switch to Boeing again, then the cost will be high, because training cost for employees to suit the aircraft features must be provided. Other than that, the technology used by Airbus is the most advanced, thus Air Asia must rely to the Airbus engineers to do maintenance of the aircraft and seek advice Thus, bargaining power of suppliers is strong.Relative lack of importance of buyers to supplier.

Airbus is a UK based aviation company. Its customers come from around the world. So far 9,113 aircraft had been ordered, out of which 5,408 aircraft had been delivered by the company. Air Asia had ordered 200 aircraft from Airbus and so far only 54 aircraft had been delivered.

The percentage of less than 1%, 0. 99% proves that Air Asia is not Airbus’s important buyer. Thus, Airbus had strong power over Air Asia.