Air Asia is Asia’s largest airline that provides low cost airfares which is based in Malaysia. It was first established in the year 1993; however, it started its operations on the 18th of November, 1996. In 2001, the airline was purchased by Tony Fernandes’s company named Tune Air Sdn Bhd and was able to recreate the indebted airline to be one of the most well known airlines, famous for its cheap, efficient and low cost airlines for everyone.Hence, their slogan ‘Now everyone can fly. ’ Air Asia has been gaining heaps of profits since 2002 and is able to launch new routes from it’s main hub in Malaysia; Kuala Lumpur International Airport in a lightning speed to many destinations at a possible promotional low price of US $1.
Although Air Asia is established as an airline that provides top class air services, Air Asia focuses a lot of their financial situations through stock control.The company Air Asia will continue to be an ongoing success as demographically there is a large increase in the number of travelers worldwide, this trend will continue to increase which result to an open opportunity that Air Asia can take advantage with their specials offers and flights accommodations makes their company peoples’ number one choice in air fares. Ever since Air Asia has been recognized, they have been acknowledged by satisfied customers and thus, have received many awards for being such an outstanding air flight company.There are many awards that they achieved consisting of; being a low cost airline for many years, achieving a place of top 3 in the best newly listed company and being a great help to business’s in delivering cargos.
(Air Asia Website Awards). In the business of Air Travel, Air Asia experiences multifarious competition. The main and biggest competitors are companies like Air New Zealand Limited, Virgin Blue, Qantas Airways Limited, Jetstar and MAS. These competitors represent companies who take care of transport and focus on Air travels (IBISWorld 2011 page 24).Therefore, the purpose of this case study is to critically analyze the strategies that are pursued by the company; Air Asia and how they implement this strategy to achieve the organizations’ strategic goals. Furthermore, on the basis of this analysis, there will be some recommendations on strategies to the company board for future action which will be justified by succinct reasons for these recommendations.
Firstly, Air Asia is an Asian based airline that has a mission aiming towards: * Creating a friendly and family environment for employees so that that they feel they are working for the best company * Being globally accepted as an ASEAN brand * Making sure that they provide the lowest cost airfares to their consumers so that everyone can fly * And making sure that the highest quality of product is utilized as well as using technology to cut the cost and improving the service levels offered.Therefore, with all these goals that Air Asia aims to achieve, there must be a strategy that Air Asia has to exploit. Strategy can be defined as “an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage” (Hanson, Hitt, Ireland and Hoskossin, 2011). To decide which strategy this particular airline uses, an articulate examination of the characteristics of the industry must be conducted so that the competitive forces of the industry could be understood to determine the competition amongst other airlines.This could be done through Michael Porter’s five forces model, where it focuses on five competitive forces such as the rivalry among competing sellers, the threat of potential new entrants, the competitive pressure from substitute products, the bargaining power of consumers, and lastly, the power of suppliers. Although there are many airlines that are widely available, it is clear that the rivalry amongst Air Asia and other airlines would be considered low to moderate as Air Asia is clearly a major threat to other airlines due to their low cost air fares.
However, there are other airline industries that take a huge sum of the market share such as Qantas airlines. Secondly, the threat of potential new entrants in the airline industry would again be considered low due to the high entry costs of purchasing or leasing an aircraft, the high barriers to entry as well as the current economic situation, it results in a reduced buyer demand. Furthermore, the competitive pressures from substitute products are moderate as they are other airlines that are available such as Qantas airlines or Singapore airlines.Additionally, there are other modes of transports that are readily available such as the rail, road or water. The bargaining power of consumers can be considered high as consumers are able to choose which airline they would want to take due to the many options readily available. Finally, the last force is the power of suppliers can be considered cyclical as it really depends on the current economic situation and whether there are any consumers who are able to travel to many destinations.
Therefore, by looking at all these forces, it is evident that Air Asia must combat all these competitive forces or utilize and form them to suit their needs as it play a major role in the strategic planning of the company. Moreover, it is apparent that the general attractiveness of this industry is quite low as the industry is constantly changing due to the economic situation, consumer demand and fuel prices.However, this industry is still in its growth phase life cycle therefore there are still chances for other airlines to revolve and become the most favored airline. By analyzing Michael Porter’s five force model, the industrial organisation (I/O) model of above-average returns can be utilized to justify the Michael Porter’s five force model.
In this model, it focuses on the firm’s performances basing on five determinants; economies of scale, barriers to market entry, diversification, product differentiation and the degree of concentration of firms in the industry.Firstly, the economies of scale refers to the Four assumptions of the I/O model > The external environment imposes pressures and constraints that determine strategies leading to above-average returns. Most firms competing in an industry control similar strategically relevant resources and pursue similar strategies. Resources used to implement strategies are highly mobile across firms.Organisational decision-makers are assumed to be rational and committed to acting in the firm’s best interests (profit-maximising). Internal environment Value Chain, Resources and Capabilities Upon the basis of Air Asia they have applied themselves with a list of activities in creating a competitive advantage over their competitors creating more value as a low cost air carrier; the value chain analysis was developed based on Air Asia Porter’s Value chain.
The primary support involves (Air Asia, 2011); inbound logistic the landing slots acquisition is a crucial resource which create high value within any air line industry (OECD, 1997), this is important as Air Asia requires a lot of space in supporting all flight arrangements, organizing flight route ensuring its quick and safe, ticket pricing enabling a low fare travel, fuel, air craft acquisition, spare part acquisition is important as it holds 30% to the overall cost (Corporate Air Asia Financial Report, 2011) and catering customers requirements and needs.The operation involves transporting passenger which is the main resource of Air Asia profit, the air craft ground maintenance involving the courier operation, gate operation, baggage handling and onboard services. By being able to schedule flights this helps to achieve more value upon the basis of Air Asia brand name on delivering things on time. As Air Asia main focus is transportation services there is not a major outbound logistic that Air Asia apply themselves to be cost effective.Air Asia has applied themselves towards the marketing and sale as they provided extreme promotions and advertising which attracted more than five million customers (Corporate Air Asia Financial Report, 2011), direct sales and selected travel agents provides best and discounted tickets for their customers keeping them aware and alert, this has shown to be affective as online sales is more than 20 percent of Air Asias revenue (Corporate Air Asia Financial Report, 2011).
The services are Lost and found services and follow up on customer’s feedback and problems, customer’s enquiries. The procurement is upholding the product quality with suppliers without driving much towards the cost this is technology acquisation The supportive activities includes formulated strategic decisions getting their employees on board with the strategy set to achieve, employees involves; accounting, legal, finance, planning, quality assurance and government relations related people.The HR management is focused on the recruiting and training to employees keeping staff skilled and staying efficient by doing this Air Asia does the following; Flight analyst training, Yield analyst training, pilot training, safety training, baggage handling training, product development market research and in-flight training.Technology Development methods in operating and maintaining aircraft is important as it suppress the cost lower systems involve the Computer Reservation system, Flight Scheduling system, Yield management system, In-flight system, baggage system, Data Base Marketing, Internet Sales, Call Centre and baggage tracking system. The sources and capabilities of Air Asia (Air Asia 2011) on the basis of the cost leadership are high utilization of air craft, low cost short haul and quicker turnover time.
Air Asia are utilizing one aircraft replacing the old model with the newest model this decision is based on reduction of maintenance cost which holds a high expense in the financial sector, scheduling cost, administrative cost and inventory of parts. Air Asia assigns no frills, seats and only one class and ticket-less policies to reduce cost two main factors Air Asia in being cost effective in their to quicker turnover time these action will be gained will result to quick turnaround (Shari, 2003).The policy on avoiding using the ‘aerobridge’ reduces the cost while revenue is earned through their ground services. When dealing with customers enquiries and complaints Air Asia staff have been trained in all situation to handle any situation effectively and efficiently which is cost effective as time and money isn’t wasted, low cost has been focus upon the advertising as now sales are made through internet, call centers, walk in airport and sales offices this focus on the commission fee to travel agent as Air Asia only assign sales to limited travel agent.Within the supportive activities Air Asia has been cost effective with every technology in supporting with their core competency being effective and efficient at all time.
The training is cost effective as performance is rewarded adding an incentive system to staff giving a different experience and knowledge to Air Asia staff, the things staff are trained with and experienced with are hard to be imitated by Air Asia competitors. Air Asia gives employees opportunities to participate in constructive and supportive management in providing any ideas to help reduce cost within the organization.