Air Asia Introduction

7 July 2016

AirAsia was established in 1993 which founded by government. In 2001 it was bought by Tony Fernandes. AirAsia aims 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. With a fleet of 72 aircrafts, AirAsian flies to over 61 domestic and international destination with 108 routes, and operate over 400 flights daily from hubs located in Malaysia, Thailand, and Indonesia.

Today, AirAsia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. While for the mission of AirAsia, AirAsia wants to be the best airline company to work whereby employees are treated as part of the big family. Besides, AirAsia try to maintain the lowest cost hence everyone can fly with AirAsia. Highest quality product, embracing technology to lower the cost and improvement in service levels will be maintained by the AirAsia airline also.

Air Asia Introduction Essay Example

Lastly, create a globally recognized ASEAN brand will be the mission part of AirAsia. AirAsia makes the low fare model possible and create values through their key strategies such as: Safety first, high aircraft utilization, low fare- no frills, streamline operations, lean distribution system, and point to point network. II. Threshold AirAsia needs to come out with the greatest strategic to compete with their rival in the same industry. AirAsia might not be able to compete with the complex business environment without the right strategic management.

Organizations or companies do not exist simply to survive in the market place but want to grow and prosper in a competitive environment. Because of this reason, AirAsia need to consider a strategic management as the important things in their company. The strategy that AirAsia need is 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.

The globalization also forced AirAsia Company to survival for business. To see and appreciate the world from the perspective of others has become a matter of survival business. The price and quality of firm’s products and services must be competitive on a worldwide basis, not just a local basis. The globalization makes a rapid change in the business environment. Every company has a same chance and opportunity for doing their business. For those company doesn’t aware and take this as important consideration, they will failed to compete with their rival or competitors in their business.

E-commerce is becoming a business tool. E-commerce also has become a vital strategic management and allows a company to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. In total, electronic commerce is minimizing the expense and cumbersomeness, improved products, and higher profitability. The very small price is offered to the customer also can give biggest affect in this business.

As all airlines in low cost carrier (LCC) industry compete on costs, AirAsia needs to offer the lowest possible fare in order to win the competition in the current markets served as well as new markets. AirAsia move from the traditional business into modern business by implementing E-commerce 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. According to Gloker (2002), by using the better maintenance management, AirAsia can save large proportion of its maintenance cost contributes approximately 9% to the overall cost of an airline. In conclusion, those are the Air Asia strategy to make Operation effectiveness and outstanding efficiency in their business. With this strategy, AirAsia can achieve their goals and objective into the lowest carrier airplane in the world. III. Milestone Maximized IT and implementing E-commerce in AirAsia business Nowadays, E-commerce is becoming a business tool.

E-commerce also has become a vital strategic management and allows a company to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. In total, electronic commerce is minimizing the expense and cumbersomeness, improved products, and higher profitability. According to this statement, E-commerce can change the way of doing business nowadays. E-commerce becomes a major success to Airplane Company to make effectively and efficiency in their business.

To maximize their IT, AirAsia implemented current IT such as yield management system (YMS), computer reservation system (CRS), and enterprise resource planning (ERP) system. Yield management system 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. AirAsia have two options in this strategy: in house building or outsourcing.

In the strategy that AirAsia used and implemented, AirAsia more preferred to used or implemented outsource system in this strategy. The decision in outsourcing has several benefits such as cost, competency, control, and also competitive advantage. IV. Value Chain of AirAsia 1. Primary Activities Inbound Logistic: In Airline industry it is really important to have enough and accurate information about other competitor such as their strategy, finding the shortest way, how the other company manage their industry with fuel efficiency, how they cut off their price.

Inbound logistic of AirAsia includes few types of categories in airline industry such as how to progress flights, keep eye on competitors and how to get the lowest price as the control fuel efficiency by purchasing the advance when price is low. And last will be plan routes. Landing slots acquisition: Landing slots were scarce resources and also possessed critical value in airlines industry (OECD, 1997). AirAsia needs to ensure that it had sufficient landing slots to support its flight schedules.

Aircraft leasing or purchasing: SEA market’s promising growth (Oum et al, 2000) would convince AirAsia to keep extending its fleet to capture more profits. Aircraft parts and fuels purchasing: It is important to monitor the budget for this activity, as it affects around 30% to overall cost (Corporate financial report). Operations: Transporting passenger: These are the main resources to AirAsia for creating profits. Aircraft ground maintenance: AirAsia various methods in driving down the cost for this activity showed a great effect in suppressing the cost low. Flight scheduling: Tight competition with other competitors in

acquiring limited landing slots pushed AirAsia to plan its flight schedule carefully. A well planned schedule and keeping it on time, enable AirAsia to add more value on its brand as an on time delivery air carrier. Outbound Logistic: AirAsia mostly use the operation through online and customers can get their tickets by online booking. Customers can print out boarding tickets at homes. Besides, AirAsia uses general electric engine for the customer safety as customers are the priority of company. Sales and Marketing: nowadays advertisement is one of important issue in business hence AirAsia sponsors some sport team.

There is a strong brand name and marketing have significant collision on any organization sales. Hence, AirAsia sponsors “The amazing race” and mu football club. AirAsia paints some aircraft with club color and sports star, and Tony Fernandes wears AirAsia official red cap and T-shirt in every official events. Advertising and promotion: Important activities to popularize the brand of AirAsia. Intensive advertising and promotion has brought more than five million customers to use AirAsia services (Corporate website, 2005). Computer Reservation System: This is a strategic enabler for AirAsia to compete with other competitor.

Online sales through this system captured more than 50 percent of AirAsia revenue (Corporate website, 2005). By optimizing the system, AirAsia can develop more analytical tools in delivering precise and right decisions on time, such as Customer Relationship Management(CRM) or E-business (Taneja, 2002). Services: In every industry there are different options for customers, so each industry try to provide Special services, more facility to retain their customers. Air Asia also has some, for example customer can pre-booked checked baggage for lower rate or they can online book hotel or rent taxi and also AirAsia have voucher for flight delay.

AirAsia provides different t type of services to customers such as delay flights more than 3 hours then US$ 61 e-gift will be given. Customers can also pre-book the checked baggage in lower rate. Online booking hotels rent a car and medical services also being provided by AirAsia. There is a Call Center System to tackle problems with customer inquiries. 2. Support Activities The supportive activities is took keep business clean and operational. Firm infrastructure to formulate strategic decision for AirAsia and encourage its employees in supporting the strategy. AirAsia has advances from a classic lcc into integrated service provider.

AirAsia focuses on goals, provides cheap fare and explores the new markets. The decision making process is simple. Human Resource Management to provide recruitment and training to employees to keep them highly skilled and efficient. AirAsia hires the competent workers and assign multi-skilled people so that AirAsia can overcome the price in term of HR. this can sustain company mission and recompense employees in term of performance. Technology department to develop methods in operating and maintaining aircraft that suppress the cost lower. AirAsia uses many types of technology to minimize cost and makes operation easier and efficient.

AirAsia uses YMS which takes into account the operating cost and envisaged revenues. Besides, CRS used by AirAsia for web-based reservation and inventory system as CRS is a direct sale engine. ERP was implemented by AirAsia as helps for time saving and speed up reporting and data restoration processes Procurement to search the best quality product among suppliers without driving the cost high To summarize, AirAsia has developed a considerable value chain in its approach to the strategy. The value for these activities really added a significant amount in its pursuit to provide low price air transportation services.

However, there is no evidence whether AirAsia has already implemented further management information system beyond its reservation system. It is recommended that AirAsia should implement more analytical capabilities, such as Customer Relationship Management or Business Intelligence, in its computerized system. By implementing such technologies, AirAsia will be able to bring better decision in proper time at proper place (Sheehan, 2003). V. Porter Five force analysis of Air Asia There is the high barrier entering the airline industry due to some reason : High Capital requirement.

The airline industry needs the big amount of start-up capital. The new entrant have to spent the cost of setting up the office, purchasing or renting the aircraft, hire the professional pilot and stuffs and so on. Thus, the threat of Airasia is low. Brand awareness : brand awareness also important for the new entrant. The consumer will just choose the products and service that they most trust on. So new entrant have to make the huge investment both time and resource to establish the reputation in order to get the brand loyalty from the customer. hence, brand loyalty really can help reducing the threat to AirAsia too.

Different product offered: AirAsia offers many different product if comparedwith any other competitors such as Tiger Airways, Bangkok Airways, Air Phulippines etc. Beside selling ticket, AirAsia also provide the holiday package which the the customer can travel around Asia as well. And it`s also has the strong connection with many hotel, and tourism company around Asia. Thus, it`s hard for the new entrants to compete with Air Asia. Government legislation: it is one of the berries of entering to airline industry, because it`s very difficult to get the new flight route from government.

Government Policy: has limited new entrant so Air Asia is already settled on the market. Rivalry among existing competitor (high) Although AirAsia offers the lower price than other companies, but nowadays there are some company also provide the same price such as Firefly and Airway . These companies also provide the service at the same level of AirAsia. Hence, the rivalry among existing company remain highly. 1. Power of buyer The power of buyers is quite high for AirAsia because although the AirAsia provide the lowest price to customers, but they still make the comparison between the airline companies.

It`s very easy for the customers to switch from AirAsia to other company because there are many company that provide the same service. Moreover, AirAsia always leaves customers an image as they always delay the flight. Thus, for the investor or other top executive or businessman, they will choose other airline instead of AirAsia. 2. Power of supplier The bargaining power of supplier is a little bit high. For supplier like food supplier, and fuel suppliers will be based on the market condition. So that the price cannot be increased to much. And there`re only two aircraft suppliers- Airbus and Boing.

Most of the aircraft of AirAsia is Airbus model, so the switching cost of AirAsia will be high because if AirAsia what to switch from Airbus to Boing, they would meet a high cost such as the cost of training the pilot and so on . VI. SWOT Ananlysis Strengths, Weaknesses, Opportunities and Threats Analysis for AirAsia 1. 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 which 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. 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 capitalised 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 make 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) have successfully “elevated” the brand to become a regional brand beyond just Malaysia.

The links with Manchaster 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 AirAsia is the low cost leader in Asia. With the help of AirAsia Academy, AirAsia 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 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 2. 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. AirAsia receives a lot complaints 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. 3. Opportunities There are 2 major events that are taking place now or going to take place in less than 6 months from now. 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 travellers. 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 their existing 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. 4. Threats Certain rates like airport departure, security charges and landing charges are beyond the control of airline operators and this is a threat to all airlines especially low cost airlines which 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. VII. Recommendation and Conclusion Throughout this case study of AirAsia, we have understand that there are high competitiveness in Airfare Industry. Companies have taken many strategies to compete in order to gain market share and to gain for profit as well.

Providing a low cost is one of the strategy that AirAsia conducts in order to compete this industry. If we look at AirAsia, most people would say “It is the most economical. ” but today AirAsia is not the most economical, providing lower cost, TigerAir and JetStar have took place. And there are so many complaints from customers who have purchase the flight from AirAsia. Those complaints are mostly about Flight Delays, if the Flight Changes, customers can’t rebook or refund the money because there is an exact date that AirAsia organized for them.

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