Airasia Strategic Management Report
SWOT analysis of Airasia Strengths Firstly, Air Asia has indeed a strong management team. This is clearly known as it has very strong links with the governements 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 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 airline.
Secondly, the management team is also very good in their strategic 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, Southwest’s people strategy and Easyjet’s branding strategy . Thirdly, AirAsia is a brand name which is very 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. For example, their partnership with other service providers such as hotels and hostels, car rental firms, hospitals, Citibank has created a very unique image among travellers. Alliance with Galileo GDS that enables travel agents rom 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 and Thailand have successfully “elevated” the brand to become a regional brand beyond just Malaysia.
The links with Manchaster United and AT;T Williams Formula One team have further boosted their image to a greater extend beyond just the this region. Fourthly, AirAsia is also known to be a low cost leader in Asia.
With the help of AirAsia Academy, AirAsia has successfully created a workforce which is veryflexible and high committed and very critical in making AirAsia the lowest cost airline in Asia. Lastly, their excellent utilization of IT have successfully contributed to their promotional activites; such as email alerts and desktop widgets which was jointly developed with Microsoft, as well as being able to keep costs low by enabling direct purchase of tickets by customers therefore saving on airline agent fees. Weaknesses Air Asia does not have its own maintenance, repair and overhaul facility.
Although it may have been a brilliant strategy when they first started with Malaysia as their only hub and few planes to maintain, they now have hubs even in Malaysia, Thailand and Indonesia with over 100 planes currently owned and many more to be received in the coming years. Therefore, AirAsia have to ensure proper and continuous maintenance of the planes which will also help to keep the overall costs low. Thus is is a copetitive disadvantage nt to have its own mainteance facility. Also, AirAsia have gradually received alot of complaints from customers on their services.
For example, the typical complaints would be of 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. Opportunities It can be seen that there are about 2 major events that are taking place now or going to take place in less than 6 months from now.
Firstly, it is the ever increasing oil prices. Secondly, is the “ASEAN Open Skies” agreement that has been reached. In the first case, he 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.
Secondly, 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. Collectively, the population of Asian middle class will be reaching 700 million by the end of 2010. This would create a larger market and a huge ooportunity for all low costing airlines in the region, including AirAsia.
Also, there may be an alternative opportunity to partner with other low costing airlines such as Vigin to tap into their existing strengths or competitive advantages.
This would include their brand name, landing rights and land timings. Threats Firstly, it would involve certain rates like airport departure, security charges and landing charges which would be beyond the control of airline operators and this would thus be a threat, especially to low cost airlines which tries to keep their cost as low as possible. For example, Singapore’s Changi Airport charges S$20 for every person who departs from Singapore. Also, with AirAsia’s profit margin of 30%, it has already attracted many competitors.
Many full service airlines are creating low cost subsidiary to compete directly with AirAsia.
An example would include Singapore Airlines which created Tiger Airways. And most importantly, users’ perception that budget airlines may compromise safety to keep costs low may also affect them attracting more customers. PESTEL Analysis for Air Asia Political In the early setup of Air Asia, Malaysia political influence could also affect the HR Policies of the company whereby the recruitment and selection of staff do not necessarily be based on merits but also on the racial composition. Some of the political decision that impact Air Asia was their application for the use of old Subang Airport as their hub was turn down by the government.
But after several years later, the government allowed FireFly to operate from the old Subang Airport.
Other political decision that played a significant role in Air Asia performance is the open Airspace policy. It dictates the route and the airport for it could operate. Hence the desire to provide the promised lowest value will be impacted. The political context of globalization though is a main consideration for Air Asia but it is diffuse and spread over other factors as discussed subsequently.
However Air Asia’s existence as an independent private airlines company can be attributed to changes in the political environment of Malaysia privatization plan under the prevailing economic ideology of the time which saw a large number of public utility companies privatized and/or broken up into smaller and more efficient companies.
Air itself was a spin off from a government run company HRB – Hicomm Berhad it was verge into liquidation when Tony Fernandez bought it and turnaround it into profit running company.
Now AirAsia is the most successful budget air operator. Economic Air Asia has been significantly impacted upon by changing externalities in the economic environment. This has been as a result of processes of globalization opening up more markets and bringing more competition for the company. With it success as an air operator, more company see that there are potential for them to have the slice of the market hence more new low-cost operator was established by the traditional air operator to compete with Air Asia.
This benefit the general consumer whereby it provide them with choice that better fitted the consumer needs. Aside from competition with the arrival of more new air operator, with their success Air Asia benefitted from it where availability of fund through financial institution willingness in providing financial investment to the Air Asia. Sociological Linked to the economic factors above social changes have significantly impacted Air Asia in relation to changing demographics in terms of the customers it targets.
As such the customer’s see an opportunity to travel to the destination served by Air Asia with a low cost is possible. It creates a new demand in way consumer commute in this globalised world. With the inheritance of employing some of the staff from former employees of other full-service airlines, the challenge that the some staff will carried along is their old habits/norms that were in still with them.
Air Asia has addressed this with providing training in adapting to the new work culture.
In order Air Asia to be able to provide low cost air the travel, they reduce their operation cost through the sale of ticket by booking through Internet. This technology depends on the effectiveness of the IT infrastructure. There are possibilities of some potential customer might be lost due to this technology hiccup. Air Asia use these technology to it advantages as it virtually reaches it potential customer from all part of the world As the ticket sales are through the internet, the payments of the transaction are through the Banks via web based.
Air Asia does have some influence in the way business is done in this new world.
As an air operator, Air Asia core business is air transportation. Their business success/failure is dependence on their air plane availability. They need to have a better assessment on the Airbus or Boeing capacities, taking consideration on how long it would take to deliver their order. Environmental AirAsia and it subsidiaries need to take cognisance of environmental factors. The companies though the nature of these influences are inextricably linked to social, legal and political factors.
For Air Asia, it is subject to intense regulatory scrutiny by Environmental Protection. As a factor of influence, Air Asia engaged in training programs for its employees and company wide in ensuring it meets these standards and possesses the knowledge and skills to do so in terms of its human resources. Green issues have also been a concern for Air Asia, it tow it aircraft to a general boarding area, saving the huge amount of electricity used to operate an aero bridge while minimizing taxiing time, which significantly reduces fuel burn.
Single class of sitting capacities allows Air Asia in achieving 79% of load factor throughout their last financial year 2010, thus attaining the lowest fuel burn per passenger. Legal Legal considerations are again more a concern directly for Air Asia in terms of the regulatory.
As their ticket booking are transacted through internet, Air Asia is concerned about the consumer privacy right. Therefore Air Asia pledges to be responsible on gathering and protecting it consumer privacy, even though it does not create legal right to the customers. As an air operator, Asia concerned is the air worthiness of it airplane.
Any civil aviation authorities of the country ban their legal right to operate from their air space/airport will impact on their business operation. Hence Air Asia has to ensure that all it air plane was given the approval to operate. Porter Five Forces Model In an article by AirFinance Journal, it is understood that suppliers’ power for Air Asia is high as AirAsia can only choose from two aerospace giants; Airbus and Boeing to purchase its fleet of planes.
However, airline accidents and the liquidation of major airline carriers has countered this monopolisation.
Furthermore, the global crisis has limited new entrants from the industry due to its high costs of manufacturing and also the advance technology of aerospace engineering AirAsia’s buyers’ power are relatively high, due to being a cost leader in the industry. Furthermore, air tickets are not difficult to purchase; a user only has to have a login account with airasia. com and purchase tickets from there. By using the Internet, AirAsia will have a wider market to grab hold onto and also more streams of revenues across the region to take from.
By being a cost leader in the budget airlines industry also make competition in AirAsia’s favour. Most customers would want to fly around the region with the lowest cost possible. However, more budget airlines are appearing. This will lead to an unrealistic price war and might fluctuate the cost of travelling around the region. Another problem is that most budget airlines are subsidiaries of major airline carrier, therefore they have more financial backing and also more fleets of airplanes to cover more airports.
Asia is also a vast region with big areas to cover with, therefore travelling without consuming large amounts of time makes threats of substitutes relatively low.
Low travel cost means travelling from Singapore to Kuala Lumpur not only more cost effective than a coach ride, but it also saves large number of hours travelling by air. Furthermore, certain areas are dangerous to travel by land, especially on the Thai-Cambodia border, therefore travellers would like to travel across borders safely. Lastly, the threat of new entrants is currently high at the moment, with
Krisflyer, Jetstar and Tiger Airways makes competition very vigorous around the region. However, with AirAsia’s strategy on keeping costs low and more people affording to fly, AirAsia still holds on to the upper hand. However, with AirAsia’s success stories and more major carriers opening up more subsidiaries, it will be n no time the budget airline industry be saturated with new entrants. Do governments pose a significant obstacle to the expansion of low-fare airlines in Asia? Explain your answers? Yes.
The regulation of airline in some parts of Asia inhibits competition to take place which results to the government being manipulative and restrictive to its growth leading to limited alternatives for Asian people to only have few choices in air travel. An example would be taken with Malaysian government, where government owned companies are more concentrated around the country, therefore AirAsia expansion to venture into the intra-market would be less welcomed by the government as they are confronted by a predicament the growth of an a budget airline cooperation rather than the growth of the state-owned Malaysian Airlines.
Secondly, other countries’ governments might also ponder to invest in AirAsia into their country and turn the subsidiary into state ownership. An example would be India, where the government would buy a share of certain cooperation and turn it state-owned, and driving potential investors out of the country. Such problems would hamper the chances of AirAsia investing into new markets and also slows down the growth of the cooperation.