Air Asias Corporate and Business Strategies

Air Asia is a low cost air bearer that charges the lowest menus per kilometer in the universe. A PESTLE analysis indicated that liberalization of the air market has improved international market entree and supported the growing in the figure of air hoses and riders in East Asia. A five forces analysis indicates that the air hose industry is extremely competitory, with a high menace of new entries and of replacements in the domestic travel market. Air Asia is positioned at the low cost terminal of the spectrum of rivals that fly internationally. A SWOT analysis indicated that Air Asia has strengths in direction, operational efficiency and selling, but has failings in staffing, client attention, and attractiveness to concern travelers. The air hose has been successful because it has taken an entrepreneurial and advanced attack to the market, leveraging its competences to make machine-controlled fining procedures and to cut down other operational costs. The air hose should see spread outing into Europe and western Asia utilizing Abu Dhabi as a hub, which would necessitate extra aircraft or joint ventures with other low cost bearers. The house should besides see presenting concern category flights that charge a higher monetary value, but provide the services including convenient programming that can pull the concern section of the air hose market in East Asia.

1.0 Introduction

Air Asia is a low-priced air bearer supplying service between its chief hub in Kuala Lampur, Malaysia and finishs in East Asia. The air hose besides provides service to Abu Dhabi and London. Air Asia has adopted a generic scheme of cost leading by cut downing the cost of operations and go throughing the nest eggs through to clients with really low ticket monetary values. The house was founded in 1996 as a low cost domestic air hose, and was purchased by Tony Fernandes in 2001. The house was re-launched as a no-frills air hose in 2001 with three aircraft. Air Asia entered the low-priced international market in 2003. The house presently has grosss of $ 60 billion and provides services to 60 million clients a twelvemonth. Air Asia is the first low cost air hose to hold formed a joint venture for the procurance of aircraft with a rival, JetStar, which is based in Singapore ( Quantas, 2010, 1 ) . The air hose presently has meshing ownership through the Shin Corporation which holds a major equity place in both Air Asia and Thai Air Asia. The air hose besides holds a minority equity place of 30 % of JetStar, which is a low cost Australian air hose.

2.0 Environmental and Industry Analysis

A PESTLE analysis provides an appraisal of the industry environment, which is necessary to make a context for the air hose industry analysis ( Grant, 2008 p. 68 ) . A Porter ‘s five forces analysis provides an indicant of the competitory forces act uponing competition in the air hose industry.

2.1 PESTLE Analysis

The PESTLE analysis is a qualitative rating of the political, economic, societal, technological, legal, and environmental forces impacting the air hose industry. The focal point of the analysis is on the East Asiatic part, which is the primary market for Air Asia.

Political: The tendency is toward liberalization of the air hose markets in East Asia to let air hoses entree to markets without the demand for a specific bilateral understanding refering air transit between states. An ASEAN unfastened skies understanding, the Roadmap for Integration of Air Travel Services ( 2004 ) was ratified by member states in 2007 and will be to the full implemented by 2015. States in the part such as India and China that are non members of ASEAN are besides liberalizing air transit ordinances ( O’Connell & A ; Williams, 2006, p. 362 ) .

Economic: The rate of economic growing in the ASEAN states is variable, with the ASEAN member states sing a growing rate of merely 1.5 % in 2009 because of the planetary economic crisis. In contrast China ‘s GDP grew at 8.9 % in 2009 while India ‘s GDP grew at 6.8 % . Economic growing in 2010 and beyond in the part is likely to be strong because East Asia has mostly recovered from the planetary recession.

Sociable: The societal tendency in East Asia is towards increased ingestion including transit ingestion because of the economic growing in the part. Globalization has besides increased the leaning to go in East Asia for both concern and recreational intents. The population in the part is besides turning quickly. Another societal tendency is the increased usage of personal computer science devices, which intersects with the engineering drivers in the air hose industry.

Technological: The air transit industry is technology-driven, with information engineering used to heighten selling and technology engineering used to better safety. Airlines use information engineering systems such as cyberspace ticket gross revenues, paperless tickets and automated cheque in systems to better client attention while cut downing cost of operations ( Buhalis & A ; O’Connor, 2005, p. 12 ) . These systems are besides used to maximize burden capacity by commanding programming and usage of aircraft.

Legal: The states in East Asia have assorted ownership and anti-competition Torahs that affect the ability of air hoses to unify or to get an air hose ( Hsu & A ; Chang, 2005, p. 558 ) . In add-on some states in the part have Torahs that affect the ability and the nature of joint venture understandings between domestic and foreign air hoses.

Environmental:

The PESTLE analysis suggests that the execution of the Open Skies understanding can increase entree to markets for air bearers although the assorted national Torahs refering ownership may halter the usage of a amalgamation and acquisition scheme for enlargement. The analysis besides suggests that air hoses implementing new engineerings to better client attention may bask a competitory advantage. The turning population and richness in the part will bring forth greater demand for air transit in the long tally.

2.2 Five Forces Analysis

The five forces analysis is an industry-based appraisal of the factors driving competition to back up the development of scheme ( Peng, 2009, p. 35 ) ( see Appendix A ) . If the competition in the industry is high, there is less likeliness that a house in the industry such as Air Asia will derive competitory advantage through a strategic enterprise.

Buyer Power: Buyer power in the air hose industry is weak because of atomization of purchasers and the big Numberss of possible purchasers. The leaning of air travel in East Asia is comparatively low compared to the planetary norm of 2.0 trips per twelvemonth, with India at.1 and China at.3 ( O’Connell & A ; Williams, 2006, p. 362 ) . At the same clip, the big size of the East Asiatic market consequences in sufficient travel to back up a turning air hose market. Buyer power is slightly strengthened by low shift costs in the industry, with purchasers able to take among many different viing air hoses. Buyers can be segmented into concern travelers and recreational travelers with different monetary value sensitivenesss. Business travelers value flight agenda and convenience in an air hose with monetary value frequently a secondary consideration. In contrast, recreational travelers are more sensitive to monetary value and the cost of the airfare comparative to the entire cost of diversion ( Talluri & A ; van Ryzan, 2004, p. 17 ) .

Supplier Power: Suppliers in the air hose industry consist of aircraft makers, manufacturers of fuel, and airdromes, with the power of these groups moderate. The makers of aircraft have moderate bargaining power because of the high cost to air hoses for exchanging aircraft types because of the demand to transport extra parts stock list. Aircraft makers, nevertheless, pose no menace of believable integrating. The manufacturers of fuel have comparatively strong bargaining power because oil monetary values are established by planetary markets with air hose ingestion stand foring merely a little part of oil industry gross revenues. Airports have moderate bargaining power through their ability to supply air hoses with Gatess and land services. Although air hoses altering airdromes in a finish part face high shift costs, the increased development of regional airdromes intended to cut down congestion at major airdromes reduces the bargaining power of airdromes because of gate fee competition ( Hooper, 2002, p. 293 ) .

Menace of Substitutes: The menace of replacements is high in domestic markets because consumers in East Asia prefer rail and route transit that is less expensive than air travel whenever possible despite the addition in clip for travel ( O’Connell & A ; Williams, 2006, p. 362 ) . The menace of replacements in international travel within the part is low because of the absence of feasible replacements. Overall, the menace of replacements in the industry is moderate.

Menace of Entry: The menace of entry is high in the industry. Although the cost of aircraft is high, a new house can come in the market with merely a few aircraft as Air Asia did in 2001. The liberalization of the market environment is extinguishing barriers to entry in the signifier of governmental limitations on air hose paths. As a consequence, a menace of entry besides exists from established air hoses from other parts seeking to spread out paths in the East Asiatic part.

Competitive Competition: Competitive competition is high in the industry because of a diverseness of challengers, high cost of fixed assets and operations, low shift costs, and low degrees of merchandise distinction. Many air hoses compete in the East Asiatic market, each of which has different schemes and different trade name reputes. As a consequence, monetary value competition is characteristic of the industry. Aircraft are expensive to buy and run, with a high burden capacity necessary to cover costs. Passengers can exchange air hoses at a comparatively low cost despite the usage of inducement programmes by some air hoses to increase client trueness. While air transit can be differentiated based on the degree of comfortss available to riders, the cardinal property of transit service is similar in all air hoses.

The five forces analysis suggests that the primary menace in the industry comes from competition among challengers, which is intensified by the possibility that new air hoses will come in the East Asiatic markets. The analysis besides suggests that chances may be for smaller air hoses to organize strategic partnerships with other air hoses to spread out the agenda and finish options for riders at a cost less than the sum necessary for direct investing in aircraft and terminal gate installations. In the low cost section of the industry, taking advantage of this chance would necessitate Air Asia to follow a scheme that restructured in the industry ( Cockburn, Henderson, & A ; Stern, 2000, p. 1127 ) .

2.3 Rivals and Competitor Groups

Rivals in the air hose industry can be divided into the two chief groups of full service air hoses and low cost air hoses. Full service air hoses are big houses that have been in the industry for an drawn-out period of clip, with many of these air hoses basking a monopoly or quasi monopoly on certain national paths prior to the gradual liberalization of the air hose industry in the ASEAN market, with full liberalization taking topographic point by 2015. These major air hoses frequently use a hub-and-spoke routing system in which short-haul feeder flights bring riders to a hub airdrome for transportation to other aircraft for long-haul flights or for other short-haul flights to make their concluding finish ( Burghouwt and Veldhuis, 2006, p. 107 ) . Airlines in this rival group use a distinction generic scheme based on frequent flight programming and usage of airdromes handily located with regard to major urban Centres, with a wider scope of services warranting higher ticket monetary values. They besides have a wider scope of finishs including transcontinental flights. Rivals in this group include Singapore Airlines, Air China, Malaysian Air, and Thai Airways International. The low cost group of rivals focus on flights taking riders straight from the point of beginning to their concluding finish, although transportations may be necessary to consolidate riders and maximise capacity use. Airlines in this rival group are regional air hoses with finishs limited to East Asia. There are legion rivals in this group including Jet Star, Tiger, Value Air, Firefly, and Maswings. Appendix B shows the placement of houses in the two rival groups.

2.4 Developmental Phase of Market and Industry

The air transit market in the East Asiatic part is in the growing phase of development, which is characterised by a rapid rate of addition in gross revenues ( Inglada, Rey, & A ; Cote-Millan, 2006, p. 9 ) . The economic growing in the part is leting more persons to afford air transit, peculiarly for touristry. In add-on, the increased commercialism with the ASEAN part and with China as a consequence of the ASEAN Free Trade Agreement that was bit by bit implemented between 2004 and 2010 is bring forthing higher commercial and concern demand for air transit between Southeast Asia and China ( Wong & A ; Chan, 2004, p. 509 ) .

The low cost section of the air hose industry in East Asia can be viewed as at the point of emerging from the market incursion stage of growing. The low cost air hose industry is relatively new in East Asia, with independent air hoses come ining this market section in 2001 ( O’Connell & A ; Williams, 2005, p. 260 ) . Many of the houses in this section of the industry can be considered prospectors utilizing the Miles and Snow typology because they adopt schemes to utilize entrepreneurial accomplishments for developing new types of services and have strong selling competences ( Wratschko, 2009, p. 71 ) . In contrast, the major air bearer section of the industry can be considered mature, but undergoing a period of transmutation because of the riddance to governmental ordinances that had given many of these air hoses a competitory advantage in paths and airport entree. These air hoses can be considered as guardians because they focus on retaining market portion despite the instability in the market created by new market entrants such as low-priced air hoses.

3.0 Resources and Capabilities

In the resource-based theory of the house, the resources and capablenesss of the house should be the foundation of the house ‘s scheme. To utilize this attack, the house assesses its resources, determines the capablenesss that can supply it with competitory advantage, select a scheme that matches resources and capablenesss with chances, and place resource spreads that have to be filled ( Grant, 1991, p. 115 ) . A SWOT analysis can be used to place the resources and capablenesss of Air Asia and the manner the house can utilize these resources to take advantage of chances and counter menaces ( see Appendix C ) . A value concatenation analysis can supply an appraisal of the countries in which Air Asia can add the most value for clients, which a spread analysis identifies the resources that Air Asia must get to implement a selected schemes.

3.1 Swot Analysis

Strengths: Air Asia has a strong direction squad, with operations managed by an ex-Ryanair manager with extended experience in commanding disbursals in a low cost air hose ( O’Connell & A ; Williams, 2005, p. 264 ) . The air hose has a good engineering substructure that supports really low cost of operations from its usage of engineering to automatize client processing and to maximize burden on flights. The company besides has strengths in operational cost containment through really low staff degrees, deficiency of comfortss on flights, and standardization of aircraft which reduces disbursal for care and parts stock list. Merely 8 % of the air hoses riders are concern travelers, bespeaking that the cost leading scheme has been successful in pulling the diversion section of the market ( O’Connell & A ; Williams, 2005, p. 268 ) . Another strength of the house is its selling competence, which has efficaciously designed and promoted a service targeted to the underserved low-priced no frills section of the market. The air hose has a breakeven burden factor of merely 52 % and the universe ‘s lowest air hose unit cost of $ .23 per rider kilometer ( O’Connell & A ; Williams, 2005, p. 265 ) . The air hose besides has a strong trade name repute in the market for offering low menus. The air hose besides has strong information engineering competences.

Failings: Air Asia has failings in human resources, hapless client attention in deciding ailments, and limited ability to pull concern travelers. Because of its low cost attack to operations, the air hose has lower staff degrees than rivals. The lower staffing creates issues such as holds in turnaround clip that consequence in holds in goings, with unequal communications and support for delayed riders. The air hose ‘s concern theoretical account besides reduces its ability to pull the concern market that values flight programming, on clip flights, and convenience. Air Asia uses merely the A320 aircraft, which has a scope of merely 4,800 kilometers with a full rider burden, which limits the finishs that the air hose can function ( Airbus, 2010 ) .

Opportunities: Opportunities for Air Asia are supplying expanded service in the turning East Asiatic air hose market, opening new intercontinental paths, and organizing joint ventures or other strategic confederations with rivals in markets non presently served by the air hose. A important unmarked chance in the part is the potency of touristry from Northeast Asia to Southeast Asia ( Winter, 2007, p. 28 ) . Smaller air hoses can derive greater entree to markets in the part through joint ventures and strategic confederations that allows air hoses to code portion, which involves transporting riders utilizing aircraft from two or more air hoses.

Menaces: The primary menace for Air Asia is an addition in competition with some air hoses following a similar operating theoretical account to Air Asia which reduces distinction. A menace to the concern theoretical account comes from cultural differences such as the penchant of Indonesians to utilize heavy baggage that must be stowed in lading compartments ( The Low Cost, 2009 ) . Another menace comes from the ordinances in some states puting minimal menus and airdrome use restrictions, which are non covered by the ASEAN Open Skies understanding. The air hose is vulnerable to the menace of an addition in fuel monetary values and the possibility of breaks to go caused by terrorist onslaughts.

The SWOT analysis indicates that Air Asia ‘s strengths in direction, operational efficiency, selling, and trade name repute would let it to take advantage of the chances presented in the part from growing and touristry potency. These strengths could besides back up attempts to develop more intercontinental paths and joint ventures with rivals. The failings of the air hose in limited human resources and hapless client attention could suppress growing unless they are addressed. The failing of deficient staffing increases the house ‘s exposure to the consequence of cultural differences. At the same clip, the house ‘s strengths can assist get the better of the menaces posed by increased competition. The air hose ‘s trouble with pulling concern riders because of its concern theoretical account may finally hold a negative consequence on its market portion as concern travel in the part additions.

3.3 Value Chain Analysis

The value concatenation analysis disaggregates the activities of the house to find which activities add the most value to clients ( Grant, 2008, p. 145 ) . The inbound logistics section of the concatenation involves purchase or leasing of aircraft, fuel, and gate infinite at airdromes, which add some value through cut downing overhead and by supplying convenient or desirable paths. The air hose adds important value to the client in its operations, which has reduced costs to let the menus to be the lowest in the universe. This section of the value concatenation, nevertheless, does non add value for clients who desire comfortss or aid from air hose staff because of deficient support from the human resources direction map. Outbound logistics in the context of an air hose involves factors such as airdrome turnaround clip, which are related to operations. Selling and gross revenues besides adds important value to operations by the air hose ‘s ability to leverage its engineering support map for cyberspace ticket gross revenues, paperless tickets and automated check-in. Because of the troubles that the house has with client attention and ailments, the after gross revenues service section reduces value for the client. Based on this analysis, Air Asia adds primary value for clients in the operational and selling sections of the value concatenation.

3.3 Gap Analysis

Gap analysis involves finding the disagreements between the current resources of the house and the resources necessary to accomplish the coveted hereafter province ( Grant, 2008, p. 162 ) . The generic hereafter province for Air Asia is continued growing in its primary market in East Asia and enlargement into secondary markets. To increase its portion of the market in East Asia, Air Asia requires extra aircraft, extra staff, and extra entree to airport Gatess. The air hose has 78 planes available including aircraft owned by the house and aircraft available through joint ventures, all of which are A320 theoretical accounts. Because these planes operate near capacity, extra aircraft would hold to be acquired for enlargement. To spread out into intercontinental markets, the air hose would besides necessitate larger aircraft with longer scope. The house would besides necessitate extra human resources to run into the operational and client attention needs with enlargement, peculiarly to pull concern clients. The analysis suggests that the house does non hold sufficient deepness and comprehensiveness of resources to back up enlargement and must get extra resources.

3.4 Technical and Landscape Fitness of Air Asia

Air Asia has high proficient fittingness, but merely reasonably high landscape fittingness. Air Asia has developed and implemented a proprietary output direction system, computing machine reserve system, and enterprise resource planning system. In add-on, the house makes extended usage of a front-end cyberspace interface with its backend computing machine systems to back up on-line cyberspace ticket purchases and paperless tickets. The engineering systems are flexible plenty to react to any alteration in client demands, and have been a factor in advancing the credence of paperless tickets in Malaysia ( Sulaiman, Ng, & A ; Mohezar, 2008, p. 149 ) . Air Asia has been successful in pulling the low-priced section of the market, but may non hold sufficient flexibleness to react to a alteration in the environment such as a rush in concern demand or a dramatic lessening in demand because of terrorist onslaught or high fuel monetary values.

3.5 Competitive Scenarios

A likely competitory scenario is an addition in competition in the low cost section of the East Asiatic air hose market from new entrants and low cost subordinates of established major bearers. A FAR analysis of the scenario suggests that other bearers will follow some of the maps used by Air Asia such as paperless ticketing, decreased staff degree, and no comfortss to go cost competitory. The assets required for these air hoses to follow this concern theoretical account are by and large available with their bing fleets of medium scope aircraft. The hazard posed by this scenario is Air Asia ‘s loss of competitory placement as the lowest cost bearer in the market.

4.0 Decision

The most likely ground for Air Asia ‘s success has been its willingness to put on the line utilizing advanced schemes to cut down costs while keeping profitableness. The house was a innovator in the usage of cyberspace reserve and paperless tickets in the market, with its selling get the better ofing any rider reluctance to utilize the electronic systems. It has besides adopted the advanced scheme in the low cost section of the market of organizing joint ventures with rivals to derive entry into new markets and to cut down operational costs.

4.1 Recommendations

Air Asia should spread out into the intercontinental market by utilizing Abu Dhabi as a hub for paths in western Asia, North Africa, and Europe. From the Abu Dhabi hub, the air hose could offer flights to India and Southeast Asia. The concern theoretical account would go on to follow the cost leading generic scheme. To implement this scheme, the air hose would hold to spread out the size of its fleet, with the possibility of adding some broad organic structure aircraft designed for long haul flights in add-on to A320s. Support could be obtained from a seasoned equity offering, with the air hose ‘s historic public presentation back uping the offering. The air hose could besides organize codification sharing relationships with low cost air hoses in Europe and western Asia. This scheme would countervail some of the air hose ‘s exposure from extra rivals utilizing a low cost concern theoretical account come ining the East Asiatic market.

Air Asia should offer some flights designated as “ concern category ” that provide a wider scope of services for concern travelers at a higher monetary value than its normal flights. This scheme would be intended to pull a higher per centum of concern travelers. Implementing this scheme would necessitate modified A320s to supply riders with extra seating infinite and may necessitate extra staff for client attention. The concern category aircraft would hold precedence in operations for programming and turnaround to guarantee that they remained on clip. The air hose would utilize its selling competences to distinguish between low cost menus and concern category menus. This scheme would turn to the job of low market portion in the concern section of the market and diversify the market base if competition in the low cost section additions.