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Assignment on AirAsia Analysis to be recognized as a low-cost airline that serves more than 3 billion individuals

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AirAsia Analysis

1. Company Background

1.1 Brief Overview

AirAsia Berhad is a Malaysian Airline founded in 1993, and its operations started in 1996. Tony Fernandes purchased AirAsia from DRB Hicom in 2001. Since then, Tony Fernandes is the recognized Chief Executive Officer of this company (GOVINDASAMY, 2009 n.d). AirAsia is mainly based at Kuala Lumpur International Airport. Other hubs include Penang International Airport, Senai International Airport, and Kota Kinabalu International Airport. AirAsia is highly recognized as a low-cost Malaysian airline that ensures low fare charges. AirAsia claims “No Admin Fee,” but it has low services fees that may be free in other Malaysian airlines. AirAsia operates on a slogan “Now Everyone Can Fly.” Being a Low-Cost Carrier Terminal (LCCT), AirAsia carries more than 10 million passengers per annum. AirAsia’s primary subsidiaries include Indonesia AirAsia, Viet Jet AirAsia, Red Tix AirAsia, and Thai AirAsia. AirAsia’s associate organizations include Tune Money, Tune Hotel, and AirAsia X.

1.2 Vision

Its vision is to be recognized as a low-cost airline that serves more than 3 billion individuals who experience poor services, connectivity, and hiked fares from other airlines.

1.3 Mission

Its mission is to be recognized as the best airline that realizes the employees’ value and treats them like family. AirAsia further seeks to establish an ASEAN brand that is recognized globally. It also aims to achieve low costs that attract a compelling number of customers. Lastly, it focuses on ensuring high-quality products supported by technologies that maintain operation costs but increase service levels.

1.4 Objectives

The primary objective is to be recognized as the best airline with low-costs in South Asia. This company views low fares and low operational costs as the critical success factors. This company realizes that it needs high efficiency to achieve low prices.

2 Theoretical Framework

2,1  SWOT Analysis

Strengths

AirAsia is supported by a strong management team that has various connections with airline industry leaders and regimes. AirAsia’s executive team is made of ex-top government representatives and industry experts who embrace diverse knowledge and skills.

For this reason, AirAsia can expand and attract a significant market share in Thailand. This company establishes strong working connections with companies such as Airbus that help it in acquiring discounted aircraft that are fuel efficient when contrasted from Boeing 737 that are preferred by competitors. AirAsia’s management team adopts excellent execution and strategies formulation. The company’s brand name holds a good reputation in the Asia Pacific. Besides promotions and print media advertising, AirAsia invests in news promotion as it is media friendly and it shares emerging information in the airline industry. This company partners with car rental firms, hotels and hostels, Citibank, and hospitals that create a unique image in the Asia Pacific. This company establishes a coalition with Global Distribution System that creates a room for the travel agents worldwide to access flight details online and make bookings. It also has a local presence in Thailand and Indonesia that supports its upward mobility to be a recognized brand in Malaysia and internationally. AirAsia connects to Manchester United and AT & T Williams Formula that boosts the brand reputation beyond Malaysia. Lastly, it is a low-cost company, and it works closely with AirAsia Academy that has helped achieve the low-costs mentality prevailing in the workforce. For this reason, the workforce remains committed and flexible to ensure this company maintains low-cost operations.

Weaknesses

AirAsia lacks a facility for maintenance, repair, and overhaul (MRO). This strategy would be most applicable if it focused on Malaysia as the central hub. Now, it has Thailand, Malaysia, and Indonesia and owns about 100 planes and it anticipates receiving other 100 planes in the future. Therefore, AirAsia needs regular and proper maintenance for aircraft to achieve low-costs. This is because lack of MRO facility denotes a competitive disadvantage. This company receives complaints such as the inability to change a flight, flight delays, lack of a refund, and additional charges to customers (Complaint board, 2017 n.d). Maintaining excellent customer services and management is a crucial success factor that may help overcome intense competition.

Opportunities

There are prevailing events such as increasing oil price and ASEAN Open Skies that appear as agreements. The increase of oil prices sounds like a threat, but it is an opportunity as this company is recognized as a low-cost leader. It will use the opportunity to attract more customers by reducing their travel budget. ASEAN Open Skies provides the company with unlimited flights since 2008. This agreement will increase competition, but this company will achieve advantages due to its strong reputation, low-cost culture, strategy execution, and formulation. Some other opportunities include partnering with other low-cost airlines hence it will reach the vast Asian population. This step will help the company increase the market share.

Threats

This company experiences specific rates such as landing charges, security charges, and departure charges that are uncontrollable and this may lead to loss of market share to the competitors. AirAsia’s profit margin of 30% is a threat as it has to maintain low-costs to compete favorably with competitors (Idris, 2017 n.d). Other airlines such as Singapore lines have adopted the same technique to achieve a larger market share as well hence it is a threat.

2.2 Five Forces

The threat of New Entrants

Establishing a new airline requires overwhelming investment cost. This is because a company spends more on advertising or purchasing of aircraft that needs enormous capital. Besides, airlines require substantial human resources to run its operations. Based on KPMG analysis, AirAsia hired about 62, 000 employees in 2011 and increased them to 117,000 in 2017. On the other hand, AirAsia succeeded in acquiring aircraft licenses that are compliant with the low. For this reason, the threat of new entrants for AirAsia remains low.

Bargaining Power of Buyers

AirAsia experiences high demand for flight as it is affordable in comparison to the competitors who are also expanding and increasing. Therefore, the bargaining power of buyers is moderate. This is because buyers have to consider the lowest fares among the competing airlines. Customers may use websites such as cheap flights, and Expedia. For this reason, the bargaining power of buyers tends to increase.

Bargaining Power of Suppliers

Airbus and Boeing monopolized aircraft manufacturing. In the current market, fuel suppliers are few, and they tend to rely on jet fuel. On the other hand, food manufacturers cannot increase prices of goods based on such market conditions. In case an airline wishes to switch aircraft suppliers, the costs will increase since the bargaining power of suppliers is also high.

Threat of Substitutes

In ASEAN countries, road and railway transport reflect reasonable and attractive prices when compared to air transport. However, air transport is perceived as more convenient and faster than other transportation services. But travelers may decide to use rail than buses when connecting from Singapore to Malaysia as it offers low fares. It is clear that AirAsia faces a moderate threat of substitutes.

Rivalry among Competitors

Globalization leads to increased consumption of air transport that increases rivalry within the airline industry. Reports obtained from aviation center shows the LCCs dominate the top 5 fleets in the Asia Pacific. The exit barriers are high hence the LCCs only have to expand to provide services such as package deals, cabs, and hotel booking. It is clear that there is a top threat of rivalry among competitors.

2.3 PESTEL Analysis

Political Factors

The government plays a significant role in facilitating airline growth by increasing migration restrictions and encouraging domestic airlines. For instance, Thailand government waives visa fees for tourists temporarily which are an approach to supporting airlines (MalayMail Online, 2016 n.d). Malaysian government grew 56% tax for international flights and 83% of domestic flights that will minimize the consumption of air transport in Malaysia (Palansamy, 2015 n.d).

Economic

Fuel prices fluctuate causing LCCs to reduce costs to acquire a quota for the changing fuel prices. If AirAsia expands its market, it contributes to an increment of the GDP. The dynamics of regional currencies against the United State’s dollar caused travelers to shift traveling from Europe nations to the ASEAN countries.

Socio-cultural Factors

Based on research, ASEAN market constitutes half population of individuals who live a distance of six hours from Kuala Lumpur and five hours within Bangkok. Therefore, there are prevailing mindsets among customers that air transport offers safety, and it is fast. This is because AirAsia indicates 50% sales from returning clients. The frequency of individuals in ASEAN countries to use flight has increased due to the prevailing bonding culture.

Technological Factor

AirAsia adopts the online based system and e-business as strategies to increase and attract an overwhelming number of customers and it proves to be beneficial due to increased extra cost detected. AirAsia also develops and implements BioMosaic and temperature screening technologies that are designed to overcome communication and espial issues. Airbus 320 plane is filled with sharklet wingtips a technique that lowers wind and enhance fuel consumption to achieve environmental protection.

Environmental Factors

AirAsia adopts a No Frills Service to facilitate cooperation within the airlines and between airports. This strategy helps in controlling the entire airport spending. AirAsia is most concerned in achieving efficient energy. Therefore, air pollution is controlled by monitoring the carbon footprint. Air Asia has also been impacted by natural factors such as volcano eruption in Indonesia which occurred in 2014, earthquake that happened in Nepal in 2015, and viral illnesses such as MERS and SARS that impacts the airline operations.

Legal Factors

The airline industry is influenced by restrictions and regulations that connect to tax policy, international trade, and competitions. AirAsia adopts an Airport-emergency plan (AEP) that tackles various hazards that include accidents, aircraft incidents, and natural disasters. The AEP should be compliant with the FAA regulations. AirAsia operates under mandatory audit conducted by the Malaysian Department of Civil Aviation. This regulation ensures the airline meets standard requirements based on International Civil Aviation (ICAO).

AirAsia provides value to customers by allowing affordable freight fares by hedging cost savings obtained from aircraft operations, low fuel prices, and energy utilization management system. However, this ability is not unique and can be easily achieved by competitor airlines. Therefore, it is considered a competitive parity for AirAsia.

Besides, AirAsia is endowed by the rare organization and physical resources. Most of the resources are tangible, and they include 174 Airbus-A320 that is seen as a group fleet size. AirAsia also has various subsidiaries such as Philippines AirAsia, Thailand AirAsia, India AirAsia, Indonesia AirAsia, and Japan AirAsia.

AirAsia ensures company branding and imaging that is inimitable. Intangible resources in AirAsia are acquired through talent attraction program, SMS sustainable policy, and efficient fuel and energy consumption that allows this company to be recognized as the World’s leading low-cost airline. The management is rare, but it can be imitated easily by its competitors that have a lower competitive advantage.

Lastly, Organization support is evident through the AirAsia’s creativity in achieving a high brand reputation and image. AirAsia operates using a famous slogan that states “Now Everyone Can Fly” and “Free Ticket.” The two slogans portray, and non-affordable freight charges to customers. AirAsia uses social media for marketing to reach potential customers. This ability cannot be imitated easily, and this company uses it to claim a larger market share.

3. Culture and Strategy

3.1 Corporate Strategy and Diversification

The rate at which the global economy is changing cannot be underestimated. Sweeney (1998) points out that, “Businesses must contend with emerging competitive threats not only from traditional rivals but from start-up companies and diversifying giants in other industries as well” (p.672). The airline industry and Air Asia in this particular case is not an exception since it has to contend with the more stringent and competitive environment than multiple other industries.  AirAsia’s corporate strategy is unmistakably underpinned by various somewhat unique performance management processes and business activities. Some of the most prominent strategies employed by the company include its culture, treatment of workers, and indeed the manner in which marketing and branding initiatives are executed and portrayed in the public’s eye.  While AirAsia falls within the bracket of the low-cost airlines, it certainly does not fail in ensuring satisfaction and morale of its employees. The company’s philosophy is to train the best talents and eventually maintain them. For the sake of this upholding this philosophy, the company would establish a Corporate Culture department back in 2004. Besides, AirAsia’s culture is reflective of youthfulness, innovation, a keep-moving attitude, openness, and an overwhelming sense of fun. Such a culture is habituated by and supportive of AirAsia’s pledge to ensure an empowered workforce, transparent performance, and simplified work arrangements.

Last but not least, the marketing and branding of the company are consistent with a trendy and fanciful image. This is mainly done through leveraging the Internet, particularly through its Facebook page that is regularly updated. In line with this fact, AirAsia boasts of the world best airline in regards to replying to tweets, with roughly 40% of total tweets getting replies. The airline’s brand communication is mainly focused on attracting wide publicity in an attempt to create maximum awareness around the globe (Lim et al., 2009, p. 11). Air Asia’s diversification strategy mainly assumes three forms, namely horizontal, forward, and backward integration (Herger and McCorriston, 2014 p.1). The backward integration strategy was applied as the company sought to diversify its operations towards the extension of its ancillary services and products. Online bookings systems, including “Get A Room” and “Go Holiday,” are examples of the forward integration strategies the company is using to generate revenue through the incorporation of service fees into the rates of hotels. Besides that, Air Asia is continuously looking for ways of increasing its freight services for the scheduled flights, and this is mainly being done through offering mail, courier, and cargo services. The horizontal integration strategy, which is one of the ways through which the carrier seeks to diversify, enables the company to invest in businesses that are somehow tied or connected to its current operations. Such endeavors come in handy in optimizing the revenue streams of the company. 

3.2 Drivers of Internationalism

The key drivers for the company to remain competitive within the region is through providing international and domestic flights services in additional Asian countries such as Vietnam, Indonesia, and Thailand. Also, AirAsia searches for the best local partners and even joint ventures. Through identification of best local partners and suitable ventures in the ASEAN region, the carrier has been in a position to pass on some investments risks to its partners, capitalize on the skills, know-how, and combined resources of the various partners. In addition to that, the company has met the conditions stipulated by the government to grow the business. However, the carrier will have to be cautious when picking future partners, since its competitive advantage could be lost as a consequence of imitation. Government drivers include the trade policies that are set in minimizing trade barriers. Market drivers that support internationalization of AirAsia are the fact that there exist similar customer needs. For this reason, AirAsia experience favorable logistics such as low transportation costs.

3.3 Porter’s Diamond

Porter’s Diamond framework submits four main interacting determinants, including firm strategy, structure, and rivalry, factor conditions, demand conditions, and related and supporting industries, which explain why some industries in certain nations are more competitive than their counterparts in other countries (Johnson, Scholes, and Whittington, 2008 p.2).

Firm Strategy, Structure, and Rivalry

The key market drivers synonymous with the aviation industry are effective corporate strategies and useful structures within the industry since the Asian Region’s economic growth drives the industry. Using its expertise and experience in Malaysia, AirAsia ventured into the Thailand and Indonesian markets, and recently expanded to Vietnam. These decisions were made by the company’s management with the belief that a business model that had worked in Malaysia could be replicated in other markets and give the same results. Moreover, the company was successful in marketing its transferable marketing promotions in both Thailand and Indonesia. Through the establishment of joint ventures in Indonesia and Thailand, AirAsia’s three-hour radius business model worked successfully as the company gained footholds in a more expansive radius comprising of nations such as China and India, thus achieving economies of scale.

Demand Conditions

The home demand conditions mainly come about as a result of the separation of many Southeast Asian regions by water bodies as well as the absence of competitive land and sea substitutes. As such, AirAsia gets to enjoy an ideal market within this region. In this regard, the introduction of far-reaching and low air tickets by the company immensely contributed to the reduction of air travel cost barriers and established an affordable substitute for the people.

Related and Supporting Industries

The thriving tourism industry, along with the upcoming urban centers within the region, has significantly triggered the escalation of regional travel. It is expected that demand for airlines which do not pass or carry out their operations in the region’s capital cities will rise due to the growth of secondary capital cities. The result will be the expansion of multiple supporting and related industries. Besides that, secondary cities have less congested airports as compared to the national gateway airports.

3.4 The global-local dilemma

Like any other airline, AirAsia is generally handling diverse forms of operations, such as maintenance, air services, catering, among others. Besides that, the carrier cannot compete with significant outsourcers such as Amadeus Inc. and others. The outsourcing deals, at times, fail to yield the anticipated results, mainly because the agreements are made hastily without proper thoughts.

3.5 CAGE Framework

Cultural Difference

Based on Tony Fernandes, AirAsia’s main strength stems from the prevailing cultural diversity. This is because it runs its operations in five countries and is made of individuals from all cultures in the world. Through cultural diversity, AirAsia achieves openness, innovation, and maintains a friendly attitude. The offices are well-organized, and there are few physical barriers. Every employee uses the first name, and it discourages use of titles on the name cards. The employees maintain a personality that conforms to their roles to ensure a friendly working environment is maintained. Tony Fernandes maintains the organizational tone and relates well to the employees.

Administrative Distance

On the other hand, the administrative distance for AirAsia reflects the reliability of the organizational protocol. Tony and Kamarudin control the management team at AirAsia. The two helped in changing a traditional company and the prevailing hierarchical corporations. The management philosophy seeks to establish a surrounding that treasures, excites, inspires, and values the employees and customers. The administration is people oriented that support the employees to lead to a successful organization in AirAsia.

Geographical Distance

Geographical distance reflects the Southwest Airlines that covers 300 million markets and owns 400 aircraft. Tony views AirAsia as a playground that accommodates 600 million individuals. It extends to China and India that can count another million persons. AirAsia’s geographical distance is determined by its potential to achieve the best.

Economic distance

AirAsia’s economic distance can be explained using the profit figures that have increased tremendously in the past years. In 2001, AirAsia was reported to accumulate 145 million losses. The initial owners had earned net income of 19.1 million. Following new ownership of Tony Fernandes, AirAsia’s net income increased. Currently, AirAsia indicates revenue of 56 billion, and it saves more on operations costs.

3.6 Mode of entry

AirAsia adopts the joint venture entry mode where it combines its expertise and resources with another company. For example, in 2017 AirAsia and Henan working group signed a memo of understanding where they decided to set a low-cost carrier in China. The main advantage of a joint venture is that it helps a company achieve faster growth, generate more profits, and increase productivity. This is because there is flexibility and two companies can raise enough capital without incurring debts. On the other hand, joint ventures are connected to significant disadvantages especially if business resources and capabilities do not match. It is also time-consuming, and the business objectives must be clear.

4 Conclusions

The primary goal of AirAsia to achieve low-costs is the main success factor. `AirAsia invests in technology for convenience and ease that allow customers to have a personal touch with the company. For this reason, AirAsia provides high-quality services that exceeds or matches the customers expected standards to increase and maintain its brand reputation. AirAsia continuously reaches the skies regarding customer services besides allowing low ticket prices to the customers. Through government’s support, AirAsia earns a chance to establish strong relations with the Middle East.

5 Recommendations

AirAsia needs to establish an MRO facility that will help in achieving low-costs, and it can offer repair and maintenance services for the aircraft. This company should improve customers’ value by reducing the complaints that concern their services. This is because most customers have bad experiences with flight cancellations and delays. Improvements in AirAsia should focus on achieving customer’s trust and increasing their satisfaction. It is essential if this company invests in risk management to help stabilize the unstable market trends. AirAsia needs to plan on expansion of the flight destinations in India and China to match the vision of the Malaysian government. Lastly, AirAsia needs to consider collaborations with other popular brands to establish relationships that will help boost the brand image.

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