College of Social Sciences

Birmingham Business School

International Business Strategy
MSc International Business
ID: 1136816

Table of Content
1. List of Strategic Issues1
1.1. Market Based View..1
1.2. Resource Based View.1
1.3. Organisational Based View.2
1.4. Key Strategic Issues.3
2.0 GENERATING STARTEGIC OPTIONS.4
3.0 STRATEGIC EVALUATION AND SELECTION...5
3.1. Disinvestment in Air Asia X.5
3.2. Separation of Air Asia from Air Asia X..5
3.3. Suitability Criteria- Air Asia.6
3.4. ACCEPTABILITY Criteria- Air Asia...7
3.5. FEASIBILITY Criteria- Air Asia...8
3.6. STRATEGIC EVALUATION.8
4.0. FUTURE STRATEGIC RECORMENDATION.9
5.0. APPENDIX AND REFFRENCES.11
Appendix 1. KSF Analysis of Long-haul model and LCC model.11
Appendix 2. An Analysis of the Porters Five Forces.11
Appendix 3. VRIO Framework13
Appendix 4. Government as important a Stakeholder....13

Appendix 5.Strategic Option 1.....14

Appendix 6. Strategic Option 2....15
References.. ..16

EXECUTIVE SUMMARY
This is a strategic report aimed at analysing, the key strategic
issues that Air Asia is facing in 2009 and also generating future
strategic choices for the for the company based on a Suitability
Feasibility and Acceptability (SFA)analysis of the strategic
Options that have been selected . Considering the result of the
SFA analysis recommendations will be made addressing the
issues that have been identified.

Air Asia Strategic Report

1. LIST OF STRATEGIC ISSUES
1.1.

Market Based View

a. Integrating Air Asia and Air Asia X.

The key success factor in the long haul and the low cost carrier model are different.
The analysis of Key Success Factor (KSF) tells us that the two companies should
not be integrated as the companies will lose focus, based on the differences of the
KSF. (see appendix 1)

b. Potential growth in the South East Asian Region

This South East Asian Region is experiencing a very high growth which will translate
in the growth of the market for the low cost flight with in the region. The low cost
airline industry has been very profitable as compared to long haul airline industry in
2009 (flightglobal, 2011). This region has seen the increase in the number of lowcost airline operators to over 20 since Air Asia started in 2001(flightglobal, 2011).
This region is experiencing high economic growth which creates a growing market
for Low cost carrier airlines.

1.2. Resource Based View

c. The use of joint venture to spread the risk of its expansion strategy in to
other markets.

The use of joint venture in Air Asias expansion strategy in South East Asia
has been successful in the market as it benefits from

Shared risk involved in the investment

Local support of the state and the people

d. The transfer of the resource and capabilities

Will this contribute to its Air Asia Xs competitive advantage? (Consider
appendix 3)
The VRIO Framework analysis shows that competitors in the long haul airline
industry have high capabilities. This will reduce the value of the capabilities
when transferred.

e. Air Asias focus on improving its capability in maintaining a very low

operation cost with high quality in costumer services.

In an industry where low price is very important, the capability of

being able to maintain a low operation cost is a very important
strategic issue.

Its success has been greatly due to the ability to maintain a very
low operating cost while ensuring high quality services to
customers.

1.3. Organisational Based View

f. The relationship with the Malaysian Government must be well maintained
to avoid conflict with the Malaysian government. (see Appendix 4)

1.4.

Key Strategic Issues

After consolidating the strategic issues, these are the key strategic issues that will be
considered
1. Issues number 1 and 2 stated above can be merged to the form the Strategic
Market Growth issue. This is because they all focus on Growth of the
company.
2. Issues 3 ,4 and 5 will be merged to form Contentiously Improve on R&C.
this is they are all related to the capabilities of the company and they will all
be used in the implementation of a growth strategy.
3. Maintain good relationship with the Malaysian government

Short term

longterm

High
Urgency
Conteniously Improve on
R&C

Low
urgency

Strategic Market Growth

maintain good relationship

with the Malyasian
government

2.0 GENERATING STARTEGIC OPTIONS

Level of
Strategy

Strategic option 1
Separate Companies

Broad Level

Avoid loss of Focus by separating Disinvestment in Air Asia X.

Air Asia and Air Asia X and focus
on growing the south east Asian
market

Specific level
1

Market development in south east

Asia ( high economic Growth)

Market Penetration Alliance

with Malaysian Airways to
generate trunk routs from its
long haul routes (increase in
traffic)

Specific level
2

forming joint venture in different

countries

Acquire struggling low cost

airlines in other countries,

Functional
and
supporting

Transfer Resources and

capabilities to the joint venture.
Increase marketing strategy aimed
at reducing the treat of substitute
(train or rad transport). Increasing
spending on Marketing
Campaigns to

Influence Malaysian
Government to ease visa
regulation and promote
tourism.
Improve and transfer
capabilities to acquired
Airlines.

Note: See appendix 5 for details on Strategic option 1

See appendix 6 for details on Strategic option 2

Strategic option2
Disinvestment

3.0 STRATEGIC EVALUATION AND SELECTION

3.1 Disinvestment in Air Asia X

Advantages

Disadvantages

This will enhance the relationship with the

Government. A very important OBV
perspective

Control over trunk routs will be lost.

Create finance for required expansion

Disinvestment will be seen in the media as

bad image for the company

Create a clear focus for the company (LCC

model)

Might make some stakeholders unhappy

(employees, due to loss of job)

3.2 Separation of Air Asia from Air Asia X

Advantages

Disadvantages

Have high influence over trunk routs, can

influence the movement of traffic to its
advantage.

Will damage the relationship with the

Malaysian Government. (very critical OBV
issue in the long run)

Both companies will focus on their

particular market without having to loss
focus in their different target markets

The relationship between the two

companies might limit the freedom each
company has to make decisions.

Share of operational activates will help

keep cost low for both companies. ( Online
booking)

3.3.

Suitability Criteria- Air Asia

Concepts (MBV)

Separation

Disinvestment

5 forces

Reduces industry rivalry. (+)

reduce the threat of

substitute (+)

Market and
customer segment

Focused on more than one

Focused on one type of
segment (Low cost and long haul) segment (people looking
and still maintains clear focus by
for low cost travel). ( - )
separation. (+)

Competitor
Retaliation

Lead to Malaysia Airlines

entering the LCC in retaliation. (-)

Will reduce competitor

power and escape
retaliation by Malaysia
Airlines. (+)

KSF

Clear focus on KSF with fair

possibility of a strategic drift due
to interest in Air Asia X (+)

Clear focus on KSF. Less

probability for a strategic
drift (+)

R&C Development

Transfer of capabilities will be of

high value in Air Asia X and the
joint ventures. (+)

Transfer or capabilities will

be of very high value in the
Companies acquired.
(Same Market). (+)

Distinctive
competency as
basis of CA

The distinctive competencies will

not be source of Competitive
advantage a in Air Asia X. (-)

The distinctive
competencies will be
source of Competitive
advantage in the success
of the acquisition. (+)

Support of Malaysian
Government will be lost
(competition with Malaysia
airlines). (-)

Support with of the

Malaysian Government will
be of high Value in the
long term. (+)

Concepts (RBV)

Concept (OBV)
Stockholders
perspective

Note: (+): Favourable strategy. (-): Unfavourable Strategy.

Ranking; Separation ( 4+/3-) Disinvestment (6+/1-) Disinvestment is the
suitable option

3.4.

ACCEPTABILITY Criteria- Air Asia

CONCEPT

SEPATATION

Disinvestment

RISK

Air Asia X might not be profitable in Problems with unsatisfied

the short run. (High Competition in laid off workers (cost of
industry). (-)
compensating workers). (-)

RETURNE

Low profit expected in Air Asia X

due to the nature of the industry
and Competition. (-)

Re investing the funds in the

South east Asian region will
provide high returns due to
the high level of growth that
is expected in the region. (+)
regarded as big player in the
region (+)

REACRTION OF
Stockholders

Positive for; customers, suppliers,

employees,
negative for; Government,
shareholders ( fall in value of
shares of Air Asia X due to low
profit) (-)

Positive for; customers,

Government, suppliers,
shareholders.
Negative for; employees. (+)

Note: (+): Favourable strategy. (-): Unfavourable Strategy.

Ranking; Separation ( 0+/3-) Divest (3+/1-) Divest is the Acceptable option

3.5.

FEASIBILITY Criteria- Air Asia

CONCEPT
Financial
Feasibility

SEPATATION
Finance needed for joint venture
can be easily raised, (reputation
of Air Asia in LCC industry). (+)

People and Skills

Air Asia is highly experienced in

setting up joint ventures.
Considering the success in Joint
ventures ( Indonesia and
Thailand) (+)

Integrating
Resources

Transferring capabilities will be

easy to do and integrating the
back office operation will see both
companies benefit from it (+)

Disinvestment
The large number of airlines
in the industry supports the
strategy of acquisition as
some will be poorly
managed and cheap to
acquire. (+)
The Divest in Air Asia X will
create enough cash for the
acquisition needed. (+)
The skills needed for this
strategy is available as the
company will need to
manage the transfer of the
capabilities. (employees
from the divested company).
(+)
Air Asia is not experienced
in acquisition and the skills
required are different from
Joint ventures (-)
The transfer of employees
will make the process easier
to integrate. (+)

Note: (+): Favourable strategy. (-): Unfavourable Strategy.

Ranking; Separation ( 3+/0-) Divest (4+/1-) Both strategic options are equally
Feasible option

3.6. STRATEGIC EVALUATION

Strategic Choice
Separation
Disinvestment

Suitability
NO
Yes

Acceptability
No
Yes

Feasibility
Yes
Yes

4.0. FUTURE STRATEGIC RECORMENDATION

Recommended strategy

Time
frame

Broad level- Disinvestment

strategy. The disinvestment in
Air Asia X is highly
recommended,
WhyThis will free up cash for Air
Asia to use in its expansion
strategy in the South East
Asian region.
The long haul airline industry
is a mature industry and it has
been less profitable than the
LCC industry (flightglobal,
2011).
The Competitors in the
Industry Emirates and British
Airways have strong financial
resources and might retaliate
aggressively with very low
prices.

1 to 2
years

Specific level 1- Market

3to 5
development Strategy in south years
east Asia.
WhyThis region is expected to
experience high economic
growth, this will translate to a
growth in the travel and
tourism industry.
This city has been
experiencing the highest
growth rate in China for over
10 years (China Daily, 2010).
This location of this city will be
a strategic advantage
considering the Cities with in
the 3 hours flying range.

STRATEGIC
ISSUES IT AIMS
TO SOLVE
Conteniously
Improve on R&CDisinvesting in Air
Asia X and
focusing on LCC in
South east Asia.

DETAILED
ACTION PLAN

Conteniously
Improve on R&C

How- this can be

done by targeting
the struggling
airlines in the
special economic
zones in China,
Shenzhen
This will reduce the
cost of entering the
market.

HowBecause of the
Poor performance
of Air Asia X, its
share price will be
low. Disinvesting in
the company in the
short run will mean
selling at a loss.
This loss in the
short run needs to
be taken to allow
for the growth in
the South east
Region in the long
run.

Specific level 2Using a joint venture to enter

the market
Considering the current credit
crisis, which is a short term
problem (International
Monetary Fund, 2009), some
airline will be struggling to live
through it, making cost of
entering other countries low.
Threat from competitors and
suppliers will be low

1-2
years

Use of joint venture

for Expantion in
South East Asia

How- the struggling

airlines in
Shenzhen will be
the ones with very
low share prices.
By using the local
companies
resources and
transferring the
capabilities of Air
Asia in the
operations of the
joint venture. Air
Asia will benefit
from local support
(government and
People) as it will be
saving a struggling
airline.
Air Asias
Capabilities and
brand reputation
and the local
companies
resources will be
invested in the joint
venture

Functional and supportingMaintain a good relationship

with the Malaysian
government.
Why- being able to influence
the governments regulation
can be very important when it
comes to a market
development strategy. The
regulations on visa restriction
and promotion of tourism will
have a big impact in the
industry.
In 2009 the government
Vetoed Air Asias plan to build
its own airport (The Economic
Times, 2011). This would have
been different if the
relationship with the
government was good.

3to 5
years

Relationship With
the government.

HowCollaborating with
the Malaysia airline
will provide trunk
touts for Air Asia as
well as prevent air
Malaysia Airlines
from entering the
Low cost Industry.
This alliance will
put Air Asia in a
strong position to
be able to influence
the government.

5.0. APPENDIX AND REFFRENCES

Appendix 1.
Key Success Factor Analysis of Long-haul model and LCC model
KSF

Strategic issue analysed

Costumers

In the long haul model the profitable

customers are the first class
customers who then subsidise the
economy class customers. In the
LCC model there is only one class
of customers economy class.
The long haul market is one flooded
with highly experienced competitors
with strong financial resources and
capabilities. In the LCC model
market in South East Asia, Air Asia
is a market Leader in the LCC
model market

Competitors

Corporation

Strategic issue
identified
Different customers
Different strategy needed

Different Competitors

Different Position in the

different Markets

The resources and capabilities that

lead to the competitive advantage in Different strategy needed
the LCC model are different from
those that are needed in the long
haul model.

Appendix 2.
An Analysis of the Porters Five Forces
Porters 5 Forces
Strategic issue analysed

Supplier Power

A mixture of powerful
suppliers as in the aircraft
and fuel suppliers and less
powerful suppliers the
suppliers that provide the
food and other running cost

Strategic issue
identified
Fuel suppliers are very
powerful cannot be
changed

Aircraft supplier power

cannot be reduced

Threat of substitute

This threat is high as the low

cost airlines serves short
routes which can be also be
served by other means of
transportation

Reason to focus on low

cost and quality service

Entry Barriers

Low entry barriers, easy to

setup as no need to buy
aircraft.

Need for strong brand

positioning

Bargaining power of
customer

Large number of low air craft

operators, wide variety of
substitutes means of
transport. Customers
bargaining power high

Continuously improve on
services

Industry
Competition

Very intense competition,

more than 35 new low cost
airline operators in 2009.
Loss of focus will see other
airlines taking Air Asias
customers

Focus on another market

will lead to loss of focus
for Air Asia

VRIO FRAMEWORK
VRIO

The R&C of Air Asia when

Competitors have high
transferred in the long haul
R&C
model will not serve as a
competitive advantage for Air
Asia X,

Appendix 3.
VRIO Framework
This will use Air Asias Capability in a VRIO analysis to determine its effect in
being competitive in the long haul airline industry.
R&C

Valuable

Rare?

Costly to
imitate

Exploited by Strength or
organization weakness

Financial

yes

No

no

Yes

Non

Low cost
capability

yes

Fairly

Fairly

yes

Strength

HR
strength
and culture

Yes

Yes

Yes

Yes

Strength

Technology Yes
capability

No

No

Yes

Non

Reputation no
of Low cost

--

--

no

Weakness

Appendix4.
Government as important a Stakeholder
Considering the industry in which Air Asia is in the effect of government regulation
can be very can be disastrous for the business, being able to influence the
Malaysian government regulations on tourism and travel might provide big
opportunity for market development.

Appendix 5.

Strategic Option
Broad Level- Air Asia and Air Asia X should not be merged, the KSF are different.
Merging the two companies will lead to the company losing focus as it will be operating
as hybrid, without a clear business strategy for the different airline industries (Long haul
and Low-Cost).
Air Aisa should focus only on LCC model in the South East Asia market. This market is
experiencing very high economic growth in the whole region and Air Asia currently has
recorded annual passengers of only 11.8 million out of a region with over 500 million
people. Considering the number of new airline operators in the region a loss in focus
might see the market leadership position of Air Asia change.

Specific Level 1 - Air Asia should focus on market development in the South East Asian
Market, considering the growth potential of the region and the low entry barrier in the
industry.
Air Asia X should operate as a separate company focusing on purely long haul.
Specific Level 2- Air Asia can focus its expansion strategy by forming joint venture with
low cost airline operators in different countries. This can be possible as the increase in
the number of airlines will mean that some airlines will be struggling to make profit.
Functional and Supportive- Air Asia should transfer increase its marketing effort
aimed at expanding the market for low-cost flight, as the region is experiencing high
economic growing this will be very important considering the High threat of substitute
(means of transportation).

Appendix 6.

Strategic Option 2
Broad Level- Air Asia X should be sold and the funds used by Air Asia to fund the
expansion in to the South East Asian Market. The funds can be used to acquire
struggling airlines in countries with strategic location advantage in the region. This will
improve the companys relationship with the Malaysian government, putting it in a good
position to influence the governments regulations affecting the low cost airline industry
Specific Level- An alliance with the Malaysia Airlines will help in increasing traffic by
providing trunk touts for Air Asia. This will boost its penetration strategy.
Specific level 2- Acquiring struggling airlines in the region should be a good strategy
when penetrating the market as in this case the market is growing (economic growth in
the region).
Functional and Supportive- Air Asias good relationship with the government is very
important considering the growth in the region, regulations on travel and tourism will
have a big impact in its business.
Transfer of Capabilities to the acquired airlines will be the key to the success
acquisition strategy

References
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13/05/12]
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