NATURE OF BUSINESS

Air Asia leading airline was established with the dream of making flying possible for everyone. Since 2001, Air Asia has swiftly broken travel norms around the globe and has risen to become the worlds best. With a route network that spans through to over 20 countries, Air Asia continues to pave the way for low-cost aviation through our innovative solutions, efficient processes and a passionate approach to business. Together with our associate companies, Air Asia X, Thai Air Asia, Indonesia Air Asia, Philippines Air Asia and Japan Air Asia. Focusing on the low-cost, long-haul segment - AirAsia X was established in 2007 to provide high-frequency and point-to-point networks to the long-haul business. AirAsia Xs cost efficiencies are derived from maintaining a simple aircraft fleet and a route network based on low-cost airports, without complex code-sharing and other legacy overheads that weigh down traditional airlines without compromising on safety. Guests continue to enjoy low fares, through cost savings that Air Asia pass on to their guests. Air Asia Xs efficient and reliable operations are fully licensed and monitored by Malaysian and international regulators, and adhere to full international standards. Air Asia X is committed in offering X-citing low fares, X-emplary levels of safety and care, and an Xtraordinary in-flight and service experience to all our guests - spreading the amazing Air Asia experience to X-citing destinations in Australia and Greater Asia.

THE SERVICE ENVIRONMENT

The Key element of Air Asia Success is its constant drive to lower costs. Air Asia faces various challenges. These challenges can be from the internal and external resources. This can be very well explained with the Micro and the Macro environment factors:

MICRO ENVIRONMENT

Micro environment define as The factors which are close to the company that affect its ability to serve its customers -the company, suppliers, marketing intermediaries, customer markets, competitors and public. Micro environment in Air Asia can be define by using PORTERS 5 Industry forces: Threat of New Entrants

New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs and the rate of investment necessary to compete. Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition like Apple did when it entered the music distribution business. The threat of new entry therefore, puts a cap on the profit potential of an industry. The threat to Air Asia is relatively less as the capital required to enter the industry is quite high. However, potential new entrants from full service carriers with a surplus capital could be threats in the future and long-term. The Power of Buyers

Powerful customer-the flip side of powerful suppliers-can capture more value by forcing down prices, demanding better quality or more service, and generally playing industry participants off against one another at the expense of industry profitability. Buyers are powerful if they have negotiating leverage relative to industry participants, especially if they are price sensitive, using their clout primarily to pressure price reduction. The bargaining power of the buyers is very high as now a days tickets can be booked online and if they can go for the cheapest fares and there is not much cost involved in it.

Offered Different Product

The threat of a substitute is high if it offers an attractive price performance trade-off to the industrys product. The better the relative value of the substitute, the tighter is the lid on an industrys profit potential. The threat of a substitute is quite low as Air Asia has a network that spans through more than 20 countries. Air Asia is the leading low-cost carrier, connecting people and places across 132 routes, 40 of which are offered by no other airline. To achieve this kind of network it is going to take a lot of time and money. Government Legislation

Government policy can hinder or aid new entry directly, as well as amplify the other entry barriers. Government directly limits or even forecloses entry into industries through, for instance, licensing requirements and restrictions on foreign investment. Bargaining Power of Suppliers

Every industry has someone to play the role as suppliers. Power of the suppliers is important as it will affect the industry. In airline industry, the power of suppliers is quite high since there are only two major suppliers which are Airbus and Boeing hence there are not many choices to airline industry. Nevertheless, the global economic crisis has limited the new entrant and also reducing the upgrade of planes in the immediate future. However, both suppliers provide almost same standard aircrafts and hence the switching to Air Asia is low.

MACRO ENVIRONMENT The macro environment consists of the larger societal forces that affect the microenvironment such as - political, economic, social and technological factors. By using a PEST analysis we can study the external Macro environmental factors that affect the firm. Political Aspects

The bilateral agreements hamper the progress of the budget airlines. Even government intervention hampers the progress of an airline. For example Malaysia government refusing Air Asia rights to fly to certain counties to protect the interest of the Malaysia airline. Terrorism threat is also a major factor. For example, after the 11th September incident, the

were series of terrorist and suicide attack that cause people afraid to use an aircraft transportation. Economic aspect

Due to the global financial crisis there has been a change in the spending patterns. People tend to reduce spending on discretionary wants such as taking aircraft transportation. When the economys growth is weak the foreign currency exchange rates are also affected which inturn increase the spending of the company. Social Aspects

Air Asia operates in South East Asia in many countries with different languages. Each country has diverse cultures and religions. Co-operation in business is given more importance than individualism. Acceptance of laws and rules can vary. Corruption is rampant and the rules and regulations are not followed by passengers Technological Aspect

Ticket-less travel and e-tickets have lowered distribution costs. Over the years, it has built on its IT platform to increase the ease of customer transactions as well as provide greater savings to the Group. Air Asia has pushed internet booking services and Air Asia now takes the majority of bookings direct rather than going through travel agent. The social media, tools such as Facebook and Twitter and blogs have become integral to the Groups customer relationship initiatives. Air Asia has the youngest fleet of aircrafts with state of the art technology which also provides higher fuel efficiency.