Individual assignment_SMGT

Table of Contents
Executive Summary ................................................................................................................... 3 1. Internal scanning organization analysis .............................................................................. 4 1.1 1.2 Resources .....................................................................................................................4 Capabilities ...................................................................................................................5 Internal capabilities .............................................................................................. 5 External capabilities ............................................................................................. 5

1.2.1 1.2.2 1.3

Strengths and weaknesses ............................................................................................6 Strengths .............................................................................................................. 6 Weaknesses .......................................................................................................... 7

1.3.1 1.3.2 1.4 1.5 2.

Internal Factor Analysis Summary...............................................................................7 Value chain analysis .....................................................................................................8

Business and corporate strategy ......................................................................................... 9 2.1 Business strategy ..........................................................................................................9 Air Asias business model ................................................................................... 9 Competitive strategies ........................................................................................ 10

2.1.1 2.1.2 2.2

Corporate strategy ......................................................................................................12 Growth strategy.................................................................................................. 12 Retrenchment Strategy ....................................................................................... 13 The BCG Matrix ................................................................................................ 13 Competitive profile matrix ................................................................................. 16

2.2.1 2.2.2 2.2.3 2.2.4 3.

External factors analysis ................................................................................................... 17 3.1 Opportunities and threats ...........................................................................................17 Opportunities...................................................................................................... 17 Threats................................................................................................................ 18

3.1.1 3.1.2 3.2

External Factor Analysis Summary............................................................................19

1

Individual assignment_SMGT 4. Application of TOWS matrix and recommendation......................................................... 20 4.1 4.2 5. Application of TOWS matrix .....................................................................................20 Recommendation ........................................................................................................22

Air Asias strategy in conclusion...................................................................................... 23

References ................................................................................................................................ 25

Individual assignment_SMGT

AIR ASIA Executive Summary

Air Asia was established in 1993 by DRB-Hicom and a Malaysian aviation firm named Mofaz Air. Air Asia was founded with the aim to operate both domestic and international flights and started services in 1996. In September 2001, DRB-Hicom sold its majority of shares in Air Asia to Tune Air and 3 months later, the sale of Air Asia was finalized and the firm started its policy to provide no frills, cheap domestic fares flights (Corporate Profile of AirAsia 2013). Air Asia is the biggest low-fare, no-frills airline the pioneer of low-cost travel in Asia with 400 flights each day to over 70 countries worldwide. The firm has started to make profit from 2002 and its revenue rises gradually over the years. The latest financial statement of the Air Asia group shows its revenue in 2012 of 4,946 million RM and the profit after tax of 1,831 million RM with the total assets of 16,745 million RM. Recently, Airs Asia was voted as the best low-cost firm in the world by SKYTRAX.

Individual assignment_SMGT

1. 1.1

Internal scanning organization analysis Resources a. Financial resources Air Asia is one of the LCCs, which have the strongest financial ability in Asia. Compared

to low-cost airlines of similar size, Air Asia is really a leader in this section. This is a very big strength for the firm to invest in new infrastructure and buy new aircrafts in the future. Table 1: Air Asias financial strength In millions RM 2008 Revenue Net profit Deposits, cash & bank balance Total assets Net cash flows ROE (%) 9,406 (269) 11,398 598 19.3 13,240 757 29.1 13,906 617 13.8 16,745 152 31 2,855 (496) 154 2009 3,133 506 746 2010 3,948 1,061 1,505 2011 4,495 555 2,505 2012 4,946 1,831 2,232

Source: Air Asia Annual Reports b. Technological resources Air Asia is the first firm in Southeast Asia to apply e-ticketing and there is no role of traditional agents in their operations. This method saves significant costs of issuing tickets and reduces a whole system of reservation and booking. Besides, Air Asia designs a system for its customers to purchase tickets from post offices and automatic teller machines (ATM). Having said that, Air Asias advantage is to use technology effectively to prompt sales, approach clients and reduce costs. c. Organizational resources Generally, Air Asias policy is to maintain fewer levels of management to minimize operational costs and improve the quality of employee systems. The organizational structure of Air Asia is rather simple: a group of employee is controlled by only one manger. This
4

Individual assignment_SMGT allows the firm to achieve more consistency. Additionally, the cost leadership tactic is an effective way for the firm to concentrate totally on its major targets such as advertising, customer services or marketing. d. Physical resources Although Air Asia possessed a large Boeing 737 aircraft to serve its operations, it still invests strongly in new fuel-efficient aircraft such as A320 to meet the growing demand of its clients and continue to keep its cost-saving policy. It is predicted that new planes can decrease the amount of fuel usage by 12%, a significant amount as fuels makes up a big segment in the firms total operational costs. 1.2 Capabilities

1.2.1 Internal capabilities Firstly, Air Asia is always improving its dependency on the online booking and checking to create a strong connection between passengers and the firm and also to reduce the operating cost. Secondly, the firms policy is to make an open environment for employees and employers to communicate easily, therefore, increasing the effectiveness of the whole system in daily activities. Thirdly, another strong point of the firm is its massive marketing strategies and promotional packages. These tactics introduce the firms image to more customers and contribute to the bigger market share of the firm. Fourthly, Air Asia offers its staff free flights. This helps to motivate its staff to work more effectively and also to raise their loyalty to the firm. Therefore, the amount of time that they serve the firm will be longer and the firm will be able to reduce the cost to train and recruit new staff. Finally, Air Asia keeps its operating costs by using one type of aircraft, Air Bus. 1.2.2 External capabilities Firstly, Air Asia associated Vietnam-Malaysia cooperation to form VietJet Air Asia. Besides, Air Asia also links with Virgin Airlines to expand its operation overseas. Secondly, Air Asia focuses strongly on branding strategy and launches many programs to introduce the image of the company such as Manchester United, Oakland Raiders, NFL, MonSoon cup 2006 and so on.

Individual assignment_SMGT Thirdly, Air Asia always looks for good suppliers with high quality products and builds up long-term relationship with them to get high promotions. Fourthly, Air Asias airports have a low-cost terminal hub. Fifthly, Air Asias Computer reservation system is recently involved in providing services for evacuation of Malaysian students in Egypt. 1.3 Strengths and weaknesses

1.3.1 Strengths a. Cost differentiation Air Asia tries to follow cost-saving policies by taking all of its competitive advantages to serve its passengers with the most favorable ticket fares. Basic products: Air Asia products are very basic (flyer programs, full complement of

air-hostesses and so on) and suitable for most kinds of clients. More seats: No hot meal on board means there will be no need for storage and more

seats can be added. Air Asia has raised the number of seats per aircraft by 20% by reducing the space between seats and throwing out some galleys. Less staff: The number of staff is also cut down due to the absence of food on board.

The average number of staff in each flight is only 6. Faster turnaround times: Air Asia only needs 15 minutes to leave an airport after

landing, much faster than full-service firms. This allows Air Asia to increase its number of flights a day and create the same revenue with fewer aircraft. Economies of scale: Air Asia maintains limited types of planes in its operations to

reduce training costs and move pilots and crews around. b. Being the First Mover Air Asia is the first LCC airline in Asia and this is the big advantage for the firm to compete with other firms in the low-cost segment as well as full-service segment because its reputation has been built up during the time and also its market share. This strength allows the firm to set up frameworks for the whole industry, which are appropriate for its operational models and styles. c. Close connection with Expedia The partnership between Air Asia and Expedia the biggest online travel company makes it easier for people to connect to a larger network via Air Asia:
6

Individual assignment_SMGT Appliance of Technology: Air Asia tends to decrease its distribution costs by selling

electronic tickets directly through the Internet, rather than through travel agents. The firm does not issue tickets to save costs to print and process them. This method can save the firm about 40% of costs in comparison with full-service firms. Multi-currency sales: The firms official website allows passengers to buy tickets

using currency options and the combination between the 2 firms allows their clients to book flights and ground arrangements via the Internet. 1.3.2 Weaknesses a. Flight delays Air Asias limited aircrafts make it difficult for the firm to maintain its punctuality and flight sufficiency. This restriction sometimes results in inconvenience for customers and affects the reputation of the firm b. Restrictions of customer services Customers only can contact with the firm via either email or customer service line. These 2 ways take some days of money to get a response. If the firms website is down, it is impossible for clients to book flights and they might seek for other firms services to ensure their schedules. c. Lack of secondary airport locations Air Asia routes its flights to secondary airport stations, which allows it to charge lower fares. As the operating cost is lower: Landing, parking and ground handling fees are lower. 1.4 Internal Factor Analysis Summary Based on the strengths and weaknesses of Air Asia, a table of all factors, which has been discussed above, will be presented in summary below. Table 2: IFAS of Air Asia INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE STRENGTHS Cost differentiation 0.2 3.0 0.6 Effective costsaving policies Being the first mover 0.15 5.0 0.75 Pioneer of LCCs in Asia
7

COMMENTS

Individual assignment_SMGT Collaboration with Expedia 0.15 4.0 0.6 Close relationship to benefit both sides Simple business model 0.15 3.0 0.45 Efficient operation and management WEAKNESSES Flight delays Customer services Secondary airport locations TOTAL SCORES 1.00 3.325 0.15 0.15 0.05 3.0 2.5 2 0.45 0.375 0.1 Not very frequent Questionable Being weak in this channel

With a total score of 3.325, it is said that Air Asias Internal Factors can be considered high quality and well utilized. 1.5 Value chain analysis Table 3: Air Asias value chain analysis

Individual assignment_SMGT

CRS: Computer reservation system FSS: flight Scheduling System YMS: yield management System DBM: Database Marketing IS: Internet sales CC: Call center Table 3 illustrates the value chain of Air Asia. Many activities are conducted to drive the business of Air Asia as he cost leadership in the airline industry in Asia. By using a single fleet of Boeing A737, Air Asia has reduced a significant amount of operating cost, flight delays and turnaround time. Besides, ground crew is trained very well and they work effectively in multi tasks. In terms of marketing and promotions, Air Asias policy is to introduce more and more products and routes to passengers. Finally, Air Asia always tries to improve its lead time to approach its clients in case of complaints and inquiry. 2. 2.1 Business and corporate strategy Business strategy

2.1.1 Air Asias business model

Individual assignment_SMGT Air Asia has a simple but very effective business model. As we can see from table 4, the foundation of Air Asia is formed of 4 main factors and these factors are basic background for the firm to conduct its strategies effectively. Table 4: Air Asias business model Continue to be the lowest cost airline in every market it serves
High margin Sustainable growth
S I M P L I C I T Y

VISION

GOAL

L O W

STRATEGY

F A R E

S E R V I C E

S A F E T Y

FOUNDATION

Low cost

Efficiency

Stimulate new markets

Strong cashflows

Source: (AirAsia 2013) 4 strategies of the company stimulate the firm to achieve its growth and keep pursuing its vision in the future as the leader of the low-cost firms in Asia. 2.1.2 Competitive strategies a. Cost leadership Air Asia builds up a low fare model, which has some similar points to key strategies and values showed in table. The firm mainly concentrates on the cost leadership strategy during its operations. Air Asia X was set up in 2007 and focuses on the long-haul non-stop flights and it still maintains a low-cost business model to connect Australia, New Zealand, China and India. Table 5: Porters Generic Competitive Scope

Broad

Cost Leadership

Differentiation

10

Individual assignment_SMGT Differentiation Focus

Narrow

Cost Focus

Competitive Advantage

Source: (Wheelen 2012) As can be seen from table 5, Air Asia chose the Cost Leadership strategy to conduct its operations and it is considered the most affordable firm in the industry. The sources to spin its operations have been discussed above: Using fuel hedging tactics by buying a new fuelefficient A320 Neo Airbus and set up a simple but effective business model. The firms competitive advantages come from providing services at lower prices than its rivals. Overall, the cost leadership strategy of the firm is to serve the low income markets. b. Achieving cost leadership through differentiation In order to achieve the position of a cost leadership in the industry, Air Asia has used a range of tactics to differentiate its services and products: Providing the lowest-fare flights without compromising on services Avoiding hubs and focusing on the point-to-point system Using the ticketless check in system to save time and other fees Single class seats Standardizing the uniform level of competence among the staff

c. Market diversification Table 6: Ansoff Matrix Products Present Present Market Penetration Market New Market Development Market Diversification Source: (Johnson & Scholes n.d.) New Product Development

11

Individual assignment_SMGT Air Asia needs to concentrate on Market Diversification to increase its profitability and expand its market share. The product range it offers should be innovated to meet the demand of the market and in case of changing market conditions, a wider range of services might help the firm to reduce risks and maintain its profit margins. 2.2 Corporate strategy

2.2.1 Growth strategy Table 7: Air Asias Growth Strategy Product range
Growth Concentration

Horizontal
Geographic

Air Asias growth strategy is based on the horizontal concentration as in the table 7 describing above. a. Geographic: The company expands its operations into other geographical locations in Asia and other continents to increase its influence and market share. The target market of Air Asia is mainly Asian people and its name is an evidence of its concentration in the Asian market. It tries to serve the domestic demand and its subsidiary, Air Asia X, has the target market in Australia, Europe and Middle-East. b. Product range: Air Asias Core product is the flight services and its business is mainly the booking of flights in Asia at low fares Air Asias Facilitating products mainly concern the method of booking flights. Air Asia has a website offering customers a booking system and it is really easy to use. Augmented products: These products are numerous with Air Asia as it is a No-frill firm. Actually, when a customer buys a core product, he or she can choose to add value on their service. Air Asia offers these products which are not directly related to flights. For instance, customers can book a hotel room, rent a car, or book a tour package with GO holiday (Kurniawati 2012). c. Achieving Horizontal growth through strategic alliances
12

Individual assignment_SMGT One of the most important strategy of Air Asia is to cooperate with other firms to attain global leadership. The aim of having alliances is to improving its supply chain efficiency and improve its access to financial resources in new markets. Moreover, having alliences helps Air Asia to spread risks and costs among partners and also set up a strong union to compete with rivals in the industry. Some main alliances of the firm are Zest Airways (Philippines), MAS and Australia s Jestar. Table 8: Air Asias Joint Ventures Air Asia

49%
Air Asia Thailand

49%
Air Asia Indonesia

40%
Air Asia Philippines

40%
Air Asia Vietnam

49%
Air Asia Japan

Table 8 shows Air Asias joint ventures in some Asian countries. By joint-venturing, Air Asia can penetrate new markets in other countries by covering new routes and sustaining the companys position in the industry. 2.2.2 Retrenchment Strategy Retrenchment is the strategy used when a firm tries to cut down on its costs to do its activities. Air Asia has been a very effective cost firm since it was established, therefore, a retrenchment strategy can be difficult to apply because the company is already a low-cost firm. However, retrenchment might be done by withdrawing from offering some services and products such as some flight destinations that not really profitable. 2.2.3 The BCG Matrix For the BCG matrix, five most popular routes from Kua Lumpur (KL) of Air Asia are identified by its sales figures. Table 9: Air Asias value chain Air Asia Business Unit
13

Individual assignment_SMGT No Routes Cost per seat (RM) No of Average Profits (RM) Relative Market share Industry Growth Rate %

passenger Sales per per year seat (RM)

1 2

KL-London KL-Gold Coast

1,500 500

328,000 220,000

1,299 700

65,928,000 44,000,000

0.30 0.40

-3.00 2.00

3 4 5

KL-Singapore KL-Penang KL-Johor Bahru

60 60 60

164,200 118,650 97,600

150 110 110

14,778,000 5,932,500 4,880,000

0.60 0.85 0.80

1.50 3.00 3.00

Based on Air Asias sales figures above, we can outline its BCG matrix below. Table 10: Air Asias BCG matrix Stars Kuala Lumpur to Penang route Kuala Lumpur to Johor Bahru route Kuala Lumpur to Gold Coast route Question marks

14

Individual assignment_SMGT Cash Cows High Market Growth rate Kuala Lumpur to Japan route Kuala Lumpur to London route Dogs

Low Market Growth rate

High relative market share

Low relative market share

Source: (Corporate Profile of AirAsia 2013) Analysis of the BCG matrix a. DOGS (low growth, low market share): The products in this area have low market share and the market does not grow. These products do not have the potential to bring in much cash. KL-London is the least profitable route of Air Asia and this firm is making a loss of 20 million MYR a year to maintain this route. The reason for the losses is due to many factors. Firstly, business travelers are usually in favor of full-service airline firms when they have to go on long-haul trips. Secondly, casual passengers tend to use economy classes of MAS as they can gain excess baggage benefits and other services on board. b. QUESTION MARKS (high growth, low market share): KL-Gold Coast, a cheap long-haul route to Europe, is considered the most potential destination that the firm is focusing on its operations. The airport tax at Coolanggata Airport helps the firm to reduce its prices. Moreover, Air Asia has increased its operations from once to three times a day to serve the growing demands of customers. Currently, this route is among the most highly sought routes. Recommendation: Air Asia should utilize its available resources and capital to raise the frequency of this route. It is expected to bring higher profit.

15

Individual assignment_SMGT c. STARS (high growth, high market share): these products are able to generate enough cash to maintain their high market share and normally the main part that contributes to a companys profit. Two most profitable domestic routes of Air Asia are KL-Johor Bahru and KL-Penang as they achieved nearly 98% of sold out rates and contributed a proportion of 90% in the firms profit margin. Recommendation: Due to the proliferation of these routes, Air Asia should further its dominance by providing additional services to satisfy its customers. For example, beside continuing to develop excellent existing services, the firm can increase the baggage limits or offers package deals to attract more customers. d. CASH COWS (low growth, high market share): products that bring in far more money than is needed to maintain their market share. As can be seen from the BCG matrix and table, the route from KL to Japan has low a growth rate but the demand for this route is very high. The reason for its slow growth is due to high taxes and administrative costs, therefore, the profit margin gained from this route is low. Recommendation: Because the route is being operated very well, therefore, Air Asia just needs to concentrate on its core services to ensure punctuality. Besides, there will be no need for promotion as people can easily recognize the quality of Air Asia in this area and the sales will be maintained gradually. 2.2.4 Competitive profile matrix In order to classify more about the competitiveness of Air Asia, this part will compare the operation of Air Asia with 2 other airline firms in Malaysia namely MAS and Firefly.

Table 11: Industry matrix Air Asia MAS Firefly

16

Individual assignment_SMGT Weighted Factors for success Advertising & Promotions Quality Of Services Price Competitiveness Destinations Comfort Securities Punctuality Competitiveness Customers Loyalty Market Share Reward Programs 0.12 0.13 0.06 0.04 0.09 0.06 0.10 0.06 0.09 1.00 4 2 2 3 3 4 3 4 4 0.48 0.26 0.12 0.12 0.27 0.24 0.30 0.24 0.36 3.15 2.5 3.5 3.8 3 4.5 3 3 4 3.5 0.3 0.455 0.228 0.12 0.405 0.18 0.30 0.32 0.315 3.373 3 1.1 2 3 2.5 2 2 1.2 1.3 0.36 0.143 0.12 0.12 0.225 0.12 0.20 0.072 0.117 2.029 0.13 0.12 4 2 0.52 0.24 3 3 0.39 0.36 2.4 2 0.312 0.24 Weight Rating Score Rating Weighted Score Rating Weighted Score

Table 8 indicates that Air Asia works better than Firefly in all mentioned aspects, therefore, Firefly should not be considered a threat to Air Asia. On the other hand, MAS scored 3.373, just 0.223 point ahead of Air Asia. Although Air Asia is only a LCC, it did show many good points compared to a big full-service firm such as MAS. Air Asia should improve its quality of services as well as destinations offered to strengthen its advantages. If there is no innovation, Air Asia might face losses due to the increase in the number of customers. Once the firm shows its poor services, customers are willing to pay more and use services of MAS, as a result, Air Asia could lose a large market share. 3. 3.1 External factors analysis Opportunities and threats

3.1.1 Opportunities a. Potential markets in North Asia : As Air Asia clear flights to Euro and India, it tries to focus on markets in North Asia. More routes should be open to serve this potential market. Besides, Indonesia can also be the biggest target of the firm to expand its influence. Indonesia has the population of billions with 12 million people travel by plane per year, while the Indonesian aviation industry is less competitive.
17

Individual assignment_SMGT b. Un-serviced land: There are many available full-equipped airports but only operate a few flights a day. Besides, many rural trade areas, where the demand for flights and long-haul transportations is huge, are still ignored by full-service firms. Air Asia can research and open new routes in these lands to serve price-conscious clients and introduce its image to more people. c. Product differentiation: Currently, Air Asia offers passengers low-fare flights by reducing services on board. However, this strategy might become less special when many low-cost firms are trying to compete in the industry. Therefore, this opportunity is not only a good thing but also a challenge for Air Asia to conduct cautiously. 3.1.2 Threats a. Fluctuating fuel prices Fluctuating oil price is the problem of the whole world in the 21st century, not only the aviation industry. Aviation turbine fuel costs affect airline firms very strongly, particularly for LCCs as the percentage of fuel costs in their total costs are higher at 26% compared to 20% of full-service firms. b. Open aviation rules If the Asia Region skies are opened larger and larger to attract foreign airline firms, it will be a big threat to Air Asia. Foreign Firms, with their experience in abroad markets and financial advantages, might take over a big market share of the region and result in Air Asias great losses. c. Poor airport infrastructure Currently, Air Asia is encountering with many difficulties in expanding its operations due to the limitation of counter space, gates and parking bays. Because of this problem, the firm cannot buy more aircrafts to serve more passengers. d. Harsh competition The high demand for low-cost flights among passengers has resulted in a strong development of LCCs in Asian markets. Although Air Asia is the first firm in the region providing low-fare flights, its position in Asia is not as high as the old days. Recently, there are more and more LCC firms opened, either set up by new independent owners or big firms in the industry as their subsidiaries. This strong competence creates price war and forces
18

Individual assignment_SMGT firms to cut down on their fees to attract clients. Air Asia is not standing out of this war and the situation of failure is totally possible. e. Dropping in yields per passenger The demand for air travel in Asia increases gradually from year to year, but the ticket fares paid by passengers does not. Although the number of passengers on each flight is more than the old days, passengers pay lesser for their trips. This is the problem of both full-service and LCCs. However, LCCs are affected more because they carry more passengers in an aircraft but charge their passengers lowers prices. 3.2 External Factor Analysis Summary All opportunities and threats, which have been indicated above will be presented in summary in the table below. Table 12: EFAS of Air Asia EXTRERNAL FACTORS WEIGHT RATING WEIGHTE D SCORE OPPORTUNITIES Potential markets in North Asia Un-serviced land Product differentiation THREATS Fluctuating fuel prices 0.1 2.0 0.2 Using fuel-efficient aircraft Aviation rules Poor airport infrastructure 0.05 0.05 2.5 2.5 0.125 0.125 Strong brand in Asia Ongoing investments in infrastructure Drop in yields per passenger Harsh competition 0.05 0.15 1.0 3.0 0.05 0.45 Questionable Account for a very big market share in Asia TOTAL SCORES 1.00 2.85
19

COMMENTS

0.35

3.5

1.225

Advantages of financial strength

0.15 0.1

2.5 3.0

0.75 0.3

Questionable Cost leadership

Individual assignment_SMGT

It can be seen that the external environment is showing many good opportunities for Air Asia to go further, however, threats to the firm are strong as well. With the score of 2.85, Air Asia needs to improve its operations more to gain a stable position in the industry. 4. 4.1 Application of TOWS matrix and recommendation Application of TOWS matrix Based on the external and internal analysis of Air Asia above, Air Asias TOWS matrix can be outlined below to see the overview about the firms operations. Table 13: Air Asias Tows matrix Strengths 1. Cost differentiation 2. Being the first mover IFAS 3. Close connection with Expedia Weaknesses 1. Flight delays 2. On-time performance 3. Inconvenient

4. Simple business model Customer Service 5. Appliance of EFAS technology 6. Multi-currency online sales 7. Single fleet aircrafts 8. Strong brand presence in Asia Opportunities 1. Potential markets in North Asia. 2. Product differentiation. 3. Un-serviced land 4. More new aircrafts from 2006 to 2016. 5. Asias middle class growth. 6. Asias middle class growth SO Strategies 1. More new low-cost carrier terminals (S1, S4, O1, O4) 2. Soft tour packages 3. (S5, S6, S4, O1, O6) Establishing more centers in North Asia WO Strategies 1. (W5, O4) Increase the number of passengers by rising fleet 2. Setting up a Telesales hotline (W3) 3. Better training for ground crew to improve punctuality (W1) 4. Secondary airport stations 5. Limited aircrafts 6. Lack of maintenance repair.

20

Individual assignment_SMGT

Threats

1. Drop in yields per ST Strategies passenger 2. Aviation rules 3. Poor airport infrastructure 4. Firefly offering baggage 5. Fluctuating fuel prices 6. Accident, terrorist attack

WT Strategies Free package

1. Fuel conscious aircraft 1. (S1, S7, T5)

allowance for flights

2. Allow seat allocation over 4 hours (T4, W1, for groups and early bird W4) bookings

From the TOWS matrix, many suggestions can be given to deal with the difficulties that the firm is coping with by using internal advantages combined with external strengths to ease limitations in its operations. a. SO strategies (S1, S4, O1, O4): The new low-cost carrier terminal Kuala Lumpur International Airport 2 (KLIA2) was ready to be run in Malaysia in April 2013 (SIDHU 2011). This will trigger Air Asias operations as its flights might be conducted more frequently. It is estimated that the number of passengers at KLIA2 alone will be 28.7 million by 2015 and continue to increase after that. (S5, S6, S4, O1, O6): Along with the strength in the simple business model and technology system, Air Asia is expecting to expand its operation to North Asia. This is a big market while the competition is rather low among the firms.

21

Individual assignment_SMGT b. ST strategies (S1, S7, T5): While the fuel price increases gradually over the years, the fuel cost accounts for nearly 50% in the operating cost of Air Asia (HAN 2012). By using A320 Neo Airbus with LEAP engine, Air Asia has saved about 15% of fuel usage (Airbus.com 2011). Air Asia charges its passengers for their options for seat allocation, but this policy should be focused on groups of at least 10 customers per time and customers, who book in advance from months ahead. This method might attract customers from Firefly and satisfy them to buy additional services and be loyal (Zineldin 2000). c. WO strategies (W5, O4): By expanding fleet, Air Asia can offer more routes to its customers and one of the most favorable routes would be Koh Sa Mui (Firefly is the biggest firm, which set the operation there). W3: The limitation in the customer service has left Air Asia many complaints from its customers. Therefore, in order to comfort customers, Air Asia really needs to set up a call center to keep in touch with its customers. Air Asia can switch its customers premium to the third party instead of charging 1.95 RM per minute. Outsourcing this service might increase overheads but it will be more convenient for both the airline and its customers to connect with each other. There was a time when the website of Air Asia was down due to heavy traffic and scheduled maintenance. While over 70% of Air Asias sales are from online booking (AirAsia 2010), this such kind of event might be a big obstacle for the firm. The best way to deal with the problem is to establish its own direct sales engine service provider called Navitaire. d. WT strategies (T4, W1, W4): Air Asia also can offer its customers with flights over 4 hours to have a free 15kg baggage allowance even if it is opposite to the firms policy: No-frills. By doing this, the firm will get more loyalty from its customers and encourage them to fly more. 4.2 Recommendation a. Make more adjustment to strengthen its reputation. Air Asia has run its business very well, however, is its poor reputation with customers due to its punctuality and flight delays have become an obstacle to pull it back behind the other full22

Individual assignment_SMGT service firms. In order to deal with this problem, Air Asia is subject to increase the operating cost. Although this method might raise the fare it charges customers, it will be able to keep its loyal customers in the long run b. Open more Asian Markets The external environment shows a plenty of good opportunities for Air Asia. The increase in the income of people in China and India creates many potentials for Air Asia to expand its routes to these 2 countries. Additionally, the relaxation of Asean Open Skies laws might become a good chance for Air Asia to increase its market share without worrying about threats of new entrants. Air Asia, with its long-established name and the number one position in the low-cost industry in Asia, will overcome all obstacles of new rivals and get stronger in the years ahead. c. Make more improvement and protection of computer systems. Air Asia has to be aware that the role of the internet system is vital to the survival of the company. If there is any problem with this system, this such technologically reliant company will have to face great failures. Therefore, a strong recommendation for the company is to invest more in the improvement and protection of computer systems. d. Enforce Political advantages Air Asia should use its Thai subsidiary called Thai Air Asia to claim the use of Thailands open skies agreements to fly to Singapore, Brunei and Cambodia. From there, it will be able to overcome the barrier of bilateral aviation pacts, which create difficulties to its limit of growth. e. Induction of smart cards In order to deal with the limitations of the tickets booking, Air Asia should consider issuing a smart card to comfort its clients. It can offer 2 kinds of smart cards: The first one is to serve ordinary travelers: This type will offer instant rewards when

topped up and have greater value than its purchase price. The second type will be used by frequent flyers for unlimited travel. Using this card, Air Asias strategy in conclusion

cardholders will be allowed to make as many trips as they want within a specified period. 5.

Following the deep strategic analysis of Air Asia above, Major success factors of Air Asia can be listed as: Absolute Cost Advantage
23

Individual assignment_SMGT 1. Low cost per average seat kilometer 2. Low distribution cost 3. Attractive ticket price 4. Good Management Team The Air Asias main strategy is to focus mostly on the management and access of information rather than creating irrelevant airline services. Therefore, the development of Air Asia is due to a special set of guiding principles, simplicity, cost-efficiency and effectiveness. The whole factors mentioned above make Air Asias services very user-friendly to its clients. From the SWOT analysis, Air Asia shows its sustainability in the future growth and more opportunities than threats. Air Asia is continuing to exploit these opportunities and gradually convert threats into opportunities for great success.

24

Individual assignment_SMGT

References
a) Air Asia 2012, What is Low Cost, viewed 1 September 2013,

<http://www.airasia.com/my/en/corporate/irwhatislowcost.html >. b) AirAsia 2010, Air Asia Annual Report, viewed 30 August 2013,

<http://www.airasia.com/iwovresources/my/common/pdf/AirAsia/IR/AirAsia_AR10.pdf>. c) AirAsia 2013, Corporate Profile, viewed 30 August 2013,

<http://www.airasia.com/th/en/about-us/corporate-profile.page>. d) Airbus.com 2011, AirAsia orders 200 A320neo aircraft, viewed 30 August 2013, <http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/airasiaorders-200-a320neo-aircraft/>. e) Asia Times January Issue 2007, Falling skies for Indonesian aviation, <http://www.atimes.com/atimes/Southeast_Asia/IA24Ae01.html >. f) BBC 2006, Malaysia Airlines cuts 6,500 jobs, viewed 1 September 2013, <http://news.bbc.co.uk/2/hi/business/4851856.stm >. g) BBC 2011, AirAsia and Malaysian Airlines agree a share swap deal, viewed 1 September 2013, <http://www.bbc.co.uk/news/business-14471135 >. h) BBC 2012, Air Asia X ends European and Indian flights, viewed 1 September 2013, <http://www.bbc.co.uk/news/business-16526235>. i) Corporate Profile of AirAsia 2013, viewed 17 August 2013,

<http://www.airasia.com/th/en/about-us/corporate-profile.page>. j) Edward HB, SHTH 2006, Strategic Management Concept and cases, London. k) HAN, CE 2012, AirAsia X realigns routes, focuses on core markets, viewed 30 August 2013,

<http://www.thestar.com.my/story.aspx?file=%2f2012%2f3%2f13%2fbusiness%2f10 903744&sec=>. l) Johnson & Scholes, Exploring Corporate Strategy.

25

Individual assignment_SMGT m) Kurniawati, R 2012, Tourism Marketing: the Example of AirAsia, viewed 30 August 2013, <http://rinakurniawati.wordpress.com/2012/12/30/tourism-marketing-the-

example-of-airasia/>. n) Nielsen 2012, Malaysian Internet Users spend 20 hours a week online, 54% purchase online, viewed 1 September 2013, <http://www.paysult.com.my/malaysian-internetusers-spend-20-hours-a-week-online-54-purchase-online/>. o) Prahalad, CKH 2002, 'The Fortune at the Bottom of the Pyramid', Strategy Business, pp. 1-14. p) SIDHU, JS 2011, For MAHB, new low-cost carrier terminal is a calculated risk, viewed 30 August 2013,

<http://www.thestar.com.my/story.aspx?file=%2f2011%2f12%2f1%2fbusiness%2f10 010480>. q) The Star Online 2012, AirAsia earnings down on fuel, deferred tax, viewed 1 September 2013,

<http://biz.thestar.com.my/news/story.asp?file=/2012/2/23/business/10787376&sec=b usiness>. r) The Star Online 2012, AirAsia X realigns routes, focuses on core markets, viewed 1 September 2013,

<http://thestar.com.my/news/story.asp?file=/2012/3/13/business/10903744&sec>. s) The Star Online 2012, Other carriers may benefit from MAS route cuts, viewed 1 September 2013,

<http://biz.thestar.com.my/news/story.asp?file=/2012/2/23/business/10787376&sec=b usiness>. t) Wheelen, TL,HJD 2012, Strategic Management and Business Policy, 13th edn, Pearson Education International. u) Zineldin 2000, Low Cost Carrier Wars - Air Asia vs Fire Fly, viewed 30 August 2013, <http://www.docstoc.com/docs/56717901/Low-Cost-Carrier-Wars---Air-Asiavs-Fire-Fly>.

26

Individual assignment_SMGT v) Johnson, G., Scholes, K., & Whittington, R., "Exploring Corporate strategy", 8th Edition (2008), Pearson Education International, ISBN 1-405-88733-8 w) Hitt, M.A., & Ireland R.D & Hoskinsson R.E., "Strategic Management: Competitiveness and Globalization", 6th Edition (2005), South-Western, Thomson, ISBN 0-324-22713-2 x) Travel Weekly Asia 2012, AirAsia X to bring 55000 extra tourists to Sydney, viewed 1 September 2013, <http://travelweekly.asia/news/airline/6057-airasia-x-to-bring55000-extra-tourists-to-sydney >.

27