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Strategic Management 313: Air Asia: Getting Everyone to Fly

Nikhil Sen 16710117

Friday 30 September 2014

Executive Summary
1.0

Introduction- (Main strategic issues that company is facing,

2.0

Background and Current Strategic Issues

3.0

External Environment: General Environment facing the company

4.0

5.0

3.1

Political Environment

3.2

Economic Environment

3.3

Socio-Cultural Environment

3.4

Technological Environment

3.5

Legal Environment

Micro-Environment: Industry / Competitive environment facing the company


4.1

Porter 5 Force Analysis

4.2

Key Competitors

Internal Environment: Air Asia Resources and Capabilities


5.1

Value Chain analysis & Competitor Map

5.2

Tangible & Intangible Resources

5.3

Core Competencies - VRIO Framework

6.0

SWOT Analysis

7.0

Strategic Options

8.0

Conclusion

Executive Summary
This report aims to analyze Air Asia on their competitive positioning in the Asian Low
Cost Carrier airline industry and provide recommendations to help Air Asia counter
the competitive threats in the industry. The analysis covers the general external
environment facing the entire airline industry in the key geographies under
consideration, using PESTL analysis; and then looks into the industry environment
facing the company. The typical tools such as Porter 5 force model and value chain
analysis are conducted in order to understand as to what are the strengths and
weaknesses, opportunities and threats facing the company in the future. The
valuable, rare, inimitable and organizational resources are identified and analysed to
find out which are leading to sustainable competitive advantage, so that the correct
factors may be emphasised in the strategy going forward. Thereafter, the report
recommends specific and relevant strategies for adoption to pursue its continue its
competitive differentiation and profitability. The paper also offers insights into the
unique and differentiated strategy which had been used so successfully by Air Asia
to lead to its continuing success.
1.0

Introduction of the Report:

In the global airline industry these days, a no-frills low cost airline is one that
generally has lower fares and fewer comforts. To make up for revenue lost in
decreased ticket prices, the airline may charge for extras like food, priority boarding,
seat allocating, and baggage etc. In Asia, Air Asia was an early pioneer in providing
low cost carrier (LCC) services by adopting an innovative business model which
enabled it to gain market share at the expense of its rival full service airlines.
However, as more and more low cost airlines have entered the market, it is
necessary for Air Asia to constantly reinvent its service offering and its marketing
strategy to maintain its competitive advantage in this industry. This report analyses
the current external environment for Air Asia and against this we evaluate Air Asias
internal resources, capabilities and core competencies to recommend ways in which
the airline can maintain its leadership position in the low cost airline industry in Asia.
A graphical representation of the report structure and the analytical tools used is
given below.
2.0

Background and Current Strategic Issues

AirAsia Berhad (AirAsia) is a leading Low-Cost Carrier (LCC) in the Association of


Southeast Asian Nations (ASEAN) region. The airline provides high-frequency
services on short-haul, point-to-point domestic and international routes. By using an
innovative low-cost carrier business model in the ASEAN region at a time when the
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concept was totally new to the region, Air Asia managed to become a leading
provider of airline services to a population that had often never travelled by air
before. The history was that Air Asia acquired a loss making airline from its
Malaysian government owner for a token amount of USD 0.25 cents, and agreed to
assume the debts of the company.
The founder Dr. Tony Fernandes and his partners successfully turned around the
airline, to become profitable in one year, by taking advantage of market deregulation
to cover the high-demand routes in Malaysia and Asia and using the innovative low
cost operating model. Air Asia now connects almost all the existing and new
destinations in Asia and is one of Asias leading low cost airlines. (McNamara)which
now operates a fleet of 90 aircraft and flies to more than 60 destinations from hubs in
Malaysia, Thailand, Indonesia and in the upcoming future, Vietnam. AirAsia
operates more than 3,500 flights a week and in its short history, has ferried more
than 90 million guests.
By serving the underserved market segment has propelled AirAsias popularity with
the masses. With over 130 routes linking three continents, Asias largest low-cost
carrier has become known as a truly ASEAN carrier and serves the communities,
linking the cultures and cities across Asia by enabling affordable and convenient
travel, in the process stimulating regional and local economies and integrating them
into the world economy.
AirAsias mission is to help everyone fly and has sparked a revolution in air travel
with more and more people around the region choosing Air Asia as their preferred
choice of transport. It believes in the no-frills, hassle-free, low fare business concept
and feels that keeping costs low requires high efficiency in every part of the
business. Over the years, Air Asia has taken over many unprofitable routes vacated
by the full-service Malaysian Airlines and made these routes highly profitable. Just
12 years later, Air Asia has a fleet of 72 aircraft, flying to 83 destinations in 17
countries, carrying over 42 million passengers per year and operating over 400
flights daily. The companys turnover is now RM 5112 million and operating profit
maintained at previous levels of about RM 1000 million.
However, although the revenue growth has been steep, it is notable that Air Asia has
seen a dive in its net profitability due to increase in administrative costs. Air Asias
mainline competitors have shown an even worse financial performance as the airline
industry has been tremendously affected by a steep increase in fuel price and other
costs that they cannot pass on to their customers. Although Air Asia still ranks
highest among LCC in Asia by passenger volume and the underlying passenger
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demand is rapidly growing at 10% p.a in Asia, it cannot be complacent about its
future market leadership in this fiercely competitive sector.
There are several strategic issues in the general environment that Air Asia has faced
but so far they could cope with them due to key success factors that they have faced
compared to other LCC (Low Cost Carriers) in the South East Airline industry.
Growth in demand in Asia continues to be robust and expected to remain so in long
term. Analysts have predicted that Asia-Pacific LCC market could ultimately be 10x
larger than Europes. In terms of market potential, capacity and traffic growth,
regulatory and infrastructure conditions, and competitive environment Air Asia is in a
strong position and could maintain its leadership position if the strategic exercise is
done to maintain its competitive advantage in the industry. However, Air Asia faces
strong competition both from full service carriers who are belatedly waking up to the
threat of low cost airlines, as well from new competitors among low cost airlines.
Meanwhile, rising fuel costs, high labor costs and management issues, and safety
and security issues are adding to the overall operating costs and eroding profitability.
Although the entire airline industry has faced high jet-fuel costs but Air Asia has been
able to withstand it because of very high load factors (79%) compared to traditional
airlines. Air Asia as well as Virgin Australia and 3 LCCs increased ancillary revenues
and load factors without increasing fares, as customers patronised these airlines at
the expense of full-service carriers. Also, even though labour costs in the industry
had increased, Air Asia was still able to manage their staff and crew in the workplace
better, so they did not face a major turnover. Air Asia has been able to withstand
shocks from unexpected events that generally curtail traffic (such as natural
disasters, birdflu scares, terrorist events) as well as seasonal nature of the demand
because of the robust economic growth. Finally, Air Asia managed to address high
capital requirements to buy fleet or aircraft and manage the debt burden. (Air AsiaBusiness Plan )
3.0

External Environment for the Low Cost Carrier Airlines in Asia

First, an analysis of the external macro environment of Air Asia will be done to
anticipate and influence specific business challenges and threats, to ensure that the
organization maintains its competitive advantage. This analysis will focus on the
general political, economic, socio-cultural, technological and legal/ regulatory
environment for the low cost airline industry in Asia. Thereafter, an analysis of the
industry and competitive environment of the company will assist in identifying the
main opportunities and threats that this organization faces.

3.1

Political Environment

The political influence on the aviation industry is very pertinent to the growth of the
airline. Government support for national carriers as well as lack of restrictions on
overseas travel and migration of its citizens are all relevant factors affecting the
growth of an airline. As can be seen from Air Asias site map, there are many
countries where Air Asia operates, although this is all done out of the main hub
which is Kuala Lumpur as well as satellite hubs in Jakarta and Bangkok.
The political environment in South East Asia for low cost airlines is benign and
countries are trying to attract investment in their airline sector. The pressure is
coming on to national governments because of high demand for services which was
caused by the high annual GDP growth in the region. More and more countries are
opening their markets to LCCs, and pan-Asia carriers like Air Asia especially will see
robust demand. However the markets are also getting to be very complex and
challenging with a host of new entrants.
In this environment, many new low-cost airlines have been set up in the increasingly
liberalized regulatory environment. In countries from Myanmar to Vietnam and
Cambodia there is great enthusiasm among the government and regulators for
inviting low cost airlines to operate, in order to connect the poorly served population
as well as inbound tourists.
3.2

Economic Environment

On this front, the increasing regional urbanization will continue to lead to


development of new cities and creating new destinations for regional travel.
Promotion of regional tourism as well as the huge economic growth rate in Asia will
impel greater growth for its airlines as well. Although LCCs have made huge
progress already and penetration is now 24% in 2012, this robust growth is
expected to further continue to reach 30% by 2015.
While Japan and Indonesia had the largest number of air passengers in Asia in 2012
(as they have large populations which can afford air travel). The highest growth for
LCC however comes from India because its large population with improving levels of
income and affordability is underserved currently. Similarly, there is huge potential
for Air Asia in the key South East Asian markets of Indonesia, the Philippines and
Thailand, as they have high disposable income, and this directly leads to greater
affordability of air travel (as indicated by round trips made per capita).
3.3

Socio-cultural environment

In recent years, opportunities and threats have existed in South-East Asias sociocultural environment. For instance Asias economic growth has led to increasing
number of middle class in the population and higher demand for Air-Travel services.
Strong and close knit nature of family relationships in Asia further get a boost when
low cost connectivity is put in place, as this impels greater travel between locations
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for get togethers as well as medical or educational regions and offers a competitive
transport substitute. However, the demand is quite elastic for these services because
when it is a question of leisure rather than business travel, many people would
choose a LCC (Low Cost Carrier) to travel rather than a FSC (Full services Carrier).
Hereby, customers would be willing to compromise free-high- quality service
offerings to paid- but lower quality service offerings. These criteria pose as strategic
opportunities for Air Asia because they can undertake a cost-leadership strategy
while offering the full customer service operations that full service carriers offer.
Additionally, they provide special holiday deals that are unique and different from
other airlines that operate in the industry. However, they can erode market share if
they dont maintain their uniqueness to their competitors. Air Asia may face
unnecessary increased operational expenses on account of fuel and labour cost but
in general Air Asia faces more opportunities than threats in their socio-cultural
environment. (Zhu)
3.4

Technological Environment

Air Asia has held a unique competitive advantage in a few areas of digital technology
that actually highly differentiate them in the entire airlines industry. They achieved a
first mover advantage, by being Asias fist airlines to actually provide e-tickets rather
than physical tickets. Furthermore, high sales of e-tickets on the website has
eliminated consumers complex and expensive requirement to go through
reservation systems that they would need before buying physical tickets. However,
Air Asia may suffer from failure if they do not handle their back-up systems due to
their high dependence on e-commerce operations. This proves that Air Asia has
succeeded their operations in the digital revolution but they would face a threat if
they did not back up their maintenance systems. (Zhu)
3.5

Legal & Regulatory Environment:

In Asia, aviation regulations can favour all domestic airlines, the flag carrier or certain
airlines. The degree of regulatory support seriously affects the competitive dynamics
of any airline. The Malaysian and Singaporean governments have been supportive
of LCCs, as higher LCC penetration has benefited their tourism sectors and overall
economies. However, this openness has affected all the flag carriers by increasing
competition. In contrast, in India and Indonesia, the national carriers like Air India are
protected by legislation. Although the region plans to have a single aviation market,
there are difficult issues of ownership and control to sort out because there are
restrictions that 51-60% ownership should remain with locals rather than expatriates
or foreigners.
4.0

Micro Industry Environment Analysis

There are several forces in Air-Asias external but controllable environment (microexternal) that actually affect their operation. They are analysed using Porters 5
Force model as described below.
4.1

Porters Five Force Model

Bargaining Power of Supplier


Air Asias high requirement and dependence on getting a fleet of airplanes as well as
fuel and parts for their overall operation has led to high bargaining power for their
suppliers in the market. As per Zhu, Air Asia suffers from a shortage of aeroplane
suppliers with only Boeing and Airbus as their current choices. Additionally, Air
Asias overall switching costs for aeroplane suppliers increases substantially for a
few reasons. Acquiring the aeroplanes in the first place is a very expensive capital
asset and maintaining them in the long run is a complex ongoing process which
require tough efforts. All this proves that Air Asias limited choices on aeroplane
companies to acquire from leads to high bargaining power for their suppliers. (Zhu)
Bargaining Power of Buyers:
Air Asia faces intense competition with other low cost carriers in the airline industry.
For instance, customers switching costs from one airline industry is really low.
Furthermore, customers can compare prices and service offerings of several budget
airlines. All this proves that customers have high bargaining power in the airline
industry and Air Asia has to provide special values that differentiate from
competitors. (Zhu)
Threats from substitutes:
Air Asia faces very low threat from substitute modes of transportation because their
main markets are countries in South-East Asia. Furthermore, South-East Asias
island structure with the countries scattered all over, leads air-travel to be the only
super-efficient, viable and convenient mode of transportation. As a result, alternative
modes of transportation like ships and trains would not really affect the airline
industrys threat of substitutes. (Zhu)
Threats from New Entrants:
In the South-East airline industry, there are high barriers to entry but Air Asia still
faces severe threat from new entrants entering the market place. For instance the
government sets particular restrictions to aeroplane operators such as air service
agreements. Additionally, operating in the airlines industry requires the use of
expensive capital that is really difficult to possess in the first place. On the otherhand, there are several factors that actually pose as threats to Air-Asia from new
entrants in the market-place. The Asian government has been involved with
deregulation and there has been rapid growth in demand for low cost carriers
amongst budget travellers. Hereby, Air Asia faces intense competition from both
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alternative low-cost carriers and full service airlines that launched their own budget
airlines in the industry. (Zhu).
4.2

Key Competitors in the Low Cost Carriers Market in Asia

Studies have shown that Air Asia has consistently ranked number one out of all their
competitors in Asias Low Cost Carrier market. By passenger volume, Air Asia ranks
highest among LCC in Asia. Growth in demand in Asia continues to be robust and
expected to remain so in long term.
While passenger demand is growing at 10% p.a in Asia, the three top LCC are AirAsia, Jet-star and Tiger which are growing at over 20% p.a. However, while other
low-cost carriers have had profits slip due to rising fuel costs along with a very
limited ability for them to increase fares, these three airlines have increased their
ancillary revenues and load factors without increasing fares, so customers have
continued to patronise these airlines at the expense of full-service carriers.
5.0
Internal Environment for Air Asia: Resources and Capabilities that
contribute to Air Asias competitive advantage.
5.1

Value Chain analysis

There are several elements of the value chain that Air Asia has undertaken in both
mainstream primary activities and supportive activities that actually enhance Air
Asias operations. Air Asia modified the low cost airline model, adopting many
actions that enabled the company to get a leadership role in the industry while
maintaining the competitive level of differentiation in this business. In response,
AirAsia passengers grew significantly. The primary activities undertaken by Air Asia
that lend it a source of competitive advantage are analysed below.
Inbound Logistics
Air Asias areas of inbound logistics in their business strategy include acquisition of
suitable landing slots, leasing or purchase of aircraft for operation and the necessity
for sorting out the fuel and maintenance costs. Air Asia needs landing slots in all the
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cities to support its flight schedules. Similarly, the acquisition or leasing of aircraft to
support its fast growth was critical to ensure that the growth was not stalled. Also,
aircraft parts and fuel have to be purchased on a timely and cost effective basis as
this forms a significant part of the cost of running a low cost airline.
Operations
Ground maintenance and overhaul services have to be provided cheaply and
effectively as the planes have to be in the air with maximum load factor in order to
manage the low cost fares and still turn a profit. The flight scheduling is also tightly
controlled because Air Asia has to maintain high customer-kilometers and Capacity
utilization of its airlines to manage on the wafer thin margins that it has to operate on.
Asset utilization has to be very high because the fixed costs will otherwise very
quickly overwhelm the revenues achievable from the low cost passenger segment.
Outbound Logistics
Recognizing that convenience and cost are critical to manage for seamless
operations, Air Asia simplified their outbound logistics by introducing single class
services and lower fares without preferential seats, and doing away with free meals,
entertainment and other utilities. The airline also made it very convenient and easy to
book tickets by phone, sales offices, travel agents, local banks and post offices,
alongside the web and mobile applications. Air-Asias high frequency flights were
also responsible for making it more convenient for guests to travel as the airline
implements a quick turnaround time of 25 minutes which is the fastest in the ASEAN
region. From these techniques, Air Asia improved its already high aircraft utilization,
low costs and significant measure of airline and staff productivity.
Marketing and Sales
Air Asia was also innovative when they were focusing from the start on achieving
highly cost effective marketing. One way was to obtain widespread free publicity by
getting involved in charitable activities such as providing assistance to victims of
aviation disasters in Myanmar and China. In addition, the feel-good factor is
enhanced by the initiatives about caring for the environment by reducing the use of
paper ticketing system. Paid advertising and marketing included their sponsoring of
the famous football team, Manchester United, Formula One team and several other
sports events and personalities.
Customer Service & Technology
Air Asia was the first airline in Asia to introduce ticketless travel and implement a free
seating policy. In early 2007, Air Asia started to offer an internet check-in service
allowing the passengers to print their own boarding passes; further, some paid extra
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money to board first so as to choose their seats with ease. Passengers also can prebook their checked baggage and meals. In addition, Air Asia was the first in Asia to
unbundle the flight from extra services such as the inflight meals, entertainment,
lounges and loyalty programs, when they started to offer customers very low ticket
price with an option to buy high quality food and drink on board.
Human Resource Management
Air Asia has to provide recruitment and training to employees to keep them highly
skilled and efficient.
5.2

Tangible and Intangible Resources

In general, the firm resources can be defined to include all asset, capabilities,
organizational processes, information, knowledge controlled by the firm that enabled
it to develop and implement value creating strategies.
The tangible resources of Air Asia which is brought to bear upon its operations
include its considerable financial resources and balance sheet, its strong and wellknit organisational resources, its ample physical assets and coverage network, as
well as its innovative technological resources which enable it to consistently
outperform its competitors and attract its customers to fly Air Asia again and again.
The intangible resources of Air Asia include its strong culture and human resources
as well as the innovative and aggressive marketing that its team is able to bring to
the marketplace. The strong brand name and reputation of the firm is also
categorized as its intangible resource.
5.3
VRIO Framework: This analysis tries to identify the attributes of Air Asia that
are valuable, rare, inimitable and organizational resources which will help it maintain
its strategic advantage. If the firms competitive advantages are valuable, rare, but
not costly to imitate, then its advantage is temporary and will soon be taken over by
other firms. However if it is valuable, rare and costly to imitate, it can be a source of
sustainable competitive advantage as long as the organization continues to be
structured in such a way that it can maintain this.
The first resource identified is Air Asias low cost strategy. They are consistently
known as the cheapest airline in Asia when you have checked bags. Having this
identified as Air Asias characteristic is very valuable because it makes a great
reputation and customers will not think twice before buying an Air Asia ticket. This is
also rare because no other airline has as distinct a reputation as being the lowest
cost and best connected airline. This is not inimitable because another airline could
cut costs and become known as the low cost carrier as competitors like Lion Air and

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Tiger Air are beginning to do. This strategy therefore gives Air Asia a temporary
competitive advantage.
The second resource identified is that Air Asia is known for having the maximum
number of destinations and route network in a vastly underserved market. It has an
increased pan-Asia international presence, especially after they entered India. Air
Asia also has partnerships with other airlines like Jetstar. This type of code-sharing
is valuable because allows the combined airlines to cover a much larger map of than
they can do individually. This is also a rare resource because no other combination
of airlines can now use the unique qualities that this alliance can offer. This is
however not inimitable because over time other airline alliances can be set up.
However, if Air Asia is able to realize their temporary competitive advantage through
all of these factors it will be good for the organization.
The third resource is that Air Asia has a great corporate culture as well as innovative
top management that is appreciated by its employees and partners. This is valuable
resource because the leadership determines the future direction of the organization
and its results. It is rare, because in many airlines the competition for highly skilled
staff is so great that staff do not stay at any one firm for long, whereas in Air Asia the
reputation is that staff are really well taken care of and with good growth
opportunities. It is inimitable because it takes a long time for an organization culture
to be set and not all firms can do it. So it is a source of sustainable competitive
advantage.
VRIO Analysis of Air Asia
Resource

Valuable

Rare

Inimitable

Organized to
Exploit

Impact on
Org

Low cost
Strategy

YES

YES

NO

Realized

Excellent

Biggest
destination
network and
code-sharing

YES

YES

NO

Realized

Excellent

Great
corporate
culture and
staff loyalty

YES

YES

YES

Realized

Excellent

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6.0

SWOT Analysis

Strengths:
Brand name: Air Asia has built an excellent brand name after its 12 years of
operation. This as well as its first mover advantage allowed Air Asia to gain a
foothold not only in Malaysia but in neighbouring countries such as Thailand,
Indonesia, Vietnam and India.
Low cost leadership: In Asia now many other budget airlines have been inspired to
set up similar businesses. However, Air Asia is still the cost leader in both short haul
and long haul network feeds - and attracts customers flying from markets such as
Australia, North America and Europe who are looking to travel within ASEAN among
the various countries of the region. Air Asia gained a large market share initially
because of the underserved market, its superior quality of service compared to
Malaysia Airlines, and by attracting non-users of air travel through innovative
promotions and a good media strategy.
Strong Management and Partnerships: Air Asia has an innovative and strong
management team that has understood how to boldly go into new markets and
exploit opportunities in a highly effective manner.
Weaknesses:
High fixed costs and operational costs: Air Asia, like its other competitors, has
high fixed costs (such as capital cost of planes, its depreciation, its maintenance, its
staff costs, etc) as well as variable costs such as fuel costs. If the planes are not kept
in the air and fully occupied, it can quickly sink the airline. For instance, Air-Asia has
to pay high insurance costs that covers the value of any aeroplane parts during
events of uncertainty.
Strong competition: As mentioned previously, Air Asia has strong competition not
only from new and existing low cost carriers, but also from the flag carriers which are
belatedly waking up to the opportunity offered by dynamic pricing. They are able to
offer last minute discounts on airline seats which can attract customers who are not
very particular about the exact timing and date of the flight but can take advantage of
these deals.
Opportunities:
Growing middle class in region: The growth of many secondary cities in ASEAN
due to rapid urbanization has led to mushrooming of many airports in outlying areas.
These are offered to LCCs and may be less congested than national gateway
airports. They may offer near term aeronautical charge incentives to attract new air
service; at the same time there would be strong demand for Air Asias service
because many of the passengers have never travelled by air before.

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Partnering with other airlines: Now Air Asia has a strong market position and can
attract many local partners to form joint ventures within the region. In this way Air
Asia can share its investment risk with code shared airline partners and thereby
leverage on the combined resources and know- how of its partners and fulfilling the
respective government conditions to expand the growth of the airlines.
Threats:
Shocks (accident, terrorist attack and system disruptions): This type of threat
can affect passenger confidence in low cost airlines and Air Asia is no exception.
Bird-Flu events that occur in the air could negatively affect Air-Asias visibility.
Non-central location of secondary airports: Often, passengers prefer to use main
line airports but when they dont have a choice, they make do with secondary
airports. However, now that the flag carriers are trying to compete with the LCCs and
offering flights to the same destinations, it can lead to Air Asia customers being
acquired by other airlines.
7.0

Strategic Options

Some of the strategies that can be used by Air Asia to counteract the competitive
forces will build on the existing strengths and minimize the weaknesses to exploit the
opportunities in the market place while avoiding the threats.
The business level strategy adopted by Air Asia has always been a cost leadership
strategy that targets markets such as domestic flights, short-haul / regional flights
and long-haul regional services. Initially, Air Asia had resorted to selling their
services below the average industry price to gain market share. However in the
future, this would not be a sustainable strategy to maintain exclusively.
One of the other methods that Air Asia has successfully used in the past is to sell a
large number of ancillary services to the same customer segment that is already a
loyal customer of Air Asia. The characteristics of this consumer is to be value and
cost conscious, and mostly underserved customer, from an Asian/ regional
background. Air Asia has clearly identified this segment as the addressable segment
and is committed to good customer service to them. Beyond competing on
prices, the large number of value-added services such as ticketless travel and a free
seating policy had also been successful in the past- and this strategy should be
maintained in future wherein Air Asia has to find out what their core customer values
most, and sell differentiated services to them. For instance, when a passenger boards
a plane, he does not know if the seats next to him will be empty or not. Air Asia recently
launched Empty Seats Option, which means that for about $16, the passenger could
opt to occupy the full row of three seats if there are no other passengers. If the airline
manages to sell those seats, the passenger gets his money back, but if the seats are empty,
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the airline gets an extra $16. In this way Air Asia may be able to monetize other

services that are usually taken for granted under full-service premium airlines- such
as a differentiated mobile strategy or a smart-phone enabled internet check in or
loyalty service. Otherwise, allowing the passengers additional choice in the way they
consume airline services, or by charging additional fees for different kinds of value
added services can also be effective in managing this transition.
Internally, Air Asia is a robust and resilient organization with strong loyalty from its
staff. Over the years it has focused on developing a strong workplace culture which
is equality focused, and offering ample growth opportunities so people will continue
to feel loyalty to the firm in the future also.
Air Asia sees its core mission as enabling as many people as possible to fly.
Therefore, by continuing to focus on offering good connectivity across the region and
buying over 200 aircraft on an annual basis, and by maintaining partnerships with
international airlines like Virgin as feeder of passengers and cargo and for code
sharing, the service and connectivity and market share of Air Asia can be
maintained.
Another core strength of Air Asia has been proven to be their ability to buy bankrupt
airlines as they did in Indonesia and subsequently turning them around so that
growth can be maintained.
Finally, running an airline requires strong capital and financial management.
Therefore, by listing shares on stock exchange and otherwise diversifying the
sources of capital, Air Asia can ensure that their source of capital can be expanded
and maintained.
8.0

Recommendations

Air Asia should craft their corporate strategy by taking into account their objective of
maintaining strong financial performance while also using their specific knowledge of
their core customer requirements, and improving their own operations and internal
business processes while maintaining their trajectory of immense growth across
Asia. In this way, Air Asia can continue in creating value for its shareholders,
customers and citizens at large. At the same time, a few critical parameters are
essential for Air-Asia to pursue in its search for long-term value creation. The targets
and initiatives highlighted in this report will have to be implemented in the near term
five years to maintain its current status as the leading low cost carrier in the region
and globally.

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To keep its market share and stay as the leading low cost airline within the AsiaPacific region, in an environment of increasing geopolitical instability and market
volatility, Air Asia should create conditions to sustain its competitive advantage. In
this respect, cutting edge technology will continue to be extremely important in
maintaining both operational efficiency as well as delighting the consumer with
increasing choice and flexibility. In general, AirAsia should strive to tap the power of
technology to improve their competitive advantage in the industry.
AirAsia should also be careful to address the emerging environmental issues and
proactively introduce environmental management schemes to remain relevant in the
aviation industry. By analysing in detail as to what are the costs in each of its
strategic business units and geographies, Air Asia can investigate further
opportunities for cost reductions and also find out areas in which the organisation
should increase its investments to capitalise on growth opportunities. Identifying,
measuring and controlling the organisations key growth drivers would improve its
effectiveness.
In addition to its present service-oriented corporate culture, AirAsia should also
continue to promote innovative thinking among all employees, not just in the top
management.
In line with the Malaysians government strategy of setting up increasing links in the
sukuk and Islamic finance market and strengthening air links with the Middle East,
AirAsia should also fly to more destinations in the Middle East in order to increase its
growth and profitability. Meanwhile, AirAsia should also consolidate its expansion in
Vietnam, India and other neighboring Asian countries.
Finally it will be optimum if AirAsia can work on getting to be the partner of choice by
building relationship with other brands. Other initiatives like education, staff training
centres and other corporate social responsibility initiatives should also be boosted.
9.0

Conclusion

In conclusion, Air Asias several key success factors that have allowed it to withstand
market place stresses in the past can stand it in good stead in future also. Its ability
to withstand high jet fuel costs without passing on this cost to customers, ability to
manage huge numbers of staff and crew with motivation to excel, leading to staff
success in all levels of hierarchy, and its superior ability to manage seasonal
demand for air travel in Asia will all be key factors to maintain in future as well.

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Its early advantage of having a clearly defined competitive positioning in the industry,
its superior strategy formulation and effective implementation combined with the
robust economic growth in underlying market with growing middle class in Asia are
opportunities that continue to be exploited by Air Asia and it will help in buttressing
its ability to withstand shocks due to unexpected events that curtail air traffic (eg:
natural disasters, bird flu scares, terrorist events, etc).
Meanwhile, Air Asia will continue to have a need to address the high capital
requirements to buy fleet of aircraft and manage debt burden and financial and
corporate management will be key to this.

References
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Air Asia Berhad, Annual Report 2013. Accessed October 3rd
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http://airasia-businessplan.blogspot.sg/
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