Air Asias Corporate and Business Strategies

manner Asias Corpo charge per unit and Business St ordaingies style Asia is a pathetic personify transfer newsboy that charges the crushedest fargons per kilometre in the world. A PESTLE abbreviation indicated that repose of the argument foodstuff has improved worldwide trade admission and asserted the increment in the number of air ducts and passengers in east intimately Asia. A five forces abridgment indicates that the air duct perseverance is exceedingly competitive, with a heights threat of new(a) entries and of substitutes in the domestic be active commercialise. publicize Asia is positioned at the broken-spirited-down terms end of the spectrum of rivals that fly interthemely. A SWOT analysis indicated that Air Asia has strengths in management, operating(a) efficiency and marketing, yet has lightnesses in rounding, node compassionate, and attractiveness to concern triggerlers. The air duct has been successful beca social occasion it has interpreted an entrepreneurial and innovative approach to the market, leveraging its competencies to create automated ticketing processes and to press an separate(prenominal) operational speak tos. The flight path should consider expanding into Europe and western Asia apply Abu Dhabi as a hub, which would require scoreitional aircraft or joystick ventures with new(prenominal) pitiable terms carriers. The staunch should in summariseition consider introducing channel secernate flights that charge a grittyer monetary mensurate, but provide the returnss including satisfied scheduling that suffer attract the commercial enterprise particle of the skyway market in eastmost Asia.1.0 IntroductionAir Asia is a mild- salute air carrier providing overhaul among its main hub in Kuala Lampur, Malaysia and polishs in eastside Asia. The airway in any case provides return to Abu Dhabi and London. Air Asia has adopted a generic strategy of personify leadership by r educing the price of operations and passing the savings through and through to customers with very low ticket scathes. The steadfastly was founded in 1996 as a low cost domestic air lane, and was purchased by Tony Fernandes in 2001. The fast(a) was re-launched as a no-frills respiratory tract in 2001 with three aircraft. Air Asia graveed the low-cost international market in 2003. The firm currently has revenues of $60 billion and provides go to 60 million customers a year. Air Asia is the first low cost airline to feel make a joint venture for the procurement of aircraft with a opponent, greenStar, which is ground in Singapore (Quantas, 2010, 1). The airline currently has interlocking ownership through the contend Corporation which holds a major equity position in two Air Asia and Thai Air Asia. The airline also holds a minority equity position of 30% of JetStar, which is a low cost Australian airline.2.0 Environmental and Industry AnalysisA PESTLE analysis provides an estimation of the industriousness environment, which is necessary to create a circumstance for the airline effort analysis (Grant, 2008 p. 68). A Porters five forces analysis provides an indication of the competitive forces influencing contender in the airline assiduity.2.1 PESTLE AnalysisThe PESTLE analysis is a qualitative evaluation of the political, sparing, social, technological, legal, and environmental forces affecting the airline diligence. The focus of the analysis is on the vitamin E Asiatic vicinity, which is the principal(a) market for Air Asia. governmental The turn out is toward slackening of the airline markets in tocopherol Asia to surrender airlines access to markets without the need for a specific bilateral agreement concerning air deportee between nations. An ASEAN open skies agreement, the Roadmap for Integration of Air Travel Services (2004) was sanctioned by member nations in 2007 and entrust be fully utilize by 2015. Nations in the region such(prenominal) as India and China that be not members of ASEAN argon also liberalising air loony toons regulations (OConnell Williams, 2006, p. 362).Economic The rate of economic growth in the ASEAN nations is variable, with the ASEAN member nations experiencing a growth rate of unaccompanied 1.5% in 2009 because of the world(a) economic crisis. In contrast Chinas gross domestic product grew at 8.9% in 2009 while Indias GDP grew at 6.8%. Economic growth in 2010 and beyond in the region is in all probability to be hard because East Asia has largely recovered from the global recession.Social The social trend in East Asia is towards change magnitude consumption including out-migration consumption because of the economic growth in the region. Globalisation has also maturationd the propensity to locomote in East Asia for both fear and diversionary attackal pur assigns. The population in the region is also growing rapidly. or so other social trend is the increased use of personal computing devices, which intersects with the technology drivers in the airline industry. expert The air out-migration industry is technology-driven, with cultivation technology used to farm marketing and engineering technology used to improve safety. Airlines use information technology strategys such as internet ticket gross sales, paperless tickets and automated terminate in systems to improve customer cargon while reducing cost of operations (Buhalis OConnor, 2005, p. 12). These systems are also used to maximize load mental king by controlling scheduling and use of aircraft.Legal The nations in East Asia dupe various ownership and anti-competition laws that affect the ability of airlines to merge or to instruct an airline (Hsu Chang, 2005, p. 558). In improver most nations in the region have laws that affect the ability and the nature of joint venture agreements between domestic and foreign airlines.EnvironmentalThe PESTLE analysis suggests that the implemen tation of the expand Skies agreement sack increase access to markets for air carriers although the various national laws concerning ownership may hamper the use of a merger and skill strategy for expansion. The analysis also suggests that airlines implementing new technologies to improve customer care may enjoy a competitive returns. The growing population and cornucopia in the region will produce greater hold for air transportation in the long run.2.2 Five Forces AnalysisThe five forces analysis is an industry-based assessment of the factors driving competition to support the development of strategy (Peng, 2009, p. 35) (see accompaniment A). If the competition in the industry is high, there is less likelihood that a firm in the industry such as Air Asia will gain competitive advantage through a strategic initiative.buyer Power Buyer spring in the airline industry is weak because of fragmentation of buyers and the large numbers of potential buyers. The propensity of air run low in East Asia is relatively low compared to the global average of 2.0 trips per year, with India at .1 and China at .3 (OConnell Williams, 2006, p. 362). At the same time, the large size of the East Asian market results in sufficient travel to support a growing airline market. Buyer power is roundwhat strengthened by low shift costs in the industry, with buyers able to chose among many divergent competing airlines. Buyers stinkpot be elemented into task travellers and recreational travellers with different price sensitivities. Business travellers value flight schedule and convenience in an airline with price often a secondary consideration. In contrast, recreational travellers are more sensitive to price and the cost of the airfare relative to the total cost of recreation (Talluri van Ryzan, 2004, p. 17).Supplier Power Suppliers in the airline industry consist of aircraft manufacturers, producers of fuel, and airdromes, with the power of these groups moderate. The manuf acturers of aircraft have moderate bargaining power because of the high cost to airlines for switching aircraft types because of the need to carry additional parts inventory. Aircraft manufacturers, however, pose no threat of credible integration. The producers of fuel have relatively pixilated bargaining power because embrocate prices are established by global markets with airline consumption representing only a small portion of oil industry sales. Airports have moderate bargaining power through their ability to provide airlines with gates and ground services. Although airlines changing airports in a destination region face high switching costs, the increased development of regional airports intended to reduce congestion at major airports reduces the bargaining power of airports because of gate fee competition (Hooper, 2002, p. 293).Threat of Substitutes The threat of substitutes is high in domestic markets because consumers in East Asia prefer rail and road transportation that is less expensive than air travel whenever possible despite the increase in time for travel (OConnell Williams, 2006, p. 362). The threat of substitutes in international travel within the region is low because of the absence of viable substitutes. Overall, the threat of substitutes in the industry is moderate.Threat of Entry The threat of entry is high in the industry. Although the cost of aircraft is high, a new firm can enter the market with only a few aircraft as Air Asia did in 2001. The liberalisation of the market environment is eliminating barriers to entry in the form of governmental restrictions on airline routes. As a result, a threat of entry also exists from established airlines from other regions seeking to expand routes in the East Asian region.Competitive Rivalry Competitive rivalry is high in the industry because of a diversity of rivals, high cost of fixed assets and operations, low switching costs, and low levels of product differentiation. Many airlines compete i n the East Asian market, each of which has different strategies and different brand dispositions. As a result, price rivalry is characteristic of the industry. Aircraft are expensive to purchase and operate, with a high load capacity necessary to cover costs. Passengers can switch airlines at a relatively low cost despite the use of incentive programmes by some airlines to increase customer loyalty. While air transportation can be differentiated based on the level of creature comforts accessible to passengers, the fundamental attribute of transportation service is similar in all airlines.The five forces analysis suggests that the primary threat in the industry comes from competition among rivals, which is intensified by the possibility that new airlines will enter the East Asian markets. The analysis also suggests that opportunities may exist for small airlines to form strategic partnerships with other airlines to expand the schedule and destination options for passengers at a cost less than the amount necessary for direct investment funds in aircraft and terminal gate facilities. In the low cost share of the industry, taking advantage of this opportunity would require Air Asia to adopt a strategy that restructured in the industry (Cockburn, Henderson, Stern, 2000, p. 1127).2.3 Competitors and Competitor GroupsCompetitors in the airline industry can be divided into the two main groups of full service airlines and low cost airlines. Full service airlines are large firms that have been in the industry for an extended period of time, with many of these airlines enjoying a monopoly or quasi monopoly on certain national routes prior to the gradual liberalisation of the airline industry in the ASEAN market, with full liberalisation taking organize by 2015. These major airlines often use a hub-and-spoke routing system in which short-haul feeder flights bring passengers to a hub airport for transfer to other aircraft for long-haul flights or for other short-ha ul flights to reach their final destination (Burghouwt and Veldhuis, 2006, p. 107). Airlines in this competitor group use a differentiation generic strategy based on frequent flight scheduling and use of airports conveniently set with respect to major urban centres, with a wider range of services justifying high ticket prices. They also have a wider range of destinations including transcontinental flights. Competitors in this group include Singapore Airlines, Air China, Malaysian Air, and Thai Airways International. The low cost group of competitors focus on flights taking passengers directly from the bit of origin to their final destination, although transfers may be necessary to consolidate passengers and increase capacity utilisation. Airlines in this competitor group are regional airlines with destinations modified to East Asia. There are numerous competitors in this group including Jet Star, Tiger, Value Air, Firefly, and Maswings. Appendix B shows the positioning of firms in the two competitor groups.2.4 Developmental Stage of Market and IndustryThe air transportation market in the East Asian region is in the growth format of development, which is characterised by a rapid rate of increase in sales (Inglada, Rey, Cote-Millan, 2006, p. 9). The economic growth in the region is allowing more individuals to afford air transportation, particularly for touristry. In addition, the increased commerce with the ASEAN region and with China as a result of the ASEAN Free Trade Agreement that was gradually implemented between 2004 and 2010 is producing higher commercial and pipeline demand for air transportation between selenium Asia and China (Wong Chan, 2004, p. 509).The low cost segment of the airline industry in East Asia can be viewed as at the point of emerging from the market penetration phase of growth. The low cost airline industry is comparatively new in East Asia, with nonparasitic airlines entering this market segment in 2001 (OConnell Williams , 2005, p. 260). Many of the firms in this segment of the industry can be considered prospectors using the Miles and Snow typology because they adopt strategies to use entrepreneurial skills for developing new types of services and have severe marketing competencies (Wratschko, 2009, p. 71). In contrast, the major air carrier segment of the industry can be considered mature, but undergoing a period of transformation because of the elimination to governmental regulations that had given many of these airlines a competitive advantage in routes and airport access. These airlines can be considered as defenders because they focus on retaining market dowery despite the instability in the market created by new market entrants such as low-cost airlines.3.0 Resources and CapabilitiesIn the resource-based theory of the firm, the resources and capabilities of the firm should be the foundation of the firms strategy. To use this approach, the firm assesses its resources, determines the capabil ities that can provide it with competitive advantage, have a strategy that matches resources and capabilities with opportunities, and bring out resource gaps that have to be fill up (Grant, 1991, p. 115). A SWOT analysis can be used to identify the resources and capabilities of Air Asia and the way the firm can use these resources to take advantage of opportunities and counter threats (see Appendix C). A value chain analysis can provide an assessment of the areas in which Air Asia can add the most value for customers, which a gap analysis identifies the resources that Air Asia must acquire to implement a selected strategies.3.1 Swot AnalysisStrengths Air Asia has a strong management team, with operations managed by an ex-Ryanair director with extensive experience in controlling expenses in a low cost airline (OConnell Williams, 2005, p. 264). The airline has a good technology infrastructure that supports very low cost of operations from its use of technology to automate customer processing and to maximise load on flights. The company also has strengths in operational cost containment through very low staff levels, lack of amenities on flights, and standardisation of aircraft which reduces expense for maintenance and parts inventory. Only 8% of the airlines passengers are business travellers, indicating that the cost leadership strategy has been successful in attracting the recreation segment of the market (OConnell Williams, 2005, p. 268). Another strength of the firm is its marketing competency, which has in effect designed and promoted a service targeted to the underserved low-cost no frills segment of the market. The airline has a breakeven load factor of only 52% and the worlds lowest airline unit cost of $.23 per passenger kilometre (OConnell Williams, 2005, p. 265). The airline also has a strong brand reputation in the market for offering low fares. The airline also has strong information technology competencies.Weaknesses Air Asia has weaknesses i n human resources, poor customer care in resolving complaints, and particular ability to attract business travellers. Because of its low cost approach to operations, the airline has lower staff levels than competitors. The lower staffing creates issues such as delays in volte-face time that result in delays in departures, with inadequate communications and support for delayed passengers. The airlines business model also reduces its ability to attract the business market that values flight scheduling, on time flights, and convenience. Air Asia uses only the A320 aircraft, which has a range of only 4,800 km with a full passenger load, which limits the destinations that the airline can serve (Airbus, 2010).Opportunities Opportunities for Air Asia are providing expanded service in the growing East Asian airline market, opening new intercontinental routes, and forming joint ventures or other strategic alliances with competitors in markets not currently served by the airline. A signific ant overlooked opportunity in the region is the potential of tourism from Northeast Asia to Southeast Asia (Winter, 2007, p. 28). Smaller airlines can gain greater access to markets in the region through joint ventures and strategic alliances that allows airlines to code dowry, which involves transporting passengers using aircraft from two or more airlines.Threats The primary threat for Air Asia is an increase in competition with some airlines adopting a similar operating model to Air Asia which reduces differentiation. A threat to the business model comes from ethnical differences such as the preference of Indonesians to use doughy luggage that must be stowed in cargo compartments (The Low Cost, 2009). Another threat comes from the regulations in some nations setting minimum fares and airport employ limitations, which are not covered by the ASEAN Open Skies agreement. The airline is under attack(predicate) to the threat of an increase in fuel prices and the possibility of disru ptions to travel caused by terrorist attacks.The SWOT analysis indicates that Air Asias strengths in management, operational efficiency, marketing, and brand reputation would allow it to take advantage of the opportunities presented in the region from growth and tourism potential. These strengths could also support efforts to develop more intercontinental routes and joint ventures with competitors. The weaknesses of the airline in limited human resources and poor customer care could seize growth unless they are addressed. The weakness of insufficient staffing increases the firms vulnerability to the effect of cultural differences. At the same time, the firms strengths can help overcome the threats posed by increased competition. The airlines difficulty with attracting business passengers because of its business model may lastly have a negative effect on its market share as business travel in the region increases.3.3 Value twine AnalysisThe value chain analysis disaggregates the ac tivities of the firm to determine which activities add the most value to customers (Grant, 2008, p. 145). The inbound logistics segment of the chain involves purchase or leasing of aircraft, fuel, and gate shoes at airports, which add some value through reducing overhead and by providing convenient or desirable routes. The airline adds significant value to the customer in its operations, which has reduced costs to allow the fares to be the lowest in the world. This segment of the value chain, however, does not add value for customers who desire amenities or assistance from airline staff because of insufficient support from the human resources management function. Outbound logistics in the context of an airline involves factors such as airport turnaround time, which are think to operations. Marketing and sales also adds significant value to operations by the airlines ability to leverage its technology support function for internet ticket sales, paperless tickets and automated check -in. Because of the difficulties that the firm has with customer care and complaints, the after sales service segment reduces value for the customer. Based on this analysis, Air Asia adds primary value for customers in the operational and marketing segments of the value chain.3.3 hoo-ha AnalysisGap analysis involves determining the discrepancies between the current resources of the firm and the resources necessary to earn the desired future state (Grant, 2008, p. 162). The generic future state for Air Asia is continued growth in its primary market in East Asia and expansion into secondary markets. To increase its share of the market in East Asia, Air Asia requires additional aircraft, additional staff, and additional access to airport gates. The airline has 78 planes available including aircraft owned by the firm and aircraft available through joint ventures, all of which are A320 models. Because these planes operate near capacity, additional aircraft would have to be acquired for expansion. To expand into intercontinental markets, the airline would also need larger aircraft with longer range. The firm would also require additional human resources to act the operational and customer care needs with expansion, particularly to attract business customers. The analysis suggests that the firm does not have sufficient depth and breadth of resources to support expansion and must acquire additional resources.3.4 Technical and landscape Fitness of Air AsiaAir Asia has high technical fitness, but only moderately high landscape fitness. Air Asia has developed and implemented a proprietary yield management system, computer reservation system, and enterprise resource planning system. In addition, the firm makes extensive use of a front-end internet interface with its backend computer systems to support online internet ticket purchases and paperless tickets. The technology systems are flexible enough to respond to any change in customer requirements, and have been a f actor in promoting the acceptance of paperless tickets in Malaysia (Sulaiman, Ng, Mohezar, 2008, p. 149). Air Asia has been successful in attracting the low-cost segment of the market, but may not have sufficient flexibility to respond to a change in the environment such as a surge in business demand or a dramatic decrease in demand because of terrorist attack or high fuel prices.3.5 Competitive ScenariosA likely competitive scenario is an increase in competition in the low cost segment of the East Asian airline market from new entrants and low cost subsidiaries of established major carriers. A FAR analysis of the scenario suggests that other carriers will adopt some of the functions used by Air Asia such as paperless ticketing, reduced staff level, and no amenities to become cost competitive. The assets required for these airlines to adopt this business model are generally available with their existing fleets of medium range aircraft. The risk posed by this scenario is Air Asias l oss of competitive positioning as the lowest cost carrier in the market.4.0 ConclusionThe most likely reason for Air Asias success has been its willingness to risk using innovative strategies to reduce costs while maintaining profitability. The firm was a pioneer in the use of internet reservation and paperless tickets in the market, with its marketing overcoming any passenger reluctance to use the electronic systems. It has also adopted the innovative strategy in the low cost segment of the market of forming joint ventures with competitors to gain entry into new markets and to reduce operational costs.4.1 RecommendationsAir Asia should expand into the intercontinental market by using Abu Dhabi as a hub for routes in western Asia, North Africa, and Europe. From the Abu Dhabi hub, the airline could offer flights to India and Southeast Asia. The business model would continue to follow the cost leadership generic strategy. To implement this strategy, the airline would have to expand th e size of its fleet, with the possibility of adding some wide body aircraft designed for long haul flights in addition to A320s. Funding could be obtained from a seasoned equity offering, with the airlines historic exercise supporting the offering. The airline could also form code sharing relationships with low cost airlines in Europe and western Asia. This strategy would offset some of the airlines vulnerability from additional competitors using a low cost business model entering the East Asian market.Air Asia should offer some flights designated as business sept that provide a wider range of services for business travellers at a higher price than its normal flights. This strategy would be intended to attract a higher percentage of business travellers. Implementing this strategy would require modified A320s to provide passengers with additional seating space and may require additional staff for customer care. The business class aircraft would have priority in operations for sched uling and turnaround to escort that they remained on time. The airline would use its marketing competencies to differentiate between low cost fares and business class fares. This strategy would address the problem of low market share in the business segment of the market and shine the market base if competition in the low cost segment increases.