AirAsia Case StudyMatriculation Number 40414735
Bachelor of Arts Business Management
Edinburgh Napier University
Executive Summary
AirAsia is a low-cost carrier operating in Malaysia. It was a government-owned Malaysian Airline that was bought over by Mr Tony Fernandes and Dato Kamarudin Meranum for 1 Ringgit (MYR). Their new venture in the short haul, low-cost carrier begins in 2001 with just 2 aircraft and a debt of RM40million CITATION Air08 l 18441 (AirAsia, 2008). Tune Air was the 1st company the 2 entrepreneurs launch to run an airline – AirAsia – with the slogan ‘Now Everyone Can Fly’. 15 years later, together with its sister long-haul airline AirAsia X, AirAsia was the largest low-cost carrier in Asian region.
CONTENT PAGE
Introduction…………………………………………………………………………………3
Case Study Analysis…………………………………………………………………………3
Porter’s Five Forces…………………………………………………………………………4
Threat of New Entrants…………………………………………………………….5
Porter’s Value Chain…………………………………………………………………………6
Primary Activities……………………………………………………………6
Supporting Activities….……………………………………………………7
VRIO Analysis…………………….……………………………………………………………………….10
Ansoff Matrix………………..……………………………………………………………11
Recommendations………………………………………………………………………..11
Conclusion…………………………………………………………………………….13References…………………………………………………………………………….14-15
AIRASIA CASE STUDY ANALYSIS
Introduction
This paper will analyse the attractiveness of the South East Asian airline industry using the Porter’s Five Forces Framework. This is a simple tool for assessing and evaluating the competition of a business and review strategies to improve industry profitability.
We will discuss on the barriers that a new entrant might face in the airline industry
Determine AirAsia’s organisational capabilities and competencies using a value chain analysis
Analyse the AirAsia case study have pursued and make recommendations on future growth options.
0219075Porter Five Forces model
00Porter Five Forces model
3524252009775Bargaining Power of Suppliers
00Bargaining Power of Suppliers
13716002181225024098252867025039243002000250Bargaining Power of Buyers
00Bargaining Power of Buyers
322897521812250
2171700219075Threat of New Entrants
00Threat of New Entrants
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2057400350520Competitive Rivalry
00Competitive Rivalry
20574008890Threat of Substitutes
00Threat of Substitutes
457200230505Figure 1: Porter’s Five Forces Diagram Source: Porter, 1985.Pg 6
00Figure 1: Porter’s Five Forces Diagram Source: Porter, 1985.Pg 6
Porter’s Five Forces Framework consist of:
Bargaining power of Suppliers: High. Suppliers are important as they provide the materials and resources and have the ability to impact the competitiveness of the industry. Therefore, if there’s a limited number of supplier, the bargaining power is relatively higher and vice versa. So to tackle this, big companies usually buy over their suppliers to gain control. As such, bargaining power of suppliers is high.
Bargaining power of Buyers: High. This is a major contributor to the competitive airline industry. This results in lower price and lower profitability for the company as the buyers’ influence will depend on the product and price offered. Larger consumers have more leverage with the company and would be able to bargain for lower prices. So if the company sells to a few large buyers, these buyers would have an advantage to negotiate for better pricing. Thus bargaining power of buyer is high.
Threat of Substitutes: Moderate. In Asian countries, Rail and Road transport are more appealing compared to taking a flight. As air travel are considered more expensive to the lower income in this region. However, key factors like price, comfort and time are significant to consumers. Therefore threat of substitute is moderate.
Competitive Rivalry within Industry: High. With other companies such as Firefly, Scoot and Tiger Airways offering similar flights with AirAsia and provides same level of service, hence the competition with other existing rivals is high. Having substantially investing in the beginning, also makes it harder to simply exit the industry.
Threat of new entrants in the Airline Industry: Low
Customer Loyalty is low as the number of increasing competitors for short-haul passenger airline business like Scoot, Lion Air, FireFly, Tiger airways and Jetstar provide the customers with a variety of options to choose from. Ultimately, from the customers’ point of view, they will opt to fly with the airline that provide the cheapest airfare. This simply leads to lower customer loyalty. New companies also do not have brand loyalty as this is considered a new entrant with no customer base & familiarity.
Start-up cost act as a barrier for the new entrant as a lot of capital is required for purchasing aircrafts, maintenance, landing flights and routes, recruitment of staffs e.g. qualified pilots, crews and etc. Long lead times are also required to recover investment in the airline industry.
Access to raw materials, distribution channels are controlled by existing players. New companies need to review cost advantage before entering the market.
Strict law regulations to safeguard the airline industry makes it harder to apply for permits and licenses. There are strict legally-binding conditions that must be adhered to as to control the safety of the airline industry.
50165-121920Inbound Logistics 76200-140970Operations Outbound Logistics 95250-140970 Sales & Marketing 41910-140970 Services 29210-140970
Firm Infrastructure
Human Resource Management
Product & Technology Development
Procurement
-6438902517775Primary Activities
00Primary Activities
-7099301014095Support Activities
00Support Activities
14287530480014287518573752667003048000037712662454068Margin
00Margin
3532086672122Margin
00Margin
Qn2
Primary Activities
Inbound Logistics: The logistics activities involves in-flight caterings, human resource management, and flights scheduling. Based on a report published by Aero Connections (2004), AirAsia only operates on a single type of aircraft, the Boeing 737-300, that particular model was the best-selling jet of all times due to its efficiency and cost effectiveness. This also saves cost on training and employing flight crews.
Operations: Airport Ticketing Counter, Gate Operations and Baggage Handling Services. AirAsia processes feedbacks from the mentioned areas to provide valuable product and services. In the company’s annual 2003 report, AirAsia had joined ventures with GE Engine Services for a business alliance that allows GE to be in charge of maintaining all AirAsia’s aircraft engines for the next 5 years. The company achieved excellent benchmarks in terms of flights on time and baggage handling in 2004. The company’s user-friendly online website allows easy access and customers can easily book and print their tickets through the internet for faster and easier check-in procedures.
Outbound Logistics: This involves delivering products and services into a distribution channel or to the final destination. The Company also needs good co-ordination and communication with Airport Authorities. In late 2005, AirAsia operated 32 Boeing 737 aircrafts that run over 60 routes across South East Asia region. Its aircrafts fly short-haul (4 hours or less) and medium to long-haul are non-stop flights. This is saves cost on human resources, facilities and airport.
Sales ; Marketing: Comprises of activities that notify and update customers about the products and services on offer at present. The most significant advertising and marketing is done by the founder Mr Fernandes himself. He can always be seen with distinct red cap or a T-shirt of AirAsia in most official events. Mr Fernandes insisted he tailored the AirAsia offering to local market needs and created some ‘no-frills’ tricks of his own, including the sales of advertising spaces within the cabin and in the annual reports to generate extra revenue.
Services: AirAsia is one of the few airlines with the shortest turnaround time, around 25 minutes as opposed to 45 to 120 minutes recorded by other airlines. This advantage allows AirAsia to conduct more flights daily. Besides, Airasia emphasises on maintaining a high quality service to all its passengers such as punctuality rate and excellent baggage-handling performance.
Supporting Activities
Firm Infrastructure: AirAsia have evolved from a failed Malaysian Airline to a successful Low cost carrier and expanding together with the TuneGroup Hotels, offering reasonable holiday packages and international destinations.
Human Resource Management: AirAsia’s employment strategy of hiring capable and multi skilled workers are cost effective. This strategy increases quality and efficiency and also reduces time taken for training staff.
Product & Technology Development: The Company is efficiently minimising its operation cost by utilising output direction system (YMS) which takes into history the operating costs and expected gross and they are also using the Computing machine Reserve System (CRS) as its based reserve and stock list system as it is a direct sales engine which eliminates the in-between.
Procurement: The Company is cost effective as they segregate their businesses into different units such as flights, hotels, merchandise, etc.
VRIO Analysis Resources/ Capabilities Value Rarity Ininmitable Organisational Support Competitive Implication
Competitive Airfare Yes No No Yes Competitive Parity
Physical and Organization Resources Yes Yes No Yes Temporary Competitive Advantage
Company Branding and Image Yes Yes Yes Yes Sustained Competitive AdvantageCustomer Experience Yes No No Yes Temporary Competitive Advantage
Turnaround Time Yes No Yes Yes Temporary Competitive Advantage
Table 1: VRIO Analysis for AirAsia Table 1 shows the VRIO analysis for AirAsia by comparing 5 resources and capabilities.
AirAsia is providing affordable fares to customers by hedging for low fuel prices, cost savings from single aircraft operations, fuel and energy management systems. This capability is not exclusive and can be achieved by other rivals. Therefore it serves as a competitive parity.
AirAsia has now grown and has expanded in countries like, Thailand, Indonesia, Philippines, India and Japan. So the resources are a temporary advantage as their competitors would need time to achieve.
The Company is creative in their branding using Mr Fernandes as their main walking advertisement in most official events.
AirAsia has emphasised on upholding a good quality service to all its passengers and they are readily available online or through the customer service relation hotline and represented at the respective offices or airports.
Internal Analysis
Strengths:
AirAsia offers low airfares to draw large number of passengers by lowering in-flight services, selling e-tickets and promoting online check-in thus minimising labour, facilities and overhead costs.
Malaysia, Indonesia and the Philippines are combined as OneAirAsia, sharing a single cost structure and leads to huge profit in the scale of economies and attain a greater position in the market.
Weakness:
The Company do not have its own Hangar, a facility where repairs, servicing or maintenance of its aircrafts.
The Company is also massively reliant on its online sales which can be affected by breakdown of technology or disruption to its systems.
Q3. Ansoff matrix is known as the Product/market matrix that shows four possible mix that provide the organizations with possible progressive opportunities. These four basic growth opportunities are Market penetration, Product Development, Market Development and Diversification (35words)
33623252600325001619250260032500
2505075253365Products
00Products
3522980137795New
00New
1789430109220Existing
00Existing
13144502743200
3044825381000014192251016000
3200400112395Product Development
020000Product Development
922020261620Existing
00Existing
1524000117475Market Penetration
020000Market Penetration
759460425450Market
00Market
3171825403225 Diversification
020000 Diversification
304800011430000140017511176000
1038860127000New
00New
14859005715Market Development
020000Market Development
Market Penetration
As a Market leader in Asia, the Company need to penetrate internationally and collaborate and form strategic alliances with the local Airline players of the respective international destinations. Practically with the combined resources and knowledge, the Company may gain invaluable advantage. This strategy would also be beneficial in dealing with the regulatory authorities of the international destinations.
Market Development
AirAsia launched Tune Hotels 6 years later with the slogan 5 star beds at 1 star prices, also results in achieving increased economies of scale for its business operations. This encourages customers into taking packages, which are more cost effective. The low pricing strategy maintained by the brand has gained increased visibility for its service offering even in the middle and lower income group target segment. The Air Asia Airline is thus recommended to continue with its competitive pricing strategy
Product Development
With the availability of the Tune Hotels, the Company are able to promote and cross sell packages, which includes flights and accommodations. They have also promoted in-flight ‘extras’ merchandise such as pillows, blankets and in-flight entertainment stated in the case study. The packages appealed to customers as they are in the best locations, safe and secure.
Conclusion
The strategic Analysis presented for AirAsia clearly indicates that the low cost Airline line industry is facing intense competitive pressures from rivals and substitutes in the Asian province. The development of new city centres and the increased demand for tourism in the Asian countries are expected to bring in more business for AirAsia. The research identifies Product Development and innovation as the key strategic choice for expanding the market for AirAsia. Several of the recommendations listed may also be considered to make brand AirAsia progressive and well ahead of competition. Lastly the brand needs to stay updated on the technological advancements for achieving operational efficiency in the business.
