Report Of The Merits Of The Competitive Position For AirAsia 03

REPORT OF THE MERITS OF THE COMPETITIVE POSITION FOR AIRASIA

1.0. Introduction

“Low cost carriers have reshaped the airline industry competitive environment within liberalised markets and have made significant impacts in the world’s domestic passenger markets, which had previously been largely controlled by full service network carriers,” (John F. O’Connell & George Williams, 2005). “Understanding customers’ expectations and subsequently being different from competitors are important in order to survive in the today world of globalization. It is monitor service quality and satisfaction with a view to influencing the behavioural intentions of their customers,” (Saha & Theingi, 2009).

1.1. AirAsia Group

“The AirAsia was established in 1993... A young Asian brand gone global, AirAsia is the World’s Best Low-Cost Carrier and the Airline of the Year for 2009 & 2010,” (AirAsia.com, 2007-2010). “The second Malaysian low cost carrier is Firefly, a full subsidiary of Malaysian Airlines which is the full service national carrier. Firefly was founded only in the year 2007,” (Ahmad et al, 2010). The development strategy of low cost carriers can be summed up as “Low costs, low fares, and no frills. Through the corporate philosophy of “Now Everyone Can Fly”, AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport. The company’s shares were listed on the Kuala Lumpur Stock Exchange and were included in global index of Morgan Stanley Capital International Inc - MSCI Standard Index Series.

1.2. Vision and Mission

“AirAsia annual report reported AirAsia creates values through the following vision and mission. AirAsia’s value vision is to be established as the leading low-cost carrier in the Asian region,” (AirAsia annual Report 2008, 2008). AirAsia’s mission is to be a low cost airline carrier that offers five-star service with 95% of on-time performance. “AirAsia’s also to be able to provide affordable airfares, at the same time promoting Malaysian hospitality and the local food. AirAsia focus on customer’s needs by stimulating demand and offers the lowest fares, comprehensive distribution channel and developing various products and services,” (AirAsia.com, 2007-2010).

Unity College International, Malaysia (2010) Page 1 of 26


2.0. External Environment Analysis (Air Asia Strategic Management)

Based on the structure-conduct-performance paradigm, Michael Porter presents this process of selection in a structured manner in his “five forces” approach in the interest of showing companies exactly what positioning options and strategies are open to them in the context of the opportunities and threats present in a given market (Please refer to Appendix page 17 of 24; figure 1). “Porter takes competitive intensity as a criterion and applies it to five fundamental competitive forces that shape the market and its environment,” (Porter, 1980). The following (Please refer to Appendix page 18 of 24; figure 2) illustrates Porter’s typical presentation of the model and also depicts the key determinants or criteria that can be used to analyze and evaluate competitive intensity. “The descriptive results concerning the external opportunities and threats as identified in the SWOT analysis (Please refer to Appendix page 19 of 24; figure 3) are applied to the five forces using Porter’s system in order to evaluate the intensity of the competition,” (Berger, Kotler & Bickhoff, 2010).

2.1. Opportunities

“The “ASEAN Open Skies” allows unlimited flights among ASEAN’s regional air carriers beginning December 2008. This will definitely increase the competition among the regional airlines,” (Russell, 2007). However, “with the “first mover” advantage as well as its strengths in management, strategy formulation, strategy execution, strong brand and “low-cost” culture among its workforce, this agreement can be seen as more of an opportunity,” Gilles et al.

2.2. Threats

Certain rates like airport departure, security charges and landing charges are beyond the control of airline operators and this is a threat to all airlines especially low cost airlines which tries to keep their cost as low as possible. For example, “Changi airport in Singapore charges SGD21 for every person who departs from Singapore,” (Singapore Travel Information, 2010). “AirAsia Bhd’s net profit jumped 43% to RM198.9mil for the second quarter ended June 30, 2010 from RM139.2mil year 2009,” (Yee, 2010) has already attracted many competitors. Most of the full service airlines have or planning to create a low cost subsidiary to compete directly with AirAsia. For example, Singapore Airlines has created a low cost carrier Tiger Airways.

2.3. PEST analysis

In analyzing the macro-environment (Please refer to Appendix page 20 of 24; figure 4), it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organization’s supply and demand levels and its costs, (Kotter & Schlesinger, 1991; Johnson & Scholes, 1993). “The radical and ongoing changes occurring in society create an uncertain environment and have an impact on



the function of the whole organization,” (Tsiakkiros & Pashiardis, 2002). “The analysis examines the impact of each of these factors on the business. The results can then be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans,” (Byars, 1991; Cooper, 2000).

2. 3.1. Political

Flying outside Malaysia is difficult. “Bilateral agreement is one of the obstacles in the way of truly pan-Asia budget carriers. Landing charges at so-called "gateway airports" and navigation charges are often prohibitively expensive and in key destinations like Bangkok, Beijing, Hong Kong and Singapore,” (AirAsia In The Press, 2003).

2. 3. 2. Economic

In spite of stiff competition from Malaysian Airline (MAS), AirAsia's low-cost carriers offering cheap tickets and few in –flight services are gaining attraction in the region. “In theory, Asia has most of the ingredients for making a budget airline work which has a huge and dense population base, the emergence of underused regional airports, a growing propensity among some upwardly mobile people to travel, and relatively high Internet usage,” (AirAsia In The Press, 2003). With the economy slowing down, more people will want to enjoy its cheap tickets.

2. 3. 3. Social

Passengers also are reluctant to board a no-frills airline for a long-haul flight. "The longer the route, the less price-sensitive the passenger becomes. They don't want to be crammed into a plane for six or eight hours," (AirAsia In The Press, 2003). Especially, “when there are limited or no in-flight services. AirAsia wanted to become a company that worked on the basis of the average man in the street being able to afford our air fares,” (Huttner, 2003) and people who would not have considered flying, or would not fly as often as they as do now.

2. 3. 4. Technology

“Our internet site is rocking and we are proving everyone wrong. It is the major distribution channel now, accounting for 40% of our business,” said Dato' Tony Fernandes at The Evening Standard, 2003. “AirAsia provides online service that combines air ticketing with hotel bookings, car hire and travel insurance. To help keep costs in check, Air Asia has pushed internet booking services,” (AirAsia In The Press, 2003).





3.0. Internal Environment Analysis (Air Asia Strategic Management)To figure out the internal factors such as strengths and weaknesses, and external factors such as opportunities and threats to business objectives, a SWOT Analysis of AirAsia for internal factor can be conducted and shown below.

3.1. Strengths

AirAsia’s success is contributed by the diverse background of the executive management team that has professional industry expertise, very good strategy formulation, and execution. AirAsia has well established brand name in Asia Pacific: AirAsia success in South-east Asia attracted publicity and the group used these opportunities to promote and increase its brand awareness without additional promotional costs. “Potential Market growth and air travellers: AirAsia operates in countries where potential air travellers are based, where the top tourist destinations are and where the urbanization is constantly growing,” (Budhiarta, I., 2009).

3.2. Weaknesses

“AirAsia does not have its own maintenance, repair and overhaul (MRO) facility”, (AirAsia In The Press, 2003). It may be a good strategy. But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100 planes currently owned and about another 100 planes to be received in the next few years, AirAsia have to ensure proper and continuous maintenance of the planes. High fuel Cost increases operational Costs: Fuel costs account for approximately 31% of airline’s cost of sales. Aircraft fuel expenses in the company have already been rising. (Please refer to Appendix page 21 of 24; figure 5).

4.0. Significant Resources

AirAsia is a constructive and supportive management. AirAsia was very supportive and responsive in encouraging and listening to its employee for any ideas in reducing cost. This made the employees more productive and creative in doing their performance. Highly skilled employees were the source of all capabilities that AirAsia possessed. The experience and knowledge which they had were hard to imitate by other competitor. Capabilities to reduce cost were the competitive weapon that would be used by AirAsia to corner other competitor. “Their effect in reducing cost boosted AirAsia to be one of the top in low cost air carrier competition,” (AirAsia, 2005).



5.0. Capabilities

Analyzing Air Asia (Charles et al, 2005) highlighted that were the product of AirAsia employees’ creativity. “All the capability that AirAsia possessed required high skill from its conductor. Without sufficient knowledge, it will only give small benefit to AirAsia,” (Aruan, S. H.6).

The longer aircraft on the ground means that the less productive it will be. By shortening the turnaround time, AirAsia was able to gain more profits. It was gained by removing frills service and removing chair booking and extensive crew drilling on performing quick turnaround (Shari, 2003).

Low-cost short hauls. Management also conferred with mechanics on how to coddle spare parts so they can last longer. For example: to extend the landing gear usage time, mechanics advise pilots to take a shallow approach on landing (Shari, 2003).

Due to above practices, AirAsia then will able to utilize its aircrafts at higher rate. Higher rate of utilization signify that higher profit will be gained by the firm and also lower the cost as the distributed fixed cost get smaller. All these capabilities enable AirAsia to perform its competency in providing low cost air transportation services. Chart showed us how the capabilities that AirAsia possessed enabled it to lead the air transportation market in providing low cost services. (Please refer to Appendix page 21 of 24; figure 6).



6.0. Competitive Advantage

AirAsia can create a competitive advantage; a value chain analysis for airline industry has been conducted as below to model AirAsia as a chain of value creating activities. The goal of these activities (Inbound logistics, Operations, Outbound logistics, Marketing and Sales, and Service) is to create value that exceeds the cost of providing the product or services, thus generating a profit margin. (Please refer to Appendix page 22 of 24; figure 7). “In view of the Competitive Strategic must have cost leadership, differentiation strategy and market share and market segmentation,” (Porter, 1980). They are the main strategy to monitoring the Airsia to provide the full service and maintain the profitability while the competition suffers losses. (Please refer to Appendix page 23 of 24; figure 8)

6.1. Identifiable External Factor

“External Environment Factor means opportunities and threats that exist outside the organization and are not usually within the short run control of top Management,” (Jack Koteen, 1997). Identifying and linking with keys actors and institution in the outside community that can affect the performance profile, such as client, legislatures, boards, professional associations and special interest groups.

6.1. 1. Cross-Country Differences in Cultural, Demographic and Market Conditions

“Regardless of a company's motivation for expanding outside its domestic markets, the strategies it uses to compete in foreign markets have to be situation-driven; cultural, demographic, and market conditions vary significantly among the countries of the world,” (Jones, 2007). Cultures and lifestyles are the most obvious country-to-country differences. Market demographics are close behind.

6.1. 2. Characteristics of Multi-Country Competition

Multi-Country Strategy is matched to local culture and Market needs which is turn affects the service specifications. Airasia is the first Asia company competition in one country market is independent of competition in other country. “Rivals vie for national market leadership compare to other low cost airline,” (Jana, 2003). (Please refer to Appendix page 23 of 24; figure 9)



6.1. 3. Internet Technology Service

Internet Technology service becoming important because the rapid development in E-commence. Nowadays, E-commerce Business Model and strategies is becoming a business tool. E-commence also has become a vital strategic management to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. In total, electronic commerce is minimizing the expense and cumbersomeness, improved products, and higher profitability.

6.2. Internal Weaknesses

Internal Analysis, the strategy planning process, focuses on the reviewing the resources, capabilities and competencies of the Airaisa. The goal is to identify the weaknesses of the Airasia.

6.2. 1. Strategy Mistake

The Management has to determine the root of the problem. “Some of the sourcing matter can be selling assets, cutting cost, boosting revenues, revising strategies and a combination of efforts,” (Triant G. Flouris, Sharon L. & Oswald , 2006). If the competitor in the industry dim prospects in the future, it probably makes sense to cut back the business or cut all the losses.

6.2.2. Strategy Management

AirAsia Company strategic management: “How AirAsia can be a leader in the lowest cost carrier in the airplane industry”. Strategy Management focuses almost exclusively on the internal strengths and weaknesses of the Company and also concerned with the present and the future situation of the business as a whole. Its success had not only inspired many Lower Cost Carrier followers in the Asia Pacific region, but also severely threatened the well-being of full-service operators, especially its major competitor at home, Malaysia Airlines ("MAS").

6.2. 3. Industry Attractiveness Factors

“In conducting an analysis of the Industry Attractiveness Factors, it is required to brainstorm all relevant factors for the company’s market situation and then check against the factors presented for each force in the diagram,” (Porter, 1980). The next step is to highlight the key factors on a diagram, and summarize the size and the scale of the force on the diagram. It is suggested to use relevant signs, for instance, “+” and “-" to represent the forces moderately in company’s favor, or for a force strongly against. (Please refer to Appendix page 24 of 24; figure 10 & 11)


http://www.google.com.my/search?tbs=bks:1&tbo=p&q=+inauthor:%22Triant+G.+Flouris%22

http://www.google.com.my/search?tbs=bks:1&tbo=p&q=+inauthor:%22Sharon+L.+Oswald%22




7.0. Conclusion

The key finding in this study of the Strategy Management Module is a set of managerial skills that should be used throughout the organization, in a wide variety of functions.

The overall purpose of the experimental strategic learning and management process is to establish which strategic options or elements thereof are robust across the scenarios and use the healthiest elements to develop the Airasia Company strategic intent, focus or theme.

Simultaneously, “SWOT analysis is a methodology of examining potential strategies derived from the synthesis of organizational strengths, weaknesses, opportunities and threats (SWOT),” (Michael Adam Associates, 2004). The Airasia Company to identify the most significant to “extensive data collected as a result of the analysis to serve as a spark for roundtable discussions and refinement of current strategies, generation of new strategies, stronger capability and potential to fund the program and serve the client base than the competitive agencies,” (Philip Kotler & Andreasen,A. R. 1995).

Finally, in this Strategy Management Module known that compete with another competitor of Airasia Company was doing successful in the airplane Industries. The Strategy Management becomes very important due to such as developing a strategy, resources strength and weaknesses, competitive strategy, e-commence business and to sustain competitive advantage outsourcing the business.



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10.0. Appendix

Figure 1: The Strategic Forces of Value Proposition

Porter, M. E. (2010). five forces model for analyzing an industry’s structure. In R. B. Philip Kotler, The Quintessence of Strategic Management: What You Really Need to Know to Survive in Business (p. 48). London: Springer.



…Appendix

Figure 2

Porter, M. E. (1980). Competitive strategy: techniques for analyzing industries and competitors. New York: The Free Press



…Appendix

Figure 3: SWOT Analysis of AirAsia

STRENGTHS WEAKNESSES

Low cost operations Fewer management level, effective, focused and

aggressive management Simple proven business model that consistently delivers

that lowest fares Penetrate and stimulate to potential markets Multi-skilled staffs means efficient and incentive

workforce Single type fleet minimize maintenance fee and easy for

pilot dispatch

х Service resource is limited by lower costsх Limited human resources could not handle irregular

situationх Government interference and regulation on airport

deals and passenger compensationх Non-central location of secondary airportsх Brand is vital for market position and developing it is

always a challengeх Heavy reliance on outsourcingх New entrants to provide the price-sensitive services

OPPORTUNITIES THREATS

Long haul flight is an trial to get undeveloped market share

Differentiation from traditional LCC model by adding customer services or operation as full service airline with low fare

Ongoing industry consolidation has opened up prospects for new routes and airport deals

High fuel prices will squeeze out unprofitable competitors

х Full service airlines start cut costs to competeх Entrance of other LCCsх High fuel price decreases yieldх Accident, terrorist attack, and disaster and affect

customer confidenceх Aviation regulation and government policyх Increase in operation cost in producing value-added

servicesх System disruption due to heavily reliance on online

sales

Cary, W. P. M. (2009). Professional Diploma Program in Logistics and Supply Chain Management Project Studies: Enabling Technology in Airline Industry.



…Appendix

Figure 4: analyzing of the macro-environment

Kuzmicki, J. F. (2001). Industry and competitive analysis: The Components of A

Company’s Macro-Environment chapter 3: Mississippi University for Women: The

McGraw-Hill Companies.



…Appendix

Figure 5: Aircraft Fuel Expenses in Million of RM

Figure 6: total cost per AKS² in Competition



…Appendix

Figure 7: value chain analysis of airasia.

Charles, K., Sandy, H. A., Christian, T. & Ramaratnam, N. (2005). Air Asia – Strategic IT Initiative. Faculty of Economics and Commerce University of Melbourne 2005 .



Figure 8: Competitive Strategic

Sources: Porter’s Generic Strategies (Porter, 1980)

Figure 9: Two Primary Patterns of International Competition

Source: Charter 6 - Two Primary Patterns of International Competition



…Appendix

Figure 10: Industry Attractiveness Factors

Source: Corporate Information Snap Shots http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C4589V600(Earning & Dividends Performance Chart)

Figure 11: Industry Attractiveness Factors

Source: Virgin Blue’s New World Carrier’s planned shift up market (Nov-2005)http://www.centreforaviation.com/news/2009/07/30/virgin-blue-the-new-world-warrior-under-siege-as-the-guard-is-about-to-change/page1


http://www.centreforaviation.com/news/2009/07/30/virgin-blue-the-new-world-warrior-under-siege-as-the-guard-is-about-to-change/page1

http://www.centreforaviation.com/news/2009/07/30/virgin-blue-the-new-world-warrior-under-siege-as-the-guard-is-about-to-change/page1

http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C4589V600

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Report Of The Merits Of The Competitive Position For AirAsia 03