Air Asia Assignment
MASTER OF BUSINESS ADMINISTRATION
Report on AirAsia: Now Everyone Can Fly
Lecturer: Mr Julian Cheong Student Name: D’silva Allwin Antony Student ID: 12648151
Declaration: Except where I have indicated, the work I submitted in this assignment is my own work and has not been submitted for assessment in another course.
INTRODUCTION Air Asia, Asia‟s first low cost carrier airlines was established in December 2001 by Tony Fernandez. This concept was based on other successful low cost airlines such as South West airlines in the United States and Dublin based Ryan Air, Air Asia with its tagline “Now everyone can fly” was quick to establish itself as Asia‟s leading Budget Airlines. With a route network that spans through more than 20 countries. AirAsia is the leading low-cost carrier, connecting people and places across 132 routes, 40 of which are offered by no other airline. AirAsia has swiftly broken travel norms around the globe and has risen to become the world’s best. AirAsia has become Asia’s sixth largest airline in the span of seven years The Group‟s adherence to best practices has been recognised via numerous awards over the years. Perhaps most notably AirAsia has been voted the World‟s Best Low Cost Airline for two consecutive years, in 2009 and 2010. Source: (www.airasia.com) The Key element of Air Asia Success is its constant drive to lower costs. Airasia faces various challenges. These challenges can be from the internal and external resources. This can be very well explained with the Micro and the Macro environment factors: MICRO ENVIRONMENT “The factors which are close to the company that affect its ability to serve its customers-the company, suppliers, marketing intermediaries, customer markets, competitors and public” (Armstrong, p. 64). “Looking at PORTERS 5 Industry forces:
Threat of New Entrants New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs and the rate of investment necessary to compete. Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition like Apple did when it entered the music distribution business. The threat of new entry therefore, puts a cap on the profit potential of an industry. The threat to AirAsia is relatively less as the capital required to enter the industry is quite high. However, potential new entrants from full service carriers with a surplus capital could be threats in the future and long term.
The Power of Buyers Powerful customer-the flip side of powerful suppliers-can capture more value by forcing down prices, demanding better quality or more service, and generally playing industry participants off against one another at the expense of industry profitability. Buyers are powerful if they have negotiating leverage relative to industry participants, especially if they are price sensitive, using their clout primarily to pressure price reduction. The bargaining power of the buyers is very high as now a day‟s tickets can
be booked online and if they can go for the cheapest fares and there is not much cost involved in it.
Offered Different Product The threat of a substitute is high if it offers an attractive price performance trade-off to the industry‟s product. The better the relative value of the substitute, the tighter is the lid on a industry‟s profit potential. The threat of a subsititute is quite low as AirAsia has a network that spans through more than 20 countries. AirAsia is the leading low-cost carrier, connecting people and places across 132 routes, 40 of which are offered by no other airline. To achieve this kind of network it is going to take a lot of time and money.
Government Legislation Government policy can hinder or aid new entry directly, as well as amplify the other entry barriers. Government directly limits or even forecloses entry into industries through, for instance, licensing requirements and restrictions on foreign investment.
Bargaining Power of Suppliers Every industry has someone to play the role as suppliers. Power of the suppliers is important as it will affect the industry. In airline industry, the power of suppliers is quite high since there are only two major suppliers which are Airbus and Boeing hence there are not many choices to airline industry. Nevertheless, the global economic crisis has limited the new entrant and also reducing the upgrade of planes in the immediate future. However, both suppliers provide almost same standard aircrafts and hence the switching to Air Asia is low”. (Porter, january 2008)
MACRO ENVIRONMENT PEST analysis is the study of external Macro environmental factors that affect the firm. “The macro environment consists of the larger societal forces that affect the microenvironmentpolitical, economic, social and technological factors” (Armstrong, p. 64). Now let us look at PEST analysis for Air Asia.
Political Aspects The bilateral agreements hamper the progress of the budget airlines. Even government intervention hampers the progress of an airline. For example Malaysia government refusing AirAsia rights to fly to certain counties to protect the interest of the Malaysia airline. Terrorism threat is also a major factor. For example, after the terrorist attacks incident, where a series of co-ordinated suicide attacks by Al-Qaeda upon the United States, on 11th of September 2001, people were afraid to take aircraft transportation.
Due to the global financial crisis there has been a change in the spending patterns. People tend to reduce spending on discretionary wants such as taking aircraft transportation. When the economy‟s growth is weak the foreign currency exchange rates are also affected which in-turn increase the spending of the company.
Social Aspects AirAsia operates in SE Asia in many countries with different languages. The SE Asian countries have diverse cultures and religions. Co-operation in business is given more importance than individualism. Acceptance of laws and rules can vary. Corruption is rampant and the rules and regulations are not followed by passengers
Technological Aspect Ticket-less travel and „e-tickets‟ have lowered distribution costs. Over the years, it has built on its IT platform to increase the ease of customer transactions as well as provide greater savings to the Group. Air Asia has pushed internet booking services and Air Asia now takes the majority of bookings direct rather than going through a travel agent. The social media, tools such as Facebook and Twitter and blogs have become integral to the Group‟s customer relationship initiatives.. AirAsia has the youngest fleet of aircrafts with state of the art technology which also provides higher fuel efficiency. The low cost terminal to be opened in Labu, Malaysia by 2011 will result in lower airport taxes and reduced bureaucracy.
SUSTAINABLE COMPETETIVE ADVANTAGE “Competitive strategies indicate the approaches that a company needs to adopt in order to compete more effectively to strengthen its market position.” (Jobber, p. 171). The Group‟s entire business model centres around a low-cost philosophy which requires its operations to be lean, simple and efficient. According to Porter‟s generic strategies (1985), one of the generic strategies is the cost leadership. The cost leadership in AirAsia Company is already approving because AirAsia is more focused and concentrated to be the lowest cost carrier in airplane industries. AirAsia builds and sustains its competitive advantage by providing services at a price that simply lower than competitors price. With the Low Cost Carrier business model, AirAsia has the following competitive advantages over the competitors in the airline industry:
High Aircraft Utilization AirAsia focuses on high frequency and high turnaround of flights, both of which add to customer convenience and greater cost efficiencies. Its turnaround of 25 minutes is the fastest in the region.
Low fares and No Frills This means no frequent flyer miles or airport lounges in exchange for lower fares. Guests have the choice of paying for in-flight meals, snacks and drinks. The basic objective is to take the passenger from one destination to another. Everything else is no frill. No seats are assigned. Passengers will have to occupy the seats available. Ticketless travelling hence reduces the cost of paper, printing and distribution. The tickets to be booked online hence eliminating the third party.
Streamlined Operations AirAsia has a single type of aircraft and hence there is not much cost involved in retraining of staff for maintaining the aircraft and also the flight attendants who specialize on a single aircraft thereby reducing cost. Also AirAsia has hedged its fuel prices over the next three years thereby reducing costs as the fuel prices are constantly on the rise.
Secondary Airports AirAsia usually uses a secondary airport. Operating from secondary airport is cheaper and also reduces the turnaround times for aircrafts. For example, Singapore airport has a budget terminal.
Point to Point Network All short-haul AirAsia flights (four-hour flight radius or less) and medium- to long haul AirAsia flights are non-stop, doing away with the need for human resources, physical infrastructure and facilities at transit locations. AirAsia does not provide baggage transfer to another flight nor does provide you options with any connecting flights on the website.
CUSTOMER RELATIONS MANAGEMENT “Customer Relationship Management is a comprehensive approach for creating, maintaining and expanding customer relationships. Customer Relationship management can be the single strongest weapon to ensure that your customer become and remain loyal.” (Kristin Anderson, pp. 1,2) “It‟s a continuous performance initiative to increase a company‟s knowledge of its customers. CRM comprises the organisation, processes and systems through which an organisation manages its relationships with its customers. Consistent high quality customers support across all communications channels and business functions, based on common information shared by employees, their customers and business partners. A methodology based on new information technology, that helps their customers reach their long-held goals for improved customer satisfaction.
An integrated, multiple delivery channel strategy that allows companies to capture profitable new customers and improve service” (Malcolm McDonald, p. 425) AirAsia needs to adopt a more customer centric approach to relationship management to be better positioned to develop, acquire and retain customers. When planning and implementing a CRM management should focus on the
Consumer Segmentation The loyalty programs offers by the airlines do not have the ability to provide the competitive advantage. AirAsia should focus on value based and needs based approach rather than the mileage approach.
CRM Initiative Development Instead of following the competitor AirAsia innovated in making a CRM program in favour of investing in initiatives with a high return, which responds to the need of its customers. AirAsia has done it by targeting market, merchandising, and promotions by analyzing knowledge about customer. On AirAsia‟s website, we can see that information on travel destination, hotel, transport, climate and recommendations is provided to customer for decision making before purchase.
Organizational Design and Management AirAsia needs to train front line staff such as flight attendant (FA), customer services staff on better knowledge and soft skill on customer service and communication skill to deliver service excellence. Source: http://www.scribd.com/doc/25333038/CRM-AirAsia
PATNERSHIP RELATIONSHIP MANAGEMENT “Companies need to give creative thought to finding partners that might complement their strengths and offset their weakness. Well managed alliances allow companies to obtain a greater sales impact at less cost to keep their strategic alliances thriving, corporate have begun to develop organisational structures to support them and many have come to view the ability to form and manage partnerships as core skills called Partner Relationship Management”. (Kotler, p. 95) A strategic tie-up will help the airline maintain its position in the world despite rising costs associated with the fledgling global economic recovery.
Based on the External factors which have been analysed using PEST analysis, the demand for Low Cost Carrier airlines is expected to rise significantly, attracting more competition. AirAsia with its organised management is very strong at the moment. It also stands an advantage due to its early conception and aggressive marketing. It used internet to its advantage and newer airplanes which have reduced the maintenance cost Higher fuel costs around the world, and fluctuating, unstable markets have made operational costs higher, especially for the airline industry. The cost of rising fuel prices has been bought down by hedging of fuel prices over next three years. AirAsia being a low cost carrier has a huge capital base and can stand losses for a longer time compared to other low cost airliners. The companies with less profit margins than AirAsia may become redundant in the future; thus, opening up customer bases previously unavailable to AirAsia. Based on the analysis done below are a few recommendations
Place / distribution Air Asia needs to expand and exploit its presence in countries like India and China. This would enable them to attract more customers and serve the need of the target market.
Service Follow up “The most unhappy customers have a lot of information”(Bill Gates). Messages should be sent to the customers after the flight to check if they are satisfied with the service provided.
Increased use of the internet With the increased access of Asian people to the interent more promotions more should be offered on the internet. Keeping the mind the system failures for a company which is reliant on the internet more employees should be hired in the software development department
Develop a market strategy to target the upper market segment AirAsia needs to come up with marketing strategies to lure the upper market segments. This can be done by providing them premium incentives but the staff should be trained well as this segment is bound to have high expectations in terms of service.
Low cost carriers are here to stay. AirAsia should fully utilize the resources available for an excellent market positioning situation. It can capitalise on the growing demand for low cost travel and can register significant growth. The challenge is to execute disciplined growth in capacity that matches the demand from new and existing customers.
Bibliography Introduction (n.d.). Retrieved from www.airasia.com: http://www.airasia.com/my/en/corporate/iraboutairasia.page Armstrong, G. a. principles of marketing 12th edition. Pearson Education Ltd. Jobber, D. a. Foundations of Marketing. McGraw Hill Education, 2003. Kotler, P. a. Marketing Management 13th edition. Prentice Hall 2008. Kristin Anderson, C. K. Cutomer Relationship Management. McGraw-Hill Professional, 2002. Additional Source for CRM http://www.scribd.com/doc/25333038/CRM-AirAsia Malcolm McDonald, H. W. Marketing Plans. John Wiley and Sons, 2011. Porter, M. E. (january 2008). harvard business review , 25-40.