AirAsia (2)

SM0374 STRATEGIC MANAGEMENT & LEADERSHIP

78

  TOTAL Name : Grade

   ?     l    u     f    s    s    e    c    c    u    S

Student No. Excellent A s op op hi hi st st ic ic at at ed ed b ut ut c le lea r disc discus ussi sion on of what what is meant y success u an ho w this appli e ess t o the comp an an y, y, ssu up po ported by by a ran ge ge o f data ty pe pes.

7 - 10 marks

Very Good A d is isc us us si si on on o f h ow ow succ succes essf sful ul the the comp compan any y is cons st s tent w t at ea east two types o f appropriate d at ata. Re Reco gn gnises th that " su success" can be diffi ccu ul t to eva eva uate.

6 marks

Good A st at at em em en en t o f h ow ow succ succes essf sful ul the the comp compan any y is cons st stent w t two types of appropriate d at ata b ut ut very li littl e di ssccussion .

5 marks

Adequate A s ta ta te te me men t o f h ow ow succ succes essf sful ul the the comp compan any y is cons st stent w t one type of rel e ev van t data.

4 marks

Inadequate V er ery l it it tl tl e r el el ev eva nt nt d at at a, a, no atte attemp mptt at eval evalua uati tion on o su s uccess

3 marks

Bad A lm lm os os t n ot ot r el el ev ev an an t d at at a, a, no eval evalua uati tion on of succ succes ess. s.

0 - 2 marks

8

   s    s    s    e    n    n    o    s    i    s    a    u    e    B    R

A n e xc xce llll en en t s et et o f k ey ey reasons w t goo , c ea e ar expl explan anat atio ions ns.. Very Very good good rese resear arch ch and and emonstrat on on o business knowledge.

A v er ery g oo oo d se t o f r ea ea so so ns ns w t goo e xp xp an a nat o ns ns. Good Good rese resear arch ch and and demo demons nstr trat atio ion n of us ne ness now e ge.

A g oo oo d se t o f r ea ea so so ns ns , some ess t an ey ey , u t good good expla explana nati tions ons.. Reas Reason onab able le rese resear arch ch and and emonstrat on on o business knowledge.

A cc cc ep ep ta ta bl bl e s et et o f r ea ea so so ns ns ut e t er too ew or too many many to be cons consid ider ered ed a set set of key key reas reason ons. s. Basi Basicc exp an anat on on, as c research, adequate business kn knowledge.

E it ith er er ra th th er er l im imi te ted o r e se s e a scattergun st st w t weak weak expla explana nati tions ons.. Rese Resear arch ch very very limi limite ted does not emonstrate adequate business knowledge.

N o u nd nd er er st st an an di di ng ng o f t he he reasons un erp nn nn n g succ succes ess. s. Very Very poor poor rese resear arch ch.. a s to emonstrate any significant business knowledge.

Goal 1 Obj 1 exceeded

G oa oa l 1 O bj bj 1 e xc xc ee ee de de d

G oa oa l 1 O bj bj 1 e xc xc ee ee de de d

Goal 1 Obj 1 met

Goal 1 Obj 1 not met

Goal 1 Obj 1 not met

 7 - 10 marks

6 marks

5 marks

4 marks

3 marks

0 - 2 marks

8 Ex ce cel le lent discussion

    f supporte y r g or orous    o     d    n    s and detailed analysis.    n    o    e    i    a    i    t    t    i    s    a     l    i    i    t    s     b Goal 1 Obj 3 exceeded    y    e    r    a     l    a    p    p    n    r    a    c 21 - 30 marks    A    e    t    n    i

V er ery goo d di ssccussion ase on on accurate ana y s s covering most of the relevant points

Goo d discussion based on ana y s s t at s genera y good but has gaps or small errors.

Basic di ssccussion based on ana y s s t at s competent but no more.

Poor quality , p ar artial ana y s s t at oe oes not support any discussion.

Goal 1 Obj 3 exceeded

Goal 1 Obj 3 exceeded

Goal 1 Obj 3 met

Goal 1 Obj 3 not met

18 - 20 marks

15 - 17 marks

12 - 14 marks

9 - 11 marks

N o eviden ce ce the student un erstan s t e top c area. Analysis of very poor quality. Goal 1 Obj 3 not met

0 - 8 marks

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xce ent eva ua uat on on suppor supported ted by rigoro rigorous us analysis based on relevant theory. The data has been c o e ct ct e r om om a w e r an an ge ge of sources.

11 - 15 marks

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ery goo eva ua uat on on w t carefu carefull analys analysis is based based on relevant theory with well researched data.

9 - 10 marks

oo eva ua uat on on ase on releva relevant nt theory theory with with good good data.

7.5 - 8.5 marks

as c eva ua uat on on ase on releva relevant nt theory theory.. Analysi Analysiss competent but no more.

6 - 7 marks

na equa equate te eva eva uat uat on – either either the theory theory is not relevant or the analysis is of poor quality.

4.5 - 5.5 marks

o ev ev ence t e stu ent underst understands ands any releva relevant nt theory. No evaluation.

0 - 4 marks

Grade

Excellent

Very Good

E xc xcel le len t d is is cu cu ss ss io io n     f    o supp suppor orte ted d by rigo rigoro rous us and and     d    n    s    c eta e ana ys s    n    o    i    a    i    t    p    s    a    o    i    s    t    t    e    y    r    r     l    e    a    p    h 14 - 20 marks    n    r    t    A    e    t    o    n    i

V er er y g oo oo d d is isc us uss io io n b as as ed ed on accu accura rate te anal analys ysis is

ore t an two goo sugg sugges esti tion onss wit with h exc excel elle lent nt r at at io io na na le les b as as ed ed o n id en entif ie ied fa factors.

wo goo suggest on o ns appr approp opri riat ate e to to the the comp compan any y w it ith v er er y g oo oo d r at at io io na na le le s b as ased on on id id en entif ie ied fa factors

   s    &   n    o    i    s    t    r    s    o    e    t    c    g    a    g    F    u    S

12 - 13 marks

Good Go od od di di sc sc us uss io io n b as as ed ed on on anal analys ysis is that that is gene genera rall lly y goo ut as gaps or sma errors.

10 - 11 marks

Adequate B as as ic ic di di sc sc us uss io io n b as as ed ed on on anal analys ysis is that that is comp compet eten entt ut no more.

8 - 9 marks

Inadequate E it ith er er th th e t op op ic ic ar are a i s n ot ot rele releva vant nt or the anal analys ysis is is of poor qua ty.

Bad N o e vi vi de den ce ce th th e s tu tu de de nt nt under underst stan ands ds any any rele releva vant nt top c areas. na ys s o very poor quality.

6 - 7 marks

0 - 5 marks

13 ne re ev evant suggest on on w t good good rati ration onal ale e bas based ed on i de den ti ti fi fi ed ed f ac act or or s O R t wo wo relevant su suggestion s wi th th r e r at at o na na e s. s.

ne re ev evant suggest on on w t a bri brief ef rati ration onal ale e bas based ed on i de de nt nt if if ie ie d f ac act or ors .

uggest on ons ac ac re ev evance and and a conv convin inci cing ng rati ration onal ale e b as as ed ed o n i de de nt nt if if ie ie d f ac ac to to rs rs .

o ev ence t e stu ent unde unders rsta tand ndss muc much h abo about ut the the c om om pa pan y a t a llll .

Goal 2 Obj 4 exceeded

Goal 2 Obj 4 exceeded

Goal 2 Obj 4 exceeded

Goal 2 Obj 4 met

Goal 2 Obj 4 not met

Goal 2 Obj 4 not met

11 - 15 marks

9 - 10 marks

7.5 - 8.5 marks

6 - 7 marks

4.5 - 5.5 marks

0 - 4 marks

11 Other general comments :

You started the assignment very well. Providing a good definition of success, you have discussed the measurements of success very well. Professionally presented, there were a lot of good data provided provided to support your observations. The discussion on reasons for success was equally good. Well done! I am really impressed by the way you have presented presented the value chain. The activities were correctly discussed and the use of the VRIN framework to further analyse the sustainability of each activity in creating competitive advantages was excellent. The discussion on leadership was equally impressive. You have made very good use of the various leadership theories to make your discussion relevant. Congratulations! The section on strategies were good. You have identified the various strategies well. This section could be better by clearly identifying the competitive advantages for each strategy discussed. In your conclusion, the environmental factors are accurately identified and links to the sustainability of the company were clearly established.

ELECTRONIC ASSIGNMENT COVER PAGE University ID Number  Family name Given name Email Module Code SM0374 Module Name Strategic Management & Leadership Programme BAIM 4 Word Count 3930 Date of Submission 07/11/2015 Full-time / Part-time Full-time Marker

Mr. Frankie Yee

Student’s Declaration: 

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I declare that this assignment assignment is my own own work work and that I have have correctly correctly acknowledged acknowledged the work work of others. others. I am aware of the University’s policies and regulations on honesty in academic work, and of the disciplinary guidelines and procedures applicable to breaches of such policies and regulations. I acknowledge acknowledge that that the piece piece of work, work, or a part of the piece of work has not been submitted for more than one purpose (e.g. to satisfy the requirements in two different modules / courses) without declaration. I acknowledge acknowledge that, for the purpose purpose of of assessing assessing this assignment, assignment, the University University has the right to retain a copy of this assignment or reproduce this assignment and provide a copy to another academic staff I acknowledge acknowledge that the University University reserves reserves the right to submit a copy of of this assignment for plagiarism check. I have retained a copy copy of of this assignment. assignment. While the assessor will attempt to ensure that submitted assignments are not misplaced or deleted, in the most unlikely and unforeseeable unforeseeable circumstance where electronically electronically submitted assignments cannot be retrieved or are deleted, it is my responsibility to produce the original copy of the assignment that was initially submitted to the University. University.

I am aware that t hat this is an electronic submission and by providing my University ID number, it is equivalent to have executed this declaration with my written signature.

 Sta  Star t your assi gnme gnment on the next next page. ge.

Table of contents 1) INTRODUCTION 1.1 Overview of AirAsia 1.2 Challenges faced by AirAsia 1.3 Defining success 1.4 Measurement of success 1.5 Staff expansion 1.6 Customer satisfaction and service standards 1.7 Net profit 1.8 Consumer growth

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2) Reasons for success of AirAsia 2.1 Clear market segmentation 2.2 Strong marketing 2.3 Customer confidence and confidence recovery 2.4 Organisational culture 2.5 Operational style 2.6 Competitive pricing

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3) Value chain + VRIN 3.1 Porters value chain 3.2 Inbound logistics 3.3 Operations 3.4 Outbound logistics 3.5 Sales and marketing 3.6 Service 3.7 Support activities – Firm Infrastructure 3.8 Support activities – Human Resource Management 3.9 Support activities – Technology Development 3.10 Support activities – Procurement 3.11 VRIN

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4) Leadership contribution to AirAsia’s success 4.1 Definition of leadership 4.2 Full range leadership model 4.3 Leadership matrix 4.4 Charismatic leadership

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5) Strategies that contributed to AirAsia’s success 5.1 Strategic management 5.2 Growth strategy 5.3 Strategic alliances 5.4 Branding strategy

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6) External factors affecting the sustainability of the company 6.1 PEST analysis 6.2 Technological factors 6.3 Economic factors 6.4 Recommendation 1 6.5 Recommendation 2

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7) References

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1. Introduction 

1.1. Overview of AirAsia

 AirAsia is Asia’s most successful Low Cost Carrier (LCC). Its vision is to be the largest LCC in Asia and is currently a multi award winning global brand with its airline group serving over 100 destinations (Diagram 1).

( Diagram 1

 AirAsia was founded in 2001 by Tony Fernandez, the current CEO of AirAsia who bought over the debt ridden company formerly known as Pacific Eagle which had 2 4

airplanes and 50 staff for RM1. With the support of the Pr ime Minister of Malaysia, Dr Mahathir, AirAsia has flown over 100 million passengers. It currently boasts a fleet of 171 planes and about 10000 staff (CAPA, 2015) with its AirAsia group affiliates (Diagram 2).

Diagram 2 

1.2. Challenges faced by AirAsia

 AirAsia has enjoyed years of success stemming from its first mover advantage of being the first LCC in Asia. However, it presently faces challenges from current economic uncertainty, increased competitiveness (Diagram 3), fluctuating fuel prices (Diagram 4), and passengers who seek added value in services.

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 A very good start. Professionally presented. 

1.3. Defining success

Corporate success is the measure of an organisation’s competiveness, long-term profitability, customer satisfaction and continuance of the organisation (Fritz, 1992). This supported by Kanter (2011), who describes success as the organisation’s ability to meet both shareholder and stakeholder goals.  A good definition. 

1.4. Measurement of success

Success should be considered at various levels of competition (Kotler, 1969). However, this analysis focuses only on brand level. Not all financial indicators are independent of non-financial indicators as financial results may be linked to “costcentre- type” actions (Maoboussin, 2012) such as customer service. 

1.5. Staff expansion

 AirAsia has an average staff rate growth of 7.7% ( Diagram 5). This could indicate  AirAsia to be an employer of choice. It also suggests that AirAsia is able create a flourishing work environment thus considered successful in this aspect.

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1.6. Customer satisfaction and service standards  AirAsia’s has been awarded “World’s best low-cost airlines”, for  the 7th consecutive year by SkyTrax, which ranks airlines based on factors such as customer satisfaction and service standards. Diagram 6 shows that AirAsia excels in the Asian and global arena.

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1.7. Net Profit The net profit describes the profitability of an organisation by using the following equation:

Net Profit =Total Revenue  – Total Expenses (including taxes)  AirAsia’s net profit is still positive despite its slowed growth. This could be due to AirAsia’s increase in asset procurement, which contributes to revenue generation in the future. Although net profits may be declining (Diagram 7),  AirAsia’s profit margin are above the industry average of 1.1% ( IATA, 2013).

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1.8. Consumer growth Despite customers having a higher bargaining power, Air   Asia still see’s passenger growth (Diagram 8).

This suggests high customer loyalty and that new customers prefer AirAsia to other carriers (Diagram 9), thus reflective of AirAsia’s brand image. This could also be a result of “positive feedback” where existing customers aid in acquiring newer customers (Sipotz, et. al, 2005)

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2. Reasons for success of AirAsia 

2.1 Clear market segmentation  AirAsia’s targets budget travellers who are generally price sensitive. Diagram 10 shows that SEA has a large and growing middle income population (Economist, 2012). AirAsia’s clear market segmentation allowed it to focus on meeting customer expectations, learning purchasing patterns and preferences of consumers (Schiffman et, al, 2008) in this segment and bring value to them.

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2.2 Strong marketing  AirAsia markets its cheap airfares and destination, using a variety of traditional media channels as well as social media. Its marketing is frequent unlike other airlines which promote seasonally. This keeps the advertisement decay rate lower (Gold, 1992) as compared to its competitors, thus being more entrenched in the minds of its target customers.

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2.3 Customer confidence and confidence recovery  AirAsia went through its first major disaster when one of its planes crashed. Through confidence recovery measures (Berry, 2004) such as taking responsibility as well as having the CEO on the ground to personally assist the families of victims, customer confidence was recovered swiftly (Jake, et.al, 2014). AirAsia’s efforts can be seen in its shares recovery in Diagram 11 when compared to that of Malaysia Airlines (MAS) when its planes crashed (Diagram 12).

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2.4 Organisational culture Organisational culture strongly affects business performance (Nihan & Seda, 2013). AirAsia’s organisational culture places little emphasis on hierarchy evident from an open office environment with little physical barriers between desks (Harvey, 2012) allows transparency. Everyone works in full view, thus maximising productivity.

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2.5 Operational style  AirAsia’s fleet size allows them to handle large passenger volume. AirAsia can therefore fly to more destinations frequently. Unlike competitors with smaller fleets, passengers have a higher chance of being able to get a seat 10

on AirAsia (Diagram 13), thus reducing the chances of them switching to competitors. AirAsia also has a large fleet of aircrafts of the same model. Spare parts for servicing are ordered in bulk, thus reducing costs.

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2.6 Competitive pricing  AirAsia’s ticket prices are much cheaper than their competitors and below the industry average (Diagram 14). Their pricing str ategy matches the price expectation of their target market and addresses their customer’s perceived value of an affordable air ticket. Due to their operational size, they occasionally offer free air tickets with customers only having to pay the airport tax.

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You have provided a very good discussion on the measurements and reasons for success. Well done!

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3. Value Chain + VRIN 

3.1 Porters Value chain In order to understand the value a customer receives, the value chain of  AirAsia needs to be analysed. This allows the clear identification of activities which determine the competitive advantage over its competitors by outperforming them in terms of performance and price (Tracey & Hinkin, 1994). It also allows operational misalignments to be exposed and improvements to be made (Feame et. al, 2012) creating added value. The general model of a value chain is categorised into its primary activities and support services ( Porter, 2008). This report shall use Porters model (Diagram 15) for AirAsia’s value chain analysis.

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3.2 Inbound logistics The main processes in AirAsia’s inbound logistics are shown in Diagram 16. However this report will focus on AirAsia’s fuel management.

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 AirAsia’s fuel expense is about 47% of its total operations (Merkert, 2015).  AirAsia practices 2 methods to reduce its fuel expenses. It employs a fuel management system with GE Aviation which meets its minimum target of 1% fuel savings (GE, 2015). The fuel management system also advises AirAsia on practices which saves fuel such as taxing with one running engine instead of two. This reduction in fuel consumption while yielding the same operational outcome allows AirAsia to pass down cost savings to its consumer.  AirAsia also fuel hedges which allows it buy fuel at low prices and utilises it in the future when fuel prices increase. Currently 50% of AirAsia’s jet fuel is hedged (Park, et. al, 2015). This reduces the vulnerability of AirAsia against fluctuating fuel prices and value is passed onto the consumer through cheaper air tickets. Good 

3.3 Operations Diagram 17 shows AirAsia’s main operation activities. However, this report will focus on airline maintenance.

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 AirAsia’s reputation lies in how safe their airlines are and aircraft maintenance is an important factor in their operations. AirAsia has sub-contracted their maintenance to ST Aerospace, which is the world largest aviation maintenance company. By sub-contracting their maintenance AirAsia can focus on “profit-centre” activities such as marketing while enjoying reduced operational cost and capital investment (McFarlan & Nolan, 1995). AirAsia’s contract with ST Aerospace is a “Maintenance By Hour (MBH)” service where maintenance fees are only paid when maintenance is needed. This reduces the need to employ many full-time maintenance staff who may be underutilised. Sub-contracting also reduces inventory holding costs and reduces delays in obtaining spare parts since ST Aerospace has a better stock and supply capacity than AirAsia. Value is created for the customer through cost saving from reduced fixed overheads and the reduced flight delays due to maintenance since ST  Aerospace has the expertise, technology and manpower to maintain AirAsia’s fleet. 15

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3.4 Outbound logistics Diagram 18 shows some of AirAsia’s outbound logistics activities. However, this report will focus on its ticketing.

 AirAsia’s has a high passenger volume. AirAsia practices a “ticketless” system where there isn’t a physical ticket/boarding pass issued by the airline.  A confirmation email is sent to the passenger upon ticket booking. Passengers can then print their ticket confirmation, mention their ticket reference number at the check-in counter or simply check-in online when at the airport (AirAsia, 2015). By going ticketless, it reduces the paper usage, printing, manpower and distribution costs while increasing efficiency (Buhalis, 2004). Value through cost saving is passed down to the consumer. Similarly, by checking-in online, there isn’t a need for passengers to queue at the check-in counter. Value is created for the passenger in terms of reduced waiting time as well as convenience.

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3.5 Sales and marketing Diagram 19 shows AirAsia’s major sales and marketing activities. However this report will focus only on sales channels.

 AirAsia’s receives ticket bookings from a variety of channels including counter, travel agent, phone and internet bookings. These are linked to  AirAsia’s Passenger Service System ( PSS), NewSkies. These channels help achieve a competitive advantage in maximum sales performance since industry competitors are effectively selling the same thing (Friedman & Furey, 2012) and NewSkies collates all information.  Although there are a growing number of customers who book their tickets online, consumer readiness in electronic payment such as credit cards as well as mobile phone payments are still slow in many parts of SEA ( Huang, 2013) as seen in diagram 20 and 21 respectively. As such, AirAsia creates value by giving customers ease of access and convenience in purchasing and paying for their tickets through various sales channels.

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3.6 Service Diagram 22 shows the service activities AirAsia practices. However, this report shall focus on the value added service of hotel reservation.

 AirAsia provides a hotel and flight package service called AirAsiaGo (AirAsia, 2015) and has partnerships with over 230 000 hotels. AirAsia also has as joint venture with Expedia, a leading online travel agency, which gives AirAsia a competitive advantage over its smaller competitors ( Daily Finance, 2011). It provides an all in one fare to inform consumers the overall price of their flights and accommodation, without being misled by hidden costs when booking them separately. Value is created for consumers by saving them time from comparing and sourcing their accommodation options from scratch. AirAsia 18

usually offers discounts when flight and accommodation are booked together which is favourable to AirAsia’s price sensitive consumers. 

3.7 Support Activities – Firm Infrastructure  AirAsia has an extensive yet lean infrastructure. It has travel and service centres (ATSC), call centres and sales offices across Asia (AirAsia, 2015). With their wide network, they are able to integrate their services throughout their network of airline affiliates. With a large fleet of aircraft, AirAsia has the infrastructure to handle large passenger volumes. A large f leet also allows  AirAsia to expand its market reach as it has enough planes to reach more destinations and provide more frequent service (Doganis, 2005). This creates value by providing convenience to its consumers.  Although AirAsia is an LCC, the structured organisation provides consumers a level of confidence that the carrier properly manages. AirAsia’s main departments are shown in the Diagram 23

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3.8 Support Activities – Human Resource Management (HRM)  AirAsia has more than 6000 employees but is prudent in its HRM. Many staff take on more than one job role. This reduces staff redundancy and improves 19

efficiency among workers. Employees are paid below the market rate but receive incentives based on performance (AirAsia, 2015). This motivates staff to perform well as the expectation of rewards usually improves performance (Liljeholm, 2012). Pilots are usually transferred from airlines thus reducing training costs. These factors reduces AirAsia’s operating cost which benefits the consumer. 

3.9 Support Activities – Technology development  AirAsia leverages heavily on technology. The information technology AirAsia deploys is real-time and its database is continually updated. These information is reflected to relevant parties such as travel agents, booking websites and call centres. Information is collected with a Yield Management System (YMS) called NewSkies and is passed on to business and sales managers in AirAsia reflecting revenue and pricing options which gives them a competitive advantage ( Leslie & Bobb, 2008). Such technology helps  AirAsia make informed decisions which may create value for the consumer in terms of cost and convenience.

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3.10 Support Activities – Procurement  AirAsia’s procurement is done at 2 levels. The first being the e-procurement where the procurement of goods and services happen online. All elements of e-procurement, including e-sourcing (De’Boer et al, 2001) aims to reduce cost, increase transparency and duration of purchase cycle (Beall et al, 2003).  AirAsia has also formed a JV with another LCC JetStar ( Yeo, 2010) to engage in procurement activities which will help reduce cost due to larger buying volume. These costs savings are enjoyed by consumers through lowered fares.

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3.11 VRIN

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 An excellent discussion. Congratulations.

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4. Leadership contribution to AirAsia success 

4.1 Definition of leadership Leadership is a key component in AirAsia’s success. Carter (2009) defines leadership as the usage of skills, experiences and providing direction to people to improve performance. Hickman (1992) however believed that the competitive advantage of an organisation begins from how people withi n the organisation are led. This is in tangent to AirAsia’s CEO’s principle of placing employee satisfaction before customers (Fernandes, 2010) as he believes that satisfied employees will be intrinsically motivated to satisfy AirAsia’s customers.

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4.2 Full Range Leadership model Bass and Avolio (1998) categorises leadership into 4 dimensions in their Full Range Leadership model as shown in Diagram 24.

Tony Fernandes has always been in the spotlight for his active involvement in the company and for being an inspiration to people worldwide through his business success story. His leadership style has proven to be successful and ef fective, resulting in AirAsia’s success. From the conceptualising of an idea of being the largest LCC in Asia to actually achieving that target, Fernandes was active in the development and expansion of AirAsia. Therefore, 24

Fernandes’ leadership style is that of a transformational leader. Other indicators of transformational leaders is their ability to handle crises head-on and celebrate the achievements of its f ollowers. The ability to handle crisis head-on is evident in Fernandes superb handling of the AirAsia crash, where he claimed full responsibility immediately after being aware of the disaster (Watts & Rachman, 2014). Fernandes never fails to celebrate success stories of his staff such as AirAsia’s first female pilot who started off as a flight attendant (Rivers, 2010).

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4.3 Leadership Matrix In Blake & Mouton’s (1985), leadership matrix model, (Diagram 25), Fernandes is categorised as a team leader as he is as task oriented as he is people oriented.

Fernandes also exercises a reactive and proactive leadership style. This is evident in his involvement in helping load and unload baggage with his baggage handlers and having discussions with his cargo crew (Rao, 2009). His experience with the struggles the luggage handlers faced with the loading 25

and unloading of luggage made him invest in machinery to improve their working conditions and performance (Fernandes, 2010). This in turn helped in  AirAsia’s operational performance. During the AirAsia disaster, he provided families of the victims with his mobile number which shows his concern for people, while his full cooperation with the authorities showed his concern for task. 

4.4 Charismatic Leadership Fernandes is considered a charismatic leader from his management style of ‘managing by walking around’ and ‘leading by example’ (Kamisan & King, 2013). By walking the ground, he understands the processes his staff undergoes in their daily work and strives to improve their work performance. His charismatic and humble demeanour is also noticeable by his usually casual dressing with the donning of his cap promoting AirAsia. This is contrary to the formal dressing style of a CEO. By doing so, Fernandes is a charismatic leader as he exudes respectable moral behaviour (Kirkbride, 2006). With such qualities and the high amount of media exposure he receives, Fernandes indirectly markets AirAsia thus gaining a good market position while contributing to AirAsia’s success. He also uses trust as a basis of his leadership. This is evident by his openness and availability to his employees who have access to his direct mobile line. This shows his attempt in reducing bureaucracy within the organisation. His employees feel empowered, valued and engaged with such a strong and clear line for communication. Fernandes’ emphasis on trust and integrity is also evident with a “whistle blowing” channel which is accessible to everyone via the corporate website. By doing so, he has gained the trust and respect of his employees (Tracey & Hinkin, 1994), making his leadership 26

effective. These measures are spearheaded by his leadership and gains customer confidence which is another reason for AirAsia’s success.  A very good discussion here.

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5. Strategies that contributed to AirAsia’s success 

5.1 Strategic management In order to become a market leader, strategic management is required to achieve strategic competitiveness leading to profitability (Hitt. et.al, 2012). This would enable the organisation to become t he market leader. However, before doing so, a strategic management process needs to be carried out (Diagram 26). Selecting the right strategies will thus reduce the strategic drift over other competitors.

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5.2 Growth Strategy  AirAsia had to initiate strategies in a highly competitive environment in order to succeed (Werner et. al, 2004). This is noticeable in their growth strategy which can be related to Ansoff (1957) model (Diagram 27). Ansoff also suggests that growth opportunities stem from the development of products and markets executed in a certain sequence.

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The development and diversification of current and new products in existing and new markets can be seen in AirAsia’s growth strategy ( Diagram 28). Their strategies include product penetration, maturity, geographic expansion and product expansion. This has allowed AirAsia to maximise it s resources and receive a substantial ancillary income from many of its non-flight services while increasing potential revenue from its core services.

It is noticeable that although AirAsia’s product diversification is wide, it is still within the parameters of the travel industry which suggest a concentric diversification approach. This diversification help increase the competitive 29

advantage of AirAsia through value innovation. As much of the services  AirAsia provides is intangible, it should also connect to the lifestyle, emotions and culture of its consumers (Martins, 2015). AirAsia has managed to provide a diverse range of products and appeal to a variety of consumers while maintaining their motto of “Now everyone can fly” without cheapening their image of being a LCC. 

5.3 Strategic Alliances Gulati (1998) describes strategic alliance as collaborations which includes product exchange, co-development and sharing in order to reach a set of common goals. Through strategic alliances, AirAsia is able t o access new markets (Kogut, 1991) while improving public visibility and brand recognition by riding on other brands (Baum & Oliver, 1991). Strategic alliances (Diagram 29) also enables AirAsia to tap onto the core competencies of other brands to uphold their brand image.

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Diagram 29 

5.4 Branding Strategy The branding strategy of AirAsia is another crucial process which propelled its success. Branding does not only promote a name or address a target group, but it creates a preference and in the minds of consumers (Noble, 2006). The purpose of brand strategy is to increase the brand value of the product by 31

convincing consumers that their product/ service has more value than that of their competitors (Keller, 2002). The branding strategy of AirAsia can be analysed using the Davis (2002), Brand Asset Management model as shown in Diagram 30 . The model analyses 4 dimensions which leads to increased brand value.

 AirAsia has managed to apply the 4 dimensions in its aim to increase its brand value. This started from the conceptualising of AirAsia till presently where it stands in the market. The details of the processes in the Brand Asset Management model is show in Diagram 31.

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Diagram 31

 AirAsia has a clear vision and it offers products and services to address the needs of the consumers while maintaining a consistent brand position in the market. AirAsia has the resources to execute certain strategies to help it succeed over its competitors and live up to its brand promise (Lim. Et. al, 2009). These, along with other strategies not discussed in this report has enabled it to succeed in the LCC aviation industry.  Again a good discussion. This section could be better by providing a clearer discussion on competitive advantages.

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6. External factors affecting the sustainability of the company  Although AirAsia is still enjoying success, there are several factors which affect the sustainability of the company both externally and internally. This is due to continual transformation in the macro environment of organisations, markets, and people ( Dominici, 2015) In order to determine the external factors affecting the sustainability of AirAsia, an analysis of the PEST/ PESTLE framework has to be carried out. Factors from the analysis become the drivers of long term change (Isoherranen, 2012). These factors, coupled with strategic changes based on a thorough SWOT analysis, AirAsia sho uld be sustainable and maintain/ increase its competitive advantage. AirAsia’s PEST framework and some of its factors are shown in Diagram 32. 

6. 1 PEST Analysis

For the purpose of this report, only technological and social factors will be discussed.

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6.2 Technological factors The first issue is technological infrastructure. Many ASEAN nations are below the average internet speed with only Vietnam, Thailand and Singapore having better than average speeds (Elsinga, 2014) as shown in Diagram 33. However these three countries are not where the growing number of AirAsia customers are from. Larger customer base such as Philippines and Indonesia suffer from poor internet speeds which make customers from those markets more pessimistic in booking tickets online, thus choosing other airlines with traditional payment methods. Good

 AirAsia may have been the first to introduce the ticketless system, but it is seen as lagging behind its competitors especially with certain credit cards not being accepted during the online ticket purchase process. The issue of credit card payments not going through are rampant from most sources which review airlines including AirAsia. Similar issues were faced with debit card payments being declined. This has caused a significant number of customers to hop over their competitors despite AirAsia’s lower fares. 35

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6.3 Economic factors Currently, AirAsia’s main operations take place in Malaysia and it (AirAsia Berhad) is the most profitable among the AirAsia group. However it faces negative economic exposure which affects the company’s profit and value (Shotar & Mefleh, 2009). As AirAsia’s business is based on cost savings and their profits result from cost managing the entire value chain, it is very sensitive to the fluctuations in exchange rates. The Malaysian ringgit has been dropping steadily since the last fiscal year (Diagram 34). Therefore, it has to take steps to protect its finances against economic exposure.

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6.4 Recommendation 1  AirAsia should invest in newer technology and ensure that the technology employed is compatible with the mass population. This may include off ering consumers other payment gateways such as PayPal, 2Checkout among others ( Diagram 35). As payment gateways are not core competencies of  AirAsia, it should outsource its payment gateway to companies which accept a variety of credit/debit cards payment from various banks. This would reduce consumer’s frustrations of their payment being declined despite them having

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funds for payment. By doing so, customer satisfaction will increase and so would customer retention.

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6.5 Recommendation 2  As AirAsia’s main selling point is its cheap airfares, its profit margins are sensitive to external factors such as currency risks. AirAsia’s affiliates in which AirAsia (Berhad) has shares in are exposed to translational, transactional and economic risk, due to currency fluctuations. AirAsia should therefore engage in hedging activities such as using currency options, swaps and forward contracts (Schoenberger, 2011) although these in itself have risks of their own. This would allow better cash flows, increased market value of AirAsia, and maximising their profitability.

Good links between environmental factors and the impact on AirAsia. Recommendations provided were sound.

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