Transcript
7/26/2019 95568462 Air Asia Final
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College of Social Sciences
Birmingham Business School
International Business Strategy
MSc International Business
ID: 1136816
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Table of Content
1. List of Strategic Issues1
1.1. Market Based View..1
1.2. Resource Based View.1
1.3. Organisational Based View.2
1.4. Key Strategic Issues.3
2.0 GENERATING STARTEGIC OPTIONS.4
3.0 STRATEGIC EVALUATION AND SELECTION...5
3.1. Disinvestment in Air Asia X.5
3.2. Separation of Air Asia from Air Asia X..5
3.3. Suitability Criteria- Air Asia.6
3.4. ACCEPTABILITY Criteria- Air Asia...7
3.5. FEASIBILITY Criteria- Air Asia...8
3.6. STRATEGIC EVALUATION.8
4.0. FUTURE STRATEGIC RECORMENDATION.9
5.0. APPENDIX AND REFFRENCES.11
Appendix 1. KSF Analysis of Long-haul model and LCC model.11
Appendix 2.An Analysis of the Porters Five Forces.11
Appendix 3.VRIO Framework13
Appendix 4.Government as important a Stakeholder....13
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Appendix 5.Strategic Option 1.....14
Appendix 6. Strategic Option 2....15
References.. ..16
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EXECUTIVE SUMMARY
This is a strategic report aimed at analysing, the key strategic
issues that Air Asia is facing in 2009 and also generating future
strategic choices for the for the company based on a Suitability
Feasibility and Acceptability (SFA)analysis of the strategic
Options that have been selected . Considering the result of theSFA analysis recommendations will be made addressing the
issues that have been identified.
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Air Asia Strategic Report
1. LIST OF STRATEGIC ISSUES
1.1. Market Based View
a. Integrating Air Asia and Air Asia X.
The key success factor in the long haul and the low cost carrier model are different.
The analysis of Key Success Factor (KSF) tells us that the two companies should
not be integrated as the companies will lose focus, based on the differences of the
KSF. (see appendix 1)
b. Potential growth in the South East Asian Region
This South East Asian Region is experiencing a very high growth which will translate
in the growth of the market for the low cost flight with in the region. The low cost
airline industry has been very profitable as compared to long haul airline industry in
2009 (flightglobal, 2011). This region has seen the increase in the number of low-
cost airline operators to over 20 since Air Asia started in 2001(flightglobal, 2011).
This region is experiencing high economic growth which creates a growing market
for Low cost carrier airlines.
1.2. Resource Based View
c. The use of joint ventureto spread the risk of its expansion strategy in to
other markets.
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The use of joint venture in Air Asias expansion strategy in South East Asia
has been successful in the market as it benefits from
Shared risk involved in the investment
Local support of the state and the people
d. The transfer of the resource and capabilities
Will this contribute to its Air Asia Xs competitive advantage? (Consider
appendix 3)
The VRIO Framework analysis shows that competitors in the long haul airline
industry have high capabilities. This will reduce the value of the capabilities
when transferred.
e. Air Asias focus on improving its capability in maintaining a very low
operation cost with high quality in costumer services.
In an industry where low price is very important, the capability of
being able to maintain a low operation cost is a very important
strategic issue.
Its success has been greatly due to the ability to maintain a very
low operating cost while ensuring high quality services to
customers.
1.3. Organisational Based View
f. The relationship with the Malaysian Government must be well maintained
to avoid conflict with the Malaysian government. (see Appendix 4)
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1.4. Key Strategic Issues
After consolidating the strategic issues, these are the key strategic issues that will be
considered
1. Issues number 1 and 2 stated above can be merged to the form the Strategic
Market Growth issue. This is because they all focus on Growth of the
company.
2. Issues 3 ,4 and 5 will be merged to form Contentiously Improve on R&C.
this is they are all related to the capabilities of the company and they will all
be used in the implementation of a growth strategy.
3. Maintain good relationship with the Malaysian government
Short term longterm
HighUrgency
Conteniously Improve onR&C
Strategic Market Growth
Low
urgency
maintain good relationship
with the Malyasiangovernment
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2.0 GENERATING STARTEGIC OPTIONS
Level of
Strategy
Strategic option 1
Separate Companies
Strategic option2
DisinvestmentBroad Level Avoid loss of Focus by separating
Air Asia and Air Asia X and focuson growing the south east Asianmarket
Disinvestment in Air Asia X.
Specific level1
Market development in south eastAsia ( high economic Growth)
Market Penetration Alliancewith Malaysian Airways togenerate trunk routs from itslong haul routes (increase intraffic)
Specific level2
forming joint venture in differentcountries
Acquire struggling low costairlines in other countries,
Functionaland
supporting
Transfer Resources andcapabilities to the joint venture.
Increase marketing strategy aimedat reducing the treat of substitute(train or rad transport). Increasingspending on MarketingCampaigns to
Influence MalaysianGovernment to ease visa
regulation and promotetourism.Improve and transfercapabilities to acquiredAirlines.
Note: See appendix 5 for details on Strategic option 1
See appendix 6 for details on Strategic option 2
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3.0 STRATEGIC EVALUATION AND SELECTION
3.1 Disinvestment in Air Asia X
Advantages Disadvantages
This will enhance the relationship with theGovernment. A very important OBVperspective
Control over trunk routs will be lost.
Create finance for required expansion Disinvestment will be seen in the media asbad image for the company
Create a clear focus for the company (LCCmodel)
Might make some stakeholders unhappy(employees, due to loss of job)
3.2 Separation of Air Asia from Air Asia X
Advantages Disadvantages
Have high influence over trunk routs, caninfluence the movement of traffic to itsadvantage.
Will damage the relationship with theMalaysian Government. (very critical OBVissue in the long run)
Both companies will focus on their
particular market without having to lossfocus in their different target markets
The relationship between the two
companies might limit the freedom eachcompany has to make decisions.
Share of operational activates will helpkeep cost low for both companies. ( Onlinebooking)
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3.3. Suitability Criteria- Air Asia
Concepts (MBV) Separation Disinvestment
5 forces Reduces industry rivalry. (+) reduce the threat of
substitute (+)Market andcustomer segment
Focused on more than onesegment (Low cost and long haul)and still maintains clear focus byseparation. (+)
Focused on one type ofsegment (people lookingfor low cost travel). ( - )
CompetitorRetaliation
Lead to Malaysia Airlinesentering the LCC in retaliation. (-)
Will reduce competitorpower and escaperetaliation by MalaysiaAirlines. (+)
KSF Clear focus on KSF with fairpossibility of a strategic drift dueto interest in Air Asia X (+)
Clear focus on KSF. Lessprobability for a strategicdrift (+)
Concepts (RBV)
R&C Development Transfer of capabilities will be ofhigh value in Air Asia X and thejoint ventures. (+)
Transfer or capabilities willbe of very high value in theCompanies acquired.
(Same Market). (+)
Distinctivecompetency asbasis of CA
The distinctive competencies willnot be source of Competitiveadvantage a in Air Asia X. (-)
The distinctivecompetencies will besource of Competitiveadvantage in the successof the acquisition. (+)
Concept (OBV)
Stockholders
perspective
Support of Malaysian
Government will be lost(competition with Malaysiaairlines). (-)
Support with of the
Malaysian Government willbe of high Value in thelong term. (+)
Note: (+): Favourable strategy. (-): Unfavourable Strategy.Ranking;Separation( 4+/3-) Disinvestment(6+/1-) Disinvestment is thesuitable option
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3.4. ACCEPTABILITY Criteria- Air Asia
CONCEPT SEPATATION Disinvestment
RISK Air Asia X might not be profitable in
the short run. (High Competition inindustry). (-)
Problems with unsatisfied
laid off workers (cost ofcompensating workers). (-)
RETURNE Low profit expected in Air Asia Xdue to the nature of the industryand Competition. (-)
Re investing the funds in theSouth east Asian region willprovide high returns due tothe high level of growth thatis expected in the region. (+)regarded as big player in theregion (+)
REACRTION OFStockholders
Positive for; customers, suppliers,employees,negative for; Government,shareholders ( fall in value ofshares of Air Asia X due to lowprofit) (-)
Positive for; customers,Government, suppliers,shareholders.Negative for; employees. (+)
Note: (+): Favourable strategy. (-): Unfavourable Strategy.Ranking; Separation( 0+/3-) Divest(3+/1-) Divest is the Acceptable option
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3.5. FEASIBILITYCriteria- Air Asia
CONCEPT SEPATATION Disinvestment
FinancialFeasibility
Finance needed for joint venturecan be easily raised, (reputation
of Air Asia in LCC industry). (+)
The large number of airlinesin the industry supports the
strategy of acquisition assome will be poorlymanaged and cheap toacquire. (+)The Divest in Air Asia X willcreate enough cash for theacquisition needed. (+)
People and Skills Air Asia is highly experienced insetting up joint ventures.Considering the success in Jointventures ( Indonesia and
Thailand) (+)
The skills needed for thisstrategy is available as thecompany will need tomanage the transfer of the
capabilities. (employeesfrom the divested company).(+)Air Asia is not experiencedin acquisition and the skillsrequired are different fromJoint ventures (-)
IntegratingResources
Transferring capabilities will beeasy to do and integrating theback office operation will see both
companies benefit from it (+)
The transfer of employeeswill make the process easierto integrate. (+)
Note: (+): Favourable strategy. (-): Unfavourable Strategy.Ranking; Separation( 3+/0-) Divest(4+/1-) Both strategic options are equallyFeasible option
3.6. STRATEGIC EVALUATION
Strategic Choice Suitability Acceptability Feasibility
Separation NO No Yes
Disinvestment Yes Yes Yes
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4.0. FUTURE STRATEGIC RECORMENDATION
Recommended strategy Timeframe
STRATEGICISSUES IT AIMSTO SOLVE
DETAILEDACTION PLAN
Broad level- Disinvestmentstrategy. The disinvestment inAir Asia X is highlyrecommended,Why-This will free up cash for Air
Asia to use in its expansionstrategy in the South EastAsian region.The long haul airline industryis a mature industry and it hasbeen less profitable than theLCC industry (flightglobal,2011).The Competitors in theIndustry Emirates and BritishAirways have strong financialresources and might retaliateaggressively with very lowprices.
1 to 2years
ConteniouslyImprove on R&C-Disinvesting in AirAsia X andfocusing on LCC inSouth east Asia.
How-Because of thePoor performanceof Air Asia X, itsshare price will below. Disinvesting inthe company in theshort run will meanselling at a loss.This loss in theshort run needs tobe taken to allowfor the growth inthe South eastRegion in the longrun.
Specific level 1- Marketdevelopment Strategy in southeast Asia.Why-This region is expected toexperience high economicgrowth, this will translate to agrowth in the travel andtourism industry.This city has been
experiencing the highestgrowth rate in China for over10 years (China Daily, 2010).This location of this city will be
a strategic advantageconsidering the Cities with inthe 3 hours flying range.
3to 5years
ConteniouslyImprove on R&C
How- this can bedone by targetingthe strugglingairlines in thespecial economiczones in China,ShenzhenThis will reduce thecost of entering themarket.
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Specific level 2-Using a joint venture to enterthe marketConsidering the current creditcrisis, which is a short term
problem (InternationalMonetary Fund, 2009), someairline will be struggling to livethrough it, making cost ofentering other countries low.Threat from competitors andsuppliers will be low
1-2years
Use of joint venturefor Expantion inSouth East Asia
How- the strugglingairlines inShenzhen will bethe ones with verylow share prices.
By using the localcompaniesresources andtransferring thecapabilities of AirAsia in theoperations of thejoint venture. AirAsia will benefitfrom local support(government and
People) as it will besaving a strugglingairline.Air AsiasCapabilities andbrand reputationand the localcompaniesresources will beinvested in the jointventure
Functional and supporting-Maintain a good relationshipwith the Malaysiangovernment.Why- being able to influencethe governments regulationcan be very important when itcomes to a marketdevelopment strategy. The
regulations on visa restrictionand promotion of tourism willhave a big impact in theindustry.In 2009 the governmentVetoed AirAsias plan to buildits own airport(The EconomicTimes, 2011). This would havebeen different if therelationship with thegovernment was good.
3to 5years
Relationship Withthe government.
How-Collaborating withthe Malaysia airlinewill provide trunktouts for Air Asia aswell as prevent airMalaysia Airlinesfrom entering theLow cost Industry.
This alliance willput Air Asia in astrong position tobe able to influencethe government.
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5.0. APPENDIX AND REFFRENCES
Appendix 1.
Key Success Factor Analysis of Long-haul model and LCC model
KSF Strategic issue analysed Strategic issue
identified
Costumers In the long haul model the profitable
customers are the first class
customers who then subsidise the
economy class customers. In the
LCC model there is only one class
of customers economy class.
Different customers
Different strategy needed
Competitors The long haul market is one flooded
with highly experienced competitors
with strong financial resources and
capabilities. In the LCC model
market in South East Asia, Air Asia
is a market Leader in the LCC
model market
Different Competitors
Different Position in the
different Markets
Corporation The resources and capabilities that
lead to the competitive advantage inthe LCC model are different from
those that are needed in the long
haul model.
Different strategy needed
Appendix 2.
An Analysis of the Porters Five Forces
Porters 5 Forces Strategic issue analysed Strategic issue
identified
Supplier Power A mixture of powerful
suppliers as in the aircraft
and fuel suppliers and less
powerful suppliers the
suppliers that provide the
food and other running cost
Fuel suppliers are very
powerful cannot be
changed
Aircraft supplier power
cannot be reduced
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Threat of substitute This threat is high as the low
cost airlines serves short
routes which can be also be
served by other means of
transportation
Reason to focus on low
cost and quality service
Entry Barriers Low entry barriers, easy to
setup as no need to buy
aircraft.
Need for strong brand
positioning
Bargaining power of
customer
Large number of low air craft
operators, wide variety of
substitutes means of
transport. Customers
bargaining power high
Continuously improve on
services
Industry
Competition
Very intense competition,
more than 35 new low cost
airline operators in 2009.
Loss of focus will see other
airlines taking Air Asias
customers
Focus on another market
will lead to loss of focus
for Air Asia
VRIO FRAMEWORK
VRIO The R&C of Air Asia when
transferred in the long haul
model will not serve as a
competitive advantage for Air
Asia X,
Competitors have high
R&C
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Appendix 3.
VRIO Framework
This will use AirAsias Capability in a VRIO analysis to determine its effect in
being competitive in the long haul airline industry.
R&C Valuable Rare? Costly to
imitate
Exploited by
organization
Strength or
weakness
Financial yes No no Yes Non
Low cost
capability
yes Fairly Fairly yes Strength
HR
strength
and culture
Yes Yes Yes Yes Strength
Technology
capability
Yes No No Yes Non
Reputation
of Low cost
no -- -- no Weakness
Appendix4.
Government as important a Stakeholder
Considering the industry in which Air Asia is in the effect of government regulation
can be very can be disastrous for the business, being able to influence the
Malaysian government regulations on tourism and travel might provide big
opportunity for market development.
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Appendix 5.
Strategic Option
Broad Level- Air Asia and Air Asia X should not be merged, the KSF are different.
Merging the two companies will lead to the company losing focus as it will be operating
as hybrid, without a clear business strategy for the different airline industries (Long haul
and Low-Cost).
Air Aisa should focus only on LCC model in the South East Asia market. This market is
experiencing very high economic growth in the whole region and Air Asia currently has
recorded annual passengers of only 11.8 million out of a region with over 500 million
people. Considering the number of new airline operators in the region a loss in focus
might see the market leadership position of Air Asia change.
Specific Level1- Air Asia should focus on market development in the South East Asian
Market, considering the growth potential of the region and the low entry barrier in the
industry.
Air Asia X should operate as a separate company focusing on purely long haul.
Specific Level 2- Air Asia can focus its expansion strategy by forming joint venture with
low cost airline operators in different countries. This can be possible as the increase in
the number of airlines will mean that some airlines will be struggling to make profit.
Functional and Supportive- Air Asia should transfer increase its marketing effort
aimed at expanding the market for low-cost flight, as the region is experiencing high
economic growing this will be very important considering the High threat of substitute(means of transportation).
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Appendix 6.
Strategic Option 2
Broad Level-Air Asia X should be sold and the funds used by Air Asia to fund the
expansion in to the South East Asian Market. The funds can be used to acquire
struggling airlines in countries with strategic location advantage in the region. This will
improve the companys relationship with the Malaysian government, putting it in a good
position to influence the governments regulations affecting the low cost airline industry
Specific Level-An alliance with the Malaysia Airlines will help in increasing traffic byproviding trunk touts for Air Asia. This will boost its penetration strategy.
Specific level 2-Acquiring struggling airlines in the region should be a good strategy
when penetrating the market as in this case the market is growing (economic growth in
the region).
Functional and Supportive-Air Asias good relationship with the government is very
important considering the growth in the region, regulations on travel and tourism will
have a big impact in its business.
Transfer of Capabilities to the acquired airlines will be the key to the success
acquisition strategy
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References
Air Asia ( 2012), Corporate profile[online]. Available from:
http://www.airasia.com/my/en/corporate/corporateprofile.page? [Accessed
13/05/12]
BBC (2012),Air Asia X ends European and Indian flights [Online]. Available
from:http://www.bbc.co.uk/news/business-16526235 [Accessed 12/05/12]
China Daily.Com (2010), Shenzhen heads toward a new era[Online].
Available from:http://www.chinadaily.com.cn/opinion/2010-
09/06/content_11259073.htm [Accessed 18/04/12]
Facebook (2012), Air Asia [Online]. Available from:
http://www.facebook.com/#!/AirAsia [ Accessed 12/05/12]
FlightGlobal (2010), Low-cost carriers: growth expectations[Online.
Available from;http://www.flightglobal.com/news/articles/low-cost-carriers-
growth-expectations-355702/ [Accessed 12/05/12].
GRANT,R.M (2010) Cases to accompany Contemporary Startegy
Analysis Case Study: AirAsia; The Worlds Lowest Cost Airline7TH Ed.
Wiley Publishers
IMF (2009), The Pacific Way: Fostering Inclusive Growth and Building
and Enhancing resilience to Shocks [Online]. Available from;
http://www.imf.org/external/np/seminars/eng/2012/PIC/index.htm [Accessed
12/05/12].
OKTEMGIL.M. (2012): International Business Strategy. 07 21366. The
means of achieving a sustainable advantage. University of Birmingham,
Unpublished
The Economic Times (2011), AirAsia delays delivery of 10 Airbus A320s
[Online]. Available from;http://articles.economictimes.indiatimes.com/2011-
02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrier [Accessed
13/05/12].
http://www.airasia.com/my/en/corporate/corporateprofile.pagehttp://www.bbc.co.uk/news/business-16526235http://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.facebook.com/#!/AirAsiahttp://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.imf.org/external/np/seminars/eng/2012/PIC/index.htmhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://articles.economictimes.indiatimes.com/2011-02-12/news/28540014_1_airasia-aircraft-malaysian-budget-carrierhttp://www.imf.org/external/np/seminars/eng/2012/PIC/index.htmhttp://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.flightglobal.com/news/articles/low-cost-carriers-growth-expectations-355702/http://www.facebook.com/#!/AirAsiahttp://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.chinadaily.com.cn/opinion/2010-09/06/content_11259073.htmhttp://www.bbc.co.uk/news/business-16526235http://www.airasia.com/my/en/corporate/corporateprofile.page7/26/2019 95568462 Air Asia Final
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