Environmental Audit Report: AirAsia

15 Oct. 2016

ENVIRONMENTAL AUDIT REPORT

Presented by:

Adil Javaid – J16022779Alexandra Ceambur – J16022770

Nick Foong– J16022778

Yee Mi Ki - J16022768Lee Yen Chuan – J16022802Tan Chu Xuan – J16022789

Introduction

BACKGROUND

- Established in 1993 and began operations in 1996

- Bought over by Tan Sri Tony Fernandes in 2001

- World’s Best Low Cost Airline

- Flies to 112 destinations in 20 different countries

-Subsidiaries: Air Asia X, Air Asia Thailand, Air Asia Indonesia

Source: Air Asia 2011 & Air Asia Annual Report 2015

VISION & MISSION FINANCIAL STATUS

Source: Air Asia Annual Report 2015

OUTLINEr

1. External Factors Analysis

- PESTLE Analysis

- Porter’s 5 forces Analysis

2. Internal Factors Analysis

- SWOT Analysis

- VRIO Analysis

3. Conclusion

External Factors

POLITICAL

ECONOMICAL

SOCIO-CULTURAL

TECHNOLOGICAL

ENVIRONMENTAL

LEGAL

PESTEL ANALYSIS

Political Environment Regional Trade Areas International Barriers Open Sky Agreements

Socio-Cultural Environment Multi-ethnic Society Increasing Urbanization Changing patterns &

lifestyle

Economic Environment Economic Growth Rates Fluctuating Oil Prices Currency Fluctuations

Legal Environment Safety Regulations Taxation Policy Department of Civil Aviation

Ecological Environmental CO2 Emissions Natural Disasters Meteorological

Conditions

Technological Environment Digital Platform Fuel Savings Tools Latest Aircraft Models

POLITICAL ENVIRONMENT

Government Intervention• Airline industry is highly monitored by national governments

The role of DCA is “to enhance and promote aviation safety through effective and up-to-date airworthiness regulation and by encouraging industry to deliver high standards of airworthiness”(dca.gov.my 2015)

Regional Trade Areas• ASEAN Open Skies – air services liberalization will benefit

Airasia to develop more routes in the ASEAN region (AsianAviation 2016:56)

International Barriers • Trade protection and air traffic control - limits on foreign

ownership in India (The Economist 2015)• Indonesia & Philippines have restricted access to specific areas

and airports for foreign airlines. (AsianAviation 2016:56)ASEAN Open Skies

ECONOMIC ENVIRONMENT

Fluctuating Oil Prices• Airlines hedge their fuel prices to lower the risk. A rise of US$1

per barrel adds $1.6 bil to airlines cost (The Economist 2011) A fall in crude-oil prices from US$100 per barrel in 2014 to US$43

per barrel in July 2016 will help airlines reduce operating costs in 2016 (NYtimes.com 2016).

Economic Growth Rates• Increasing GDP and spending power of China’s middle class

will benefit the tourism in ASEAN region (AirAsia Annual Report).

China’ GDP – will increase to $70tril, 80% more than US by 2050. Developing Asia - 48% share of world GDP by 2050 (Megachange

2050). Currency Fluctuations• Unpredictable currency movements and depreciation of ringgit

Ringgit’s fell by 26% in a year is making AirAsia’s dollar-denominated costs, such as fuel and planes, much more expensive. (The Economist, 2015)

SOCIO-CULTURAL ENVIRONMENT

Multi-ethnic Society• South East Asia has a vibrant mix of cultures and religions

which is beneficial for regional tourism. In 2015 Malaysia was no1 tourist destination in SEA and attracted

approx. 25.7 mil tourists mainly from SEA region. (Tourismmalaysia.com)

Increasing Urbanization• Malaysia is strategically placed nearby India and China

50% of the world’s population is within 6 flying hours from Kuala Lumpur (AirAsia Annual Report 2015)

• Malaysia is growing as a center for education and healthcare tourism in Asia Pacific (MOT Malaysia 2014).

Changing patterns and lifestyle• Increased digital sales in Asia-Pacific (by 27% in 2017)

Chinese millennials are spending as much as US$65,000 annually on luxury vacations. (South China Morning Post 2016).

TECHNOLOGICAL ENVIRONMENT

Adoption of digital platform • Web-based CRM System and Integration with online services

such as Expedia (AirAsia Annual Report 2015)• Use of Social media as a channel of marketing (Yashodha 2012)

77% of Air Asia’s revenue in 2015 was via Internet (AirAsia Website)

Use of Latest Technology • In 2012 AirAsia partnered GE Aviation and introduced –

A new fuel management tool (reducing 60kg of fuel per flight), and

RNP paths decreasing flight distances (up to 23 NM at Kuching Airport and 18 NM at Kota Bharu) (GEAviation Technology 2014).

Airbus A320 neo (new engine option) aircraft• The new aircraft will allow AirAsia to reduce its operating costs

by 20 - 25 % per year and also reduce ticket prices (Nst.com.my 2016).

AirAsia receives it’s new Airbus A320 neo (Sep 2016)

ENVIRONMENTAL FACTORS

Climate Change Awareness• AirAsia’s #GREEN24 aims to raise climate change awareness in

the region. In 2015 alone, the airline has reduced 22,602 tons of CO2 emission as result of the carefully engineered initiatives (Airasia website).

Natural disasters and Viral Diseases• Earthquake in Nepal, outbreak of MERS in Korea, Vulcanic

Eruption in Indonesia, Erawan shrine bombing in Bangkok, severe haze in Malaysia and south Thailand have impacted Airasia’s operations (AirAsia Annual Report 2015).

Meteorological Conditions• Weather is one of the major cause of aviation accidents as

heavy weather and poor visibility may increase the possibility of pilot errors and collision with terrain or with other aircraft. Weather may also cause delays in flight (Kushwaha&Sharma 2014). Source: Yahoo News 2015

Source: AirAsia Website

LEGAL ENVIRONMENT

Taxation Policy• The introduction of GST in Malaysia impacted

AirAsia’s “all-in” ticket price which was transferred to customers (The Star 2014).

• India’s plans to increase GST from 6% to 15% (India Times 2016)

Department of Civil Aviation• Civil Aviation Regulations 2016• DCA’s decision to increase charges ten times will

have high impact on airlines, some may consider new routes (The Edge Markets 2016)

Malaysian Aviation Commission (MAVCOM)• Malaysian Aviation Commission act Act 2015

Source: Mavcom.my

ROLES OF DCA, MOT and MAVCOM

PORTER’s FIVE FORCES

Rivalry Among

Competitors HIGH

Threat of New Entrants

LOW

Bargaining Power of Buyers HIGH

Threat of Substitutes MODERATE

Bargaining Power of Suppliers

HIGH

BARGAINING POWER OF SUPPLIERS(HIGH)

• Aircraft Suppliers: The two major aircraft suppliers are AIRBUS and BOEING. However both

suppliers provide almost same standard aircrafts (Brandenburger, 2002)

• Global Crisis:

Due to global crisis the entrance of new suppliers is limited, and thus, the

chance to upgrade the plane in near future has also decreased

(Brandenburger, 2002)

BARGAINING POWER OF BUYERS(HIGH)

• Product Differentiation: There is no product differentiation and the buyers today, are much more informed and

educated about the products. Hence, regardless of the what the product is, consumers are

price sensitive (Kim, 2005).

• Customer Flexibility: Along with tickets AirAsia also offers holiday packages to customers, therefore, its

important for the company to build strong professional relationship with hotels and

tourism companies (Kim, 2005).

THREAT OF NEW ENTRANTS(LOW)

• Start up Cost: Entering in aviation industry requires large capital investment and funding (Leong,

2008).

• Airline Staff: Highly skilled staff such as technicians and engineers and experienced workers such

as pilots and cabin crew are difficult to find (Leong, 2008)

• Government Interference or Polices: Government policies have limited new entrances which benefits AirAsia as they are

already settled in the market (Leong, 2008).

THREAT OF SUBSTITUTE(MODERATE)

• Direct Substitute: (Other Airlines) The airlines have same flight route including more than one hundred cities and islands

across South Asia and Southeast Asia. Therefore, It is easy for the customer to look for

an alternative (Yashodha, 2012).  

• Indirect Substitute: (Bus or Train) Bus and train are also an alternative for customers while Travelling to places that are

not very far away and are easy to get to. For instance, travelling from Kuala Lumpur to

Singapore a bus or train would be a cheaper option (Yashodha, 2012).  

RIVALRY AMONG COMPETITORS(HIGH)

• Low Fare Airlines: Competing on the basis of routes that other airlines does not offer (Kim, 2005)

• High Exit Cost:

High cost of paying loans, staff cutback and care and flight cancellation refunds

(Kim, 2005).

Internal Factors

SWOT ANALYSIS - STRENGTHS• Air Asia has the lowest unit costs in the airline industry

$0.023 per available seat kilometre

• First mover advantagethe first Low Cost Carrier airline in South East Asia

• Full-utilization of online booking system platform (ticketless) less paper, lower printing and distribution costs while providing less

hassle for customers

• Strong and established branding

SWOT ANALYSIS - WEAKNESSES• Use of secondary airport locations

Secondary airport locations are far from major cities

• Heavy reliance on outsourcingDoes not have its own Maintenance, Repair, & Operations facility

• Customers complaint about frequent flight delays

SWOT ANALYSIS - OPPORTUNITES• ASEAN Open Sky Policy

Expand to more international routes

• Growth in leisure travel from China Increasing number of Chinese middle class population

• Reduction in global oil pricesAirAsia remove fuel surcharges from ticket rates

SWOT ANALYSIS - THREATS• Intense competition due to competitively-priced fares from premium

airlines & other LCCsMAS Airlines, JetAir, Malindo Air, etc

• Unfortunate events that will affect the company’s imageAccidents/Natural Disasters

• Disruption on its E-Commerce online ticketing systemConnection/Server error during promotion time impact customer satisfaction)

VRIO ANALYSIS

VRIO V R I O STRENGTH/WEAKNESS

Leadership √ √ √ √ Strength

Low Cost Capability √ X X √ -

Technology √ X X √ -

Company Culture – All Star

√ √ √ √ Strength

VRIO – LEADERSHIP & ALLSTAR CULTURE

LEADERSHIP• Group CEO – Tony Fernandes• AirAsia Flight 8501

Unprecedented crisis management style

Present and leading staffs (The Economic Times, 2016)

Constant communication with victims families (The Economic Times, 2016)

• Fulfill four criteria in VRIO (Strength)

AllStar Culture• Mission, Vision & Values• Empowerment of Employees

Providing opportunitiesAirAsia’s female pilots (Edition

CNN, 2010)

• Fulfill four criteria in VRIO (Strength)

V,R,I,O

Leadership √Company Culture – All Star √

VRIO – Leadership & AllStar Culture

VRIO – Low Cost Capability & Technology

Low Cost Capability• Largest low cost Carrier in Asia

(AirAsia Annual Report 2015)• No “Frills” Service• Lack of Rare and Inimitable

criteriaHighly competitive industryCompetitors adopting similar

strategy

Technology• Adoption of digital platform

(AirAsia website)Computer Reservation System

• Airbus Aircraft A320- Neo (AirAsia website)

Aircraft available for purchaseNot patented or copyrighted by

AirAsia

• Lack of Rare and Inimitable criteria

Example of several operational low cost carriers

Check in Kiosk by other Low Cost Carriers – Technology adoption

NOT RARE NOT INIMITABLE

VRIO – Low Cost Capability & Technology

Conclusion

CONCLUSION

Air Asia

External

PESTLE

GSTNo Visa

entry

Porter’s 5 Forces

Fluctuating oil price

Operate in a large

span of 20 countries

Internal

VRIO

LeadershipDiverse

work culture

SWOT

Brand image

Hyper marketing

Latest technology

Thank You!

REFERENCES• Driskill, M. (2016) Open Skies For ASEAN Shows Potential. Asian Aviation Magazine

• Franklin, D. and Andrews, J. (2016) Megachange. The World In 2050. The Economist

• GE Aviation Technology, (2012) Driving Success In Asian Aviation. How data and analytics are driving customer outcomes in operational efficiency for AirAsia. GE Aviation Technology

• Kushwaha, M. and Sharma, K. (2014) "Impact Of Environmental Factors On Aviation Safety". Advances in Aerospace Science and Applications [online] 4 (1), 73-78. available from <http://www.ripublication.com/aasa.htm> [8 October 2016]

• MAVCOM (2016) Who We Are | Malaysian Aviation Commission (MAVCOM) [online] available from <http://www.mavcom.my/en/who-we-are/> [11 October 2016]

• Ministry of Tourism Malaysia (2014) [online] available from <http://www.tourism.gov.my/about-us/about-tourism-malaysia> [9 October 2016]

• Russell, K. (2016) How Oil Prices Are Falling Again, Explained In Four Charts [online] available from <http://www.nytimes.com/interactive/2016/business/energy-environment/oil-price-supply-demand-imblance.html?action=click&contentCollection=Energy%20%26%20Environment%20&region=Footer&module=WhatsNext&version=WhatsNext&contentID=WhatsNext&moduleDetail=undefined&pgtype=Multimedia&_r=0> [13 October 2016]

• AirAsia Berhad, (2015) Airasia Annual Report [online] Kuala Lumpur: AirAsia Berhad. available from <http://www.airasia.com/my/en/about-us/interactive-annual-report-2015.page> [30 September 2016]

• AirAsia website (2016) Airasia | Investor Relations | Organizational Structure [online] available from <http://www.airasia.com/my/en/about-us/ir-organizational-structure.page> [13 October 2016]

• Bahari, B. (2016) Airasia Fares To Be Cheaper Thanks To New Fuel Saving Aircraft [online] available from <http://www.nst.com.my/news/2016/09/173433/airasia-fares-be-cheaper-thanks-new-fuel-saving-aircraft> [9 October 2016]

• Brandenburger, A. (2002). Porter's Added Value: High Indeed! The Academy of Management Executive (1993-2005), 16(2), 58-60.

• Chowdhury, A. (2016) Airlines Fear Rise In Costs Because Of GST, Leading To Higher Ticket Prices - The Economic Times [online] available from <http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/airlines-fear-rise-in-costs-because-of-gst-leading-to-higher-ticket-prices/articleshow/53549443.cms> [9 October 2016]

• Department of Civil Aviation (2015) Airworthiness [online] available from <http://www.dca.gov.my/sectors-divisions/airworthiness/> [10 October 2016]

REFERENCES

• Air Asia (2011) ‘Jumpstart Malaysia’ [online] available from < http://www.airasia.com/common/pdf/JusmStart-Malaysia.pdf > Accessed on 13 October 2016

• Air Asia (2015) ‘Annual Report’ [online] available from < http://www.airasia.com/my/en/about-us/interactive-annual-report-2015.page > Accessed on 13 October 2016

• I still correspond with families of QZ8501 crash victims: AirAsia's Tony Fernandes - The Economic Times. [online] Available from < http://economictimes.indiatimes.com/magazines/panache/i-still-correspond-with-families-of-qz8501-crash-victims-airasias-tony-fernandes/articleshow/51132329.cms>

• Price war in Indian skies: Jet Airways, SpiceJet, AirAsia cut fares. [online] Available from http://www.businesstoday.in/sectors/aviation/price-war-in-indian-skies-jet-airways-spicejet-airasia-cut-fares/story/238169.html

• AirAsia Berhad, (2015). Annual Report 2015.

• What is low cost | Investor Relations | AirAsia. [online] Available from <http://www.airasia.com/my/en/about-us/ir-what-is-lcc.page>

REFERENCES

• South China Post (2016) Asia-Pacific Is The World's Fastest-Growing Market For Digital Travel [online] available from <http://www.scmp.com/lifestyle/travel-leisure/article/1989338/asia-pacific-worlds-fastest-growing-market-digital-travel> [10 October 2016]

• Tay, C. (2016) ˜Unprecedented Hike In DCA Fees”[online] available from <http://www.theedgemarkets.com/my/article/‘unprecedented’-hike-dca-fees> [9 October 2016]

• The Star (2014) Will Airlines Absorb 6% GST For Local Tickets? Same Hike For Passenger Service Charge Too - Business News | The Star Online [online] available from <http://www.thestar.com.my/business/business-news/2014/10/15/local-flights-to-cost-more-tickets-will-be-6-higher-with-gst-unless-airlines-absorb-extra-cost/> [12 October 2016]

• The Economist (2015) A Turbulent Patch [online] available from <http://www.economist.com/news/business/21664195-storms-batter-south-east-asian-success-story-turbulent-patch> [30 September 2016]

• Tourism Malaysia (2016) [online] available from <http://www.tourism.gov.my/statistics> [9 October 2016]

• Mok Kim Man, J. B. J., 2005. AirAsia In The Malaysian Domestic Airline Market: Empirical Analysis Of Strategy. International Business and Economics Research Journal, 4(12), pp. 53-64.

• Leong, C. C., 2008. An Importance-Performance Analysis to Evaluate Airline Service Quality: The Case Study of a Budget Airline in Asia. Journal of Quality Assurance in Hospitality & Tourism , 8(3), pp. 39-59.

• Yashodha, Y., 2012. AirAsia Berhad: Strategic analysis of a leading low cost carrier in the Asian. Management Arts , 51(2), pp. 11164-11171.

REFERENCES