SMGT.docx

Individual assignment_SMGT

Table of Contents

Executive Summary...................................................................................................................3

1. Internal scanning organization analysis..............................................................................4

1.1 Resources.....................................................................................................................4

1.2 Capabilities...................................................................................................................5

1.2.1 Internal capabilities..............................................................................................5

1.2.2 External capabilities.............................................................................................5

1.3 Strengths and weaknesses............................................................................................6

1.3.1 Strengths...............................................................................................................6

1.3.2 Weaknesses..........................................................................................................7

1.4 Internal Factor Analysis Summary...............................................................................7

1.5 Value chain analysis.....................................................................................................8

2. Business and corporate strategy..........................................................................................9

2.1 Business strategy..........................................................................................................9

2.1.1 Air Asia’s business model....................................................................................9

2.1.2 Competitive strategies........................................................................................10

2.2 Corporate strategy......................................................................................................12

2.2.1 Growth strategy..................................................................................................12

2.2.2 Retrenchment Strategy.......................................................................................13

2.2.3 The BCG Matrix................................................................................................13

2.2.4 Competitive profile matrix.................................................................................16

3. External factors analysis...................................................................................................17

3.1 Opportunities and threats...........................................................................................17

3.1.1 Opportunities......................................................................................................17

3.1.2 Threats................................................................................................................18

3.2 External Factor Analysis Summary............................................................................19

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4. Application of TOWS matrix and recommendation.........................................................20

4.1 Application of TOWS matrix.....................................................................................20

4.2 Recommendation........................................................................................................22

5. Air Asia’s strategy in conclusion......................................................................................23

References................................................................................................................................25

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AIR ASIA

Executive Summary

Air Asia was established in 1993 by DRB-Hicom and a Malaysian aviation firm named

Mofaz Air. Air Asia was founded with the aim to operate both domestic and international

flights and started services in 1996. In September 2001, DRB-Hicom sold its majority of

shares in Air Asia to Tune Air and 3 months later, the sale of Air Asia was finalized and the

firm started its policy to provide “no frills, cheap domestic fares” flights (Corporate Profile of

AirAsia 2013).

Air Asia is the biggest low-fare, no-frills airline the pioneer of low-cost travel in Asia

with 400 flights each day to over 70 countries worldwide. The firm has started to make profit

from 2002 and its revenue rises gradually over the years. The latest financial statement of the

Air Asia group shows its revenue in 2012 of 4,946 million RM and the profit after tax of

1,831 million RM with the total assets of 16,745 million RM. Recently, Airs Asia was voted

as the best low-cost firm in the world by SKYTRAX.

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1. Internal scanning organization analysis

1.1 Resources

a. Financial resources

Air Asia is one of the LCCs, which have the strongest financial ability in Asia. Compared

to low-cost airlines of similar size, Air Asia is really a leader in this section. This is a very big

strength for the firm to invest in new infrastructure and buy new aircrafts in the future.

Table 1: Air Asia’s financial strength

In millions RM

2008 2009 2010 2011 2012

Revenue 2,855 3,133 3,948 4,495 4,946

Net profit (496) 506 1,061 555 1,831

Deposits, cash & bank

balance

154 746 1,505 2,505 2,232

Total assets 9,406 11,398 13,240 13,906 16,745

Net cash flows (269) 598 757 617 152

ROE (%) - 19.3 29.1 13.8 31

Source: Air Asia Annual Reports

b. Technological resources

Air Asia is the first firm in Southeast Asia to apply e-ticketing and there is no role of

traditional agents in their operations. This method saves significant costs of issuing tickets

and reduces a whole system of reservation and booking. Besides, Air Asia designs a system

for its customers to purchase tickets from post offices and automatic teller machines (ATM).

Having said that, Air Asia’s advantage is to use technology effectively to prompt sales,

approach clients and reduce costs.

c. Organizational resources

Generally, Air Asia’s policy is to maintain fewer levels of management to minimize

operational costs and improve the quality of employee systems. The organizational structure

of Air Asia is rather simple: a group of employee is controlled by only one manger. This

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allows the firm to achieve more consistency. Additionally, the cost leadership tactic is an

effective way for the firm to concentrate totally on its major targets such as advertising,

customer services or marketing.

d. Physical resources

Although Air Asia possessed a large Boeing 737 aircraft to serve its operations, it still

invests strongly in new fuel-efficient aircraft such as A320 to meet the growing demand of its

clients and continue to keep its cost-saving policy. It is predicted that new planes can

decrease the amount of fuel usage by 12%, a significant amount as fuels makes up a big

segment in the firm’s total operational costs.

1.2 Capabilities

1.2.1 Internal capabilities

Firstly, Air Asia is always improving its dependency on the online booking and checking to

create a strong connection between passengers and the firm and also to reduce the operating

cost.

Secondly, the firm’s policy is to make an open environment for employees and employers to

communicate easily, therefore, increasing the effectiveness of the whole system in daily

activities.

Thirdly, another strong point of the firm is its massive marketing strategies and promotional

packages. These tactics introduce the firm’s image to more customers and contribute to the

bigger market share of the firm.

Fourthly, Air Asia offers its staff free flights. This helps to motivate its staff to work more

effectively and also to raise their loyalty to the firm. Therefore, the amount of time that they

serve the firm will be longer and the firm will be able to reduce the cost to train and recruit

new staff.

Finally, Air Asia keeps its operating costs by using one type of aircraft, Air Bus.

1.2.2 External capabilities

Firstly, Air Asia associated Vietnam-Malaysia cooperation to form VietJet Air Asia. Besides,

Air Asia also links with Virgin Airlines to expand its operation overseas.

Secondly, Air Asia focuses strongly on branding strategy and launches many programs to

introduce the image of the company such as Manchester United, Oakland Raiders, NFL,

MonSoon cup 2006 and so on.

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Thirdly, Air Asia always looks for good suppliers with high quality products and builds up

long-term relationship with them to get high promotions.

Fourthly, Air Asia’s airports have a low-cost terminal hub.

Fifthly, Air Asia’s Computer reservation system is recently involved in providing services

for evacuation of Malaysian students in Egypt.

1.3 Strengths and weaknesses

1.3.1 Strengths

a. Cost differentiation

Air Asia tries to follow cost-saving policies by taking all of its competitive advantages to

serve its passengers with the most favorable ticket fares.

- Basic products: Air Asia products are very basic (flyer programs, full complement of

air-hostesses and so on) and suitable for most kinds of clients.

- More seats: No hot meal on board means there will be no need for storage and more

seats can be added. Air Asia has raised the number of seats per aircraft by 20% by reducing

the space between seats and throwing out some galleys.

- Less staff: The number of staff is also cut down due to the absence of food on board.

The average number of staff in each flight is only 6.

- Faster turnaround times: Air Asia only needs 15 minutes to leave an airport after

landing, much faster than full-service firms. This allows Air Asia to increase its number of

flights a day and create the same revenue with fewer aircraft.

- Economies of scale: Air Asia maintains limited types of planes in its operations to

reduce training costs and move pilots and crews around.

b. Being the First Mover

Air Asia is the first LCC airline in Asia and this is the big advantage for the firm to

compete with other firms in the low-cost segment as well as full-service segment because its

reputation has been built up during the time and also its market share. This strength allows

the firm to set up frameworks for the whole industry, which are appropriate for its operational

models and styles.

c. Close connection with Expedia

The partnership between Air Asia and Expedia – the biggest online travel company

makes it easier for people to connect to a larger network via Air Asia:

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- Appliance of Technology: Air Asia tends to decrease its distribution costs by selling

electronic tickets directly through the Internet, rather than through travel agents. The firm

does not issue tickets to save costs to print and process them. This method can save the firm

about 40% of costs in comparison with full-service firms.

- Multi-currency sales: The firm’s official website allows passengers to buy tickets

using currency options and the combination between the 2 firms allows their clients to book

flights and ground arrangements via the Internet.

1.3.2 Weaknesses

a. Flight delays

Air Asia’s limited aircrafts make it difficult for the firm to maintain its punctuality and

flight sufficiency. This restriction sometimes results in inconvenience for customers and

affects the reputation of the firm

b. Restrictions of customer services

Customers only can contact with the firm via either email or customer service line. These

2 ways take some days of money to get a response. If the firm’s website is down, it is

impossible for clients to book flights and they might seek for other firms’ services to ensure

their schedules.

c. Lack of secondary airport locations

Air Asia routes its flights to secondary airport stations, which allows it to charge lower fares.

As the operating cost is lower: Landing, parking and ground handling fees are lower.

1.4 Internal Factor Analysis Summary

Based on the strengths and weaknesses of Air Asia, a table of all factors, which has been

discussed above, will be presented in summary below.

Table 2: IFAS of Air Asia

INTERNAL FACTORS WEIGHT RATING WEIGHTED

SCORE

COMMENTS

STRENGTHS

Cost differentiation 0.2 3.0 0.6 Effective cost-

saving policies

Being the first mover 0.15 5.0 0.75 Pioneer of LCCs

in Asia

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Collaboration with

Expedia

0.15 4.0 0.6 Close relationship

to benefit both

sides

Simple business model 0.15 3.0 0.45 Efficient

operation and

management

WEAKNESSES

Flight delays 0.15 3.0 0.45 Not very frequent

Customer services 0.15 2.5 0.375 Questionable

Secondary airport

locations

0.05 2 0.1 Being weak in

this channel

TOTAL SCORES 1.00 3.325

With a total score of 3.325, it is said that Air Asia’s Internal Factors can be considered high

quality and well utilized.

1.5 Value chain analysis

Table 3: Air Asia’s value chain analysis

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CRS: Computer reservation system

FSS: flight Scheduling System

YMS: yield management System

DBM: Database Marketing

IS: Internet sales

CC: Call center

Table 3 illustrates the value chain of Air Asia. Many activities are conducted to drive the

business of Air Asia as he cost leadership in the airline industry in Asia. By using a single

fleet of Boeing A737, Air Asia has reduced a significant amount of operating cost, flight

delays and turnaround time. Besides, ground crew is trained very well and they work

effectively in multi tasks. In terms of marketing and promotions, Air Asia’s policy is to

introduce more and more products and routes to passengers. Finally, Air Asia always tries to

improve its lead time to approach its clients in case of complaints and inquiry.

2. Business and corporate strategy

2.1 Business strategy

2.1.1 Air Asia’s business model

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Air Asia has a simple but very effective business model. As we can see from table 4, the

foundation of Air Asia is formed of 4 main factors and these factors are basic background for

the firm to conduct its strategies effectively.

Table 4: Air Asia’s business model

VISION

GOAL

STRATEGY

FOUNDATION

Source: (AirAsia 2013)

4 strategies of the company stimulate the firm to achieve its growth and keep pursuing its

vision in the future as the leader of the low-cost firms in Asia.

2.1.2 Competitive strategies

a. Cost leadership

Air Asia builds up a low fare model, which has some similar points to key strategies and

values showed in table. The firm mainly concentrates on the cost leadership strategy during

its operations. Air Asia X was set up in 2007 and focuses on the long-haul non-stop flights

and it still maintains a low-cost business model to connect Australia, New Zealand, China

and India.

Table 5: Porter’s Generic

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Continue to be the lowest cost airline in every market it serves

High margin Sustainable growth

LOW

FARE

SIMPLICITY

SAFETY

SERVICE

Low costStrong

cashflowsStimulate new

marketsEfficiency

Competiti

ve Scope

BroadCost

LeadershipDifferentiation

Narro

wCost Focus

Differentiation

Focus

Competitive Advantage

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Source: (Wheelen 2012)

As can be seen from table 5, Air Asia chose the Cost Leadership strategy to conduct its

operations and it is considered the most affordable firm in the industry. The sources to spin

its operations have been discussed above: Using fuel hedging tactics by buying a new fuel-

efficient A320 Neo Airbus and set up a simple but effective business model. The firm’s

competitive advantages come from providing services at lower prices than its rivals. Overall,

the cost leadership strategy of the firm is to serve the low income markets.

b. Achieving cost leadership through differentiation

In order to achieve the position of a cost leadership in the industry, Air Asia has used a range

of tactics to differentiate its services and products:

- Providing the lowest-fare flights without compromising on services

- Avoiding hubs and focusing on the point-to-point system

- Using the ticketless check in system to save time and other fees

- Single class seats

- Standardizing the uniform level of competence among the staff

c. Market diversification

Table 6: Ansoff Matrix

Products

Present New

Market

Present

Market PenetrationProduct

Development

NewMarket

DevelopmentMarket

Diversification

Source: (Johnson & Scholes n.d.)

Air Asia needs to concentrate on Market Diversification to increase its profitability and

expand its market share. The product range it offers should be innovated to meet the demand

of the market and in case of changing market conditions, a wider range of services might

help the firm to reduce risks and maintain its profit margins.

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2.2 Corporate strategy

2.2.1 Growth strategy

Table 7: Air Asia’s Growth Strategy

Air Asia’s growth strategy is based on the horizontal concentration as in the table 7

describing above.

a. Geographic:

The company expands its operations into other geographical locations in Asia and other

continents to increase its influence and market share. The target market of Air Asia is mainly

Asian people and its name is an evidence of its concentration in the Asian market. It tries to

serve the domestic demand and its subsidiary, Air Asia X, has the target market in Australia,

Europe and Middle-East.

b. Product range:

Air Asia’s Core product is the flight services and its business is mainly the booking of

flights in Asia at low fares

Air Asia’s Facilitating products mainly concern the method of booking flights. Air Asia has

a website offering customers a booking system and it is really easy to use.

Augmented products: These products are numerous with Air Asia as it is a “No-frill” firm.

Actually, when a customer buys a core product, he or she can choose to add value on their

service. Air Asia offers these products which are not directly related to flights. For instance,

customers can book a hotel room, rent a car, or book a tour package with GO holiday

(Kurniawati 2012).

c. Achieving Horizontal growth through strategic alliances

One of the most important strategy of Air Asia is to cooperate with other firms to attain

global leadership. The aim of having alliances is to improving its supply chain efficiency and

improve its access to financial resources in new markets. Moreover, having alliences helps

Air Asia to spread risks and costs among partners and also set up a strong union to compete

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Growth Concentration Horizontal

Product

range

Geographic

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with rivals in the industry. Some main alliances of the firm are Zest Airways (Philippines),

MAS and Australia’ s Jestar.

Table 8: Air Asia’s Joint Ventures

49% 49% 40% 40% 49%

Table 8 shows Air Asia’s joint ventures in some Asian countries. By joint-venturing, Air Asia

can penetrate new markets in other countries by covering new routes and sustaining the

company’s position in the industry.

2.2.2 Retrenchment Strategy

Retrenchment is the strategy used when a firm tries to cut down on its costs to do its

activities. Air Asia has been a very effective cost firm since it was established, therefore, a

retrenchment strategy can be difficult to apply because the company is already a low-cost

firm. However, retrenchment might be done by withdrawing from offering some services and

products such as some flight destinations that not really profitable.

2.2.3 The BCG Matrix

For the BCG matrix, five most popular routes from Kua Lumpur (KL) of Air Asia are

identified by its sales figures.

Table 9: Air Asia’s value chain

Air Asia Business Unit

No Routes Cost per

seat

(RM)

No of

passenge

r per

Average

Sales per

seat

Profits

(RM)

Relative

Market

share

Industry

Growth

Rate %

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Air Asia

Air Asia

Thailand

Air Asia

Indonesia

Air Asia

Philippines

Air Asia

Vietnam

Air Asia

Japan

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year (RM)

1 KL-London 1,500 328,000 1,299 65,928,00

0

0.30 -3.00

2 KL-Gold

Coast

500 220,000 700 44,000,00

0

0.40 2.00

3 KL-Singapore 60 164,200 150 14,778,00

0

0.60 1.50

4 KL-Penang 60 118,650 110 5,932,500 0.85 3.00

5 KL-Johor

Bahru

60 97,600 110 4,880,000 0.80 3.00

Based on Air Asia’s sales figures above, we can outline its BCG matrix below.

Table 10: Air Asia’s BCG matrix

High Market

Growth rate

Low Market

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Stars

Kuala Lumpur to Penang

route

Kuala Lumpur to Johor Bahru route

Question marks

Kuala Lumpur to Gold

Coast route

Cash Cows

Kuala Lumpur to Japan route

Dogs

Kuala Lumpur to London route

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Growth rate

High relative market share Low relative market share

Source: (Corporate Profile of AirAsia 2013)

Analysis of the BCG matrix

a. DOGS (low growth, low market share): The products in this area have low market

share and the market does not grow. These products do not have the potential to bring in

much cash.

KL-London is the least profitable route of Air Asia and this firm is making a loss of 20

million MYR a year to maintain this route. The reason for the losses is due to many factors.

Firstly, business travelers are usually in favor of full-service airline firms when they have to

go on long-haul trips. Secondly, casual passengers tend to use economy classes of MAS as

they can gain excess baggage benefits and other services on board.

b. QUESTION MARKS (high growth, low market share):

KL-Gold Coast, a cheap long-haul route to Europe, is considered the most potential

destination that the firm is focusing on its operations. The airport tax at Coolanggata Airport

helps the firm to reduce its prices. Moreover, Air Asia has increased its operations from once

to three times a day to serve the growing demands of customers. Currently, this route is

among the most highly sought routes.

Recommendation: Air Asia should utilize its available resources and capital to raise the

frequency of this route. It is expected to bring higher profit.

c. STARS (high growth, high market share): these products are able to generate

enough cash to maintain their high market share and normally the main part that contributes

to a company’s profit.

Two most profitable domestic routes of Air Asia are KL-Johor Bahru and KL-Penang

as they achieved nearly 98% of sold out rates and contributed a proportion of 90% in the

firm’s profit margin.

Recommendation: Due to the proliferation of these routes, Air Asia should further its

dominance by providing additional services to satisfy its customers. For example, beside

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continuing to develop excellent existing services, the firm can increase the baggage limits or

offers package deals to attract more customers.

d. CASH COWS (low growth, high market share): products that bring in far more

money than is needed to maintain their market share.

As can be seen from the BCG matrix and table, the route from KL to Japan has low a

growth rate but the demand for this route is very high. The reason for its slow growth is due

to high taxes and administrative costs, therefore, the profit margin gained from this route is

low.

Recommendation: Because the route is being operated very well, therefore, Air Asia just

needs to concentrate on its core services to ensure punctuality. Besides, there will be no need

for promotion as people can easily recognize the quality of Air Asia in this area and the sales

will be maintained gradually.

2.2.4 Competitive profile matrix

In order to classify more about the competitiveness of Air Asia, this part will compare the

operation of Air Asia with 2 other airline firms in Malaysia namely MAS and Firefly.

Table 11: Industry matrix

Air Asia MAS Firefly

Factors for success Weight Rating

Weighted

Score

Ratin

g

Weighted

Score Rating

Weighted

Score

Advertising &

Promotions 0.13 4 0.52 3 0.39 2.4 0.312

Quality Of Services 0.12 2 0.24 3 0.36 2 0.24

Price

Competitiveness 0.12 4 0.48 2.5 0.3 3 0.36

Destinations 0.13 2 0.26 3.5 0.455 1.1 0.143

Comfort 0.06 2 0.12 3.8 0.228 2 0.12

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Securities 0.04 3 0.12 3 0.12 3 0.12

Punctuality 0.09 3 0.27 4.5 0.405 2.5 0.225

Competitiveness 0.06 4 0.24 3 0.18 2 0.12

Customer’s Loyalty 0.10 3 0.30 3 0.30 2 0.20

Market Share 0.06 4 0.24 4 0.32 1.2 0.072

Reward Programs 0.09 4 0.36 3.5 0.315 1.3 0.117

1.00 3.15 3.373 2.029

Table 8 indicates that Air Asia works better than Firefly in all mentioned aspects,

therefore, Firefly should not be considered a threat to Air Asia. On the other hand, MAS

scored 3.373, just 0.223 point ahead of Air Asia. Although Air Asia is only a LCC, it did

show many good points compared to a big full-service firm such as MAS. Air Asia should

improve its quality of services as well as destinations offered to strengthen its advantages. If

there is no innovation, Air Asia might face losses due to the increase in the number of

customers. Once the firm shows its poor services, customers are willing to pay more and use

services of MAS, as a result, Air Asia could lose a large market share.

3. External factors analysis

3.1 Opportunities and threats

3.1.1 Opportunities

a. Potential markets in North Asia : As Air Asia clear flights to Euro and India, it tries

to focus on markets in North Asia. More routes should be open to serve this potential market.

Besides, Indonesia can also be the biggest target of the firm to expand its influence. Indonesia

has the population of billions with 12 million people travel by plane per year, while the

Indonesian aviation industry is less competitive.

b. Un-serviced land: There are many available full-equipped airports but only operate a

few flights a day. Besides, many rural trade areas, where the demand for flights and long-haul

transportations is huge, are still ignored by full-service firms. Air Asia can research and open

new routes in these lands to serve price-conscious clients and introduce its image to more

people.

c. Product differentiation: Currently, Air Asia offers passengers low-fare flights by

reducing services on board. However, this strategy might become less special when many

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low-cost firms are trying to compete in the industry. Therefore, this opportunity is not only a

good thing but also a challenge for Air Asia to conduct cautiously.

3.1.2 Threats

a. Fluctuating fuel prices

Fluctuating oil price is the problem of the whole world in the 21st century, not only the

aviation industry. Aviation turbine fuel costs affect airline firms very strongly, particularly

for LCCs as the percentage of fuel costs in their total costs are higher at 26% compared to

20% of full-service firms.

b. Open aviation rules

If the Asia Region skies are opened larger and larger to attract foreign airline firms, it will be

a big threat to Air Asia. Foreign Firms, with their experience in abroad markets and financial

advantages, might take over a big market share of the region and result in Air Asia’s great

losses.

c. Poor airport infrastructure

Currently, Air Asia is encountering with many difficulties in expanding its operations due

to the limitation of counter space, gates and parking bays. Because of this problem, the firm

cannot buy more aircrafts to serve more passengers.

d. Harsh competition

The high demand for low-cost flights among passengers has resulted in a strong

development of LCCs in Asian markets. Although Air Asia is the first firm in the region

providing low-fare flights, its position in Asia is not as high as the old days. Recently, there

are more and more LCC firms opened, either set up by new independent owners or big firms

in the industry as their subsidiaries. This strong competence creates price war and forces

firms to cut down on their fees to attract clients. Air Asia is not standing out of this war and

the situation of failure is totally possible.

e. Dropping in yields per passenger

The demand for air travel in Asia increases gradually from year to year, but the ticket

fares paid by passengers does not. Although the number of passengers on each flight is more

than the old days, passengers pay lesser for their trips. This is the problem of both full-service

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and LCCs. However, LCCs are affected more because they carry more passengers in an

aircraft but charge their passengers lowers prices.

3.2 External Factor Analysis Summary

All opportunities and threats, which have been indicated above will be presented in

summary in the table below.

Table 12: EFAS of Air Asia

EXTRERNAL FACTORS WEIGHT RATING WEIGHTE

D SCORE

COMMENTS

OPPORTUNITIES

Potential markets in North

Asia

0.35 3.5 1.225 Advantages of

financial strength

Un-serviced land 0.15 2.5 0.75 Questionable

Product differentiation 0.1 3.0 0.3 Cost leadership

THREATS

Fluctuating fuel prices 0.1 2.0 0.2 Using fuel-efficient

aircraft

Aviation rules 0.05 2.5 0.125 Strong brand in Asia

Poor airport infrastructure 0.05 2.5 0.125 Ongoing

investments in

infrastructure

Drop in yields per passenger 0.05 1.0 0.05 Questionable

Harsh competition 0.15 3.0 0.45 Account for a very

big market share in

Asia

TOTAL SCORES 1.00 2.85

It can be seen that the external environment is showing many good opportunities for Air Asia

to go further, however, threats to the firm are strong as well. With the score of 2.85, Air Asia

needs to improve its operations more to gain a stable position in the industry.

4. Application of TOWS matrix and recommendation

4.1 Application of TOWS matrix

Based on the external and internal analysis of Air Asia above, Air Asia’s TOWS matrix

can be outlined below to see the overview about the firm’s operations.

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Table 13: Air Asia’s Tows matrix

IFAS

EFAS

Strengths Weaknesses

1. Cost differentiation

2. Being the first mover

3. Close connection with

Expedia

4. Simple business model

5. Appliance of

technology

6. Multi-currency online

sales

7. Single fleet aircrafts

8. Strong brand presence

in Asia

1. Flight delays

2. On-time

performance

3. Inconvenient

Customer Service

4. Secondary airport

stations

5. Limited aircrafts

6. Lack of

maintenance repair.

Opportunities 1. Potential markets in

North Asia.

2. Product

differentiation.

3. Un-serviced land

4. More new aircrafts

from 2006 to 2016.

5. Asia’s middle class

growth.

6. Asia’s middle class

growth

SO Strategies WO Strategies

1. More new low-cost

carrier terminals (S1, S4,

O1, O4)

2. Soft tour packages

3. (S5, S6, S4, O1, O6)

Establishing more

centers in North Asia

1. (W5, O4) Increase

the number of

passengers by rising

fleet

2. Setting up a Tele-

sales hotline (W3)

3. Better training for

ground crew to

improve punctuality

(W1)

Threats 1. Drop in yields per

passenger

2. Aviation rules

3. Poor airport

infrastructure

4. Firefly offering

baggage

ST Strategies WT Strategies

1. Fuel conscious aircraft

(S1, S7, T5)

2. Allow seat allocation

for groups and early bird

bookings

1. Free package

allowance for flights

over 4 hours (T4, W1,

W4)

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5. Fluctuating fuel

prices

6. Accident, terrorist

attack

From the TOWS matrix, many suggestions can be given to deal with the difficulties that

the firm is coping with by using internal advantages combined with external strengths to ease

limitations in its operations.

a. SO strategies

(S1, S4, O1, O4): The new low-cost carrier terminal Kuala Lumpur International Airport 2

(KLIA2) was ready to be run in Malaysia in April 2013 (SIDHU 2011). This will trigger Air

Asia’s operations as its flights might be conducted more frequently. It is estimated that the

number of passengers at KLIA2 alone will be 28.7 million by 2015 and continue to increase

after that.

(S5, S6, S4, O1, O6): Along with the strength in the simple business model and technology

system, Air Asia is expecting to expand its operation to North Asia. This is a big market

while the competition is rather low among the firms.

b. ST strategies

(S1, S7, T5): While the fuel price increases gradually over the years, the fuel cost

accounts for nearly 50% in the operating cost of Air Asia (HAN 2012). By using A320 Neo

Airbus with LEAP engine, Air Asia has saved about 15% of fuel usage (Airbus.com 2011).

Air Asia charges its passengers for their options for seat allocation, but this policy should

be focused on groups of at least 10 customers per time and customers, who book in advance

from months ahead. This method might attract customers from Firefly and satisfy them to

buy additional services and be loyal (Zineldin 2000).

c. WO strategies

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(W5, O4): By expanding fleet, Air Asia can offer more routes to its customers and one of the

most favorable routes would be Koh Sa Mui (Firefly is the biggest firm, which set the

operation there).

W3: The limitation in the customer service has left Air Asia many complaints from its

customers. Therefore, in order to comfort customers, Air Asia really needs to set up a call

center to keep in touch with its customers. Air Asia can switch its customers’ premium to the

third party instead of charging 1.95 RM per minute. Outsourcing this service might increase

overheads but it will be more convenient for both the airline and its customers to connect

with each other.

There was a time when the website of Air Asia was down due to heavy traffic and scheduled

maintenance. While over 70% of Air Asia’s sales are from online booking (AirAsia 2010),

this such kind of event might be a big obstacle for the firm. The best way to deal with the

problem is to establish its own direct sales engine service provider called Navitaire.

d. WT strategies

(T4, W1, W4): Air Asia also can offer its customers with flights over 4 hours to have a free

15kg baggage allowance even if it is opposite to the firm’s policy: No-frills. By doing this,

the firm will get more loyalty from its customers and encourage them to fly more.

4.2 Recommendation

a. Make more adjustment to strengthen its reputation.

Air Asia has run its business very well, however, is its poor reputation with customers due to

its punctuality and flight delays have become an obstacle to pull it back behind the other full-

service firms. In order to deal with this problem, Air Asia is subject to increase the operating

cost. Although this method might raise the fare it charges customers, it will be able to keep its

loyal customers in the long run

b. Open more Asian Markets

The external environment shows a plenty of good opportunities for Air Asia. The

increase in the income of people in China and India creates many potentials for Air Asia to

expand its routes to these 2 countries. Additionally, the relaxation of Asean Open Skies laws

might become a good chance for Air Asia to increase its market share without worrying about

threats of new entrants. Air Asia, with its long-established name and the number one position

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Individual assignment_SMGT

in the low-cost industry in Asia, will overcome all obstacles of new rivals and get stronger in

the years ahead.

c. Make more improvement and protection of computer systems.

Air Asia has to be aware that the role of the internet system is vital to the survival of the

company. If there is any problem with this system, this such technologically reliant company

will have to face great failures. Therefore, a strong recommendation for the company is to

invest more in the improvement and protection of computer systems.

d. Enforce Political advantages

Air Asia should use its Thai subsidiary called Thai Air Asia to claim the use of Thailand’s

‘open skies’ agreements to fly to Singapore, Brunei and Cambodia. From there, it will be able

to overcome the barrier of bilateral aviation pacts, which create difficulties to its limit of

growth.

e. Induction of smart cards

In order to deal with the limitations of the tickets booking, Air Asia should consider issuing a

smart card to comfort its clients. It can offer 2 kinds of smart cards:

- The first one is to serve ordinary travelers: This type will offer instant rewards when

topped up and have greater value than its purchase price.

- The second type will be used by frequent flyers for unlimited travel. Using this card,

cardholders will be allowed to make as many trips as they want within a specified period.

5. Air Asia’s strategy in conclusion

Following the deep strategic analysis of Air Asia above, Major success factors of Air Asia

can be listed as: Absolute Cost Advantage

1. Low cost per average seat kilometer

2. Low distribution cost

3. Attractive ticket price

4. Good Management Team

The Air Asia’s main strategy is to focus mostly on the management and access of

information rather than creating irrelevant airline services. Therefore, the development of Air

Asia is due to a special set of guiding principles, simplicity, cost-efficiency and effectiveness.

The whole factors mentioned above make Air Asia’s services very user-friendly to its clients.

From the SWOT analysis, Air Asia shows its sustainability in the future growth and more

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Individual assignment_SMGT

opportunities than threats. Air Asia is continuing to exploit these opportunities and gradually

convert threats into opportunities for great success.

References

a) Air Asia 2012, What is Low Cost, viewed 1 September 2013,

<http://www.airasia.com/my/en/corporate/irwhatislowcost.html >.

b) AirAsia 2010, Air Asia Annual Report, viewed 30 August 2013,

<

http://www.airasia.com/iwov-resources/my/common/pdf/AirAsia/IR/AirAsia_AR10.p

df>.

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Individual assignment_SMGT

c) AirAsia 2013, Corporate Profile, viewed 30 August 2013,

<http://www.airasia.com/th/en/about-us/corporate-profile.page>.

d) Airbus.com 2011, AirAsia orders 200 A320neo aircraft, viewed 30 August 2013,

<http://www.airbus.com/presscentre/pressreleases/press-release-detail/detail/airasia-

orders-200-a320neo-aircraft/>.

e) Asia Times January Issue 2007, Falling skies for Indonesian aviation,

<http://www.atimes.com/atimes/Southeast_Asia/IA24Ae01.html >.

f) BBC 2006, Malaysia Airlines cuts 6,500 jobs, viewed 1 September 2013,

<http://news.bbc.co.uk/2/hi/business/4851856.stm >.

g) BBC 2011, AirAsia and Malaysian Airlines agree a share swap deal, viewed 1

September 2013, <http://www.bbc.co.uk/news/business-14471135 >.

h) BBC 2012, Air Asia X ends European and Indian flights, viewed 1 September 2013,

<http://www.bbc.co.uk/news/business-16526235>.

i) Corporate Profile of AirAsia 2013, viewed 17 August 2013,

<http://www.airasia.com/th/en/about-us/corporate-profile.page>.

j) Edward HB, SHTH 2006, Strategic Management Concept and cases, London.

k) HAN, CE 2012, AirAsia X realigns routes, focuses on core markets, viewed 30

August 2013, <http://www.thestar.com.my/story.aspx?file=

%2f2012%2f3%2f13%2fbusiness%2f10903744&sec=>.

l) Johnson & Scholes, Exploring Corporate Strategy.

m) Kurniawati, R 2012, Tourism Marketing: the Example of AirAsia, viewed 30 August

2013, <http://rinakurniawati.wordpress.com/2012/12/30/tourism-marketing-the-

example-of-airasia/>.

n) Nielsen 2012, Malaysian Internet Users spend 20 hours a week online, 54% purchase

online, viewed 1 September 2013, <http://www.paysult.com.my/malaysian-internet-

users-spend-20-hours-a-week-online-54-purchase-online/>.

o) Prahalad, CKH 2002, 'The Fortune at the Bottom of the Pyramid', Strategy Business,

pp. 1-14.

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p) SIDHU, JS 2011, For MAHB, new low-cost carrier terminal is a calculated risk,

viewed 30 August 2013, <http://www.thestar.com.my/story.aspx?file=

%2f2011%2f12%2f1%2fbusiness%2f10010480>.

q) The Star Online 2012, AirAsia earnings down on fuel, deferred tax, viewed 1

September 2013,

<http://biz.thestar.com.my/news/story.asp?file=/2012/2/23/business/

10787376&sec=business>.

r) The Star Online 2012, AirAsia X realigns routes, focuses on core markets, viewed 1

September 2013,

<http://thestar.com.my/news/story.asp?file=/2012/3/13/business/10903744&sec>.

s) The Star Online 2012, Other carriers may benefit from MAS route cuts, viewed 1

September 2013,

<http://biz.thestar.com.my/news/story.asp?file=/2012/2/23/business/

10787376&sec=business>.

t) Wheelen, TL,HJD 2012, Strategic Management and Business Policy, 13th edn,

Pearson Education International.

u) Zineldin 2000, Low Cost Carrier Wars - Air Asia vs Fire Fly, viewed 30 August

2013, <http://www.docstoc.com/docs/56717901/Low-Cost-Carrier-Wars---Air-Asia-

vs-Fire-Fly>.

v) Johnson, G., Scholes, K., & Whittington, R., "Exploring Corporate strategy", 8 th

Edition (2008), Pearson Education International, ISBN 1-405-88733-8

w) Hitt, M.A., & Ireland R.D & Hoskinsson R.E., "Strategic Management:

Competitiveness and Globalization", 6th Edition (2005), South-Western, Thomson,

ISBN 0-324-22713-2

x) Travel Weekly Asia 2012, AirAsia X to bring 55000 extra tourists to Sydney, viewed

1 September 2013, <http://travelweekly.asia/news/airline/6057-airasia-x-to-bring-

55000-extra-tourists-to-sydney >.

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