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Friday, the 1st of Oktober

Industry and Competitive Analysis

Air Asia in Indonesia through the Five Forces Analysis

Air Asia is an airline which operates on the South Asian low-cost flight industry. They operate
across about twenty countries. Most of them are located in South Asia but the company also flights to
London or Australia for instance. Air Asia started in Malaysia but has now three hubs across three
countries: Kuala-Lumpur in Malaysia, Bangkok in Thailand and Jakarta in Indonesia. We are going to
focus only on the Indonesian market.

 Internal Rivalry

According to the geographic and product market, Lion Air, Batavia Air, Mandala Air, Sriwijaya
Indonesia and even Garuda Indonesia are Air Asia’s competitors. They also provide cheap prices and
numerous flight routes in South Asia. All these flight companies compete in price except Garuda
Indonesia which has a different strategy. As consumer of Garuda, we will get a value-added. Air Asia
claims that they have no Admin fees but in reality, there are many additional fees which don’t exist in
other flight companies. Which is free for some companies is not for other ones. For instance, we can
speak about booking seats fees or luggage fees. This is definitely the price dimension which matters on
this specific market. Thus the firms struggle on their costs. For instance Air Asia is well-known for the
considerable development of its Information Technology. Thanks to the considerable use of the IT, they
get low costs and are then able to offer low prices. In Asian developing countries, the middle class is
growing up. This creates huge opportunities for the airlines. The companies will have to fight to get some
market shares because customers are not loyal and switch easily from one company to another.

 Entry

Brand awareness is quite important in this industry. To enter this industry not only is required
high capital but also brand image. Most of the time consumers choose the product or service they really
trust. New entrants have to create brand loyalty by making huge investments to establish their reputation.
The government legislation is one of the barriers for entering airlines industry. Therefore it is
very difficult getting a new flight route from the government. If Air Asia doesn’t get any more flight-
routes, it may affect their profit because they need to extend their network. Hopefully Air Asia has always
been close to the governments in South Asia. For instance in Thailand, Shin Corp formerly owned by the
family of former Thai Prime Minister, Thaksin Shinawatra, holds a 50% stake in Thai Air Asia. This
helped Air Asia to open up and capture a sizeable market in Thailand. Government policies have limited
new entrances, which is a good thing for Air Asia because they are already settled on the market.
 Key inputs as technological know-how, raw materials, distribution or locations may also limit the
access to the market. But when a company already established creates its own low cost firm, the key
inputs are not a problem anymore. Tiger Airways which has been created by Singapore Airlines is one of
the most dangerous competitors of Air Asia.

 Suppliers Power

In airline industry, the power of suppliers is quite high. First there are only two major planes
suppliers which are Airbus and Boeing. However both suppliers provide almost the same standard
aircrafts, so that the possibility of consumers to switch is low. Moreover Air Asia ordered large amounts
from Airbus in order to expand its routes to international routes. They built a strong relationship and Air
Asia managed to get big discounts.
Then Air Asia uses the fuel supplier (AVTUR) from Pertamina which prices are very sensitive. It
may affect the ticket price. Moreover Air Asia, as Lion Air or Mandala, doesn’t use catering suppliers.
They only offer snacks on flight and this is not for free. Lastly, Air Asia doesn’t have its own
maintenance, repair and overhaul (MRO) facility. If this was not a problem before when they only started
in Malaysia, now with three hubs and an important fleet of aircraft it might be too expensive. Air Asia
must pay attention to this, not having its own MRO facility is a competitive disadvantage.

 Buyers Power

Nowadays, buyers are much more informed and high-educated. That’s why they are very
sensitive to the price not matter the product or the service. Even if Air Asia always provides the lowest
price to the costumer, they still will make a comparison between the different airlines. Besides it is very
easy and costless for the customer to switch from one company to another one because many are offering
the same service. Moreover Air Asia often gives a bad image to the costumers because of their chronic
flight delays. People could choose for another company to be sure being on time.

 Substitutes and complements

Sometimes the consumer is not so much interested in the main product for some reasons. On the
low cost market, the main reason will be the price which he judges too expensive. Then he will look for
substitutes. In the airline industry, we can meet two types of substitutes, the direct ones and the indirect
ones. If the customer is looking for transportation for a short distance, he can look for indirect substitutes
such as bus, train or ship. But travelling will take a longer time. He has to make a strategic choice
between time and money. In Indonesia, the railroad industry is monopolized by PT.KAI so there is no
competition. Regarding the bus and the ship, there are many companies so many choices. Some are the
property of the government, some are private. If he is travelling on a longer distance, he will look for a
direct substitute, that is to say other airlines. Teleconferencing and other type of business communications
may also be substitutes to air travel. Then they would affect the demand for airplanes.