Page

A. Introduction 3

B. AirAsia Company 3

C. AirAsia Financial Analysis 5

D. AirAsia Web Design 6

E. Customer Segmentation 8

F. Value Chain Analysis 9

G. AirAsia SWOT Analysis 10

H. Porter’s five-forces analysis on AirAsia 10

I. Capabilities Analysis 13

J. Summary 14

References 15

STRENGTH

1. Low operational cost by having a single aircraft type fleet i.e. Boeing 737 or Airbus A-310.
2. Low maintanace cost due to the same reason as above.
3. Low operating cost due to being No Frill, online reservations, fast check in etc.
4. huge untapped market, specially for business travellers and "for-the-first-time-flying" segment.
5. target customers are who are currently using non-aircraft modes like, Bus, Trains, car to travel to distances.

WEAKNESS

1. Rising Fuel Cost.

2. flight times are more or less limited to 2.5 hours. so you cant operate flights of longer duration without any Frill, so
No-Frill becomes impossible to implement for passengers.
3. increased competition from proper carriers and other no frill carriers.

OPPORTUNITY

1. tapping the segment which is not using airline to travel at all. i.e. people who are using Bus or car or train to travel
from KL to LangKawi
2. Regional International flights of 2.5 hrs duration.

THREAT

1. Rising Fuel Cost

2. more competition from State-owned Carriers
Table of Content…………………………………………………………………2

1. Abstract……………………………………………………………………...3

1.1 Conclusions……………………………………………………………...3

1.2 Recommendations……………………………………………………….4

2. Introduction……………………………………………………………….…5

3. Background to AirAsia……………………………………………………..6

3.1. Organization Definition………………………………………………..6

3.2. Looking at the Organization……………………………………………

4. Industry Framework Analysis………………………………………………..

4.1. Porter’s 5-Forces Model…………………………………………………

4.2. External factors using a PEST analysis…………………………………

4.3. Internal factors using a SWOT analysis…………………………………

5. Conclusion and Recommendations…………………………………………..

5.1. PEST

5.2. Task 2: Technological Change………………………………..

5.2.1 Analyze Policies and Decision Making

5.2.2 Evaluate Effectiveness and Response

5.2.3 Demonstrate Areas of Improvement

5.3. SWOT…………………………………………………………………

6. References………………………………………………………………….

7. Appendices…………………………………………………………………

Appendix 1 Porter’s 5 Forces Model…………………………………………..

1. Abstract

This report consists of an internal and external analysis of AirAsia using various methods including a PEST,
Organization analysis, SWOT analysis and Porter’s 5 forces model. The main outcomes of the report are:

1.1 Conclusions reached:

1.2 Recommendations reached:

2. Introduction

The company chosen for this report was AirAsia. The assignment required that:

• A management report of 3,500 to 4,000 words is written on an organization. The report should describe, analyze
and assess the impact of external and internal factors on the organization and evaluate the organization’s responses

• In relation to technological change, analyze how it influences policies and decision making, critically evaluate the
effectiveness of the organization and recommend areas for improvement in response for the organization.

The company has been analyzed using the aforementioned procedures and tools; and conclusions and
recommendations have been reached from these tools.

3. Background to AirAsia

3.1. Organization Definition

A ‘no-frills’ airline is defined as one “That uses charter and/or scheduled flights to offer bargain-basement fares.
Budget airlines usually land at and take-off from secondary airports, do not provide in-flight meals or refreshments,
and may not even offer numbered seat allocation. Their ticket prices are fixed and non-refundable in case of a
cancellation or no-show”. (i)

3.2. Looking at the Organization

AirAsia is one of the fastest growing airline companies in the world, with a reputation as a low-cost, ‘no frills’ airline. It
was originally a government owned business; yet, due to heavy debt, it was bought by former Time Warner executive
Tony Fernandes in 2001, and this is where the real story begins.

Their vision, under the slogan "Now Everyone Can Fly", is “To be the largest low cost airline in Asia and serving the 3
billion people who are currently underserved with poor connectivity and high fares”,(ii) and their mission is, under the
banner of 'Affordable Airfares', “To attain the lowest cost so that everyone can fly with AirAsia,” without any
compromise to Flight Safety Standards, as well as, creating a world wide recognizable brand with a ‘family’
atmosphere within working conditions for employees. (iii) These statements clearly show AirAsia’s value. Cost
advantages through operational effectiveness and efficiency; coupled with strong brand marketing, go straight to the
customer.

Within two years, Tony Fernandes had gained recognition with numerous awards, including ‘CEO of the Year’ by
Business Times and American Express and ‘Developing Airline of the Year 2003’ by Airfinance Journal. (iv)

4. Industry Framework Analysis.

4.1 Porter’s 5-Forces Model (Appendix 1)

From the analysis model, it is possible to conclude that supplier power is high due to monopolization of the industry
by Boeing and Airbus. However, this is countered by the relative poor performance of airlines in the recent past.
Although there are only two companies to purchase or lease airplanes from, the global crisis has limited new entrants
into this market and reduced upgrading of planes for the immediate future.

Buyer power is reasonably high because potential customers have access to price information through the internet
and mobile technology; thus, they can find cheaper prices easier. Furthermore, changing from one airline to another
has no costs and is easily achieved.

Competition rivalry is currently in AirAsia’s favour. With price being the main battlefield of competition, AirAsia leads
the way due to its low operating costs. However, there are more competitors entering the market that have major
carriers as backers or owners which may lead to an ‘unrealistic’ price war in the future.

Fortunately, with the Asian region being so vast and with its geographic ‘make-up’, air travel is not only a viable
service but also the most efficient and convenient. This makes the threat of substitution low to AirAsia. Travelling
from, for example, Jakarta to Kuala Lumpur would be a time-consuming exercise. Moreover, with border controls
remaining incredibly bureaucratic in certain areas, i.e. Thailand-Cambodia, then flying is easily the most suitable
travel plan.

Finally, the threat of new entrants is moderately in AirAsia’s favour at present. The high capital requirements and start
up capital prevents many entrants. In addition, AirAsia’s current leading role and favourable brand awareness make it
a first choice amongst the current competition. However, potential new entrants from full service carriers could be
threats in the future and long term.

4.2 External factors using PEST

PEST breaks down the external influences on a business, which a company will have some influence on, but in the
majority of the time will have to project, plan, adapt and react to with its own strategy, in order to anticipate and
analyze forces within the general environment and their impact.

PEST Analysis – Fig.2

POLITICAL ASPECTS ECONOMIC ASPECTS

• Political uncertainty in Malaysia with Prime Minister Abdullah Badawi set to step down in March 2009.

• Deputy Prime Minister Najib Razak is expected to take over the ruling-coalition party, but with a cloud of allegations.

• Political unrest in Thailand recently when anti-government protesters recently blocked flights for a week at
Bangkok's main airports.

• ASEAN nations have been pushing Indonesia to scrap its Rp.1 million ‘Fiscal’ charge to all Indonesian citizens and
expatriates when leaving the Republic of Indonesia either for business or tourism.

• Resurgence of violence in Southern Thailand – Northern Malaysian border.

• Malaysia granted exploration rights in oil-rich waters off the coast of Borneo; increased tensions with Indonesia.

• Terrorism has occurred in Thailand and Indonesia; most notably the Bali bomb of 2002.

• AirAsia holds 49% of Thai AirAsia with 1% held by a Thai individual. The remaining 50% is held by Shin Corp.,
owned by the former Thailand prime minister, Thaksin Shinawatra. Shin Corp. has financial strength, synergy in
information technology and telecommunications, which support AirAsia Internet and mobile phone bookings. •
National trends:

- Malaysia's economy may expand as little as 4 percent in 2009, growth will probably be between 5 percent and 5.5
percent this year, below the official 2008 forecast of 5.7 percent. (v)

- Real GDP % Growth forecast is from 5.1 in 2008 to 1.4 in 2009. (vi)

- Interest rates % dropped from 3.5 in Jan.2008 to 2% in Jan.2009. (vii)

- The inflation rate may fall below 4 percent before the second half of 2009. (viii)

- Unemployment has remained constant at an average of 3.6% in July 2008 to 3.1% in Oct.2008. However, the global
credit crisis has raised fears that “the unemployment rate could double to 6 per cent by 2010 if global demand
remains weak”. (ix)

• International trends:

- Malaysia ranks 20th for its ease of doing business out of a total of 181 economies surveyed in the World Bank
Doing Business 2009 report. (x)

- International global credit crisis has resulted in increasing unemployment and ‘global trade will shrink by 9 percent
this year’ (xi)

- Asian governments are defending less national-flag carriers; in order to revitalize under used airports and increase
tourism spending.

SOCIAL ASPECTS TECHNOLOGICAL ASPECTS

• Demographics:

- Ethnic :Malay 50.4%, Chinese 23.7%, indigenous 11%, Indian 7.1%, others 7.8%. (xii)
- Religions: Muslim 60.4%, Buddhist 19.2%, Christian 9.1%, Hindu 6.3%, Confucianism, Taoism, other traditional
Chinese religions 2.6%, other or unknown 1.5%, none 0.8%. (xiii)

- Languages: Bahasa Malaysia (official), English, Chinese (Cantonese, Mandarin, Hokkien, Hakka, Hainan,
Foochow), Tamil, Telugu, Malayalam, Panjabi, Thai.

• AirAsia operates in SE Asia with many countries and languages.

• SE Asian countries have diverse cultures and religions; troubles continue particularly on the Thai-Malaysian border
and Indonesia.

• Individualism is less common than cooperation in Asian business values.

• Acceptance of laws and rules can vary; many Indonesians, for example, rarely abide to baggage allowance rules
and these rules are seldom enforced due to corruption and indolence.

• Urbanization: 7 out of the top 10 most populated cities in the world (>14 million) are predicted to be in Asia by 2015,
according to the UN.(xv) • Over 80% of AirAsia’s tickets are sold on-line; thus, eliminating travel agent fees.

• Ticket-less travel and ‘e-tickets’ have lowered distribution costs.

• AirAsia has the youngest fleet in Asia with the new Airbus A330-300; allowing state-of-the-art technology and high
fuel efficiency.

• Information and communications technology (ICT) has allowed AirAsia to reduce operating costs and provide fast,
efficient service in areas including: check flight schedules, book seats, electronic check-in, and pre-order meals.

• New low cost terminal to be opened in Labu, Malaysia by 2011 will incorporate modern technology, more shops and
be privately owned, resulting inn lower airport taxes and fares and reduced government bureaucracy.

4.3 Internal factors using a SWOT analysis.

The SWOT analysis is used to determine the strengths, weaknesses, opportunities and threats facing a business and
allows the organization to attain its goals by prospering from opportunities, countering threats, solidifying strengths
and correcting weaknesses.

SWOT Analysis – Fig.3

Strengths

• Blend of 3 strategies of proven airlines: Ryanair’s operational, Southwest’s people, and Easyjet’s branding.

• AirAsia has strong capabilities due to their multi-country position in Thailand, Malaysia and Indonesia.

• Competitive advantage is strong with the lowest mileage per seat price.

• Strong management team consists of industry experts and ex-top government officials.

• 50% stake of AirAsia Thailand held by Thaksin Shinawatra enabled opening up of Thai market with large share.

• Very strong brand recognition; strong marketing reach, distribution and awareness.

• Strategically located in heart of SE Asia.

• Leader in IT (ICT Award).

• New A320 fleet; strong relationship with Airbus allowed discounts on new planes; thus, reducing fuel costs.

• Consumer relations e.g. suggestion to have multi-lingual web-sites.

• Partnerships with PayPal and Citibank allow easy transactions of payments.

• Sponsorship deals with Manchester United Football Club and AT&T Williams formula 1 team increase global brand
recognition. Weaknesses

• High fuel costs have resulted in a lower than expected profit for 2008.

• No MRO (maintenance, repair, overhaul) facility; thus, AirAsia cannot maintain its own planes. With an increasing
fleet this is a competitive disadvantage.

• Large numbers of customer complaints.

• Non-central location of secondary airports.

Opportunities

• Low cost, sustainable philosophy allows new routes to be opened and exploit growing markets due to surging
middle-classes in China and India. I.e. China, India, Pakistan & Bangladesh.
• AirAsiaX, new long-haul routes, to Europe, Australasia and US.

• Scrapping of Fiscal tax in Indonesia will encourage more overseas travel.

• Internet development and 3G coverage allows bookings to be done on-line.

• Higher fuel costs means less profitable competitors may be forced out of business.

• AirAsia Vista Gadget allows customers to access live information direct from the Windows Vista interface.

• Partnerships with Virgin to use existing strengths such as brand name, landing rights and time slots.

• Frequent flyer program; similar to those used by major carriers.

Weaknesses

• High fuel costs have resulted in a lower than expected profit for 2008.

• No MRO (maintenance, repair, overhaul) facility; thus, AirAsia cannot maintain its own planes. With an increasing
fleet this is a competitive disadvantage.

• Large numbers of customer complaints.

• Non-central location of secondary airports.

5. Conclusions and Recommendations.

5.1 Conclusion and Recommendations reached from PEST analysis.

Politically, SE Asia could be in for some troubling times ahead. Firstly, there is political uncertainty in 2009 within
three of AirAsia’s major bases: Malaysia, Thailand and Indonesia. All three countries will be experiencing change of
government or elections in 2009. Indonesia will have its democratic elections with President Susilo Yudhoyono
Bambang running for his second term. This is only the second ever full democratic election in Indonesia and tensions
have been running high. In addition, Malaysia will change Prime Minister with Deputy Prime Minister Najib Razak
taking over in office; yet, there are allegations of corruption which may affect the transition. Finally, Thailand has seen
political uncertainty since the ousting of former Prime Minister Thaksin Shinawatra under corruption and fraud
allegations. The airport has been closed down due to demonstrations and unrest remains; particularly, in the Muslim
majority south, located near major tourist areas such as Koh Samui and Koh Pan Nagn. However, the partnership
with Thaksin Shinawatra has given Air Asia leverage in pursuing an aggressive takeover of market share in Thailand.

Economically, the current global crisis has affected Asia less severely than the West so far. This is possibly due to
cultural aspects such as less credit or borrowing by the majority of people. Malaysia is expected to slow down
economically in 2009, as well as Thailand and Indonesia. However, although the markets are relatively fragile,
robustness and flexibility is high due to awareness and experience from the 1998 currency crisis.
In SE Asia, the main social issue will be the urbanization of the populations of some of the key countries within
AirAsia’s market and demographic. Countries like India, China and Bangladesh are booming at the moment and are
creating large middle-classes within their respective countries. The more people are employed in cities over 15 million
people, the more need there will be for journeys to homes in the countryside. This market is a potential opportunity for
AirAsia in the future, with the right cultural and nationalistic approaches made.

AirAsia is leading the way in terms of integrating technological advances into its business model. The use of the
internet to buy and sell tickets has significantly reduced operating costs for AirAsia because ticket agents are not
needed. Furthermore, newer airplanes being produced are reducing fuel costs and becoming more efficient.

5.2 Task 2: Technological Change

5.2.1 Analyze Policies and Decision Making

The rate of technological change in all facets of society is rapidly changing the areas businesses work in and the
global environment as a whole. The aviation industry has recently become under pressure with higher fuel costs and
consumer awareness of the environment in particular.

In order to survive, companies are either adapting and being pro-active or failing. AirAsia ‘has been recognized as
one of the WORLD’s most innovative companies by Fast Company magazine, making it the only ASEAN brand and
the only airline to have made it on the “Fast 50” list.’ (xvi)

As a consequence, AirAsia has some current IT systems which allow it to gain competitive advantage.

Current IT Implementations

Yield Management System (YMS)

Also known as Revenue Management System; it understands, predicts and responds to customer behavior, in order
to maximize revenue for the organization.

YMS operates on two levels:

1. Seat – the seat price is considered an opportunity to increase revenue. Seats are available at various prices at
various points in time. Reservations done at a later point cost significantly more than one done earlier.

2. Route – the prices for destinations are adjusted with consideration to the demand.

To work effectively, both methods are used in conjunction with one another for all seats and all routes; thus, both seat
and flight are effectively priced all the time.

Computer Reservation System (CRS)

AirAisa uses CRS provided by Open Skies by Navitaire, and it has had a huge impact on the operating procedure for
AirAsia.

"Navitaire's Open Skies technology has truly enabled AirAsia's growth from 2 million passengers to 7.7 million
passengers in less than two years. Open Skies scaled easily to accommodate our growth."

Tony Fernandes

CEO
AirAsia (xvii)

Open Skies is ‘an integrated web-enabled reservation and inventory system suite that includes Internet, call center,
airport departure control functionality and more.’ (xviii)

In essence, it is a system that allows AirAsia to effectively by-pass the middlemen, in this case travel agents, and
deal directly with the customer; thus, eliminating sales commissions paid to the travel agents. Customer data is
centralized and helps AirAsia to track bookings and schedule flight activities in response to needs in real-time.
Furthermore, the Open Skies system integrates with the already implemented YMS, so that both systems can be
used in unison to maximize pricing and revenue, by providing information on bookings and schedules, and lowering
costs of operations at the same time.

The recent surge in fuel prices in 2008 forced airlines to reduce costs wherever possible in order to survive.
Fortunately, AirAsia already had the lowest operating costs of any airline in the world. However, this did not stop
AirAsia looking into ways of avoiding potential problems in the future. The need for more fuel-efficient airplanes is
now an integral part of reducing costs in the aviation industry.

5.2.2 Evaluate Effectiveness and Response

AirAsia has applied technological advances, for instance YMS and CRS, in advance of its competitors. The speed in
there response has given them a platform that is being recognized in the IT industry, and appreciated by its
customers. YMS and CRS systems allow customers to book flights on-line or via mobile devices and allow the first
ticket-less travel option in Asia. As a result, allocation of boarding passes and check-in via the internet and mobile
devices advanced the growth of AirAsia as ‘AirAsia’s online booking accounts for 70% of its total booking, recording a
remarkable 260 million impressions per month.’ (xix)

AirAsia recently secured the purchase of fifteen new Airbus A320-200 planes with financing help provided by
Barclays Capital. These newer planes are technologically advanced in various departments:

1. Lower fuel burn.

2. Lower maintenance costs.

3. Increased capacity.

4. Wider cabins.

5. Larger cargo payloads.

6. Cabin equipped with state-of-the-art touch screen management system.

7. Enhanced entertainment system.

The Airbus A320-200 will allow AirAsia to operate at lower costs due to the reduction in fuel charges and operating
costs. In addition, they will be able to increase capacity on flights and maximize profits per flight.

5.3 Conclusion and Recommendations reached from SWOT analysis.

There is much strength for AirAsia at the moment. To begin, strategically it is strong with an organized management
team, established ‘low-cost’ mindset with employees, and a sound strategic vision. Moreover, AirAsia has cemented
itself as a front runner in the low cost industry with its early conception and aggressive product branding and
marketing techniques. It has used IT to its advantage with the use of the internet and newer airplanes. Finally, it is
beginning to establish its name and brand on the world stage with innovative and intelligent sponsorship deals.

Yet, where there is strength for AirAsia there are also some weaknesses. These weaknesses, however, do not seem
to be overly dangerous. Higher fuel costs around the world, and fluctuating, unstable markets have made operational
costs higher, especially for the airline industry. However, this also means that companies with less profit margins than
AirAsia may become redundant in the future; thus, opening up customer bases previously unavailable to AirAsia. In
addition, AirAsia has a relatively poor reputation with customers, particularly due to their flight times and
cancellations. Improvements need to be made in this area without increasing operating costs.

Opportunity is the golden word where AirAsia is concerned. With the dramatic increase in middle income earners in
China and India especially, there is much potential for AirAsia to expand its routes and frequency of flights.
Relaxation of the ‘ASEAN Open Skies’ laws means that, with AirAsia’s established number one position, low cost,
strong brand and strategy execution, it is firmly established to overcome potential new entrants and increase market
share in the future. Furthermore, increased access for Asian people to the internet, coupled with new and developing
IT solutions allow AirAsia to bolster its reputation as an innovative and leading organization in terms of IT.

Potential threats to AirAsia come in the form of potential new entrants into the market from established full carriers
like Singapore Airlines. However, low cost companies like AirAsia are positioned well to withstand any competition in
this area. There are always threats from areas outside of AirAsia’s control such as terrorism and global conditions.
Finally, AirAsia needs to be aware that system failures with the internet would seriously damage operations for such a
technologically reliant company.

References

i. http://www.businessdictionary.com/definition/budget-airline.html

ii. http://www.airasia.com/site/au/en

iii. http://www.airasia.com/site/au/en

iv. http://www.airasia.com/site/au/en

v. www.bloomberg.com

vi. www.ft.com

vii. www.tradingeconomics.com

viii. www.tradingeconomics.com

ix. www.ft.com

x. http://www.areadevelopment.com/international/nov08/Malaysia-strong-economic-fundamentals.shtml
xi. http://www.ft.com/cms/s/0/a044cba0-0a1a-11de-95ed-0000779fd2ac.html

xii. http://www.globalcrisisnews.com/general/wto-sees-global-trade-collapse-by-9/id=680/

xiii. http://www.indexmundi.com/malaysia/demographics_profile.html

xiv. http://www.indexmundi.com/malaysia/demographics_profile.html

xv. http://www.un.org/esa/population/publications/wup2007/2007WUP_Highlights_web.pdf

xvi. http://www.airasia.com/site/my/EN/pressRelease.jsp?id=1226b07f-7f000010-1203b970-221df5f5

xvii. http://www.navitaire.com/res_and_dist/openskies.asp

xviii. http://www.navitaire.com/res_and_dist/openskies.asp

xix. http://www.airasia.com/site/my/EN/pressRelease.jsp?id=1226b07f-7f000010-1203b970-221df5f5