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Airasia Info

Airasia Info

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Published by May Zaw

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Published by: May Zaw on Jul 03, 2012
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05/31/2014

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Strengths, Weaknesses, Opportunities and Threats Analysis for AirAsia
 
1.0
 
Strengths
 Ø Air Asia has a very
strong management team
with strong links with governments and airlineindustry leaders. This is partly contributed by the diverse background of the executive managementteams which consists of industry experts and ex-top government officials. For example, Shin Corp(formerly owned by the family of former Thai Prime Minister - Thaksin Shinawatra) holds a 50%stake in Thai AirAsia. This has helped AirAsia to open up and capture a sizeable market in Thailand.With their strong working relationship with Airbus, they managed to get big discount for aircraftpurchase which is also more fuel efficient compared to Boeing 737 planes which is being used bymany other airlinesØ The management team is also very good in
strategy formulation and execution.
The strategy that
 
they have formulated at the beginnings was a clever blend of proven strategies by other low cost
airlines is US and Europe. They are Ryanair’s operational strategy (
no frills, landing in secondary airport)
, Southwest’s people strategy (
employee comes first 
) and Easyjet’s br
anding strategy (
linkingwith other service providers like hotels, car rental 
).
Ø AirAsia’s
brand name
is well established in Asia Pacific. Besides the normal print media advertising
& promotions, AirAsia’s top management also capitalised on promotions thr
ough news by being very
“media friendly” and freely sharing the latest information on Air Asia as well as the airline industry.
Their partnership with other service providers such as hotels and hostels, car rental firms, hospitals(medical tourism), Citibank (AirAsia Citibank card) has created a very unique image among travellers.Alliance with Galileo GDS (Global Distribution System) that enables travel agents from around theworld to check flight details and make bookings have also contributed to their string brand name. Air
Asia’s local presence in few countries such as Indonesia (Indonesia AirAsia) and Thailand (ThaiAirAsia) have successfully “elevated” the brand to become a regional brand beyond just Malaysia.
The links with Manchaster United (one of t
he world’s most famous football teams) and AT&T
Williams Formula One team have further boosted their image to a greater extend beyond just thethis regionØ AirAsia is the
low cost leader in Asia
. With the help of AirAsia Academy, AirAsia has successfully
created a “
low-cost airline mentality
” among their workforce. The workforce is very flexible and
high committed and very critical in making AirAsia the lowest cost airline in Asia.Ø The
excellent utilization of IT
have directly contributed to their promotional activities (email alertsand desktop widget which was jointly developed with Microsoft for new promotions), brand buildingexercise (with over 3 million hits per month and on the most widely surfed booking engines in theworld) as well keep the cost low by enabling direct purchase of tickets by consumer thus saving onairline agent fees
2.0
 
Weaknesses
 Ø Air Asia does not have its
own maintenance, repair and overhaul
(MRO) facility. It may be a goodstrategy when they first started with only Malaysia as the hub and few planes to maintain. But now,with few hubs (Malaysia, Thailand and Indonesia) and over 100 planes currently owned and aboutanother 100 planes to be received in the next few years, AirAsia have to ensure proper and
 
continuous maintenance of the planes which will also help to keep the overall costs low. It is acompetitive disadvantage not to have its own MRO facilityØ AirAsia receives a
lot complaints from customers
on their service. Examples of complaints arearound flight delays, being charged for a lot of things and not able to change flight or get a refund if customers could not make it. Good customer service and management is critical especially whencompetition is getting intense.
3.0
 
Opportunities
 Ø There are 2 major events that are taking place now or going to take place in less than 6 monthsfrom now. First, is the ever
increasing oil price
. Second, is the “
ASEAN Open
 
Skies” agreement
thathas been reached.Ø The increasing oil price at the first glance may appear like a threat for AirAsia. But being a low costleader, AirAsia an upper hand because its cost will be still the lowest among all the regional airlines.Thus, AirAsia has a great opportunity to capture some of the existing customers of full service andother low cost air
line’s customers. However, there will be also some reduction in overall travel
especially by casual or budget travellers.
Ø The “ASEAN Open Skies” allows unlimited flights among ASEAN’s regional air carriers beginning
December 2008. This will definitely increase the competition among the regional airlines. However,
with the “first mover” advantage as well as its strengths in management, strategy formulation,strategy execution, strong brand and “low
-
cost” culture among its workforce, this agreement can be
seen as more of an opportunity.Ø There is also some opportunity to
partner with other low cost airlines as Virgin
to tap into theirexisting strengths or competitive advantages such as brand name, landing rights and landing slots(time to land).Ø The
population of Asian middle class will be reaching almost 700 million by 2010
. This creates alarger market and a huge opportunity for all low cost airlines in this region including AirAsia.
4.0
 
Threats
 Ø
Certain rates like airport departure, security charges and landing charges are beyond the controlof airline operators
and this is a threat to all airlines especially low cost airlines which tries to keeptheir cost as low as possible. For example, Changi airport in Singapore charges SGD21 for everyperson who departs from Singapore.
Ø AirAsia’s profit margin is about 30% and this has already attracted many competitors. Most of the
full service airlines have or planning to create a low cost subsidiary
to compete directly withAirAsia. For example, Singapore Airlines has created a low cost carrier Tiger Airways.
Ø Users’ perception that budget airlines may compromise safety to keep costs low.
 Industry Analysis
 
 An industry analysis was performed to assess the budget airline industry.1. Bargaining Power of SupplierOverall, power of supplier is high as there are limited (availability of) suppliers (only Boeing andAirbus), the switching cost is high (i.e. airplanes and their maintenance are costly), and there are fewsubstitutes for airplanes (i.e. air travel covers longer distances in a shorter period of time).2. Bargaining Power of BuyerAs there are almost no switching costs for customers switching from one budget airline to another,the bargaining power of buyer is moderately high. Moreover, customers are able to compare pricesof budget airline via the Internet, giving them more choices.3. Threat from SubstitutesAlthough there are several substitutes (i.e. trains and ships), the geographical structure of Asia hasmade air travel an efficient, viable, and convenient mode of transportation. Hence, threat fromsubstitutes is moderately low.4. Threat from New EntrantsThough the entry barriers are high (i.e. capital requirement and government restrictions such as airservice agreements), threat from new entrants is moderately high. With increased deregulation byAsian governments, and growing demand for affordable low fares amongst budget-conscioustravelers, competition increased (i.e. more full-service airlines launched their own budget airlines).
For example, AirAsia’s success prompted several incumbents to start or being to consider starting
their own budget airlines, which had the advantages of brand marketing and loyalty, and otherbenefits which overflowed from their parent companies.5. Rivalry Intensity

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