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Professional Diploma Program in Logistics and Supply Chain Management
Project Studies – Enabling Technology in Airline Industry By WONG Pui Man, Cary March 2009

................................................................................................................................................................................................................................................................................................................................11 REFERENCES ...........................................................................................................................................Enabling Technology in Airline Industry ..............................................................................................................................................................................................................................................................5 LOW COST CARRIER (LCC) BUSINESS MODEL .........................14 Professional Diploma Program in Logistics and Supplier Chain Management Project Studies ....................................9 IT IMPLEMENTATIONS AND STRATEGIC ALIGNMENT ....................................................10 POTENTIAL STRATEGIC IT IMPLEMENTATION.........................2 ABSTRACT ................................................................7 BUSINESS MODEL ....................................................................................................................................................................................3 COMPANY BACKGROUND.......................................................9 VALUE CHAIN ANALYSIS ......7 COMPETITIVE ADVANTAGES ............8 SWOT ANALYSIS ....................................10 CURRENT STRATEGIC IT IMPLMENTATION ..............................................................................................................................................................................................................................................................................................4 BUSINESS PROCESS AND OPERATION...........................8 MAJOR CHALLENGES ..........................................2 CONTENTS CONTENTS ...............................................................................................................................................................................

Professional Diploma Program in Logistics and Supplier Chain Management Project Studies .3 ABSTRACT The use of information technology plays an important role in the strategic and operation management of airlines. current implementation of information technology. competitive advantages. value chain. This paper will look at the awarding-winning low cost carriers (LCC) in Asia Pacific region – AirAsia.Enabling Technology in Airline Industry . and the recommended future implementation of technology in customer relationship management (CRM) implementation to pursue competitive differentiation and profitability effectively in the future. and facilitates the successful airlines in the future. analyzes the current business environment.

Offering a wide and innovative range of distribution channels to make booking and traveling easier. Through the corporate philosophy of “Now Everyone Can Fly”. AirAsia creates values through the following vision and mission: AirAsia Values Vision 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. assuring lower costs and higher productivity. embracing technology to reduce cost and enhance service levels • • Mission AirAsia makes the low fare model possible and create values through the implementation of the following key strategies: AirAsia Key Strategies Safety First Partnering with the world’s most renowned maintenance providers and complying with the world airline operations. low fare business concept and feels that keeping costs low requires high efficiency in every part of the business. AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport. Applying the point-to-point network keeps operation simple and lower costs. and Indonesia.Enabling Technology in Airline Industry . AirAsia flies to over 61 domestic and international destinations with 108 routes. and operates over 400 flights daily from hubs located in Malaysia.4 COMPANY BACKGROUND AirAsia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. AirAsia believes in the no-frills. Making sure that processes are as simple as possible. hassle-free. No Frills Streamline Operations Lean Distribution System Point to Point Network Professional Diploma Program in Logistics and Supplier Chain Management Project Studies . To be the best company to work for whereby employees are treated as part of a big family Create a globally recognized ASEAN brand • To attain the lowest cost so that everyone can fly with AirAsia • Maintain the highest quality product. Today. Thailand. High Aircraft Utilization Low Fare. AirAsia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. With a fleet of 72 aircrafts. Providing guests with the choice of customizing services without compromising on quality and services. Implementing the regions fastest turnaround time at only 25 minutes.

Enabling Technology in Airline Industry .com) in 5 easy steps as shown below.airasia. customers can either choose the following channels or simply visit the AirAsia.com Home Page To book a flight with AirAsia. Step 1 .airasia. 1.Search Step 2 .com home page and follow the below 5 steps. 5.Guest & Contact Step 4 . 3. and provides an online ticket booking services to traveler online.com or Online (http://www. 4.Payment Step 5 .Select Step 3 . Exhibit 1 – AirAsia.com as the company key channel of marketing and sales.5 BUSINESS PROCESS AND OPERATION AirAsia has fostered a dependency on Internet technology for its operational and strategic management. 2. Call centre Sales office and airport sales counter Authorized travel agents Mobile booking via mobile. The following shows the home page of AirAsia.Itinerary Professional Diploma Program in Logistics and Supplier Chain Management Project Studies .

Exhibit 2 – AirAsia Electronic Ticket Ordering Process Professional Diploma Program in Logistics and Supplier Chain Management Project Studies .Enabling Technology in Airline Industry .6 The following diagram shows the online electronic ticket ordering process.

and high percentage of online sales Low Operating Costs • • • • • • Exhibit 3 – Low Cost Carrier Business Model Professional Diploma Program in Logistics and Supplier Chain Management Project Studies . short cleaning times. cockpit training and standby crews due to homogeneous fleet High resource productivity Short ground waits due to simple boarding processes No air freight. the low cost carriers are now facing some challenges in the market. especially leisure traffic and price-conscious business passengers Short-haul point to point traffic with high frequencies Aggressive marketing Secondary airports Competition with all transport carriers Low wages Low airport fees Low costs for maintenance.7 LOW COST CARRIER (LCC) BUSINESS MODEL The low cost airlines like AirAsia have changed the definition of airlines that air travel is a luxury and it is only for the upper segment of the population. The key objective of low cost carriers is to increase their reach and provide the services to a large segment. BUSINESS MODEL AirAsia follows the Low-Cost-Carrier (LCC) business model in the airline industry.Enabling Technology in Airline Industry . which can be characterized as below: Low Cost Carrier (LCC) Business Model Simple Product Catering on demand for extra payment Planes with narrow seating and only a single class • No seat assignment • No frequent flyer programmes • • • • • • • Positioning Non-business passengers. However. no hub services.

focused and aggressive management • Simple proven business model that consistently delivers that lowest fares • Penetrate and stimulate to potential markets • Multi-skilled staffs means efficient and incentive workforce • Single type fleet minimize maintenance fee and easy for pilot dispatch Weaknesses • • • • • • • Service resource is limited by lower costs Limited human resources could not handle irregular situation Government interference and regulation on airport deals and passenger compensation Non-central location of secondary airports Brand is vital for market position and developing it is always a challenge Heavy reliance on outsourcing New entrants to provide the price-sensitive services Opportunities • • Threats • • • • • • • • • Long haul flight is an trial to get undeveloped market share Differentiation from traditional LCC model by adding customer services or operation as full service airline with low fare Ongoing industry consolidation has opened up prospects for new routes and airport deals High fuel prices will squeeze out unprofitable competitors Full service airlines start cut costs to compete Entrance of other LCCs High fuel price decreases yield Accident. Exhibit 4 – AirAsia Competitive Advantages SWOT ANALYSIS To figure out the internal factors such as strengths and weaknesses. which can be summarized in the following diagram. terrorist attack.8 COMPETITIVE ADVANTAGES With the Low Cost Carrier business model. a SWOT Analysis of AirAsia can be conducted and shown below.Enabling Technology in Airline Industry . effective. AirAsia SWOT Analysis Strengths • Low cost operations • Fewer management level. AirAsia has the following competitive advantages over the competitors in the airline industry. and external opportunities and threats to business objectives. and disaster and affect customer confidence Aviation regulation and government policy Increase in operation cost in producing value-added services System disruption due to heavily reliance on online sales Professional Diploma Program in Logistics and Supplier Chain Management Project Studies .

Outbound logistics.Enabling Technology in Airline Industry . a value chain analysis for airline industry has been conducted as below to model AirAsia as a chain of valuecreating activities. Operations. Exhibit 5 – Value Chain Analysis of Airline Industry Professional Diploma Program in Logistics and Supplier Chain Management Project Studies .9 MAJOR CHALLENGES • • • • • • • Increasing competition because of increasing number of low cost airline competitors. and aggressive competition against the large or traditional airline companies Customer decrease because of poor economy Rising of the fuel prices Higher labor cost Inadequate infrastructure Route and flight utilization Safety and security issues of aircraft crash or being attacked VALUE CHAIN ANALYSIS To better understand and analyze the specific activities through which AirAsia can create a competitive advantage. Marketing and Sales. The goal of these activities (Inbound logistics. and Service) is to create value that exceeds the cost of providing the product or services. thus generating a profit margin.

Satisfy the unique needs of AirAsia implementing a low-cost business model to transform the business process to efficiently streamline operations. CEO. could bring great advantages in promoting and strengthening the competitive advantages. With the robust ERP technology platform. and airport departure control functionality.Tony Fernandes. speeds up reporting and data retrieval process. A reservation done at a later date will be charged more than the one done earlier for the same seat Route – By adjusting prices for routes / destinations that have a higher demand when compared to others. information technology has driven fundamental changes in the nature and application of technology in business. • Results increased revenue (3-4%) by taking advantage of the forecast of the high / low demand patterns. Helps AirAsia to grow at a dramatic pace in the past few years as stated below: "Navitaire's Open Skies technology has truly enabled AirAsia's growth from 2 million passengers to 7. reduce financial month-end closing processing time. The implementation of information technology in its value chain provides powerful strategic and tactical tools for AirAsia. lower prices as YMS has aided AirAsia to increase the revenue by offering higher discounts." . CURRENT STRATEGIC IT IMPLMENTATION AirAsia has currently adopted information technologies strategically to integrate the operations and coordinate all the business and management functions. Yield Management System (YMS) • Anticipates and reacts to the behavior of customers to maximize the revenue .7 million passengers in less than two years.10 IT IMPLEMENTATIONS AND STRATEGIC ALIGNMENT In todays globalize economy. AirAsia is able to successfully maintain process integrity. more frequently during off-peak times while raising prices only marginally for peak times. Computer Reservation System (CRS) • • • An integrated web-enabled reservation and inventory system suite powered by Navitaire’s Open Skies technology that includes Internet. Professional Diploma Program in Logistics and Supplier Chain Management Project Studies . call center.taking into account the operating cost and aids AirAsia to optimize prices and allocate capacity to maximize the expected revenues by 2 levels: a) b) Seat – Seats are available at various prices in different points of time.Enabling Technology in Airline Industry . Open Skies scaled easily to accommodate our growth. AirAsia Enterprise Resource Planning System (ERP) • • An integrated ERP solution powered by Microsoft Business Solutions (MBS) on Microsoft technology platform which is implemented by Avanade consultants in Ma 2005. The followings are few system implementations that AirAsia has done in its marketing and sales activities as well as operation activity in the value chain. which if properly applied and used.

Customer Relationship Management (CRM) application will be one of the area of strategic IT implementation that AirAsia can focus to achieve high values to both shareholders and customers. empowering them with a complete view of the customer and clearly articulating the employee’s role in the CRM strategy. management is recommended the following approaches: 1. AirAsia should not adopt the “fast follower” approach to CRM initiative development. i. Exhibit 6 – The Strategic Forces of Value Proposition Customer Relationship Management (CRM) In long term. rather should focused on value-based and needs-based approaches can guide investment decisions and drive greater insight into the needs of highvalue customers.g. showing that the focus on Supplier and Alliances and Customers will drive positive values to AirAsia can achieve. Organizational design and management – AirAsia needs to train the employees. The following diagram shows the strategic forces of value proposition of the airline industry. installing kiosks for fast check-in). which respond to the needs and desires of their own customers 3. Professional Diploma Program in Logistics and Supplier Chain Management Project Studies .11 POTENTIAL STRATEGIC IT IMPLEMENTATION In order to gain market share and sustain its competitive advantages to be the low cost carrier in the high demanding environment. When planning and implementing CRM application. AirAsia should implement CRM program in favor of investing in initiatives with a high return. supplier relationships. 2. AirAsia must develop new ways to manage both customer relationships and suppliers or partners to optimize customer loyalty.e. and revenue. Customer segmentation – mileage-based segmentation is inadequate. learning from other competitors’ approach (e. customer relationships should be fostered for AirAsia to maintain competitive advantage and profitability. CRM initiative development – to differentiate from other competitors.Enabling Technology in Airline Industry .

Web-based self service such as e-ticket booking and reservation. internet check-in. RFID baggage tags. and in air Internet services. updated. flight notification systems. bundled services information. multi-dimensional reports that helps management to do analytics in various areas such as customer profiles. ITA search engines.Enabling Technology in Airline Industry . The followings show some examples of ROI and the financial assessment of selected CRM initiatives. membership-based or point-based rewarding scheme offering to the applicable customers. kiosks. and gate information displays etc. Dynamic. AirAsia is recommended to look into the ROI and financial impact to shareholder value driven by each of the CRM initiatives. internet in lounge. roving agent check-in. Reservations and ticketing Frequently flyer program Campaign management Customer care Business intelligence To justify the investment and implementation scope of the CRM program. Exhibit 7 – Example of Return On Investment from Selected CRM Initiatives Professional Diploma Program in Logistics and Supplier Chain Management Project Studies . and phone check-in etc. Email campaigns and promotion. online baggage tracing.12 Advanced and sophisticated CRM information system should include the following key functions: Customer Relationship Program (CRM) Key Functions Traveling planning Site personalization for on-line customer to create travel plan.

Enabling Technology in Airline Industry . develop. and retain high-value customers. AirAsia will be better positioned to acquire. Professional Diploma Program in Logistics and Supplier Chain Management Project Studies .13 Exhibit 8 – Financial Assessment of Selected CRM Initiatives By taking the steps to implement a truly consumer-centric approach to relationship management.

http://www.asp Professional Diploma Program in Logistics and Supplier Chain Management Project Studies . Navitaire Open Skies by Navitaire Reservation and Distribution System. http://www. 2002. IBM Institute for Business Value. University of Surrey. 4. 2004.com/res_and_dist/openskies.airasia. 2. AirAsia Corporate Website.jsp?name=HOW%20TO%20BOOK%20ONLINE&id=4d99d08ac0a8c85d-177e6b40-4dab9d31 5. http://www.14 REFERENCES 1.airasia.com. AirAsia – How to book online tutorial.navitaire. 3. Dimitrious Buhalis.Enabling Technology in Airline Industry .com/site/en/page. The future of CRM in the airline industry: A new paradigm for customer management. eAirlines: Strategic and Tactial Use of ICTs in the Airline Industry.