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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
CONTENTS
CONTENTS ...............................................................................................................................................................2 ABSTRACT ...............................................................................................................................................................3 COMPANY BACKGROUND...................................................................................................................................4 BUSINESS PROCESS AND OPERATION..........................................................................................................5 LOW COST CARRIER (LCC) BUSINESS MODEL ...............................................................................................7 BUSINESS MODEL ..............................................................................................................................................7 COMPETITIVE ADVANTAGES .........................................................................................................................8 SWOT ANALYSIS ................................................................................................................................................8 MAJOR CHALLENGES .......................................................................................................................................9 VALUE CHAIN ANALYSIS ................................................................................................................................9 IT IMPLEMENTATIONS AND STRATEGIC ALIGNMENT ..............................................................................10 CURRENT STRATEGIC IT IMPLMENTATION .............................................................................................10 POTENTIAL STRATEGIC IT IMPLEMENTATION........................................................................................11 REFERENCES .........................................................................................................................................................14
ABSTRACT
The use of information technology plays an important role in the strategic and operation management of airlines, and facilitates the successful airlines in the future. This paper will look at the awarding-winning low cost carriers (LCC) in Asia Pacific region AirAsia, analyzes the current business environment, competitive advantages, value chain, current implementation of information technology, and the recommended future implementation of technology in customer relationship management (CRM) implementation to pursue competitive differentiation and profitability effectively in the future.
COMPANY BACKGROUND
AirAsia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand, and Indonesia. Today, AirAsia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. AirAsia believes in the no-frills, hassle-free, low fare business concept and feels that keeping costs low requires high efficiency in every part of the business. Through the corporate philosophy of Now Everyone Can Fly, AirAsia has sparked a revolution in air travel with more and more people around the region choosing AirAsia as their preferred choice of transport. 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. 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, 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 worlds most renowned maintenance providers and complying with the world airline operations. Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity. Providing guests with the choice of customizing services without compromising on quality and services. Making sure that processes are as simple as possible. Offering a wide and innovative range of distribution channels to make booking and traveling easier. Applying the point-to-point network keeps operation simple and lower costs.
To book a flight with AirAsia, customers can either choose the following channels or simply visit the AirAsia.com home page and follow the below 5 steps. 1. 2. 3. 4. 5. Call centre Sales office and airport sales counter Authorized travel agents Mobile booking via mobile.airasia.com or Online (http://www.airasia.com) in 5 easy steps as shown below. Step 1 - Search Step 2 - Select Step 3 - Guest & Contact Step 4 - Payment Step 5 - Itinerary
The following diagram shows the online electronic ticket ordering process.
BUSINESS MODEL
AirAsia follows the Low-Cost-Carrier (LCC) business model in the 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, 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, cockpit training and standby crews due to homogeneous fleet High resource productivity Short ground waits due to simple boarding processes No air freight, no hub services, short cleaning times, and high percentage of online sales
COMPETITIVE ADVANTAGES
With the Low Cost Carrier business model, AirAsia has the following competitive advantages over the competitors in the airline industry, which can be summarized in the following diagram.
SWOT ANALYSIS
To figure out the internal factors such as strengths and weaknesses, and external opportunities and threats to business objectives, a SWOT Analysis of AirAsia can be conducted and shown below.
AirAsia SWOT Analysis Strengths Low cost operations Fewer management level, effective, 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, terrorist attack, 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
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
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Anticipates and reacts to the behavior of customers to maximize the revenue - 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. 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.
Results increased revenue (3-4%) by taking advantage of the forecast of the high / low demand patterns, lower prices as YMS has aided AirAsia to increase the revenue by offering higher discounts, more frequently during off-peak times while raising prices only marginally for peak times.
An integrated web-enabled reservation and inventory system suite powered by Navitaires Open Skies technology that includes Internet, call center, and airport departure control functionality. Satisfy the unique needs of AirAsia implementing a low-cost business model to transform the business process to efficiently streamline operations. 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 7.7 million passengers in less than two years. Open Skies scaled easily to accommodate our growth." - Tony Fernandes, CEO, AirAsia
An integrated ERP solution powered by Microsoft Business Solutions (MBS) on Microsoft technology platform which is implemented by Avanade consultants in Ma 2005. With the robust ERP technology platform, AirAsia is able to successfully maintain process integrity, reduce financial month-end closing processing time, speeds up reporting and data retrieval process.
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Customer Relationship Management (CRM) In long term, customer relationships should be fostered for AirAsia to maintain competitive advantage and profitability. When planning and implementing CRM application, management is recommended the following approaches: 1. Customer segmentation mileage-based segmentation is inadequate, rather should focused on value-based and needs-based approaches can guide investment decisions and drive greater insight into the needs of highvalue customers. 2. CRM initiative development to differentiate from other competitors, AirAsia should not adopt the fast follower approach to CRM initiative development, i.e. learning from other competitors approach (e.g. installing kiosks for fast check-in). AirAsia should implement CRM program in favor of investing in initiatives with a high return, which respond to the needs and desires of their own customers 3. Organizational design and management AirAsia needs to train the employees, empowering them with a complete view of the customer and clearly articulating the employees role in the CRM strategy.
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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, bundled services information, flight notification systems, and gate information displays etc. ITA search engines, roving agent check-in, kiosks, internet check-in, and phone check-in etc. membership-based or point-based rewarding scheme offering to the applicable customers. Email campaigns and promotion. Web-based self service such as e-ticket booking and reservation, online baggage tracing, RFID baggage tags, internet in lounge, and in air Internet services. Dynamic, updated, multi-dimensional reports that helps management to do analytics in various areas such as customer profiles.
Reservations and ticketing Frequently flyer program Campaign management Customer care
Business intelligence
To justify the investment and implementation scope of the CRM program, AirAsia is recommended to look into the ROI and financial impact to shareholder value driven by each of the CRM initiatives. The followings show some examples of ROI and the financial assessment of selected CRM initiatives.
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By taking the steps to implement a truly consumer-centric approach to relationship management, AirAsia will be better positioned to acquire, develop, and retain high-value customers.
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REFERENCES
1. eAirlines: Strategic and Tactial Use of ICTs in the Airline Industry. Dimitrious Buhalis. University of Surrey. 2004. 2. The future of CRM in the airline industry: A new paradigm for customer management. IBM Institute for Business Value. 2002. 3. AirAsia Corporate Website. http://www.airasia.com. 4. AirAsia How to book online tutorial. http://www.airasia.com/site/en/page.jsp?name=HOW%20TO%20BOOK%20ONLINE&id=4d99d08ac0a8c85d-177e6b40-4dab9d31 5. Navitaire Open Skies by Navitaire Reservation and Distribution System. http://www.navitaire.com/res_and_dist/openskies.asp