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3. Environmental analysis
4. Environment analysis
5. Company analysis 6. Competitive strategy 7. Financial analysis
8. Critical Factors Success
9. Problems Issues
10. Recommendation s 11. Conclusion 12. References
1. EXECUTIVE SUMMARY
Strategic management has played a key role in the success of many business organizations in the world including airlines and AirAsia is no exception. Commencing in 1996, within fifteen years, AirAsia managed to expand its operations into another ten countries. In addition, through its associate company AsiaX, it launched long-haul low-cost air services from Malaysia to Australia and the United Kingdom.
This paper will look at the award winning Malaysian low cost carrier- AirAsia’s by analyzing its strengths and weaknesses using strategic tools such as PEST analysis, Michael Porters Generic strategies, SWOT matrix analysis, Porter’s Force Model Competitive Forces Model, BCG Matrix , Internal and External Factor evaluation Matrix and Competitive Profile Matrix and Financial Analysis and recommend the relevant strategies for adoption to pursue its continue its competitive differentiation and profitability. The paper also throw some insights into the Blue Ocean Strategy concept which is used by AirAsia as one of its strategic moves.
Competition in the airline industry is very intense and growing rapidly. The airlines are using several strategies to compete with one another in the industry. Airline companies need to identify their strategic management to achieve their vision and mission and AirAsia is no exception.
AirAsia was established in 1993 . The company commenced its operations on 18 November 1996. It was originally owned by the government-link company , DRBHicom, a heavily –indebted airline company purchased by Tune Air Sdn Bhd , a
company belonged to former
Time Warner executive
company . By the year 2002 Tony Fernandes made AirAsia a profitable company and launching new routes from its hub in Kuala Lumpur International Airport at breakneck speed, undercutting former monopoly operator Malaysia Airlines (MAS) with promotional fares as low as RM1 ( US$0.27).
AirAsia launched its first international flight to Bangkok In 2003 when it opened a second hub at Senai International Airport in Johor Bahru . AirAsia later started a Thai subsidiary, added Singapore itself to the destination list, and commenced flights to Indonesia. Flights to Macau started in June 2004, while flights to
Mainland China ( Xiamen) and the Philippines ( Manila) started in April 2005. Flights to Vietnam and Cambodia followed later in 2005 and to Brunei and Myanmar in 2006, the latter by Thai AirAsia. On August 2006, AirAsia took over Malaysia Airlines's Rural Air Service routes in Sabah and Sarawak, operating under the Fly Asian Xpress brand, the routes were subsequently returned back to MASwings a year later citing commercial reasons. Air Asia has further enhanced its presence in Asia by strengthening and enhancing its route network by connecting all the existing cities in the region and expanding further into Indochina, Indonesia, China and India. With the increased frequency and addition of new routes, AirAsia expects passenger volume to grow further.
2.2 Vision, mission , values ,goals, objectives and strategies AirAsia’s vision is to be the largest low cost airline in Asia serving the 3 billion people who are currently underserved due to poor connectivity and high fares and it aspires to be a the leading low-cost carrier in the Asian region that offers five-star service with 95% of on-time performance. At the same time, it wants to promote Malaysian hospitality and the local food. In addition to charging lowest fares and focusing on customers, it also would like to develop various products and services. AirAsia’s mission is to be the best employer, create a globally recognized ASEAN brand, to be the lowest cost budget airline and to maintain the highest quality service by embracing technology.
However. develop the low-cost carrier terminal at the KL International Airport into the regional hub for budget travel . Therefore .. Whilst going through a calculated expansion routes and networks . The companies goals now is to carry 70 million passengers a year. The core values of Air Asia are adopting safe practices. The goals and objectives of Air Asia are guided by its corporate vision and mission which include emphasis on safety. it also has started to add routes and network in a prudent calculated way. Table 1. business model and core values) is central to its success as a leading budget airline in Malaysia. within six years starting from 2014. valuing its employees. add frequencies and develop the existing routes. focusing on customer. customer focus. the company also ensures to reduce the risk of business loss. Porter’s generic strategies (table 1) . AirAsia also intends to create more profit by expanding its business to other Asian countries.Air Asia’s value system( vision. AirAsia’s business strategy is centred on cost leadership.AirAsia’s business strategy can be categorized into focused cost leadership.In maximizing shareholders’ value. Aligned with its mission statement. maintaining highest standard of corporate integrity and commitment for performance excellence. introduce more routes. its business strategy targets specific markets.Michael Porter’s Generic strategies . Besides. operational excellence and human capital development . price sensitive customers (including first-time fliers) needing short-haul flights.
An example of state owned or assisted airlines in Malaysia is Malaysian airlines system (MAS) These companies were often well subsidized and protected from competition. Opportunities Privatization and de-regulation have opened the way for new routes and air port deals through open skies agreements between countries.AirAsia builds and sustains its competitive advantage by providing services at a price that is simply lower than competitors’ price. As a result. Malaysia signed an “open –skies” agreement with the United States in 1997. Most governments were instrumental in the success of the most airlines success in Asia . management and control . or the permission of the entry of private airlines . The threats and opportunities have been identified and discussed below. ENVIRONMENTAL ANALYSIS An environmental analysis is done using PEST model. These companies were focused on achieving national objectives rather profit oriented. 1. 5 . Most airline companies in Asia had full or substantial state ownership .Thus. to penetrate into the untapped market share . AirAsia could to go for long haul flight services. the airlines could use their new aircrafts in the new routes. Political There was an on going consolidation in the airline industry as a result of increased privatization and government -deregulation throughout the world. The sources of cost advantages contributable to the low cost business model for each activity in AirAsia’s value chain. reducing the constraints for international airlines ie. These cost advantages constitute AirAsia’s order winner in competing with its rivals as they enable AirAsia to provide the lowest cost service. Operation effectiveness and outstanding efficiency are two main characteristics of low cost businesses including AirAsia. 3. Such agreement enables new airlines like AirAsia to access to domestic routes of other countries.
. Threats During this period of recession. If customer confidence is affected. 6 . the airline industry was also affected global uncertainties such as accidents.Threats In the era of globalization. However. as for AirAsia this situation created an opportunity .The leasing costs of airplanes were drastically reduced by about 40%. Whenever the price of fuel rose it had an impact on the airlines’ operating costs. This enabled AirAsia to lease planes at a cheaper rate on pass on the cost savings to customers in the form of cheaper fares. geography and infrastructure of Asia and the travelling preferences of customers. In Malaysia as Air Asia is subjected to undergo several government regulations. and disaster which affected the customer confidence to a certain extent. Overall under political heading there are more opportunities than threats. 2. Being a low. the airline only could minimize or contain the negative impacts by selecting the most favourable routes. This affected the budget airlines as well. This would result in decrease in yield and profitability . or even lead to bankruptcy. the air transport industry also faced fluctuations in fuel prices .cost carrier. Economic Opportunities The global economic downturn has resulted in decline in airlines business. terrorists attacks. Air Asia is subjected to aviation regulations and government restraint. AirAsia may face the threat of losing its profitability.
In addition Air Asia now offers services such as in flight food and drinks . The current situation gives AirAsia an opportunity to adopt differentiation strategy to alienate itself from competitors by offering good customer service as full service airlines with low fare. Technological Opportunities 7 . Social /cultural Opportunities Economic growth in recent years has led to rapid increase in middle class population in Asia resulting the demand for air travel to increase. car and holiday reservations and travel insurance. The surge in trade and tourism in Asia also caused the demand for air travel to increase.The economic trends faced by Air Asia is therefore unavoidable. Threats If Air Asia is not careful in implementing differentiation strategy. 4. However. 3. it could increase in operation cost in producing value added services. the opportunities posed by the downturn outweighed the threats and gave AirAsia an opportunity for expansion. The people are attracted by budget air lines because of their low fares as low as 10-20 %of those charged by full service airlines. opportunities outweigh threats in this cultural /social aspect.online sales of hotel. This has given AirAsia a competitive advantage. More and more people are now willing to travel at low fares and they are prepared to compromise on food and other services during travel. Overall. branded credit card .
Air Asia is the first airline in South east Asia to use e-ticketing and bypass the traditional travel agents. Copyright © 2009 Pearson Education.This has eliminated the need for large and expensive booking and reservations systems and agent’s commission. In fact. preventive maintenance and a contingency plan.This threat can be minimized if the airline have appropriate back-up system . As a result the air line was able to save the cost of issuing physical ticket .Air Asia fully utilize information technology . Threats Heavy reliance on online sales may pose a risk of system disruption . Inc. 4. INDUSTRY ANALYSIS 41 Porter’s Five Competitive Forces An analysis is done using Porter’s five forces` frame-work ( figure 1) to assess the competitive intensity and attractiveness of budget airline industry. Publishing as Prentice Hall Figure 1 – Michael Porter’s Five Competitive Strategies .
Therefore. 4. the threat of substitute is very moderate . and growing demand for affordable low fares amongst budget conscious customers have increased competition. in Asia the customers are unable to use them due to geographical reasons. Threat from new entrants The barriers to entry in airline industry is high. However. threat from substitutes is in the budget air line industry is sizeable.Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs ( raw materials. rail and maritime carriers.1. 3. These new entrants have the advantage of brand marketing. especially leisure travel is therefore very price elastic . ATR and others. In airline industry the bargaining power of suppliers is low as there is stiff competition between air plane suppliers . 2. Rivalry intensity 9 . components and labour).namely Boeing. Bargaining power of customers There is almost no switching cost for customer who intend to switch from one airline to another. loyalty and other benefits overflow from their parent companies.e. However. 6. Firefly . Threat from substitutes Airlines industry has several substitutes including road. factors such as de-regulation by Asian governments. Air travel. The capital requirement and government restrictions such as air service agreements are real barriers to industry. There are more choices for the customers and they are able to compare the prices between airlines via internet. Now with AirAsia’s overwhelming success has prompted many full service airlines like Malaysian airlines Systems (MAS ) launch their own budget airlines i. Therefore.
15 0.33 0.15 0. AirAsia is also facing intense completion from a broad range of other air lines .06 1.20 0.10 0.03 0.05 0.18 0.00 0.45 0.09 0.04 0. 4.1Industrial analysis using external factor evaluation (EFE) matrix Key External Factors Opportunities National & international Markets Growth of older generations Industrial R&D Growth of population New technology opens the door for new products & services Increased internet advertising Familiarity of generation X with air travel and technology Growth of business travel Threats Decline of leisure travel due to economy and terrorism Competing online ticketing reservation system New government regulations makes operations costlier Demand for air travel sharply after September 11 Gas and fuel price fluctuation Terrorist attacks Increase restrictions to limit noise (including restriction on types aircraft used and limits on a number of operations weight Rating Weighted score 0.07 0.11 0.06 0. ground transportation and maritime services.09 0.18 0.10 0.30 0.05 0.03 0.Rivalry among budget airline companies is very high due to increased competition by more and more air lines and high exit cost .In addition.06 0.06 0.12 0.15 0.06 .18 0.21 0.02 0.03 3 3 3 3 3 3 3 3 3 3 3 2 3 3 2 0.
Increase in annual airline security costs 0.08 10 .04 2 0.
External Factor Evaluation (EFE) Matrix 2. This is not so. 5 . Air Asia lines can take advantage of opportunities available such as older generation. AirAsia has a upper hand in this matter because its cost will be still the lowest among all the regional airlines. 11 .83 Based on table 2 above.0 Table 2 . there will be also some reduction in overall travel especially by casual or budget travellers.COMPANY ANALYSIS 5. Internal factors as well as external factors are used to analyse company and the External environment . . growing demand travel (leisure and business) and Familiarity of generation X with air travel and technology. However. Weaknesses. growth of population. Opportunities. Being a low cost leader. EXTERNAL FACTORS : Opportunities a) Increased fuel price The increasing oil price at the first glance may pose threat for Air Asia. Air Asia has a great opportunity to capture some of the existing customers of full service and other low cost airline’s customers. internet . new technology . and Threats involved in a AirAsia’s business. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objectives.1 SWOT ANALYSIS A SWOT analysis is done to evaluate the Strengths.1. Thus.
AirAsia with its “first mover” advantage as well as its strengths in management. d) Population increase The population of Asian middle class will be reaching almost 700 million by 2010. For instance.This led to the liberalization of ASEAN capital routes. strong brand and “low-cost” culture among its workforce viewing this agreement as more of opportunity than threat. This creates a larger market and a huge opportunity for all low cost airlines in this region including AirAsia. strategy formulation. security charges and landing charges and these are beyond the control of airline operators . c) Partnership with other low cost airlines There is also some opportunity to partner with other low cost airlines such as Virgin airlines enhance their existing strengths or competitive advantages such as brand name. This has resulted in increased competition among the regional airlines. This poses a threat to all airlines especially low cost airlines which tries to keep their cost as low as possible. landing rights and landing slots (time to land). However . Threats a) Air port charges Air port charges imposed by air port authorities includes airport departure.b) ASEAN open skies The “ASEAN Open Skies” allows unlimited flights among ASEAN’s regional air carriers since December 2008. b) Competition from other airlines 12 . strategy execution. Changi airport in Singapore charges SGD21 for every person who departs from Singapore.
The Air Asia management team is good at strategy formulation and execution. For example. b) Branding 13 . They adopted the proven strategies of South west Airline and Ryanair (no frills.This is a major threat to the company as its operations heavily dependent on jet fuel. The executive management come from diverse background which consists of industry experts and ex-top government officials . car rental). c) Fluctuating fuel price There is always fluctuations in the fuel price due to economic and political factors ie.Now AirAsia is reaping profit margin of more than 30% and this has already attracted many competitors. Southwest’s people strategy (employee comes first) and Easyjet’s branding strategy (linking with other service providers like hotels. Singapore Airlines has created a low cost carrier Tiger Airways. war . Most of the full service airlines already have or planning to create a low cost subsidiary to compete directly with AirAsia. Shortage. landing in secondary airport). INTERNAL FACTORS Strengths a) Management team The real strength of Air Asia is based on its strong management team with strong links with government s and air line industry leaders.
Air Asia’s local presence in few countries such as Indonesia (Indonesia AirAsia) and Thailand (Thai AirAsia) have successfully “elevated” the brand to become a regional brand beyond just Malaysia. The workforce is very flexible and high committed and very critical in making AirAsia the lowest cost airline in Asia. This includes the contribution made by IT in promotional activities (email alerts and desk top widgets ). With the help of AirAsia Academy. car rental firms. hospitals (medical tourism). d) Utilization of Information Technology (IT) Information Technology has contributed to the progress of Air Asia to a greatest extent. Citibank (AirAsia Citibank card) has created a very unique image among travellers.IT also resulted in direct purchase of tickets by customers and savings in air line agent’s fee. For instance. Besides the normal print media advertising & promotions.Malaysian Airlines (MAS). AirAsia has successfully created a “low-cost airline mentality” among their workforce. brand building exercise ( with 3 million hits per month and is a most widely used search engines of the world today). The links with Manchester United (one of the world’s most famous football teams) and AT&T Williams Formula One team have further boosted AirAsia’s image to a greater extend beyond just the this region c) Low cost leadership AirAsia is the low cost leader among air lines in Asia. as 14 .AirAsia’s brand name is well established in Asia Pacific region now. AirAsia’s top management also capitalised on promotions through news by being very “media friendly” and freely sharing the latest information on Air Asia as well as the airline industry. e) The Malaysian government support The government of Malaysia offers whatever assistance it can without jeopardizing the national interest and its flag carrier . Their partnership with other service providers such as hotels and hostels.
repair and overhaul (MRO) facility. The profitability of AirAsia is further enhanced through its diversification strategies( such tune hotel . tune talk etc) and joint ventures ( ie. the Sarawak government has offered to AirAsia to build a dedicated low cost carrier terminal (LCCT). The revenue of the company is impressive and is increasing. being charged for a lot of things and not able to change flight or get a refund if customers could not make it. repair and overhaul (MRO ) facility The air craft maintenance cost is surging. But now. Examples of complaints are around flight delays. f) Financial position From the very beginning the financial performance of AirAsia has been very good. It is a competitive disadvantage not to have its own MRO facility. Air Asia does not have its own maintenance. With Thai Airways and Indonesian Airways) Weaknesses a) Maintenance. b) Good customer service is critical AirAsia receives a lot of complaints from customers about its service. c) Air craft Financing 15 . Good customer service and management is critical especially when competition is getting intense. This is attributed to low operation and distribution costs which enable the airline to offer an attractive ticket price which no other airline can match..per report in Starbizweek. It may be a good strategy when they first started with only Malaysia as the hub and few planes to maintain. Thailand and Indonesia) and over 100 planes currently owned and about another 100 planes to be received in the next few years. with few hubs (Malaysia. Air Asia have to ensure proper and continuous maintenance of the planes which will also help to keep the overall costs low. on 5th March 2011 .
(O1. WO strategies 16 . WO strategies 1. Diversification (related and unrelated) . AirAsia is purchasing more aircrafts to cater for the increased demand. AirAsia has to fight off competition and new entrants into market. ST strategies 3.S6 ) 3. new services or products such long distance budget travel .2 SWOT matrix analysis Using external and internal factors a SWOT matrix is done ( table 3) to formulate the appropriate strategies. SO strategies This means using AirAsia’s strengths to seize opportunities.T3 and T4) by using its strength such as strong financial position and branding ( S 3. Air Asia now getting the planes on lease instead of buying.(S3) 2. Government regulations which are threats( T1. ST strategies This strategies are use strengths to overcome or contain threats.AirAsia as part of its expansion plan . To overcome this problem.07 ) This strategy focused on expansion of untapped markets. this cost is surging. 5.O2.04.There are 4 types of strategies : 1.This is because of the opportunities presented by globalisation ( 01) and AirAsia’s strong financial strength. WT strategies 4. SO strategies 2. However..
Marketing & advertisement 5. 4. critical customer service and thinning profit margin (W1. 7. Branding OPPORTUNITIES 1. High cost of operation expenses(W1) 2. Substitutes 3. and further increase in fuel and take appropriate ( T1. Low profit margin 3. Entry of new budget airlines Government and IATA regulations policies Congested facility at KLIA Further rice in the price of fuel. Low budget long distance travel ( S3) ST. Efficiency in business 3. Customer service is critical 4. processes & supply chain (W1. Outsourced MRO facility WO – STRATIGIES 1. WT – STRATEGIS 1. 5. Use more IT 2. 6. Training & development 6. 6. 01) Diversification (related and unrelated) New services& products ( S1. Globalisation 2.and T 6).W2 . market((01. Penetration into new markets 2.S2. Strong competition 2. . Penetration De regulation of air ways Upstream and down stream integration Population growth Rise in the middle class population THREATS 1. Financial position 4. O4) 3.STRATEGIES 1.The weaknesses are high operating costs ( W1. WT strategies Now AirAsia needs to focus on issues such as the high cost of operations. STRENGHTS 1. Introduce new services WEAKNESSES 1. Increased jet fuel prices 3. S2 . 8. SO – STRATEGIES 1.W3 ) are can be overcome by its strengths such as (S1.T3.S2 and S3) can be contained or reduced by its strengths ( S1. Good management team 3. S3 and S5) 4. Largest budget air line in country 2. AirAsia must try to minimise the impact by prudent management.S3) Ie. 4.W2 and W3) in the wake of threats such as strong competition. Expansion to untapped 2. 5. substitutes new budget airlines. Bench marking against strong players 4.T2.
32 2.72 3 0.2 million in the fiscal year 2009 5 . Net income increased from RM 0.3 Internal factor evaluation model (IFEM The internal Factor Evaluation Matrix appended above (table 4 below ) is self explanatory and gives a comprehensive view of the company .09 Strengths 1.61 Weaknesses Fewer international flights 0.03 leader for the last 3 consecutive years 3 . Internal Factors weight Rating 5 3 Weighted score 0.08 4 . Named the best low cost airline 0.40 0.40 4 4 0. Revenue increased by 10 % to 0.08 2 consecutive years Sub total 0.SWOT Matrix Analysis for AirAsia Berhad 5.40 0.09 7.08 3.6 million (loss) in 2008 to RM 506.Air Asia posted profit for the last 0.08 5 5 5 0.35 4 0.13RM billion in fiscal year 2009 5 .10 o f the air industry 6 . Diversity in upper management 0. Dominates the short haul segment 0.08 2 .Table 3 .36 0. 2nd largest domestic airline 0.40 0.07 496.24 .High capacity usage 0. Overall the company’s score is impressive.
32 18 .No segment seat 0.08 4 0.
24 0. However. AirAsia also needs to be aware that market growth is not the only factor or necessarily the most important factor when assessing the attractiveness of a market as growth markets attract new entrants. if capacity exceeds demand. then a particular market may become a low margin one and therefore becomes unattractive.Internal Factor Evaluation (IFE) Matrix for AirAsia Berhad 5.08 0.1 Table 4 .18 0.40 1.3 BCG Matrix Figure 2 – The BCG Matrix Reference to the BCG Matrix figure 2 above.Dependent on single producer Carry small amount of freight Increasing operating costs Sub total Grand total 0.38 4. In addition. . although generally ‘Stars’ are leaders in high growth markets and tend to generate large amounts of cash. For instance. AirAsia must be mindful that they also use a lot of cash because of growth market conditions.06 0.39 3 3 5 0. the flight service provided by AirAsia is definitely falls under ‘Star’ sector as the company has achieved high growth rate as well as acquired comparatively larger market share.09 0.
COMPETITIVE STRATEGY 19 .6.
AiraAsia seems to provides excellent service in terms of Customer service besides its low priced tickets because they provide many communication channels like face book.2 3 0 .11 0 3 0. India.52 4 0 . twitter and emails and even PREMIUM lines . Tiger Airways. Australia.33 3 0 .36 3 0 . It has connecting services to various destinations which includes USA.4 5 3 0 .09 5 0.3 4 0 .8 4 Table 5 .52 3 0 .2 4 T otal num ber of destinations Seat comfort 0.4 5 3 0 .Myanmar.It normally take 45 minutes to get through a JetStar Customer Relations Officer but it 20 .27 2 0 .24 3 0 . Firefly .3 9 T otal Score 1 3. a subsidiary of Singapore Airways(SIA) has connectivity to 34 destinations in China.13 4 0.42 3 0 .86 3 .15 3 .Now Air Asia is facing strong competitive pressures from Tiger Airways . a subsidiary of Malaysian Airways(MAS) has two 50 seater Fokker aero planes and covers a few destinations in Malaysia and Thailand.3 3 Price com petitiveness 4 0. Based on Competitive Profile matrix at table 5 .33 3 0 .0 5 4 0.40 3 .32 2 .1 8 O n s c h e d u le in a ir s e rv ic e 0 . A comparison between the four budget is shown above.56 3 0 .14 0. Cambodia .4 2 C ustom er loyalty 0.0 5 u 5 0.Japan . JetStar airways and Firefly. Among all the three industrial players.20 3 0 .52 4 0 . Thailand .1 Security 0.1 5 R esp on se T o C 0.08 3 0. Singapore.18 3 0 .56 3 0 .4 5 4 0 . Australia.Competitive Profile Matrix JetStar Airline is owned by Quantas Airways and Temasik holding .5 0 . Indonesia.49 3 0 . Philippines.Indonesia .1 8 0.It is a new airline for Australia and Asia Pacific.1 5 2 0 .24 3 0 .Hongkong and Taiwan.1 4 4 0.They listen to customers’ feedback and try their best to answer customer’s enquiries on face book which other 3 airlines do not have . Thailand . C ritical factors W e ig h t A ir A s ia J e ts ta r T iger A irway F irefly R a tin g W e ig hsteo re R a tin g W e ig cote dR atin g W e ig hsteo re R a tin g W e ig h te d d c s h re cd A d v e rtis in g /p ro m o 0 .56 3.4 2 C ustom er on line 0.45 3 0 .1n s 3 tio 5 0. Vietnam.42 4 0 .5 0 .33 3 0 .2 5 4 0 .24 3 0 .4 5 Q uality of service. Vietnam and Philippines.06 5 0.24 3 0 . Taiwan.20 3 0 .
1. The revenue of AirAsia has been increasing steady and the return on equity indicates adequate return to the shareholders( refer Appendix 1 &4).2 million in 2009 to 16. This was partly attributed to the increase of number of passenger from 14. by 10% from 2008 to 2009 and by 8% from 2009 to 2010. For 2007.29 in 2009 indicates that it can easily meet its short term obligations.06 Million( excluding its other subsidiaries) in 2010.15 in 2009 shows that the company is strong as its assets are primarily through equity.2008 and 2009 As indicated in figure 3 –Bar chart the sales of AirAsia increased by 41% % from 2007 to 2008 . 7. In the case of Tiger Air customers always never get through and always get cut off even before connected. When combined . The quick ratio of 1. Based on the 4th quarterly report for 2010 presented on presented on 24/2/2011.usually takes less than 20 minutes to get through AirAsia Customer Relations Officer. Overall company’s performance in 2009 (refer appendix4 ) after undergoing recessionary trend in 2008 is satisfactory. FINANCIAL PERFORMCE Figure 3 : A Bar chart showing Revenue of AirAsia Bhd. The debt ratio of 0.1 million in 2010. Air Asia’s profit surpassed the One million mark as it posted a net profit of RM.
there were 25.with Thai Air and Indonesian Air Asia .7 million people carried 21 .
Demography There are more than 558 million people in AEAN countries and over 3 billions people in China and India.by AirAsia. Strategy 1. Declining aircraft cost in global context There was a decline in the purchase price and leasing rate of planes in the aftermath of the September 11 events. The growth in population . urbanization coupled with growth of middle class population had created a demand low budget air travel. 8. 2. Attractive market The geography of Asia has assisted AirAsia. 3. In LCC industry cost is the competitive priority and 22 . Most of Asian cities have more than 1 million people and this favoured travel. AirAsia took advantage of the situation. 4. Breaking billion ringgit net profit barrier is the biggest milestone for Air asia despite its spending per passenger has is now at RM 43. The pacific and Asian regions are made up of several islands and all these areas are with poor road network. CRITICAL SUCCESS FACTORS Several factors have attributed to AirAsia becoming the leading budget airline in the Asian region which includes factors such as declining air craft costs. demographical factors and AirAsia’s strategy. 1. Corporate strategy AirAsia’s corporate strategy is aligned to its mission statement. This is because of the huge size of the market. AirAsia adopts focused cost leadership. In Michael Porter’s generic terms. geography of Asia.
In Porter’s generic strategies. Business Strategy The business strategy however targets specific markets : price sensitive customers needing short haul flights. Functional strategy AirAsia’s attention to functional strategies . even compared to bus and road fare. Culture AirAsia lines has developed a brand that is accessible to everyone. limited perks and intensive screening of budget requests. determination and patience have made the low budget airlines a success story today. In particular they have managed to achieve a high level of coordination between employee groups resulting in greater aircraft and employee productivity. safety and staff training 4. The airline company offers attractive ticket price . AirAsia has created a positive workplace culture by promoting open communication and strong team coordination. Malaysian Airlines and other budget airlines . This is evidenced by high efficiency. fewer flight delays. rewards linked to costs containment . 3. AirAsia’s strategy is described as focused cost leadership.determines its success and market position. AirAsia has successfully adopted a cost leadership strategy because of the huge size of the market.000 staff whose dedication. technological development. 23 . The driving force behind the AirAsia brand is single most important asset – over 4. and has thrived through competition. low overheads . and fewer customer complaints. intolerance of waste. 2.The budget airline’s functional focus includes :quality control. despite facing stiff competitions from the national flag carrier . This was achieved with the support of toplevel management in conjunction with a set of employee practices. The cost leadership strategy that has permeated into the entire firm.
leadership. flying safety. There is a board comprising 6 directors who elect a chairman. management control and operational control. Quality control and safety. Information technology. Control There exists three types of organisational control in AirAsia : strategic control. cargo . Strategic control is concerned with tracking the strategy as it is being implemented. 6. AirAsia Thai and AirAsia Indonesia are departments based on geography and enjoy certain level of autonomy. discipline. Corrective action is taken where performance does not meet standards. Organisation and Structure Structure of an organization is a foundation of any organization and AirAsia has all the three types of organization structure: Functional . or termination. motivation. The key elements of AirAsia’s internal control system are appended below: • Clearly defined delegation of responsibilities of board and principal office bearers • • • Documentation of standard operating procedures with regular updates Detailed budgeting process A half yearly review of the annual budget 24 . This action may involve training. AirAsia has a functional structure headed by a CEO. flight operations and go-holidays. detecting any problem areas or potential problem areas. The CEO is assisted by a deputy CEO. Commercial . All airport & public safety. operations . Finance and strategic planning . and making necessary adjustments. Operational control systems are designed to ensure that day-to-day actions are consistent with established plans and objectives.5. projected and matrix. Air Asia uses project and matrix structure. Under the CEO there are 15 departments ( line and functional /staff) : AirAsia Thai. AirAsia Indonesia. Engineering.
AirAsia has e liminated “over the counter” booking system. Leadership Leadership of AirAsia CEO . raise and create) . With the Four Actions Framework of Blue Ocean Strategy ( eliminate. Thailand and Indonesia . Blue Ocean strategy By adopting Blue ocean Strategy.The company also reduced “luxury facilities “ provided at the Airport lounge. AirAsia has implemented many strategic moves to ensure they are making Malaysia Airline and other regional airline companies irrelevant. He hears and involves his staff’s participation in decision making.7. Tony is always looking for ideas that move the organization to reach the company's vision. Tony like any other CEOs focus on the big picture. reduce. To name a few his contributions : online ticket booking system . no frills airline in Southeast Asia. AirAsia has managed to avoid the red ocean (compete with Malaysia Airline and regional airline) by looking into the factors that industry take for granted and also factors that important to customers. which has flourished into a household name in Malaysia. Today AirAsia is a leading low fare. needing to be surrounded by people who take care of the details. paperless ticket etc. online check-in. democratic and servant leadership styles . This leader is highly visible and uses chain of command to get the job done. the fledging airline with a RM40 million debt became a blooming. free food /beverage on board and seating class booking system . Tony motivates his team regularly to be effective and efficient. thriving business. Tony Fernandez is one of the critical success factors of the low budget airline. Under the able leadership of Tony Fernandez . Tony Fernandez is a mixture of situational leadership style with transformational . seat quality and number of attendants served on board.Tony through the various transformation efforts has implemented various strategies to achieve the success. Strategic moves under the Blue ocean strategy . 8. It also raised focus on several key destinations and 25 .
1. rising operating cost and inadequate infrastructure . such as airport boarding gates. which took off in good economic times. 3.Asia's low-cost airlines. Fuel price Fuel amounts to 60 % of AirAsia’s operating costs and spikes in jet fuel may lead to losses. 9. Increasing competition because of increasing number of low cost airline competitors. However.increased frequency of flights and created Online Booking system and Point to point travel system. are determined by non-market mechanisms. Economic downturn Air line customers decrease because of poor economy. PROBLEMS & ISSUES The Malaysian leading budget airline is facing many problems and issues which includes competition among regional airlines. 26 . are facing the stiff headwinds of the global economic downturn. 2. aggressive competition against the large and traditional airline companies. As the cost of fuel always fluctuate and variable. AIRaSIA has grown rapidly in recent years and while some airlines faring well. Competition The airline industry today operates in a competitive environment whereby firms set prices and domestic routes given derived from market conditions. despite recession. it rather difficult to do costing. but where access to some key inputs. impact of recession. the sector faces a bumpy ride as economic turbulence hits both domestic and international travel. fluctuating fuel prices.
Operating cost s The labour costs have been rising over the last decade . 10. These issues hurt the entire airline industry. even low cost carriers have been impacted by this . Crowded in the mornings and congestion on the runway have increased its operating cost. however. especially 27 . It has used IT to its advantage with the use of the internet and newer airplanes.Infrastructure The problem of inadequate infrastructure and facilities have impaired the smooth operation of AirAsia. and a sound strategic vision. 5. Moreover. security costs and stringent air transport department regulations put additional strain on airline operating costs without signs of relief. Tony Fernandez knowing the price elasticity of budget airline market well has said that AirAsia will not raise its ticket price. Higher fuel costs around the world. established ‘low-cost’ mindset with employees. unstable markets have made operational costs higher. do not seem to be overly dangerous. AirAsia is also the front runner in the low cost industry with its early conception and aggressive product branding and marketing techniques in the Asian region. When there exists many strengths for AirAsia there are also some weaknesses. and fluctuating. it is beginning to establish its name and brand on the world stage with innovative and intelligent sponsorship deals. RECCOMENDATION AirAsia is strategically strong with an organized management team. These weaknesses. Additionally. Finally.Other airlines however have resorted to fuel surcharge which is charged above the normal fare. 4. As a result AirAsia has to share the facilities at the newly built KLIA resulting in delayed schedules and inconveniencing customers.
28 . AirAsia has a relatively poor reputation with customers. thus. CONCLUSION To be a leader in the low cost carrier industry . The budget air line needs not just reduce cost and make the operational activities running effectively but also needs to come out with the strategy that can make competition irrelevant or uncontested market space through differentiation which AirAsia already doing but it has to enhance it further. Relaxation of the ‘ASEAN Open Skies’ laws means that. Furthermore. Finally. particularly due to their flight times and cancellations. In addition. Improvements are needed to be made in this area without increasing operating costs. with AirAsia’s established number one position. this also means that companies with less profit margins than AirAsia may become redundant in the future. Potential threats to AirAsia come in the form of potential new entrants into the market from established full carriers like Singapore Airlines and AirAsia are positioned well to withstand any competition in this area. 11. The company must have adequate back up facilities in case there is a system failure. Opportunity is the golden word where AirAsia is concerned. opening up customer bases previously unavailable to AirAsia. There are always threats from areas outside of AirAsia’s control such as terrorism and global conditions.for the airline industry. it is firmly established to overcome potential new entrants and increase market share in the future. AirAsia needs to use strategic management continuously because the airline industry is a unique and complex in nature. low cost. increased access for Asian people to the internet. there is much potential for AirAsia to expand its routes and frequency of flights. coupled with new and developing IT solutions allow AirAsia to bolster its reputation as an innovative and leading organization in terms of IT. However. AirAsia needs to be aware that system failures with the internet would seriously damage operations for such a technologically reliant company. strong brand and strategy execution. With the dramatic increase in middle income earners in China and India especially.
www.8th edition 29 .In a teleconference recently CEO Datuk Tony Fernandes said that AirAsia is in the best financial position now and it would continue its focus on lowering cost . Ryanair –Competitive Challenges and strategic choice in the budget airline industry . Despite the share increase in prices of oil and aviation fuel resulting from the Middle East crisis.scribed . REFERENCES 1) Sen Ze and Jayne Ng .improving returns and expanding its network.Kevan Scholes & Richard Whitington . 12.(page 694-707) – Low fares airline . Datuk Tony Fernandes has assured to the customers that it will impose fuel surcharges. Exploring Corporate strategy. Air asia story. How a young airline made it possible for everyone to fly and become a runway success practically overnight 2) http.com/doc/18152552/Ryanair-Case ( retieved on 20/3/2011) 3) Gerry Johnson .
One Lake Street.954 ) (1. plant and equipment Air craft fuel expenses Maintenance.795 ) ) 2008 RM'000 2854970 2007 RM'000 2.airasia.New jersey 14. F R .909.Prentice Hall.970 (236.644 ) (927.002 ) (447.779.4) AirAsia Berhad.901 (306.132.389.664.018.841 ) 30 . Strategic Management –Concept and cases Thirteenth Edition .793 ) (346. Annual Report 2007.Income Statement For The Financial Year Ended 31 December 2009 Revenue Operating Expenses/Cost of sales Staff Cost Depreciation of property. Blure Ocean Strategy for Corporate Malaysia (Article published in the Star.2008 and 2009 5) Danny Yap and Elaine Ang.pdf ( retrieved on 2/4/2011) 7) David. overhaul.Daily on 16/7/2007 6) http://www.com/iwovresources/my/common/pdf/AirAsia/IR/AA_4Q10_Analyst_Presentation.603 (1.Upper Saddle river . APPENDICES APPENDIX 1 . user charges 2009 RM'000 3.
704 8.Provision for loss on unwinding of derivatives .1) 376.018) 44.109.658 (4.298 ) (11.070 - 31 .186 ) (104.and other related expenses .86 Net profit/(loss) for the financial year Earnings/(loss) per share (sen) 506.276) (8.300.188 ) ) 102.971 (552.981.Travel and taou operating expenses .505 35. plant and euipment Intangible asstes Investment in subsidiaries Investment in associates Other Investments Goodwill 2009 RM 7.545 (351.198 622.835 ) (116.255.Other operating expenses Other Income Selling and distribution costs Administrative expenses Operating profit/(loss) Finance income Finance costs Profit/(loss) before taxation Taxation .635 (496.513.465 (27.814.738 2008 RM 6.619.Deferred Taxation ) (107.188 29 26.Gain/(loss) on unwinding of derivatives .Aircraft operating lease expenses .299 29 26.065) (26.277 20.449.758 60.570 81.594.583 .524 ) 22.652 30.945 (678.715 8.251 ) (53.503 (151.(410.764 ) 84.027) 62.Current Taxation .457 ) ) ) ) (307.954) 12.942.6 APPENDIX 2 - Balance Sheet as at 31 December 2009 Non-current Assets Property.052 (17.404 (3.649 (37.411.205 (92.5 63) (21.713 ) (92.393 - (46.785 ) ) (869.276) 36.300.738 2007 RM 186.021 ) 372.769) (8.160.433.034 912.245 (374.
698.284 4.other .Loan to a subsodiary Prepaid lease payments Deferred tax assets Amout due from a jointyl controlled entity Amout due from an associate 23.250 255.303 20.978.846 7.517 151.220.709.224 774.885 253.684 689.087 92.785 5.858 3.274 171.946 1.824 1.982.416.696 72 6.082 330.628 309.503 203.473 593.473.272 7.171 191.240.109 4.562.212 9.703.700 163.647 237.593 751.179.895.176.067. deposits and prepayments Deposit on aircraft purchase Amount due from subsidiaries Amout due from a jointyl controlled entity Amout due from an associate Amout due from a related company Tax recoverable Marketable securities Deposit.056 Net Current Assets Less : Non-current liabilities Hire purchase payables Borrowings 16 7.011 - 746.718 9.312 2.037 9.148 230.381 334.762 1.978 194.079 - 3.934 4.864 721.382 56 540.085 5.359 3.713 558.683 387.238 402.286 Current Assets Inventories Receiavble.510.732.216 1.106.295.236 Current Liabilities Trade and other payables Sales in advance Provision for loss on unwinding of derivatives Port employment benefit obligations Provision of warranties Borrowings (interest bearing) bank overdraft .067.634 77 538.795.625 - 32 .448 24.688 511.258 856.818.Payables Amount due to subsidiary Amount due to an associate Amount due to a related company Hire purchase payables Borrowings Current tax liabilities 872.719 256. bank and cash balances 20.177.930 3.562 193.399.180 190.972 153.747.990 283.
171 1.956 225.000.774 1.000 3.605.402 APPENDIX 3 .198) 2007 RM - 447.386 338.438 2.402 Capital and Reserves attributable to equity holders company of the Share Capital Share Premium Currency Translation reserve Retaines earnings Total Equity 275.138.352 592 632.697 1.814.644 346.105.216 592 1.000 195.377.000 17.067.126.206.621.060 165.712 2.940 225.067.260 27.605.288 2008 RM (869.020 237.421 735.635. plant and euqipment -depreciation 2009 RM 622.536 23.Port employment benefit obligations Borrowings (interest bearing) Deferred tax liabilities Deferred income 7.Cash Flow Statement for the financial year ended 31 December 2009 Operating Activities Profit/(loss) before taxation Adjustment : Property.458.621.536 60.954 - 33 .020 6.680 169.814.
565) (239.-write off -Gain on disposal Loss on disposal of other investments Amortisation of long term prepayments Amortisation of other investments Write-off receivables Provision for loss on unminding of derivatives Net unrealised foreign exchange (gain)/loss Interest expense Interest income 388 (30.533 (20.675 (2.Property.087) 22.457) 1.645 11 (39.265.701 (166.257.117) (192.709 - Changes in working capital : Inventories Receivables and prepayments Trade and other payables intercompany balances Cash generated from/(used in) Operations Interest paid Utilisation of provision for loss on unwinding of derivatives Interest received Cash receipts from customers cash paid to supplies and employess Cash from/(used in) operations Tax refunded Tax paid Interest expenses paid Net cash flow from operating activities Investing activities .601.061) (1.883.261 13 737 151.928) (12.153 (6.448) (48.990) 133.177) 1.208 (93.562.217 10.017 (322.300) 1.366.190) 1.407) (151. plant and equipment Investing activities securities Dividend received Interest income received Net cash flow from/(used in) investing activities Financing activities (180) (28.243) (1.117) (148.554) 4.468) (2.480 (565.520) 390.001) 50.731) 783.696) 9.518) 34 .578) (4.742) 371. plant and equipment Proceeds from disposal of property.197) 26.947.438) 77.391 29 (15.619 (416.713 227.538 (12.899.374.935.824 (89.777.763) 182.Proceeds from disposals Deposit on lease of aircraft Long term prepayments Proceeds from disposals of other investments Acquisition of subsidiaries Additional investment in subsidiary Proceed from disposal of investment in subsidiary Repayment of loan by subsidiary Purchase of property.872 (1.994 297.623.032 2.713) 6300 (3.755) 20990 - 2122743959 -1915738549 207005410 0 -15621176 -18286322 173097912 (5.043 (7. plant and equipment Additions .
2007 Profitability Gross Margin 2008 (0.31 Net profit Margin 0.906.390 (593.044.941 48.0 44 35 .531 (300.000) (62.053 0.FINANCIAL RATIOS FOR AIR ASIA BHD.207.936) 32.131) 5.603 25.758 1.670.511 597.748.25 (0.300 (7.575 269.317.200.302 120803 718465 390217 120803 APPENDIX 4 .Poceeds from allotment of shares Hire-Purchase instalments paid Proceeds from borrowings Repayment of borrowings Deposit pledged as securities (Repayment)/proceeds from short term bank borrowings (net) Proceeds from long term bank borrowings Repayments of long term bank borrowings Cash grant received Dividends paid to shareholders Net cash flow from financing activities Increase/(decrease) in cash and cash equivalents Currency translation differences Cash and cash equivalents -at start of year -at end of year 509.17) 0.882 (77) 3.414 (88.44 0.528.636) 21.662 2.29 0.12) 2009 0.112 1.591.238.217 (77) 1.202.019 2.20 Return on total asset (ROA) 0.780) 2.910.
01 days Average collection period Total asset turn over Debt Debt ratio 0.30 0.29 Quick ratio Activity Inventory turnover 80.46 1.14 days 106.09 1.49 0.30 1.47 1.18 0.34 days 155.19 1.25 0.08 1.Return on common equity (ROCE) Liquidity Current ratio 0.44 46.15 36 .16 0.31 0.40 84.03 88.28 0.
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