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1.0 Introduction
AirAsia originally was founded by government and on 2 December 2001 was bought by
Tony Fernandes. AirAsia was established in year 1993. AirAsia has travel around the earth
and ascend to become the worlds best in year 2001. AirAsia continues to spread out the way
for low-cost aviation through the innovation, efficient and passionate approach to business
with a route a network that extent through over 20 countries. There are some companies
which link with AirAsia such as AirAsia X, Thai AirAsia, Philippines AirAsia Inc., AirAsia
Japan and Indonesia.
In addition, for the vision part in AirAsia, AirAsia aims 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. While for the mission of AirAsia, AirAsia wants to be the best airline
company to work whereby employees are treated as part of the big family. Besides, AirAsia
try to maintain the lowest cost hence everyone can fly with AirAsia. Highest quality product,
embracing technology to lower the cost and improvement in service levels will be maintained
by the AirAsia airline also. Lastly, create a globally recognized ASEAN brand will be the
mission part of AirAsia.
In the values part, AirAsia will implement trough the following key strategies which are:

Low fare, no frills
Lean distribution system
Point to point network
High aircraft utilization
Streamline operation

The loyalty programmed of AirAsia will be BIG. BIG was known as the kind global
programmed where can earn BIG Points to redeem free airline flight. Members can enjoy
the preference booking, special offers and discount as an AirAsia BIG dedication member in
term and condition apply. (AirAsia, 2013)

2.0 Strategic Analysis

UGB202 Introduction To Strategic Management

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Strategy analysis was known as the process of developing strategy for business by
searching the business and environment in which it operates. (BusinessDictionary, 2013)
2.1 PEST analysis
PEST will be the type of situation analysis in political, economic, socio-cultural and
technological factors are investigate to chart of an organizations long-term plans.
(BusinessDictionary, 2013)
In the political part, AirAsia found that it is difficult to fly outside the Malaysia.
Double-sided agreement will be the main barriers in the way of low cost carriers. The landing
charges will also be another big factor which influence on costing of low fare airlines.
Besides, the low cost airline industry which situated in South East Asia has been
underdeveloped just because the aviation market is tightly adjusted by bilateral air rights
While in the economic part, AirAsia airline offers the low-cost carriers by providing
inexpensive ticket and few in flight services. These may help in obtaining the attraction in the
district despite having the strong competition from MAS (Malaysia Airline). For the current
depression will hit on the aviation business. With the slow down economy, more people will
want to buy the cheap tickets and enjoy the flight. Besides, the prices of the oil may be
another factor for the airlines. It is difficult to control the operations cost once the price of
the oil increasing.
For the social part, passengers are not willing to take the expensive airline for a longhaul flight. To help for the worlds population increasing, the numbers of tourist and educated
person are needed as help for increasing the growth of aviation industry. SARS had scare
people to fly over. Safety First was committed by the AirAsia, implement with all
regulatory institutions, set and maintain constantly high standards and the last will be
guarantee the security of staff and guests.

While in the technology part, AirAsia provides the online service which can combines
the air ticketing with hotel bookings, car hire and travel insurance. AirAsia had pushed the
internet booking services in order to keep costs in check. Besides, AirAsia also introducing
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the GO holiday, the online programmed where consumers can book the holiday package
online in real time. With the airbus A320, there will be better performance and reliability as
help in proving the fuel efficiency and extra capacity. (UK Essay, 2013)
2.2 Porter 5 forces
Porter 5 forces are a model which used by the company for industry analysis and
corporate strategy development. This 5 forces include supplier strength, competition,
customer power, the potential for new companies join the industry and threat of substitute
products (BusinessDictionary, 2013)

Figure 1: Porter 5 Forces diagram


Bargaining power of customers

Bargaining of buyers will be the ability of customers to put the firm under
pressure. (Wikipedia, 2013) There are 2 types of buyer power which are customers
price sensitivity and negotiating power. The Revenue Management System was the
only system which used by AirAsia. This system had made the airline understands,
anticipates, and react to the behavior of customer to maximize income from
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organization. This takes account into the operating costs and AirAsia has to optimize
prices and distribute amount to maximize the expected income. Seat and route will be
the 2 levels which optimize to be done in AirAsia.
Seats are available at various prices in different points of time. Reservation
will be charged once consumer changed the previous booking time to the earlier or
late after the days. While for the route, it can be done by adjusting the prices for
destinations that have higher demand when compare with others. Combination of
these 2 levels for all flight will be the best effective method. (UK Essay, 2013)

Bargaining power of suppliers

Bargaining power of supplier can describe as market of input. Supplier can be

a source of power over the firm. (Wikipedia, 2013) To overcome the problems of
bargaining power of suppliers, AirAsia has opted for the full fledged ERP system in
year 2005. By implementing the package, AirAsia is looking into well retain process
incorruptness, reduce financial month-end closing processing times, and speed up
reporting and data restoration processes. For the aircraft supplier, the power of
supplier will be strong. Other supplier like food supplier and fuel supplier, the supply
will base on the market condition. Prices could not be increasing too much as this may
become the risk for the long term business.
The second problem will be the high switching costs. Most of the AirAsias
aircraft are Airbus models. Besides, the technology which used by the Airbus is the
most progressive if compared with the previous Boeing model. This is why bargaining
power of suppliers is strong. (UK Essay, 2013)


Threat of new entrants

Threat of new entrance can be the profitable market that give high return and
attract the new firms. (Wikipedia, 2013) There is a high barrier entering the airline
industry since they postulate high resource to set up everything such as purchase or
rent the aircraft, set up office, hire the new employees and etc. this may help in
reducing the threat to AirAsia. Brand awareness will be important for industry. To
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enter the industry is not only ask for the high capital and at the same times create the
brand awareness. Consumers will just choose the products and services which they
most trust on. Brand loyalty can help in reducing threat to AirAsia too. Leading role
and favorable brand awareness had made to become a first choice among the
competition. (UK Essay, 2013)

Threat of substitutes

Threat of substitute will be the existence of products outside the area of the
common products boundaries increases the propensity of customers to switch
alternatives. (Wikipedia, 2013)
For the substitute products of AirAsia will be train, busses and cruise. But,
busses and cruises are not viable due to the geographical factor. Besides, business
travelers telecommunication and video conferencing was also seen as the substitute.
Cisco Webex offers unlimited meeting as low as USD 19 per month and the substitute
is moderate.

Rivalry among existing competitors

For most industries, the intensively of competitive rivalry is the major stator of
competitiveness of industry. (Wikipedia, 2013) The main competitors of AirAsia will
be MAS and Firefly. Through the agreement in August 2011 between AirAsia and
MAS, Firefly will be full abroad airline and MAS will focus on the strength and not
directly compete with AirAsia.

2.3 Value Chain

Value chain will be the activities that convert input into output which add into bottom
line and help to create competitive advantage. (BusinessDictionary, 2013) value chain can
divide into primary activities and supportive activities

Primary activities

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Primary activities in Porters value chains are as follows:

Inbound logistics
Inbound logistics includes few types of categories in airline industry such as
how to progress flights, keep eye on competitors and how to get the lowest price as
the control fuel efficiency by purchasing the advance when price is low. And last will
be plan routes.
Outbound logistics
AirAsia mostly use the operation through online and customers can get their
tickets by online booking. Customers can print out boarding tickets at homes. Besides,
AirAsia uses general electric engine for the customer safety as customers are the
priority of company.
Sales & Marketing
AirAsia has the strong brand name and marketing have significant collision on
any organization sales. Hence, AirAsia sponsors The amazing race and mu football
club. AirAsia paints some aircraft with club color and sports star, and Tony Fernandes
wears AirAsia official red cap and T-shirt in every official events.
AirAsia provides different t type of services to customers such as delay flights
more than 3 hours then US$ 61 e-gift will be given. Customers can also pre-book the
checked baggage in lower rate. Online booking hotels rent a car and medical services
also being provided by AirAsia.


Supportive activities

The supportive activities is took keep business clean and operational. There
Firm infrastructure

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AirAsia has advances from a classic lcc into integrated service provider.
AirAsia focuses on goals, provides cheap fare and explores the new markets. The
decision making process is simple.
Human Resource Management
AirAsia hires the competent workers and assign multi-skilled people so that
AirAsia can overcome the price in term of HR. this can sustain company mission and
recompense employees in term of performance.
Technology department
AirAsia uses many types of technology to minimize cost and makes operation
easier and efficient. AirAsia uses YMS which takes into account the operating cost
and envisaged revenues. Besides, CRS used by AirAsia for web-based reservation and
inventory system as CRS is a direct sale engine. ERP was implemented by AirAsia as
helps for time saving and speed up reporting and data restoration processes
2.4 SWOT Analysis
SWOT analysis will be a tool to identify strength, weakness, opportunities and threat
of an organizational. This can be internal and external. (Investopedia,n.d.) For the strength
part, AirAsia has maintained the low operational and maintenance cost by changing the type
of Airbus from Boeing 737 to A 320. Besides, AirAsia having the low operating cost due to
the online reservation system, no frill, quick checked in and etc. There is huge untapped
market in district, especially for business travelers and segment of for-the-first-time-flying.
And the last benefit of AirAsia will be the low cost airline.

While for the weakness part, AirAsia having the huge investments to acquire airplanes
and executing the latest technologies there is high amount of the operating cost. Besides, the
fight time for the AirAsia is more or less limited to 2.5 hours and could not operate flights of
longer duration without any frill. No Frill becomes impossible to implement for passengers.
While comparison with MAS, MAS will be the full service airline where AirAsia is a no frills
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airline. Besides, MAS flights depart and arrive at KLIA but AIRASIA just depart and arrive
at LCCT. In addition, MAS offers the higher luggage allowance but AirAsia just offer not
more than 15kg luggage allowance. Foods are not serving in AirAsia but MAS has the
offering the foods and drinks for the passengers.
For the opportunity part in AirAsia, AirAsia should offer low fares which encourage
people from all walks of life style to fly. Moreover, Airbus A320 should stimulate superior
amount of passengers. Offering the comfortable services for every consumer might be one of
the opportunities also. AirAsia might introduce the SMS booking which allows the customers
to book their seats at anytime and anywhere. With the acceptance in warranty the security of
stuff and customers, customer will have more confident and trust to flight via AirAsia.
And the last will be the threats. For the threat, there is no more no-frills airline in
AirAsia in order to meet numbers of customer demand increasing following with the success
story of Malaysias budget carrier AirAsia. Singapore airlines plan to develop a budget carrier
once Singapore airlines see the success of AirAsia. This can be the big market and
opportunity in Asia. Furthermore, passengers would not choose AirAsia if passengers need to
travel the long distance flight. Passengers would choose for the MAS or SIA which provide
the better services.

3.0 Strategy Formulation

Strategy formulation is the process of choosing the most suitable course of actions for the
realization of organizational goal and objectives. The process of strategy formulation
normally involves 6 steps which are:
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Setting organization objectives

Evaluate the environment of organization
Setting quantitative target
Aiming with divisional plans
Performance analysis
Choice of strategy

(Management Study Guide, 2009)

3.1 Business level

Figure 2: Porters generic strategies diagram

From the diagram above, it will become the simple way to let consumer know about
the Porter generic strategies and how its apply in AirAsia airline transportation. Aligned with
the mission statement, the business strategy of AirAsia is more focus on leadership.
Nevertheless, AirAsia business strategies focus on specific market especially for customers
who sensitive in pricing.
AirAsia provides the services at the price which is lower than other competitors. This
helps to builds and inherits the competitive advantage. Besides, there are 2 main
characteristics of low cost businesses which including in AirAsia are outstanding efficiency
and operation effectiveness. The objective of AirAsia is to achieve bigger cost advantages
than the adversary by continuously looking for cost reduction along the value chain. Through
the value chain analysis, people can determine how AirAsia creates cost benefits. The cost
advantages comprise AirAsias older winner in competing with the opponents as competitors
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enable AirAsia to provide the lowest possible price to the sensitive price to attract the
consumers. Cost can be the competitive preference and determines the market position in
LCC industry. (Viknesh Rajandran, 2012)

3.2 Portfolio analysis

Portfolio analysis is a method of categorizing the product according to the relative
competitive position and growth rate in order to lay foudations for strategic planning.
(BusinessDictionary, 2013)

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Figure 3: BGC matrix

The star will shows about the high growth and high market shares. Starts will be
diametric opposite of dogs. Starts generate the maximum profitability and involve the strong
marketing and branding. In AirAsia, Kl-Penang and Kl-JB will be the 2 most domestic routes.
These had achieved the percentages of 98 sold out rates. Besides, AirAsia provides the
highest profit margin of almost 90%.For the recommendation, AirAsia may use the position
to further the strength its dominance. This dominance can be done by providing additional
service counter to serve the path. Airasia can offer the excellent service and best deals to the
passengers. To fascinate new passengers, AirAsia can increase the baggage limits.

Question marks will be high growth and low market shares. Question marks show the
low market share but operate in high growth market. Question marks have the potential to
become start if the companies have sufficient cash to pumped into or else fizzle out into dogs.
In AirAsia, Kl-Gold Coast will be the most promising destination. This will be the cheap
solution for the long haul flight to European. The airport tax is lower in Coolanggata Airport.
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Hence, this helps AirAsia to reduce the price. Furthermore, AirAsia has added the flight
frequencies from once daily to thrice daily. Currently, this is one of the most highly sought
routes. For the recommendation, AirAsia can use the available resources and capital to
increase the frequency of this route. This can be the huge potential to return higher
Cash cows will be high market shares in a mature market with little or no growth.
Cash cows involve high revenue generators. In this part, this should focus less on advertising
and more on customer retention. In AirAsia, the growth is sluggish but never ended for the
demanding in Kl-Singapore route. This can be high tax and administrative cost. The
narrowest compares to other routes will the profit margin. And, in cash cows, there can be
highly competitive. In the recommendation part, AirAsia just needs to focus on the core
services for ensuring theres no flight delay or other collision. Investment for promotion
should be reducing as people nowadays had recognized the brand of AirAsia.
Dogs will be the low growth and low market shares. The market itself is not growing.
There is strong cause for the existing market. This can be the high liabilities as the company
needs more money. In AirAsia, KL-London route is the lease profitable route. To support this
route, AirAsia had lost Malaysian 20 million per year. Business travelers prefer the full
service airline due to the long haul flight. Casual travelers opted for MAS economy class as
travelers can enjoy the excess baggage benefits, flight meal and entertainment. Due to this
reason, AirAsia decided to cancel this route started on January 2012.

3.3 International level

3.3.1 Types of international strategy
Multinational strategy focuses on the local responsiveness. This type of
advantage approach on the firm can quickly respond to different regional needs and

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opportunities. This strategy can help in reducing the communications needs as the
local subsidiaries can make many resolutions.
Global strategies emphasize quickness as there is strong central control from
headquarters. Economics are come from standard product design and global
manufacturing. Wide communications and control system is necessary to manage
global firm.
For the international strategy is similar to multinational strategy. But, the
subsidiaries are very subordinate on headquarters for the new process and products.
Pharmaceuticals Company will be the good example. And, the local subsidiaries
underline the product approval by government and marketing.
In this transnational strategy, company willing to do everything! Company
will seek global efficiency while maintaining local reacting. Company combines the
global activities through cooperation among headquarters and foreign same time as
can obtain the benefit of global integration, efficiency and innovation.

Entry model strategy Exporting
Exporting will be the oversea sales in which supplier controls all

activities and collect all drawbacks. (BusinessDictionary, 2013)

AirAsia performs the activities on shippers behalf in order to provide
services to shipper:

Complete the document, revise product or service codes and pay duties


or taxes under applicable laws and regulations.

AirAsia acts as act as shipper's forwarding agent for consumers and


export control purposes.

AirAsia redirect the shipment to receiver's address upon request by
sender. (AirAsia,2013) Joint venture
Joint venture will be the new firm formed to achieve specific

objectives of partnership like temporary arrangement between two or more

form. (BusinessDictionary, 2013)
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Through the star newspaper on June 2011, AirAsia is targeting to set

up 3 more joint ventures to grow the adjuvant income and also in the midst of
finalizing an agreement which will announce on Thursday to buy nearly 200
aircraft which cost US$ 18 billion which need to fuel growth from 2015
From the words of chief executive officer Tan Sri Tony Fernandes, the
low cost airlines ancillary income will increase to RM50 per person in first 3
months versus RM38 previous relevant years. While in year 2012, Tony
Fernandes will increase RM50 to RM 60 again. Besides, Tony also mentioned
that was the first joint venture that will offer training for airlines throughout
Asia when at the JV signing ceremony.
Moreover, AirAsia has set up the bases in Thailand, Indonesia, the
Philippines, and Vietnam. And, Singapore will be the next target. In addition,
AirAsia joint venture in Philiphines is set to take off by October when JV
airline begin playing the Clark-Singapore, Clark-Hong Kong and Clark-Macau
routes. JV in Vietnam also will be take off even airline needs more aircraft in
Thailand, Indonesia and Malaysia. (B.K. Sidhu, 2013)


Strategic implementation

Strategic implementation is the activity which performed according to

the plan in order to achieve an overall goal. (BusinessDictionary, 2013)

Organization structure

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Organizational structure cares with the division of labor and

coordination of task. There are few types of organizational structure in
term of how well the structures satisfy the trade between specialization
and coordination.
The simple or entrepreneurial structure exists when the owner is
also the manager. The organizational structure major strengths will be
vision and flexibility. And, the increasing specialization functional needs to
bring in by manager.
For the functional structure, jobs or tasks are group together
according to functional specialization. This structure can promote through
division of labor and allow individuals to exploit inimitable abilities. But,
the one disadvantage will be each department focus more on own
department more than organizational goal.
While the division, this structure focuses on the decision making and
can be organize according the products and services market or
geographical areas. The advantage of division structure will be higher
level of motivation and innovation while the disadvantages will be
resource allocation based on short-term contribution.
For the matrix structure, matrix structures helps in increasing the
organizational flexibility and meet the needs of environment changing
rapidly. This can aim for the benefits increasing of functional specialism
while improving the coordination functions.
And the last will be network structure. In this structure involves
formation of outsourced activities confine by central hub and this
structure useful for the unpredictable environment such as fashion
industry. The advantage of network structure is flexibility and allows quick
responses to changes in market place.

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Below will be the divisional chart for AirAsia Company.

Figure 4: AirAsia divisional chart

From the divisional chart of Air Asia, there will be 12 departments in
AirAsia organization. Every department will be in charge by the head of
the department. The departments will be categories into countries, quality






communication, operation, bus dev, finance and the last will be secretary.
With the divisional chart, AirAsia will be easy to operates and achieve the
goal and compete with other competitors.

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Leadership will be the activity of guiding a group of people or an

organization to achieve the goals. Leader will provide the clear
information, knowledge and method to the group of members until the
vision had been achieved.
On 24 March 2009, Tony Fernandes mentioned that there is nothing more powerful
that inspirational leadership that unleashes principled behavior for a great cause. To makes a
company or government supportable, employees and citizens are impelled by the values and
principles to do the right things no matter how arduous the situation. Law will tell people
what to do and values will affect people what should do. And, thats the leaders job.
Emotional intelligence will be part of the leadership. The components of emotional
intelligence which can link into AirAsia will be motivation. Tony Fernandes keeps motivate
his employees by encourage employees to pressure the passions. AirAsia works hard for
creating the environment which can learn, grow and do what turns them on. Besides,
employees in AirAsia should be clear about the AirAsia mission which is Now Everyone
Can Fly.
4.2 Corporate governance
Corporate governance is the set of processes, customs, policies, laws and institutions
affecting the way a corporation is directed, administrated or controlled. Corporate governance
also involves the relationship among stakeholders and the goal for which corporation is

Importance of stakeholders

Stakeholders are those individuals or groups that affect or being affected by an

organizations action. Stakeholders can be:

Local community

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Stakeholders can divide into 2 categories which is internal and external. Some stakeholders
can be more powerful or interested compare with others. While for the stakeholders who are
both interested and powerful will be the one who needs to be satisfied at first. Stakeholders
are important in an organization as stakeholders provide the feedback to the companys
performance and make the company to improve better and achieve the goal.
In AirAsia, the stakeholders are customers, employees, shareholder and government.
With the helping of stakeholders, AirAsia inclines to create profits by enlarging business
reach Asia. Besides, AirAsia also expands routes and networks through cautious calculated
manner. Moreover, AirAsia invents and increase the brand population in order to pull up the
numbers of investors return.
5.0 Conclusion
AirAsia will be the best airline company as having the cheapest price tickets and letting
everyone can fly around the world. To make the company become better and better, AirAsia
was recommended to provide more choices of foods and drinks in order to reach the
satisfaction of passengers. In addition, AirAsia can think of giving extra luggage allowance
to 25 Kg to the passengers. A good leadership style can be affecting the entire company and
employees to become motivate and innovate. With the motivation and innovation, consumers
believe that AirAsia can be the successful airline company.

UGB202 Introduction To Strategic Management

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UGB202 Introduction To Strategic Management