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INTRODUCTION………………………………………………... 2

COMPANY BACKGROUND…………………………………… 3



STRENGTHS……………………………………………... 5

WEAKNESS………………………………………………. 7

OPPORTUNITIES………………………………………… 8

THREATS…………………………………………………. 9



CONCLUSION …………………………………………………… 12

RECOMMENDATION…………………………………………… 13

REFERENCES……………………………………………………. 14

This project paper is to relate chapter that we choose in management subject to Suite with
Air Asia Company. As our main topic is chapter twelve that is managing change and
innovation .We can define Air Asia organizational change and how it managers might change
structure, technology, and people. We describe the structural, cultural and human resources
variables that are necessary for innovation. Further explanation will be discussed throughout
this project. As we all had been informed, this task required to be relate with another chapters
is chapter eight that is strategic management and managing human resources which is chapter
ten .The chapter eight we will explain about the importance of Air Asia in strategic
flexibility and describe Air Asia e-business strategies. The chapter ten, we will explain how
Air Asia managers can manage downsizing and manage workforce diversity. It will show that
how their organizations are dealing with work-life balance issues and how their organizations
are controlling human resource.

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 has currently adopted information technologies strategically to integrate the
operations and coordinate allthe business and management functions. The followings are few
change and innovation that AirAsia has done in its marketing and sales activities as well as
operation activity in the value chain.

1. Services

2. Technology

3. Business Model

4. Design

5. Creativity


1. Strong management team

Air Asia has a very strong management team with strong links with governments and airline
industry leaders. This is partly contributed by the diverse background of the executive
management teams which consists of industry experts and ex-top government officials. For
example, Shin Corp (formerly owned by the family of former Thai Prime Minister - Thaksin
Shinawatra) holds a 50% stake in Thai AirAsia. This has helped AirAsia to open up and
capture a sizeable market in Thailand. With their strong working relationship with Airbus,
they managed to get big discount for aircraft purchase which is also more fuel efficient
compared to Boeing 737 planes which is being used by many other airlines

2. Strategy formulation and execution

The management team is also very good in strategy formulation and execution. The strategy
that they have formulated at the beginnings was a clever blend of proven strategies by other
low cost airlines is US and Europe. They are Ryanair’s operational strategy (no frills, landing
in secondary airport), Southwest’s people strategy (employee comes first) and Easyjet’s
branding strategy (linking with other service providers like hotels, car rental).

3. Brand name

AirAsia’s brand name is well established in Asia Pacific. Besides the normal print media
advertising & promotions, AirAsia’s top management also capitalised on promotions through
news by being very “media friendly” and freely sharing the latest information on Air Asia as
well as the airline industry. Their partnership with other service providers such as hotels and
hostels, car rental firms, hospitals (medical tourism), Citibank (AirAsia Citibank card) has
created a very unique image among travellers. Alliance with Galileo GDS (Global
Distribution System) that enables travel agents from around the world to check flight details
and make bookings have also contributed to their string brand name. Air Asia’s local
presence in few countries such as Indonesia (Indonesia AirAsia) and Thailand (Thai AirAsia)
have successfully “elevated” the brand to become a regional brand beyond just Malaysia. The
links with Manchaster United (one of the world’s most famous football teams) and AT&T

Williams Formula One team have further boosted their image to a greater extend beyond just
the this region

4. Low cost leader in Asia

AirAsia is the low cost leader in Asia. With the help of AirAsia Academy, AirAsia has
successfully created a “low-cost airline mentality” among their workforce. The workforce is
very flexible and high committed and very critical in making AirAsia the lowest cost airline
in Asia.

5. Excellent utilization of IT

The excellent utilization of IT have directly contributed to their promotional activities (email
alerts and desktop widget which was jointly developed with Microsoft for new promotions),
brand building exercise (with over 3 million hits per month and on the most widely surfed
booking engines in the world) as well keep the cost low by enabling direct purchase of tickets
by consumer thus saving on airline agent fees


1. Limited Service

Being low cost and budgeted flights, AirAsia cannot provide additional service to the
customer as per the customer requirement. The service provided was very limited, there
weren’t business class, no frill service and other service.

2. Unable to handle irregular situation

Being budgeted airlines, the human resources are limited to reduce the cost, the staff’s
member cannot cater various situational needs and handle irregular situation that arises
during their operations.

3. Dependent of Internet for minimizing distribution cost

AirAsia had to be solely dependent on e-commerce tool such as internet and phone, but
market in Thailand and Indonesia had low internet penetration and credit card usage. Hence
the airline was missing out the potential prospects within these markets.

4. Heavy dependent on Contracts and outsourcing

Various contracts and agreement were made to outsource different operation, including
maintenance and repair service to others in order to minimize cost. If ground support service
contractors failed to provide service in time, overall operation would be affect and delay the
boarding time can be experienced.

5. Questionable on-time performance

Limited aircraft also means unavailability of standby planes in the event of operational
problems. Passengers have to face trouble traveling on-time, which ultimately affecting brand

6. Air Asia does not have its own maintenance, repair and overhaul (MRO) facility.

It may be a good strategy when they first started with only Malaysia as the hub and few
planes to maintain. But now, with few hubs (Malaysia, Thailand and Indonesia) and over 100
planes currently owned and about another 100 planes to be received in the next few years,
AirAsia have to ensure proper and continuous maintenance of the planes which will also help
to keep the overall costs low. It is a competitive disadvantage not to have its own MR


1. Differentiation from traditional LCC model by adding customer service or

operation as full service airline with low fare

Operational improvements can expand and better service to customers able to modify the
company's profits, because of increasing competition due to the increasing number of low
cost airline competitors, and aggressive competition against big airlines or traditional.

2. Ongoing industry consolidation has opened up prospects for new routes and
airport deal

Cooperation between airports across the country can help increase profits for the
company. Existing with collaboration, AirAsia able to add their company flight
destinations throughout the country.

3. High fuel prices will squeeze out unprofitable competitors

The increasing oil price at the first glance may appear like a threat for AirAsia. But being
a low cost leader, AirAsia an upper hand because its cost will be still the lowest among all
the regional airlines. Thus, AirAsia has a great opportunity to capture some of the existing
customers of full service and other low cost airline’s customers. However, there will be
also some reduction in overall travel especially by casual or budget travelers.

4. AirAsia will get inherent advantage in long distance travel

With additional routes, as well as a good operation. AirAsia is able to attract more
customers for long-haul routes by offering affordable flight prices, because not many
low-cost airlines flying long distances.

5. Developed innovation technology

Technology development could help the budget airline's go further, except to facilitate the
operating system it can also facilitate customers to communicate directly through the
online system for booking tickets or to view the flight schedules and flight prices that are
offered. Technology can also help promote the company to the world.


1. Oil price at six month high.

Oil prices have surged to six-month highs above USD65 per barrel. Unhedged AirAsia could
experience an up to 50% increase in fuel costs in the second quarter compared with an
average of around USD40 per barrel in 1Q2009, which will have a major dampening effect
on earnings.

2. Swine flu spread.

If swine flu continues to spread and there is a major outbreak in Southeast Asia, all carriers,
including AirAsia could be significantly affected. LCCs in Mexico – the epicentre of the
outbreak – have reported traffic reductions in the order of 50% and the country’s full service
carriers have abandoned their international expansion plans. This does not appear likely at
this stage, although Japanese cancellations have escalated recently.

3. Rates beyond the control of airline operators.

Certain rates like airport departure, security charges and landing charges are beyond the
control of airline operators and this is a threat to all airlines especially low cost airlines which
tries to keep their cost as low as possible. For example, Changi airport in Singapore charges
SGD21 for every person who departs from Singapore.

4 Create a low cost subsidiary.

AirAsia’s profit margin is about 30% and this has already attracted many competitors. Most
of the full service airlines have or planning to create a low cost subsidiary to compete directly
with AirAsia. For example, Singapore Airlines has created a low cost carrier Tiger Airways.
Users’ perception that budget airlines may compromise safety to keep costs low.

-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
AirAsia as a company that joined in the airplane industry business must preparing a
good strategic management and need to thinking strategically when the competition in the
airplane industry becoming though, complex, and rapidly change. The competition among
airplane industry will become more grow, traffic volume also would be increase, and also the
Asian air travel market has always been intense. The AirAsia strategic management needs to
effectively and efficiently prepare and implement in the AirAsia company management.

1. Unique and complex industry

AirAsia is a unique and complex airline industry. AirAsia need to come out with the greatest
strategy to compete with their rival in the same industry. Its possible AirAsia could not be
able be compete with the complex business environment in the airline industry without the
right strategic management.

2. Planning, Organizing, Leading, and Controlling

In a company nowadays, general management engaging in the four major functions of which
is planning, organizing, leading and controlling. The process of achieving organizational
goals by may not sufficient and supportive for the organization succeed in the world of
complex environments. It concerns about the process to manage the company internally but
do not concentrate more on creating competitiveness regarding environments affecting the
organization. Even companies adopt general management to sustain profitability by reducing
the defects or costs, and improving operations process in order to increase productivity, they
may not succeed in the competition because they perform only similar activities better than
competitors but do not create distinctive competitiveness.

Additionally, they perform only operational effectiveness but not strategy. Operational
effectiveness and strategy are both essential to superior performance but they work in very
different ways. Strategy is about competitive position that the company performs different
activities from rivals or performing similar activities in different ways. To learn how the
companies create strategies and put them into action, the executives or strategists should
examine carefully an aspect of strategic management.

Moreover, the organization or company nowadays is faced with constantly changing external
environments and needs to ensure that its own internal resources and capabilities are more
than sufficient to meet the needs of the external environment. Organizations or companies do
not exist simply to survive in the market place but want to grow and prosper in a competitive
environment. In order to make sense of what is going on around them, firms must
undertake an analysis of their external and internal environment. To understand and how
take an action about external and internal environment, a company needs to support
themselves with a good strategic management.

Because of this reason, AirAsia need to consider a strategic management as the important
things in their company. The strategy that AirAsia need is not just how to reduce cost and
make the operational activities running effectively. But, AirAsia needs to come out with the
strategy that can make competitive position that the company performs different activities
from rivals or performing similar activities in different ways to achieve their business

AirAsia company needs to consider and stress to a strategic management because the
globalization. The globalization consideration impacts virtually all-strategic decisions in a
company. The globalization also forced AirAsia Company to survival for business. To see
and appreciate the world from the perspective of others has become a matter of survival

The underpinning of strategic management hinge upon managers gaining an understanding of

competitors, markets, prices, suppliers, distributors, governments, creditors, shareholders, and
customers worldwide. The price and quality of firm’s products and services must be
competitive on a worldwide basis, not just a local basis.The globalization makes a rapid
change in the business environment. Every company has a same chance and opportunity for
doing their business. For those company doesn’t aware and take this as important
consideration, they will failed to compete with their rival or competitors in their business.

Moreover, the strategic management becoming important due to the following reason is
because the rapid development in E-Commerce. Nowadays, E-commerce is becoming a
business tool. E-commerce also has become a vital strategic management and allows a
company to sell products, advertise, purchase supplies, bypass intermediaries, track
inventory, eliminate paperwork, and share information. In total, electronic commerce is
minimizing the expense and cumbersomeness, improved products, and higher profitability

In conclusion, Air Asia is need to aware and consider with the strategic management. The
reason of the airline industry is a unique and complex industry, not just how to reduce cost
and make the operational activities running effectively. But, AirAsia needs to come out with
the strategy that can make competitive position that the company performs different activities
from rivals or performing similar activities in different ways to achieve their business
successfully, and the last one is because the effect of globalization and E-commerce
becoming an effective tool in a company nowadays.


AirAsia has currently adopted information technologies strategically to integrate the

operations and coordinate all the business and management functions. 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.

1. Yield Management System (YMS)

• 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:

 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.


The main problem of the case analysis is that AirAsia overlooks their customer’s actual needs
because the firm is too focused on maintaining their balance between cost and profitability.
The analysts see this as a hindrance to the company’s mission and objectives, because they
are too focused on the innovation of their services andcampaigns while maintaining the no-
frills concept. With too much attention on makingchanges in their services, the company
might fail to actually satisfy their customers’ needs.The analysts therefore conclude that
establishing a good relationship betweenthe marketing team and other company departments
is the best alternative in order to solve the firm’s main problem, for failure to ensure good
relationships among sectorsmay cause the company to stray from delighting their customers
to focusing oninnovating their service instead.The alternative will not only garner more sales
for the company, but also goodservice image and increased popularity in the market due to
delighted customers’ word-of-mouth marketing. Moreover, the company need not adjust their
budgeting becauseall they have to do is create good relationships among sectors through open
dialoguesand cross-functional meetings. Most importantly, if the departments get along to
achievea common goal, company strategies will be effectively implemented.
Marketinginvestments will surely be returned in the form of well-formed customer
relationships,loyalty and equity.

For this case analysis, the analysts recommend the third alternative course of action, which is
to establish and ensure good relationships among the marketing team and other company
departments. Similar to “brainstorming”, it is to be done altogether in order to make an
effective plan of delighting customers while still keeping expense sat bay. Cross-functional
meetings are expected to be held with the marketing team leading among the other
departments. An open dialogue among them must take place and then they should agree on a
certain point of convergence, which the company will act upon afterwards. Based on the
criteria the analysts have come up, the company is expected to have an increase in sales
volume by getting the product more known to more and more people. If the marketing plan or
strategy is well prepared and done, the nit will bring good impact on customers as the
services availed were able to delight them. If that happens, it will be a delight for the
company as well for having profitable customers

Second opinion :

In order to gain market share and sustain its competitive advantages to be the low cost carrier
in the high demanding environment, AirAsia must

1. Develop new ways to manage both customer relationships and suppliers

or partners to optimize customer loyalty, supplier relationships, and revenue. The following
diagram shows the strategic forces of value proposition of the airline industry, showing that
the focus on Supplier and Alliances and Customers will drive positive values to AirAsia can
achieve. 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.

2. Maximized IT and implementing E-commerce in AirAsia business.

Nowadays, E-commerce is becoming a business tool. E-commerce also has become a vital
strategic management and allows a company to sell products, advertise, purchase supplies,
bypass intermediaries, track inventory, eliminate paperwork, and share information. In total,
electronic commerce is minimizing the expense and cumbersomeness, improved products,
and higher profitability.According to this statement, E-commerce can change the way of
doing business nowadays. E-commerce becomes a major success to Airplane Company to
make effectively and efficiency in their business.

AirAsia is one of the airplane companies, which is implementing E-commerce and

maximized their information technology usage to make the efficiency and effectively in their
company and make possible low cost carrier in their business. According to Pultorak (2004),
when the business strategy and IT are aligned, the IT infrastructure can continuously sense
the changing business needs and respond by provisioning or redeploying resources to match
the demands of the business.

Moreover, to maximize their IT, AirAsia implemented current IT such as yield management
system (YMS), computer reservation system (CRS), and enterprise resource planning (ERP)

3. Operation effectiveness and outstanding efficiency.

One of the AirAsia strategies to solve the current issues/problem in the lowest carries
competition among the LCC airline industry is to make operation effectiveness and
outstanding efficiency. AirAsia move from the traditional business into modern business by
implementing E-commerce and maximize the information technology (IT) in their business.

The implementation of E-commerce can reduce the cost of travel agents, and less of ticketing
paper cost.AirAsia also choose the route by adjusting prices for routes/destinations that have
a higher demand when compared to others.And than AirAsia also trying to reduce by using
better maintenance management.

According to Gloker (2002), by using the better maintenance management, AirAsia can save
large proportion of its maintenance cost contributes approximately 9% to the overall cost of
an airline.

In conclusion, those are the Air Asia strategy to make Operation effectiveness and
outstanding efficiency in their business. With this strategy, AirAsia can achieve their goals
and objective into the lowest carrier airplane in the world.

4. Implemented outsourcing in their business

To make the lowest carrier in airplane industry, AirAsia also face with challenged to make a
decision in terms of efficiency in their business how it will acquire the system. AirAsia have
two options in this strategy: in house building or outsourcing. In the strategy that AirAsia
used and implemented, AirAsia more preferred to used or implemented outsource system in
this strategy. The decision in outsourcing has several benefits such as cost, competency,
control, and also competitive advantage.

By implemented outsourcing in their business strategy will provide:

 Cost benefits to AirAsia because it can be eliminated in more resource

consumption (time financial).
 reduce cost in IT system activities which is can make possible more cost in their
 easily to control all the system that is outsourced to another vendor or company.
The control in this strategy also gives benefits because AirAsia function only to be
a controlled a system that is AirAsia used.
 reduce risk, and it can make AirAsia not spend their financial to cover the risk
factor in this strategy.