Introduction

Air Asia Berhad is a Malaysia based low cost airline that operates both domestic and
international Aviation services. Air Asia Berhad belongs to the Air Asia group which is
one of the largest operational Airlines in Asia. Air Asia Berhad supports the no-frills
concept in the Aviation services and has been popularly voted as the world’s best low
cost service Airline in the year 2009 and 2010.

This report provides with an extensive strategic analysis of the leading low cost Airline
in the Asian Region, which is Air Asia Berhad. The analysis presents the situational
analysis of the Aviation Industry especially in the Asian region with the help of PEST
analysis tool. The strategic capabilities of the Aviation player Air Asia Berhad have also
been presented along with the SWOT Analysis. The various strategies for handling
excessive competitive pressures have also been discussed. The strategic tools of
Opportunity Matrix and Porter’s Five Forces Model have also been used for evaluation.
The report ends with a set of viable recommendations for Air Asia Berhad to tackle the
rising competition. The report concludes on a positive note indicating immense growth
potential for brand Air Asia Berhad in the Aviation business.

1. Situational Analysis for Aviation Industry in general (Using PESTEL Analysis)

Air Asia Berhad implemented its low-cost and high-service frequency business model in
association with the ASEAN region. The brand operates in an extremely volatile and
competitive market conditions. Situation Analysis or macro economic analysis is
essential to understand a holistic view on the aviation industry, especially for the low
cost carriers.

PESTEL Analysis is a tool that helps understand the impact of the external
environmental influences on the business operations of an organization. The dynamic
changes in the external environment of a business directly impact an organization’s
growth and progress. These influential factors may be identified by analyzing the
Political, Economic, Social, Technological, Environmental and Legal aspects of the
macro environment (David, 2009). Let us apply the PESTEL framework for low cost
Aviation Industry, especially operating across the Asian region-

Political Analysis

Air Asia Berhad operates in an extremely regulated and political environment of the
ASEAN region. The political establishment of the Aviation Industry across the Asian
continent is governed by strict rules and regulations which favor the passenger safety at
the priority level. The government support attracted for the national aviation passenger
carriers is pertinent for sustained growth of the low cost Airlines of the Asian region.
Also the regulators across the ASEAN have imposed minimum restrictions on migration
licenses and other legal formalities.

Economic Analysis

The Economic Analysis for the Aviation Industry across the ASEAN highlights
increasing economic growth rate for the industry. The fast pace of regional urbanization
experienced in the Asian continent is resulting in creation of new urban centers across
the region. This is expected to trigger increase in regional travel destinations, attracting
more business for the Aviation players. However, the rising fuel cost and fluctuations in
the oil prices are the factors that are negatively impacting the growth prospects of the
Aviation Industry. The mishaps such as the recent disappearance of the Malayasian
Airlines Fight also affect the consumer sentiments badly, affecting the overall demand
for the Aviation Services.

Social Analysis

The rising disposable income in the hands of the Asian Consumers is a positive
reflection for the growth of the Aviation business in the Asian continent. The Asian
continent is gaining high popularity in the world for its world class medical institutions
and educational institutions. The Asian region is thus gaining increased attention from
its western counterparts for the educational and medical tourism. This reflects a positive
social analysis for the Aviation Industry in Asia. Also one important challenge regarding
the social change in the consumers is that the consumers have become increasingly
demanding. Too many options available for the consumers in the Airline Industry have
resulted in this change.

Technological Analysis

The Aviation Industry has to necessarily invest in the latest technology equipments for
providing better flying experience to its consumers and also to enhance the safety
arrangements of the customers on board. The adaptation to the latest technology
equipments and communication facilities would also benefit the Airline business in
terms of improved operational efficiency.

Environmental Analysis

The technological research pertaining to manufacturing more fuel efficient aircrafts have
to be carried out by the Aviation Industry. These measures to minimize the non-
renewable fuel resources would not only benefit the respective Airlines in terms of cost
control, but it would also help in reducing the carbon foot prints on the planet. The
Aviation industry still has lot of scope to control the noise pollution and carbon emission
issues for the benefit of the environment.
Legal Analysis

The Legal Environment for the Aviation Industry is getting tougher and challenging in
the recent years. The number of lawsuits from the stakeholders against the Airlines
functional in Asia has increased. The regulations regarding the safety issues of the
passengers and the related legal scrutiny have become stricter.

2. Strategic capabilities of AirAsia Berhad (Using SWOT Analysis and Races

Model)

Understanding the strategic capabilities of an organization is the primary step before

evaluation of the strategic choices to fight back market competition. An organization like
Air Asia Berhad may identify its inherent capabilities and strengths and try to bank upon
them for formulating business strategies. Also the opportunities and threats surrounding
the business must also be timely understood and worked upon (Hanlon, 2007). The
following is the application of the strategic tool of SWOT Analysis for brand Air Asia
Berhad-

Strengths

Brand Air Asia Berhad has managed to provide aviation services to the undeserved
masses belonging to the middle income group segment. The organization’s low-cost
attribute has propelled the brand to gain high popularity among the masses. It has
managed to hold a leadership position in the low cost Airlines industry in Asia. The
organization Air Asia Berhad has a well established parent company Air Asia which is
popular in the Asia Pacific region. The continuous government support and minimum
migration restrictions are also a key strength that has supported the operational
functioning of the brand. The e-business strategy and web based customers
relationship activities of the brand are attracting more business.
Weaknesses

The increase in the Air traffic is resulting in the major congestion at several leading
Airports across Asia. This has also affected the operational performance of Brand Air
Asia Berhad many a times.

Opportunity

The Increasing regional urbanization, increasing medical tourism destinations and

increasing educational institutions across the Asian continent is expected to create new
travel destinations for Air Asia Berhad. The Aviation industry across the Asia pacific
region is also expected to boom due to the aggressive promotion of the regional tourism
industry in Asia. The brand still has a lot of scope for harnessing the power of the social
media to attract more young consumers towards the brand. The brand also has an
opportunity to undergo more collaboration with airports to use the existing airport
passenger transit facilities to reduce the overall capital expenditure for Air Asia Berhad.

Threats

The intense price competition has resulted in to consumers constantly seeking cheap
deals through online booking internet portal. Information on Air fares is instantly
available to the Target Audience at free of cost. The switching cost to a competitor
service is also very low. This is the key persistent threat in a low cost Aviation Industry
in Asia.

The specific threats, opportunities and challenges identified with the help of the above
SWOT analysis would be necessarily used to maintain the Air Asia Berhad’s
competitive advantage in the market.

The organization Air Asia would also require using the strategic capabilities identified in
the SWOT analysis for the consumer engagement purposes. Maintaining a balanced
communication with the target audiences helps in strengthening the brand image of an
organization. The RACE model is descriptions of the communication planning process
that involves four steps. These four steps are useful for the brands in engaging their
consumers effectively throughout the entire customer life cycle (David, 2009). Let us
associate the RACE Model with Brand Air Asia Berhad and list down the viable four
steps for maintaining consumer engagement throughout the lifespan of the brand.

1. Reach – Air Asia offers multiple distribution channels and innovative point of contacts
for reaching its customers. The process of booking Air Asia tickets is kept very simple
and user friendly by the organization. It also gives the option of ticketless service as a
low cost alternative to its customers.
2. Act – Air Asia also manages to reach to its target Audiences through its interactive
website and leading social media platforms. It persuades its website visitors to book
tickets for their journey and travel plans. Air Asia’s presence on the leading e-ticketing
websites offering Air tickets at competitive rates also encourages the prospective
consumers to act and take a purchase decision

3. Convert – This step describes the conversion of a purchase decision to sales. The
leading e-commerce travel websites are the major point of sales for the brand Air Asia.
Apart from that Air tickets are also offered across the counter across all the leading
Asian Airports.

4. Engage – The timely service and pocket friendly fares are the two key components
that develop a long-term relationship with the customers of Air Asia. Air Asia also
engages in several public relation management programs for brand building and
customer engagement purposes. It also participates in several social events and brand
promotion activities.

The Races Model discussed above depicts the overall consumer engagement of the
target customers of Air Asia Berhad.

3. Evaluation on the strategic choices in relation to the competitor’s strategies

(Using Porter’s Five Forces Model and Opportunity matrix)

Porter’s Five Forces Model helps an organization to evaluate the surrounding

competitive environment and assess the competitor’s capabilities. This exercise is very
useful in understanding the competencies possessed by the other relative players of the
industry and derive strategic choices in line with the analysis obtained (Hanlon,
2007). Let us discuss the five forces of the Porter’s Model in relation to Brand Air Asia
Berhad-
Degree of Existing Competition

There exists intense price competition between the existing Aviation industry players.
The technology has further intensified the price wars between the Aviation Industry
players as the customers can comfortably seek best price deals online through leading
e-ticketing websites.

Bargaining power of the suppliers

The Bargaining power of the suppliers for Air Asia Berhad is currently assessed to be
very strong. The organization Air Asia has less choice with manufacturers and Aircraft
suppliers. Also there hardly exists any substitute for jet fuel, resulting in increased
bargaining power of the suppliers.

Bargaining power of the customers/ buyers

Bargaining power of the customers for Air Asia Berhad currently indicates to be
moderate. The consistent growth of the Aviation business for Air Asia has resulted in
expansion on several network routes. This has maintained the consumer interest in the
brand.

Threat of the new entrants

The Threat of the new entrants for the brand Air Asia Berhad is currently assessed as
very low. The lengthy process for obtaining the operating license for the aircraft is the
major bottle neck that new entrants would face in the Aviation sector especially in the
Asian region. The setting up of a new Airline thus involves huge bureaucratic process
which hampers the quick entry of the new entrants in the Industry.

Threat of the Substitutes

The threat of the substitutes for the brand Air Asia Berhad within the Asian countries is
high. Currently most of the countries belonging to the ASEAN Region are developing
countries. The domestic Air travel still becomes a secondary option for many of the
travelers belonging to lower income groups in these countries. Rail and Road Transport
are attractive substitutes available for domestic Air travel in the Asian countries.

The Ansoff Opportunity Matrix is another Strategic Management tool that describes and
predicts an organization’s growth opportunities with the existing as well as new products
and Markets (Capodagli & Jackson, 2007). According to this Matrix there are four
possible combinations that provide the organizations with possible progressive
opportunities. These four basic growth opportunities are Market penetration, Product
Development, Market Development and Diversification.

Market penetration

This strategy explains organization penetrating exsisting products in existing markets

and achieves increased market share. Air Asia has successfully implemented this
strategy in the past and attracted a lot of competitor’s customers towards its brand. The
organization managed to improve its service levels and product quality still offering
competitive rates in the existing market. The engaging relationship marketing activities
also fulfilled this strategy.
Product Development

This strategy explains offering innovative, modified and new products in the existing
markets in which an organization operates. Air Asia may implement this strategy by
modifying its service offering by adapting the latest technology in its service deliverables
to its customers. The Organization Air Asia offering a varied range of ancillary product
offerings is an example of the product development strategy. This strategy is helpful in
maintain the innovator brand image in the market.

Market Development

The market Development strategy is about offering the existing products and service
offering in new unexplored markets. This also involves offering the existing products to
new user segments or target markets across vivid geographic regions. Air Asia
expanding its business operations to Thailand, Indonesia and Vietnam explains the
Market Development strategy by the brand.

Diversification

This is the most distinct and unusual strategy amongst all the three strategies discussed
above. An organization offering new products or services in new/ unexplored markets is
the explanation for the diversification strategy. An organization opting for a
diversification strategy has to move out of its existing products and market segments in
to new unexplored areas. Air Asia’s backward, forward and horizontal integration is an
attempt for diversification for increased growth of the organization.

4. Recommendations for Air Asia Berhad to go through turbulent times ahead of

hyper competitiveness in the airline industry

Business Collaborations and strategic alliances

Formation of Business Collaborations and strategic alliances with the local Airline
players of the respective international destinations would be a beneficial strategy for Air
Asia Berhad. The organization may also benefit operationally with the combined
resources and knowledge. This strategy would also be beneficial in dealing with the
regulatory authorities of the international destinations.

Attaining economies of scale

Economies of Scale may be effectively achieved by the organization if it go ahead with

resource sharing and bulk purchasing strategies with its sister Airlines Air Asia X. The
backward integration, forward integration and horizontal integration strategy of the Air
Asia Berhad may also result in achieving increased economies of scale for its business
operations.

Maintaining the low pricing strategy and reducing the total travel time

The cost effectiveness and the affordable pricing structure offered by the Air Asia
Berhad have attracted several customers to the brand. The Brand in its slogan has
rightly pointed out that anyone can fly. The low pricing strategy maintained by the brand
has gained increased visibility for its service offering even in the middle and lower
income group target segment. The Air Asia Berhad Airline is thus recommended to
continue with its competitive pricing strategy. The competitive pricing with minimal travel
time would be a competition cutter. This will extremely multiply the total turnover of the
brand.

Better improvisation of e-Service facilities and web based Customer Relationship

Management

The Advancement in the technology has resulted in most of the Air ticket reservations to
be booked online. The e-service facilities like the user interface screen or the speed of
the website facilitating the Air ticket booking are the minute factors that result in
customer satisfaction while availing the booking facilities. The improvisation in this first
hand interfaces with the consumer would result in enhance customer relationship
management.

Introducing loyalty programs may increase the brand loyal customers

The brand Air Asia Berhad believes in no frills and thus provides bare minimal facilities
on board to the customers. The Airline may opt for introducing some customer loyalty
programs to maintain the interest of the target customers in the brand. This may result
in increased brand loyalty among the customers.

Conclusion

The strategic Analysis presented for Air Asia Berhad clearly indicates that the low cost
Airline line industry is facing intense competitive pressures from rivals and substitutes in
the Asian province. The development of new urban centers and the increased demand
for tourism in the Asian countries are expected to bring in more business for Air Asia
Berhad. The research identifies Product Development and innovation as the key
strategic choice for expanding the market pie for Air Asia Berhad. Several of the
recommendations listed may also be considered to make brand Air Asia Berhad
progressive and well ahead of competition. Lastly the brand needs to stay updated on
the technological advancements for achieving operational efficiency in the business.