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Air Asia: An evaluation
6 December, 2010
N O W E V E R Y O N E C A N F LY Behaviour Cognitive: Why does the customer choose Air Asia? ± Price ± Service: From buying preferred seat to checking in online Affective: Does the customer feel good when flying with Air Asia? Conative: What is the customer·s intentions? ± To get from A to B quickly. economically. with little hassle .
N O W E V E R Y O N E C A N F LY Background LCC ² Malaysian Low Cost Carrier formed in 2001 Low cost = No frills Targets both ends of the market ² corporate people to low income citizens Offer courier and cargo services Air Asia is the brand with 18 subsidiaries Adapting its business model? .
N O W E V E R Y O N E C A N F LY The Air Asia brand .
N O W E V E R Y O N E C A N F LY Facts In 2001 Air Asia held 2 planes and had 6 routes Today.700 flights every week 1st successful low cost. there have over 80 planes doing nearly 3. ticketless airline in South East Asia 17 countries 130 routes 66 destinations 9 hubs Main hub at KL 25 minute turnaround time 44% of flights out of KL are Air Asia¶s .
serving 3 billion people who are currently underserved with poor connectivity and high fares Mission To be the best where employees are treated as a family Create a global brand Attain the lowest cost Maintain the highest quality product. embracing technology to reduce cost and enhance service .N O W E V E R Y O N E C A N F LY Objectives Values To be the largest LCC in Asia.
N O W E V E R Y O N E C A N F LY Strategy .
N O W E V E R Y O N E C A N F LY Tactics & Actions SAFETY SERVICE LOW FARE SIMPLICITY .
and simple. aggressive and focused management and structure Courteous. but limited passenger service (no meals) Short haul.N O W E V E R Y O N E C A N F LY Tactics & Actions Productive and skilful employees. often to secondary airports Competitive Advantage High aircraft utilisation Standardised fleet of aircraft Frequent. reliable schedules . pointto-point routes.
N O W E V E R Y O N E C A N F LY Control Yield optimisation: 25-min turnaround Network synergy: Leverage on the subsidiaries to cover weaknesses Operational integration: Maximisation of ground handling operations Strategically build. organise and sustain the advantage Response to environmental uncertainties: Focus on ancillary businesses as natural hedge against fuel price increase Related diversification: Air courier services .
N O W E V E R Y O N E C A N F LY Risks & Issues Challenges in keeping costs down Fuel Prices Rising fuel prices increase costs substantially. More LCCs may create may throw company into unhealthy price war. economic bubble and impacting the may create complex cost company·s profits and and profit calculation market share . which if too high will reduce profit or even create a loss-making situation Inflation Price War Affects exchange rate.
the are not only in price. which may put cheap tickets may mean Lumpur flight without off some customers reduce services which satisfactory explanation some customers may and failed to not like compensate properly. For example. resulting in customers losing their confidence . but tickets or bad services airline cancelled also the limited services may lose customers but Chengdu to Kuala provided.N O W E V E R Y O N E C A N F LY Risks & Issues Ability to retain customers Limited Service Uncompetitive Prices or Services Loss of Trust The difference between Need to balance Air Asia has had between prices and LCC and regular airlines reliability issues in the services ² expensive past.
N O W E V E R Y O N E C A N F LY Political Outlook For ASEAN Open-sky Agreement to liberalise the regional airspace by 2020 means easier access to markets Against Indonesia declared as not ready to freely compete by imposing landing-rights limit to only 5 of its large airports China sets strict fly-zone corridors citing national security reasons More awareness and regulations on worker·s protections and rights may increase operational costs Pressure for tighter environmental laws such as ´Carbon Footprintµ could lead to higher operational costs Score: -4 ASEAN establishing an integrated economic market by 2015 means less procedural or tariff hindrances thus propelling more travels ASEAN governments policy of encouraging political stability would attract greater investments More uniform labour laws across the region may make it easier to move resources around Score: +4 Political outlook: 0 .
labour cost will become more significant in the long-term Economic outlook: +3 .N O W E V E R Y O N E C A N F LY Economic Outlook For IMF predicted strong economic growth in the next 2-3 years for ASEAN due to steady demands from North American and European countries as well as strong growth in tourism related incomes Growth from India and China that flank the region will create trickle-down effect into ASEAN countries Leisure travels would increase as disposable income increases and air travel becomes more accessible The region offers some of the lowest labour cost anywhere Score: +4 Score: -1 Against As economies strengthen.
N O W E V E R Y O N E C A N F LY Social Outlook For As prices fell. so will environmental consciousness that sees air travel as less ´greenµ Social Outlook: +2 . ´new kinds of behaviourµ are established (McKinsey Quarterly. June 2010) More educated generations have different attitudes towards travel and leisure activities Education. jobs and careers are less restricted by national boundaries Young population in the region gives good prospect for long-term availability of workforce and customers Score: +4 Score: -2 Against Skills shortage in highly competitive environment means high investment in HR training and development As education and income levels rise.
hence eroding competitive advantage Alternative modes of transportation.N O W E V E R Y O N E C A N F LY Technological Outlook For The region has one of the highest Internet penetration and mobile network growth in the world. lower operational costs and moderate the ´greenµ oppositions Score: +3 Score: -2 Against As technology become more accessible. so will barriers to entry. self check-in via mobile. web portal and airport kiosks) Commitment to use modern aeroplanes with better engines would help to reduce fuel consumption. planned or studied for the region Technological Outlook: +1 . are in various stages of being built. such as motorway networks and high-speed/bullet trains. essential to the success of the business model More use of automation reduces operational costs (e.g.
with better education and economy.N O W E V E R Y O N E C A N F LY Conclusion The political outlook is neutral but. the socio-political landscape is changing to be more open and democratic Other outlooks are positive. but particularly strong on the economy and social aspects which have proven to be some of the strongest drivers for change in the region Information gathered implied that most passengers do not choose Air Asia because of Affective reasons but mainly Cognitive and to some extent Conative Analysis made led to the conclusion that Air Asia has the aptitude and attitude to sustain its business in the longterm .