Business Strategy

MBA2020-21 Assignment/Case No.: 2

Group Number: 11

Assignment Submission
Group Members:

# Student Name Student ID

1 D VAMSI KRISHNA WSBY161774711
SRI VENKATA SUMANTH
2 WSBY161652876
PISAPATI
3 RUSHI ABHEESHAI MODUGU WSBY161826643
4 SUREDDY SAI PRASHANTH WSBY161754228
5 ASHISH PANDEY WOUMBA2026787
6 VEERAMALLA ROHITH GOUD WOUMBABA.AI.ML.204 8401
7 KANDULA VINEETH KUMAR WSBY161774318
8 NALLA VISHNU VARDHAN WSBY161805885
9 G SRI KRISHNA CHAITANYA WSBY161804983
10 DEBJEET GANGULY WSBY161805441
11 TALLA DIKSHITH WSBY161673497
 Air Asia established in 1993 and commenced its operations in 1996.

 In 2001, Tune Air Sdn Bhd (Tony Fernandes’s company) purchased this airline from DRB-
Hicom. AirAsia never looked back after that. AirAsia’s first and main base is the Low Cost
Carrier Terminal (LCCT) at Kuala Lumpur International Airport, while its secondary hubs
are at Kota Kinabalu International Airport, Senai International Airport and Penang
International Airport.

 AirAsia is well known as Malaysian low cost airline and even Asia’a largest low fare, no
frills airline. The airlines claims ‘No Admin Fee’, but has some fees for services which are
free on other airlines.

 The AirAsia subsidiaries are the likes of Thai AirAsia, Indonesia AirAsia, VietJet AirAsia
and AirAsia RedTix. Meanwhile, AirAsia associate companies are AirAsia X, Tune Hotel
and Tune Money.

Business Strategy – MBA 2020-21 – September 2020 – 2

1) What were the trends and developments affecting the airline industry when Tony
Fernandes acquired AirAsia?
Financial impact of September 11, 2001  on the airline industry

 All companies in the airline industry—including the top U.S. companies like Delta (DAL), United 
(UAL), American (AAL), Southwest (LUV) and JetBlue (JBLU)—were negatively impacted by
the 2001 terror attack.

 According to the International Air Transport Association (or IATA), the financial impact on the
global and U.S. industry are as follows -

 It took three years for the global airline industry to recover the 6% decline in revenue
between 2000 and 2001. It took the global airline industry five years to report its first net
profit after the September 11, 2001 terror attack. Revenue declined by $22 billion—to
$307 billion in 2001—from $329 billion in 2000. In 2001, the global airline industry
recorded losses of $13 billion.

 Passenger traffic decreased by 5.9% year-over-year (or YoY) in 2001 and 1.4% in 2002.
To match the reduced demand, airlines were forced to cut capacity by 2.8% in 2001 and
3.9% in 2002.

Business Strategy – MBA 2020-21 – September 2020 – 3

 With reduction of air craft occupancy, demand has come down. This led to decrease in
aircraft leasing charges, Tony Fernandes saw it as an opportunity while others perceived it
as low traffic is bad for business

Business Strategy – MBA 2020-21 – September 2020 – 4

2) Comments on the business strategy of AirAsia.

 Air Asia entered the market as a LCC with no frills, with the lowest costs in the
market. So it entered with Low-Cost Leadership strategy. Eventually Air Asia offered
services like food, insurance and others on a paid basis.

 Recognizing that price and convenience are most important to their target audience,
Air Asia achieved cost leadership through innovative strategies such as single class
services and lower fares without preferable seats, meals, entertainment and other
utilities.

 Air Asia maintained that though it is an LCC it never compromised on services

offered. So by providing the facilities that other air lines are providing on a paid
basis, it is targeting wider range of customers and is changing it's position from Cost
Leadership to Outpacer.

Business Strategy – MBA 2020-21 – September 2020 – 5

How has AirAsia achieved cost leadership or differentiation?

1) High Asset Utilisation - Air Asia achieved high utilisation by lessening the idle time
in the parking. It is able to achieve it by fast turnover ratio and utilising it for 12 block
hours per day while others are just utilising it for 8 hrs.

2) Optimisation on Available Seat Miles (ASM) - Because of effective balancing

between the number of seats and miles travelled, it is able to achieve break even point
with 56% seating capacity. Because of this balanced approach, it is able to lower its
cost per available seat per kilometre by 46 percent. It concentrated more on the serving
smaller, secondary and uncongested airports by focusing on point-to-point flights. It
even avoided connecting flights.

Business Strategy – MBA 2020-21 – September 2020 – 6

3) Direct Cost cutting - Air Asia employed one model of its asset thereby reducing the
overhauling expenses and cockpit training, standby crew and spare parts replacement
cost. It employed staff from labour intensive countries like China, Indonesia,
Bangladesh, Nepal. By introducing the online ticket printing, it removed the ticket
agent costs. Passengers are seated on available seat and will have to buy Xpress
Boarding for special privilege. The Standard Operating Procedures (SOP) are enforced
to ensure that homogeneous services are offered.

Source –

https://www.google.com/url?
sa=t&source=web&rct=j&url=http://
ejournal.aibpm.org/index.php/IJTHAP
/article/download/726/707&ved=2ah
UKEwiBj7bC0_zrAhUKOisKHZt5DGoQ
FjAPegQIBRAB&usg=AOvVaw2PDyGU
2y5YtIHqQQtegE41

Business Strategy – MBA 2020-21 – September 2020 – 7

 3) Referring to forces of competition, is the strategy suitable to achieve an advantage in the
industry? What are risks using this strategy?
1. All Airlines seems to have same two POTENTIAL 1. High capital to set up new airlines,
options Airbus or Boeing. AirAsia order but can enter with fewer aircrafts.
airbus form of airplane so benefits of
ENTRANTS
airbus will be influenced by AirAsia. HIGH 2. Liberalization of the market has
provided opportunities for many
2. Supplier in the airline industry is foreign airlines to enter into the Asia-
limited and it consists of aircraft Pacific region.
manufactures, producers of airports
and air fuel.

Rivalry with
SUPPLIERS competition BUYERS
MODERATE HIGH HIGH

1. Consumers re preferring rail and road

1. Large number of competitors
transport more in the Asia-Pacific
existing in the market.
region due to low cost
2. Buyers can select a specific
2. Threat of domestic market due to
airline that cost them cheaper.
increase in airline companies in Asia
Pacific market at relatively very high
SUBSTITUTES
speed. MODERATE
Business Strategy – MBA 2020-21 – September 2020 – 8
 OPPORTUNITIES THREATS
1) Being a leader in LCC it can Rising fuel costs, labor
benefit from growing passengers costs can be offset by
attaining best in class fuel
STRENGTHS
2) Best in class operational efficiency and transferring
practices can help in reducing the benefits to other
costs operational activities
Apart from Malaysia, Air Asia’s Increase of other LCCs can
WEAKNESS operating routes are less in reduce the margins, if they
other parts of Asia operate in the same routes

RISKS -

 There is risk from people who see price as the reflection of quality
 Low customer loyalty

Business Strategy – MBA 2020-21 – September 2020 – 9

4) What are ways by which AirAsia can sustain its competitiveness?

 By suitably hedging the fuel costs through cash flow hedging

 Their Joint Venture strategy must be enforced more analytically to make its
financial statements stronger which attracts more loans.

 Keep on adapting the best operation strategies in the industry to ensure that they
can achieve lower operational costs

 Future contracts must be entered on the crude oil to avoid loss from price
fluctuations

Business Strategy – MBA 2020-21 – September 2020 – 10

What do you recommend to the management team?

 On complete analysis of AirAsia Airline Company using various models it can be said
that future of the company is very bright and company must frame some new
strategies to put themselves in new shelf where new entrants to the market cannot
reach.

 AirAsia should use more A-320 air bus family like China Eastern Airlines to establish
their business outside Asia.

 Due to current globalization there is increase in use of business class. So, AirAsia
should also focus on business class segment to be a threat to its competitor.

 Partnering with governments of other Asian countries and increase their operational
routes.

 Attaining best in class fuel efficiency and transferring the benefits to other operational
activities will help deliver better prices compared to competition.

Business Strategy – MBA 2020-21 – September 2020 – 11

Business Strategy – MBA 2020-21 – September 2020 – 12