Strategic management has played a key role in the success of many business organizations in the world including AirAsia airline. Commencing in 1996, within fifteen years, AirAsia managed to expand its operations into another ten countries. In addition, through its associate company AsiaX, it launched long-haul low-cost air services from Malaysia to Australia and the United Kingdom. The first part will look at the award winning Malaysian low cost carrier- AirAsia’s by analyzing its strengths and weaknesses using strategic tools such as SWOT and competitive analysis. Secondly, the critical success factors of the company and the problems and issues faced are discussed in detail. Finally, some recommendations are given to overcome the problems and to expand the business in future.

Introduction

Competition in the airline industry is very strong and increasing rapidly. Meantime airlines are using different strategies to compete in the industry. Therefore airline companies like AirAsia are needed to identify their strategic management to achieve their vision and mission. This paper firstly will look at the award winning Malaysian low cost carrier- AirAsia’s by analyzing its strengths and weaknesses using strategic tools such as SWOT and competitive analysis. Secondly, the critical success factors of the company and the problems and issues faced are discussed in detail. Finally, some recommendations are given to overcome the problems and to expand the business in future. The purpose of this assignment is to develop the ability of applying the key concepts of strategic management to the companies (Lim, Mohamed, Ariffin and Guan, 2009).

Background

AirAsia was established in 1993 and commenced its operations on 18 November 1996. It was originally owned by DRBHicom, Airline Company purchased by Tune Air Sdn Bhd, which was belonged to former Time Warner executive Tony Fernandes's company. In 2002 Tony Fernandes made AirAsia as a profitable company and launched new routes in Kuala Lumpur International Airport at quick speed and reduced the monopoly operator of Malaysia Airlines with promotional fares of RM1.

They launched their first international flight to Bangkok in 2003 when they opened a second hub at Senai International Airport in Johor Bahru. Later they started a Thai subsidiary by including Singapore to the destination list and started flights to Indonesia. In June 2004 started flights to Macau meanwhile flights to Mainland China and the Philippines started in April 2005. In late 2005 flights are started to Vietnam and Cambodia and in 2006 to Brunei and Myanmar. AirAsia took over Malaysia Airlines's Rural Air Service routes in Sabah and Sarawak, in August 2006. They have enhanced its operation in Asia by connecting all the existing cities in the region and expanding further into Indochina, Indonesia, China and India. AirAsia is expecting to grow further with the increased frequency and addition of new routes (AirAsia: Corporate profile, 2012).

Vision, mission, values, goals, objectives and strategies

AirAsia’s vision is to be the largest low cost airline in Asia serving the 3 billion people who are currently underserved due to poor connectivity and high fares and it expects to be a the leading low-cost carrier in the Asian region. The mission is to be the best employer, create a globally recognized ASEAN brand, to be the lowest cost budget airline and to maintain the highest quality service by latest technology (AirAsia: Corporate profile, 2012).

Air Asia’s value system is central to its success as a leading budget airline in Malaysia. The core values of Air Asia are adopting safe practices, valuing its employees, focusing on customer, maintaining highest standard of corporate integrity and commitment for performance excellence (AirAsia: Corporate profile, 2012).

The goals and objectives of Air Asia are developed by its corporate vision and mission which include emphasis on safety, customer focus, operational excellence and human capital development .In order to maximize shareholders’ value; they aimed to create more profit by expanding its business to other Asian countries (AirAsia: Corporate profile, 2012).

AirAsia’s business strategy is focused on cost leadership but their business strategy targets to specific markets and price sensitive customers who need short-haul flights (AirAsia: Corporate profile, 2012).

AirAsia builds and maintains their competitive advantage by providing services at a price that is lower than competitors’ price. The two main characteristics AirAsia are effective operation and higher efficiency (AirAsia: Corporate profile, 2012).

Internal and External Environmental Analysis

SWOT Analysis

This SWOT analysis is used to evaluate the strengths, weaknesses, opportunities, and threats involved in AirAsia. This includes identifying the objective of the business and evaluating the internal and external factors that are favorable and unfavorable to achieve the objectives.

External factors:

Opportunities

a) Higher fuel price

Unlike others the increasing oil price is not a threat for Air Asia. Since it is a low cost leader and its cost will be still the lowest among all the regional airlines as a result some higher cost airlines will squeeze out from the market. So that, Air Asia has opportunity to capture some of the existing customers of full service and other low cost airline’s customers (Pui Man and Cary, 2009).

b) Introduction of new routes

The ongoing industry consolidation has opened up prospects for new routes and airport deals which will be an opportunity to expand business further (Pui Man and Cary, 2009).

c) Partnership with other low cost airlines

There is opportunity to partner with other low cost airlines such as Virgin airlines enhance their existing strengths or competitive advantages such as brand name, landing rights and landing slots (Pui Man and Cary, 2009).

d) Population increase

The population of Asian middle class is increasing as a result it will create a larger market and a huge opportunity for AirAisa and all other low cost airlines in this region (Pui Man and Cary, 2009).

Threats

a) Airport charges

Airport charges such as airport departure, security charges and landing charges which are beyond the control of airline operators. This is a threat to all airlines especially low cost airlines which try to keep their cost as low as possible (Pui Man and Cary, 2009).

b) Competition from other airlines

Most of the full service airlines have planned to create a low cost subsidiary to compete directly with AirAsia. For instance, Singapore Airlines has created a low cost carrier Tiger Airways (Pui Man and Cary, 2009).

c) Fluctuating fuel price

There are always fluctuations in the fuel price due to economic and political factors such as Shortage, war. This is a major threat because the operations are heavily depending on jet fuel (Pui Man and Cary, 2009).

Internal factors

Strengths

a) Management team

The management team is very strong because there is relation with the governments and airline industry leaders. The management executives come from different background which consists of industry experts. The Air Asia management team is good at strategy formulation and execution (Pui Man and Cary, 2009).

b) Branding

The brand name is well recognized in Asia Pacific region. In addition the normal print media advertising & promotions, AirAsia’s top management is capitalized on promotions through news and freely sharing the latest information on Air Asia as well as the airline industry (Pui Man and Cary, 2009).

c) Low cost leadership

AirAsia is the low cost leader among air lines in Asia because the workforce is very flexible and high committed and very critical in achieving AirAsia the lowest cost airline in Asia (Pui Man and Cary, 2009).

d) Utilization of Information Technology (IT)

Information Technology has helped to the progress of Air Asia to a greatest level. This includes the contribution made by IT in promotional activities. IT also resulted in direct purchase of tickets by customers and savings in air line agent’s fee (Pui Man and Cary, 2009).

Weaknesses

a) Maintenance, repair and overhaul facility

The air craft maintenance cost is increasing and they do not have their own maintenance, repair and overhaul facility. They also have to ensure proper and continuous maintenance of the planes which will also help to keep the overall costs low (Pui Man and Cary, 2009).

b) Good customer service is critical

AirAsia receives a lot of complaints from customers about its service. Good customer service and management is vital especially when competition is getting strong (Pui Man and Cary, 2009).

c) Air craft financing

AirAsia is purchasing more aircrafts to cater for the increased demand and this has increased the cost but they are now getting the planes on lease instead of buying to overcome the problem (Pui Man and Cary, 2009).

Competitive Analysis

Today AirAsia is facing high competition from Tiger Airways, JetStar Airways and Firefly. JetStar Airline is owned by Quantas Airways and Temasik holding. Tiger Airways is a subsidiary of Singapore Airways connected to 34 destinations in China, India, Australia, Indonesia, Thailand, Taiwan, Vietnam and Philippines. Firefly is a subsidiary of Malaysian Airways covers a few destinations in Malaysia and Thailand. Among all these three competitors, AiraAsia provides excellent service in terms of customer service. Meantime they provide many communication channels like face book, twitter and emails (Pui Man and Cary, 2009).

Critical Success Factors

Following are some factors that have attributed AirAsia in becoming the leading budget airline in the Asian region.

1. Decreasing aircraft cost in global context

There was a decline in the purchase price and leasing rate of planes as a result of the September 11 events. AirAsia took advantage of the situation by purchasing and leasing of planes (The low cost Airline: AirAsia, n.d.).

2. Attractive market

The geography of Asia has assisted AirAsia because the pacific and Asian regions are made up of several islands and all these areas are with poor road network (The low cost Airline: AirAsia, n.d.).

3. Demography

There are more than 558 million people in AEAN countries and over 3 billion people in China and India. The growth in population, urbanization increased the growth of middle class population (The low cost Airline: AirAsia, n.d.).

4. Corporate strategy

AirAsia’s corporate strategy is aligned to its mission statement and they are focused on cost leadership because of the huge size of the market. They have successfully adopted a cost leadership strategy because of the huge size of the market and this is evidenced by high efficiency, intolerance of waste, rewards linked to costs control, low overheads and intensive screening of budget requests (The low cost Airline: AirAsia, n.d.).

5. Culture

AirAsia has created a positive workplace culture by promoting open communication and strong team coordination. In particular they have managed to achieve a high level of coordination between employee groups resulting in greater aircraft and employee productivity, fewer flight delays, and fewer customer complaints. This was achieved with the support of top-level management in conjunction with a set of employee practices (Marcus, 2010).

6. Organization and Structure

AirAsia has all the three types of organization structure: Functional, projected and matrix. AirAsia has a functional structure headed by a CEO and the CEO is assisted by a deputy CEO. There is a board comprising 6 directors who elect a chairman. Under the CEO there are 15 departments. AirAsia Thai and AirAsia Indonesia are departments based on geography and enjoy certain level of independence. Air Asia also uses project and matrix structure (Marcus, 2010).

7. Control

There exist three types of organizational control in AirAsia: strategic control, management control and operational control. Corrective action is taken where performance does not meet standards. These actions involve training, motivation, leadership, discipline, or termination. The key elements of AirAsia’s internal control system includes detailed budget process, review of annual budgets twice a year and documentation of standard operating procedures (Marcus, 2010).

8. Leadership

Leadership of AirAsia CEO, Tony Fernandez is one of the critical success factors of the low budget airline. Under the leadership of Tony Fernandez, the fledging airline with a RM40 million debt became a prosperous business. Tony Fernandez is a mixture of situational leadership style with transformational, democratic and servant leadership styles. Tony through the various transformation efforts has implemented various strategies to achieve the success. Tony is always looking for ideas that move the organization to reach the company's vision (Lim, Mohamed, Ariffin and Guan, 2009).

Problems and Issues

The Malaysian leading budget airline is facing many problems and issues;

Competition

The airline industry today operates in a competitive environment and firms set prices. Competition is increasing because of rising number of low cost airline competitors, aggressive competition against the large and traditional airline companies (Chan, Fenech, Orozco, Tam, Tolentino, Tran, 2009).

Economic downturn

Airline customers decrease because of poor economy. However, despite recession, AirAsia has grown rapidly in recent years while some airlines have struggled in the market because the economic turbulence that hits both domestic and international travel. However, Asia’s low-cost airlines, which took off in good economic times are facing the difficulties of the global economic downturn(Chan, Fenech, Orozco, Tam, Tolentino, Tran, 2009).

Fuel price

Fuel amounts to 60 % of AirAsia’s operating costs and rises in jet fuel may lead to losses. As the cost of fuel always fluctuate and variable, it is rather difficult to do reduce cost. Other airlines have resorted to fuel surcharge which is charged above the normal fare (Chan, Fenech, Orozco, Tam, Tolentino, Tran, 2009).

Operating costs

The labour costs have been increasing over the last decade. Moreover, security costs and stringent air transport department regulations put additional strain on airline operating costs without signs of relief. These issues harm the entire airline industry even low cost carriers have been impacted as a result (Chan, Fenech, Orozco, Tam, Tolentino, Tran, 2009).

Infrastructure

The problem of inadequate infrastructure and facilities has affected the smooth operation of AirAsia. As a result AirAsia has to share the facilities at the newly built KLIA resulting in delayed schedules and inconveniencing customers. Crowded in the mornings and congestion on the runway have increased its operating cost (Chan, Fenech, Orozco, Tam, Tolentino, Tran, 2009).

Recommendations

AirAsia is strategically strong with an organized management team, established ‘low-cost’ mindset with employees, and a sound strategic vision. Moreover, AirAsia is the leader in the low cost industry with its early conception and aggressive product branding and marketing techniques in the Asian region. It has used IT to its advantage with the use of the internet and newer airplanes. So, they need to establish its name and brand on the world stage with innovative and intelligent sponsorship deals.

In spite of the strength for AirAsia, there are also some weaknesses and these weaknesses are not difficult to overcome. Higher fuel costs around the world and unstable markets have made operational costs higher. Though, this also means that companies with low profit margins than AirAsia may become redundant in the future. In addition, AirAsia has a poor reputation with customers due to their flight times and cancellations. Therefore improvements are needed to be made in this area without increasing operational costs.

Opportunity is the golden options where AirAsia is concerned. With the dramatic increase in middle income earners in China and India, there is more potential for AirAsia to expand its routes and frequency of flights. Moreover, increased access for Asian people to the internet, joined with new and developing IT solutions will help AirAsia to boost its reputation as an innovative and leading organization in IT. Therefore, they need to focus on the opportunities to expand the business in future.

The threats to AirAsia come in the form of potential new entrants into the market from established full carriers like Singapore Airlines but AirAsia is positioned well to withstand any competition in this area. There are always threats from areas outside of AirAsia’s control such as terrorism and global conditions. Therefore, AirAsia needs to be aware that system failures with the internet would seriously affect operations. The company must have adequate back up facilities in case there is a system failure.

In conclusion, the airline industry is unique and complex in nature and AirAsia needs to use strategic management continuously in order to be the leader in the low cost carrier industry. In addition to the cost reduction and making the operational activities running effectively, AirAsia also needs to come out with the strategy that can make competition uncontested market place through differentiation which AirAsia already doing but it has to enhance it further.

References

AirAsia: Corporate profile. (2012). Retrieved September 26, 2012, from http://www.airasia.com/ot/en/corporate/corporateprofile.page?

Chan, J., Fenech, A., Orozco, R., Tam, W., Tolentino, F., Tran, J. (2009). AirAsia: Issues and Problem. (Power Point slides no. 5). Retrieved September 26, 2012, from http://www.slideshare.net/Antfenech/air-asia

Lim, K. Y., Mohamed, R., Ariffin, A., Guan, G. G. (2009). Branding an Airline: A case study of AirAsia: AirAsia: Background. Retrieved September 25, 2012, from http://umrefjournal.um.edu.my/filebank/published_article/630/JPMM%202009%20KHOR%20YOKE%20LIM,%20RAMLI%20MOHAMED,%20AZEMAN%20ARIFFIN.pdf

Marcus, W., G., C. (2010). BUS 488: STRATEGY. Retrieved September 27, 2012, from http://www.scribd.com/doc/40702964/Strategic-Analysis-on-AirAsia

Pui Man, W., Cary. (2009). AirAsia: SWOT analysis. Retrieved September 27, 2012, from http://www.skcs.hk/AirAsia.pdf

The low cost Airline: AirAsia. (n.d.). A study of opportunities, challenges and critical success factors. Retrieved September 26, 2012, from http://www.google.mv/url?sa=t&rct=j&q=However%2C%20as%20the%20market%20is%20becoming%20larger%2C%20more%20airlines%20or%20new%20comers%20would%20like%20to%20get%20a%20piece%20of%20the%20action.%20%20For%20example%2C%20Budget%20airlines%2C%20it%20is%20estimated%2C%20will%20capture%20at%20least%2025%25%20of%20Asia%E2%80%99s%20air%20travel%20market%20within%20next%2010%20years%20and%20a%20lot%20of%20that%20will%20be%20new%2C%20not%20diverted%2C%20traffic.%20%20Therefore%2C%20AirAsia%20will%20face%20more%20competitions%20at%20the%20same%20time.%20%20&source=web&cd=1&ved=0CFMQFjAA&url=http%3A%2F%2Felc.polyu.edu.hk%2Fsubjects%2FELC2202%2FAir_Asia_Report.doc&ei=oojpT7DIIYrprAe9zPiaDg&usg=AFQjCNE40J1QZqaC0uY9gPzpXaJJE86O2w

Adam Khaleel

Wednesday, December 23, 2015

Module Name: Strategic Management

Executive Summary