First module is Strategy, everything about strategy but all must link to business, as sales strategy, marketing strategy, financial strategy and ect...
I was given some lecture session(s) and were expected to come out with an assignment. the question of my assignment as below; follows by my work; * some objects were not copied as the program shows an error while uploading, forcing me to delete some images.
AIR ASIA
The case study organization for the assignment is the national airline of your international centre, or alternatively, a major airline based in the country of your international centre. For example, you may choose the national carrier Malaysian Airlines, or Air Asia as your case study. The assignment brief is as follows:
Overview:
You have been asked by the CEO of the Airline to undertake a comprehensive strategic investigation of its contextual and transactional environments, together with an in-depth strategic analysis of the organization. You should identify the challenges, opportunities and threats facing the airline. Once you have completed your strategic analysis and investigation, you should write a report to the CEO of the Airline, making recommendation for the company’s strategy for the 5 year period 2012 though to 2016. The report should be dated at the current date and should consider the company’s position and options at this date. In your report, the CEO would particularly like you to focus on how the company can develop and sustain any competitive advantage that it may have or may need to develop. At the same time, you will need to discuss the specific competencies that will underpin any competitive advantage. Your recommendations must be analytically grounded to enable you to produce coherent, well-reasoned arguments in support of the recommendations in your report, and should include both an executive summary, but excludes any appendices.
Note:
Assessment of this assignment is based on two essential strategic management skills : (1) understanding and application of analytical concepts and techniques; and (2) synthesis of insight and argument building.
Clearly therefore while the analysis is extremely important, it is only one ingredient in the assessment, and for an assignment to fall into the “excellent” range, it would require:
· In depth analysis based on extensive research, of the organization, its structure, markets, competitors, stakeholders and wider contextual environment;
· Coherent and logical synthesis of the analysis presented, leading to key implications for future competitive advantage;
· A thorough assessment of the strategic options available to the organization;
· A thoughtful consideration of the fit between options, objectives, environment and the internal resources of the organization;
· A strategic view rather than a listing of tactical suggestions;
· A cogent, substantive and credible argument detailing the benefits and drawbacks of the central idea being proposed, along with discussion on possibilities not considered, and the reasons why they were not considered; and
· A professional overall presentation, which includes the selective use of appropriate supporting appendices.
Prepared By
Dr SumathySivam
Executive Summary
Air Asia was established in 1993 and the operations began in 1996. Air Asia was taken over by Tune Air under the leadership of Dato Tony Fernandes with the help of Conor McCarthy, former Director of Group Operations, Ryanair. Based on Southwest Airlines and Ryanair’s business model, Air Asia offer “No frills” airlines with catchy tagline of “Now Everyone Can Fly”
This paper shows internal and external analysis of Air Asia and intends to analyze the Strategic Planning of Air Asia. In depth study has been done on its strength and weaknesses of current strategies and core competence.
After evaluating the industry and Air Asia, it is concluded that for Air Asia to maintain its market position as the leader of low cost airline operator, Air Asia should take into actions to overcome its weakness and threats at the same time enhancing its strength.
Table of Content
No
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Title
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Page
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Assignment Question
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3
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Executive Summary
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4
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1.0
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Introduction of Company
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6
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2.0
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External Analysis
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7
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2.1
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PEST Analysis
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7
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Political Factor
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7
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Economical Factor
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7
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Social Factor
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8
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Technology
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8
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2.2
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Michael Porter’s Five Competitive Forces
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9
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Bargaining Power of Supplier
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9
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Bargaining Power of Customer
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9
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Threat of Substitute Product
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10
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Threat of New Entrant
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10
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Competitive Rivalry Within an Industry
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10
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3.0
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Internal Analysis
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11
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3.1
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SWOT Analysis
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11
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Strength
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11
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Weakness
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11
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Opportunity
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11
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Threats
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12
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4.0
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Business Strategy
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13
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Company’s Strategy recommendation for 5 year period 2012 though 2016
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13
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5.0
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Conclusion
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19
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6.0
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Reference
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20
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1.0 Introduction of Company
Tune Air SdnBhd was founded by Dato’ Sri Tony Fernandes and Dato’ KamarudinMeranun in 2001. They bought Air Asia for RM1.00 with a RM40 million debt. Now, Air Asia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. With a fleet of 105 aircrafts, Air Asia flies to over 78 domestic and international destinations with 142 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand, Indonesia and Philippines. Today Air Asia has flown over 55 million guests across the region and continue to create more extensive route network through its associate companies. Air Asia believes in the no-frills, hassle free, low fare business concept and fells that keeping costs low requires high efficiency in every part of the business. With the corporate philosophy of “Now Everyone Can Fly”, Air Asia has sparked a revolution in the air travel.
AirAsia X was established in 2007, providing high-frequency and point to point networks to the long-haul business and offering X-citing low fares, X-emplary levels of safety and care, and an X-traordinary in-flight and service experience to all its guests.
Air Asia Values
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Vision
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To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares.
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Mission
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· To be the best company to work for whereby employees are treated as part of a big family
· Create a globally recognized ASEAN brand
· To attain the lowest cost so that everyone can fly with AirAsia
· Maintain the highest quality product, embracing technology to reduce cost and enhance service levels
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Source://www.airasia.com/my/en/corporate/irstrategy.page
Air Asia makes the low fare model possible and create values through the implementation of the following key strategies :
Air Asia Key Strategies
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Safety First
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Partnering with the world’s most renowned maintenance providers and complying with the with world airline operations.
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High Aircraft Utilisation
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Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity
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Low Fare, No Frills
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Providing guests with the choice of customizing services without compromising on quality and services
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Streamline Operations
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Making sure that processes are as simple as possible
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Lean Distribution System
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Offering a wide and innovative range of distribution channels to make booking and travelling easier.
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Point to Point Network
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Applying the point-to-point network keeps operations simple and costs low
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Loyalty Programme, BIG
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BIG is the 'first of its kind' global loyalty programme where the customer can earn BIG Points with every transaction to redeem FREE* AirAsia Flights. Members also enjoy priority booking, special offers and discounts exclusively as an AirAsia BIG Loyalty Member.
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Source://www.airasia.com/my/en/corporate/irstrategy.page
2.0 External Analysis
2.1 PEST Analysis
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Political Factor
The Malaysian government supported the establishment of AirAsia in 2001 to help boost the under-used Kuala Lumpur International Airport. AirAsia’s flights from Senai are meant to develop Johor into a transport hub to rival Singapore. AirAsia, therefore, can provide an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia.
On the other hand, those who have not settled their PTPTN loan are being blacklisted by Malaysian Government, making them ineligible to travel outstation which in turns affectsthe whole airline industry including AirAsia. Even those being sent by employers to overseas for training purpose being held by Malaysian Custom and demand them to pay a minimum amount to PTPTN in order to clear their name from “senaraihitam” at JabatanImigresen Malaysia.
In addition, terrorism has occurred in Thailand and Indonesia, people is afraid to fly after the September 11 terrorist attack incident. All this overall effecting travel industry and AirAsia as airline industry.
Economical Factor
Appendix 1 shows the jet fuel price per barrel over the last five years. A dramatic price drop is shown in the chart on November 2008 and an inclining price hike ever since. Annual disposable income of Malaysia has seen great improvements in year 2010, 2011 and 2012 as seen in Appendix 2
In theory, Asia has most of the ingredients such as a huge and dense population base, the emergence of underused regional airports, a growing propensity among some upwardly mobile people to travel and relatively high internet usage for making the low budget airline work.
Appendix 3 shows Malaysia’s inflation rate for the past 3 years. With an increasing inflation rate and economy slowing down, more people will want to enjoy its cheap ticket.
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Appendix 3
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Social Factor
Passenger becomes less price-sensitive for longer routes, hence reluctant to board on no-frill airlines for long – haul flight. We don’t want to be crammed into a plane for six or eight hours especially when they are limited or no in-flight services. For shorter routes, people often look for cost-efficiency flights.
Furthermore, bio war carried by various types of viruses and bacteria creates diseases such as Severe Acute Respiratory Syndrome (SARS), Malaria, Anthrax and Bubonic Plague. During this war session where thousands are dead, flying would be the last choice people would think off and this effects airline industry tremendously.
On the other hand, Air Asia serves counties with multiple ethnics, religions and many languages. Acceptance of laws and rules may vary, for example, many Indonesians rarely abide to baggage allowance rules and these rules are seldom enforced due to corruption and indolence.
Technology
Over 80% of Air Asia’s tickets are sold on-line, thus eliminating travel agent cost. Ticket-less travel and ‘e-tickets’ have lowered distribution costs.
Air Asia Japan has the youngest fleet in Asia with the new Airbus 320; allowing state of the art technology and high fuel efficiency.
Additionally, information and communication technology (ICT) has allowed Air Asia to reduce operating costs and provide fast, efficient service in areas including check flight schedules, book seats, electronic check in, and pre-order meals.
2.2 Michael Porter’s Five Competitive Forces
Bargaining Power of Suppliers
Fuel suppliers, food suppliers, merchandise supplier and aircraft supplier are among the most top suppliers for airline industry. They are either Airbus or Boeing in the market who supplies aircraft; hence the power of supplier is strong. Other suppliers like food and fuel supplier, the term of the supply must be based on the market condition and to avoid the risk losing long term business with the airline company, they would not increase too much of its price.
Previously AirAsia’s aircraft are Boeing models, which they lease it and the company had since phased our most of the models and replace with Airbus. The switching cost is high comprising training cost for employees to suit the aircraft features. Notwithstanding, technology used by Airbus is the most advances makes AirAsia rely on Airbus engineers to do maintenance of the aircrafts and seek advices. Thus bargaining power of suppliers is strong.
Bargaining Power of Customers
The bargaining power of buyers is greater when there are few dominant buyers and many sellers in the industry, products are standardised, buyers threaten to integrate backward into the industry, suppliers do not threaten to integrate forward into the buyer's industry and the industry is not a key supplying group for buyers.
There is no cost of switching for customers who wish to switch from AirAsia to other airlines. With the access of internet connection, this made easier for customer to compare prices before deciding.
This makes the bargaining power of customer stronger.
Threat of Substitute Product
Substitute for airlines are trains, busses & cruise but all these are not viable due to geographical factor. For business traveller, video conferencing and telecommunication are also one of the substitutes as nowadays very less people travel abroad to attend meetings. Hence the threat of substitute is moderate.
Threat of New Entrants
New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The threat of new entrants largely depends on the barriers to entry.
Furthermore, comes to Airline industry in Malaysia, threat of new entrant is low. This is due to high operating cost and government formalities. Moreover brand awareness and market leadership will put AirAsia ahead of the competitors, Malaysian Airlines and Firefly.
Competitive Rivalry Within an Industry
Malaysian Airlines and Firefly would be the greatest competitor for AirAsia. In August 2011, there has been an agreement between AirAsia and Malaysian Airlines. As per the agreement, Firefly would no longer be a rival to AirAsia as Firefly will be full board airlines whereas MAS will focus on its strength and will not directly compete with AirAsia.
3.0 Internal Analysis
3.1 SWOT Analysis
Strength
Having a strong management team and strong links with government partly contributes to AirAsia growth. This was made reality by it’s widely diversify team management leaders and political members. For example, Shin Corp ( formerly owned by ex-Thai Prime Minister – ThaksinShinawatra and his family) holds a 50% stake in Thai AirAsia. Because of this, AirAsia has open up and capture a sizeable market in Thailand.
Clearly, AirAsia has a managing team who are very good in strategy formulating and execution. Like other low cost airlines in US and Europe, AirAsia strategy formula has spell miracle to its growth. For example like Ryanair’s operational strategy (no-frills, landing in secondary airport), Southwest people strategy (employee comes first) and Easyjet’s branding strategy (linking with other service providers like hotel, car rental)
Besides that, branding of AirAsia is well planted in local customer’s heart. “Management of AirAsia are very open in sharing their latest upcoming plans and information on airline industry” says media. Their partnership with other service provider such as hotels, car rental firms, Citibank (AirAsia Citibank Card), telecommunication (Tune talk) has shown the travellers how expose and expandable they are.
Moreover, the link between AirAsia with Manchester United Club (shirt sponsor) and Queen Park Ranger Club (owned by Dato Tony Fernandes) has further boosted their image in the eyes of the entire world.
Undoubtedly, utilization of Information Technology making their promoting job easier. Direct purchase of tickets by customers using web has cut the airline agent fee as well keeping the cost low.
AirAsia is the leader in airline industry. AirAsia Academy has helps their staffs including pilots, stewards and other managing staff who works in AirAsia to gain knowledge and training on how to maintain and improve the strength of AirAsia.
Weakness
AirAsia receives many complains from their customer on flight delay, not able to change flight, being charged for lots of things and not able to get a refund if customer couldn’t make it.
‘35% of passengers choose airlines based on punctuality’ (Emirates 2472008)
By delaying flights, AirAsia loses its air borne time as well.
Besides that, Air Asia is facing competitive disadvantage by not having its own maintenance, repair and overhaul (MRO) team. With few hubs and hundreds of flights, it is really cosy to outsource a MRO team.
Moreover, there is only 2 ways to get connected with AirAsia customer service representative, either by writing to their customer service e-mail mailbox with a reply take up to 4-5 days or by calling their premium customer service line with a charge of RM1.95 per minute.
Opportunities
In AirAsia-MAS agreement in August 2011, MAS has confirmed to reduce its flight to Sydney and Firefly’s routes to Langkawi, Penang and Singapore. This is a bonus for AirAsia.
“Growth in Malaysia will be boring at a single digit of 3%, 4% to 5% but countries like Vietnam, the Philippines and Indonesia are where there is plenty of opportunities over the next 10 to 15 years and that should keep AirAsia busy,” a Maybank Investment analyst said.The Star Friday June 15, 2012
Talk about expanding, AirAsiahas it all. They are eyeing five more joint ventures in markets like China, South Korea, Vietnam and India. AirAsia group chief executive officer Tan Sri Tony Fernandes even alluded that he would also like to set up AirAsia Africa.
Low-cost airliner AirAsia today said it is studying the market opportunities in connecting Bangkok with southern cities in India. Deccan HeraldChennai, Mar 9 ,2012, (PTI):
Obviously, Air Asia is looking to introduce direct flights between Bangalore, Kochi, Hyderabad to Bangkok and other places in Thailand, says Thai AirAsia CEO TassaponBijleveld
In general, AirAsia starts venturing in other industry such as real estate (tune hotels), banking (Citibank AirAsia Card), tele-communication (Tune Talk) and being business partner with expedia (travel agent) and Car Rental Company.
Threats
9/11 incident, Bali bombing and terrorist attack are unpredictable threats. Besides that aviation rules, government policies, fuel price hike, airport tax, handling charges are the threats faces by AirAsia.
After studying internal and external analysis on AirAsia, we could say that AirAsia will continue having the same profit with its new cost saving airplanes and newly introduced routes. In order to grow bigger, AirAsia has to address its existing customer’s problem and to find ingredient to pull more potential customers. In order to have more profit and improve in branding AirAsia should improve current method/policies and introduce new strategies.
4.0 Business Strategy
Company’s Strategy recommendation for 5 year period 2012 though 2016
1. AirAsia should employ some aircraft engineers and/or have their own Maintenance, Repair and Overhaul (MRO) teaminstead of outsourcing the service. By having a MRO team, AirAsia do not need to wait for third party to arrange their time to assist in repairing/servicing work andno need to worry on the cost. Being a low budget airline, efficiency and good condition of every aircraft is very important to add more fleet and route. Depending on third party’s service can burst a company’s budget as bargaining power of supplier is high.
Besides saving millions, AirAsia can be more independent and have more frequent checking on all their aircrafts to maximize plane safety.
Like in any other product, commercial aircrafts eventually will end their working life sooner or later. In many cases the owners and operators decide to withdraw the aircraft from service due to increased airplane maintenance cost, the need for expensive airframe and avionics upgrades, difficulty locating replacement aircraft parts, and increasing number of service expired aircraft parts. Once the decision is made to retire the aircraft, the owners face the challenge of finding a new operator or owner for the retired airplane.
Employing own MRO team means more employees, more salary and benefit expenses. What if there is no aircraft problem in certain period of time? Is that means the MRO team will be resting shaking legs? Certainly no, the MRO team can be an individual team providing services to other airline industry as well. Additionally they can provide small courses to students pursuing aircraft engineering.
2. AirAsia should buying bigger planes eg. Airbus 380.
Airbus A380 is a double deck, wide-body, four engine plane. Designed to challenge Boeing’s monopoly in the large-aircraft market, A380 made its maiden flight on 27 April 2005.
The A380's upper deck extends along the entire length of the fuselage, with a width equivalent to a wide-body aircraft. This allows for an A380-800's cabin with 478 square metres (5,145.1 sq ft) of floor space; 49% more floor space than the next-largest airliner, the Boeing 747-400 with 321 square metres (3,455.2 sq ft), and provides seating for 525 people in a typical three-class configuration or up to 853 people in all-economy class configurations.
A typical Airbus 320 can support up to 220 people but AirAsia can make 3 times more people fly with Airbus 380.
Below is comparison between Airbus 320neo and Airbus 380
On the other hand, can Air Asia makemore profit by owning Airbus 380?
For example, there are 500 people would like to fly to Langkawi using domestic AirAsia on the certain date. To accommodate them all, AirAsia need to have 3 Airbus 320 which would fly on different time on the same day. 3 plane = 3X fuel burn=more expenses=less profit.
Meanwhile by flying Airbus 380, only 1 plane needed, hence fuel saved and the time needed to fly the next Airbus 320 can be used to other fleets.
Certainly AirAsia can make more profit by owning an Airbus 380.
3. AirAsia must improve the quality of customer service.
Being a leader in airline industry, it is very important to maintain a good relation with customers.
Customer Service expert Robert Dewar divides customers into two categories: tech-savvy transaction-oriented people, and others who just want to talk.
For tech-savvy transaction-oriented people, email and chat is the best way to communicate. AirAsia should emphasize on its customer care email by employing more staff and train them accordingly. Setting a Key Performance Index(KPI) for staff is very important here, for example an email need to be answered within 24 hours and the problem/issue should be attended within 48 hours. All chat and email correspondence should be recorded for training and developing purpose.
Whereas for customers who just want to talk, AirAsia should employ few customer care representatives who have good Public Relation (PR) skills. Customers need should be treat as utmost important and addressed immediately. If the problem is beyond help, at least some sweet words will ease the problem. Again all conversation with customers need to be recorded for future training purpose.
What about some fussy customers whom are very difficult to handle. Is customer care with PR skills can handle all kind of situations and answer all kind of questions?
Definitely it is impossible to satisfy all customers no matter how good your PR is. One man’s meal is another man’s poison, but the customer care representative should be trained in a way to tackle and sooth a customer’s boiling heart even there is no right answer or correct solution.
A special article written by Susan A Friedmann, psychology professor at Utah State University, explaining what customer service is all about.
The Ten Commandments of Customer Service
1) Know who is boss. You are in business to service customer needs, and you can only do that if you know what it is your customers want. When you truly listen to your customers, they let you know what they want and how you can provide good service. Never forget that the customer pays our salary and makes your job possible.
2) Be a good listener. Take the time to identify customer needs by asking questions and concentrating on what the customer is really saying. Listen to their words, tone of voice, body language, and most importantly, how they feel. Beware of making assumptions - thinking you intuitively know what the customer wants. Do you know what three things are most important to your customer?
3) Effective listening and undivided attention are particularly important on the show floor where there is a great danger of preoccupation - looking around to see to whom else we could be selling to. Identify and anticipate needs. Customers don't buy products or services. They buy good feelings and solutions to problems. Most customer needs are emotional rather than logical. The more you know your customers, the better you become at anticipating their needs. Communicate regularly so that you are aware of problems or upcoming needs.
4) Make customers feel important and appreciated. Treat them as individuals. Always use their name and find ways to compliment them, but be sincere. People value sincerity. It creates good feeling and trust. Think about ways to generate good feelings about doing business with you. Customers are very sensitive and know whether or not you really care about them. Thank them every time you get a chance.
5) On the show floor be sure that your body language conveys sincerity. Your words and actions should be congruent.
6) Help customers understand your systems. Your organization may have the world's best systems for getting things done, but if customers don't understand them, they can get confused, impatient and angry. Take time to explain how your systems work and how they simplify transactions. Be careful that your systems don't reduce the human element of your organization.
7) Appreciate the power of "Yes". Always look for ways to help your customers. When they have a request (as long as it is reasonable) tell them that you can do it. Figure out how afterwards. Look for ways to make doing business with you easy. Always do what you say you are going to do.
8) Know how to apologize. When something goes wrong, apologize. It's easy and customers like it. The customer may not always be right, but the customer must always win. Deal with problems immediately and let customers know what you have done. Make it simple for customers to complain. Value their complaints. As much as we dislike it, it gives us an opportunity to improve. Even if customers are having a bad day, go out of your way to make them feel comfortable.
9) Give more than expected. Since the future of all companies lies in keeping customers happy, think of ways to elevate yourself above the competition. Consider the following:
a. What can you give customers that they cannot get elsewhere?
b. What can you do to follow-up and thank people even when they don't buy?
c. What can you give customers that is totally unexpected?
10) Get regular feedback. Encourage and welcome suggestions about how you could improve. There are several ways in which you can find out what customers think and feel about your services.
a. Listen carefully to what they say.
b. Check back regularly to see how things are going.
c. Provide a method that invites constructive criticism, comments and suggestions.
By Susan A Friedmann, psychology professor at Utah State University
4. AirAsia to give special ticket price for senior citizens.
“A society for all ages encompasses the goal of providing older persons with the opportunity to continue contributing to society. To work towards this goal, it is necessary to remove whatever excludes or discriminates against them.” – The United Nations’ 2002 Madrid International Plan of Action on Ageing. The Star Monday October 25, 2010
Malaysia currently has about 3 million senior citizens, and the number is rising. UN statistics show that Malaysia is likely to reach ageing nation status (where the number of people above 60 makes up at least 15% of the population) by the year 2035.
Vacations that are designed specifically for senior citizens are becoming increasingly popular and the market for senior travel is expanding rapidly. There are many beautiful and historic destinations that have been customized to cater to the needs and interests of senior travelers. One of the source mappings for senior citizen to travel is airline industry and of course, airlines which cater the best package and price will become the main target. Even those group travelers prefer a special package for senior citizen as it will reduce their total ticket price.
Pursuing this further, there would be a small loss to AirAsia in term of discount given to senior citizen. How to get back the loss and turn it into profit? The chances senior citizen travel themselves are very rare, mostly they will be accompany by their family members, a group, society or club. This non-senior citizen always have an option to choose other airline instead of AirAsia but when AirAsia provide a special discount for seniors, definitely they would choose to fly with AirAsia instead of Malaysia Airlines or Firefly. This in a way is reducing the threat of substitutes of AirAsia.
What about students, do AirAsia need to give them a special discount also? In this situation no, as students travel is compulsory and only by keeping the fare lowest among the rest will assure their travel with AirAsia.
5.0 Conclusion
We can say that AirAsia growth is unstoppable for its fantastic business strategy; no doubt there are still few things they need to upgrade especially their customer service level. AirAsia walks their talk by making “Now Everyone Can Fly”.
THE END
5.0 Reference
i. Investopedia retrieved from http://www.investopedia.com/features/industryhandbook/porter.asp#ixzz213FxvKKn
ii. INC Advertisement retrieved from
iii. Aerosup retrieved from
iv. Airlines for America retrieved from
v. Jet fuel daily price retrieved from
vi. Euromonitor International retrieved from
vii. Airbus retrieved from
viii. Hubpages retrieved from
ix. Cheap Fare Guru retrieved from
x. SAI Consulting Services retrieved from
xi. About dot come retrieved from
xii. AirAsia retrieved from
xiii. Department of Statistic Malaysia retrieved from
xiv. Tutor2U retrieved from
xv. Ageing Population retrieved from
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