EXECUTIVE SUMMARY It has been a great pride in the history of AirAsia that despite the challenges that they have faced, AirAsia continues to defy the odds. Since December 8, 2001, when the company was taken over by the new Air Asia management, AirAsia has grown to become the largest low-cost carrier in Asia. Today the airlines are operating in Malaysia, Thailand and Indonesia. With more than 6,000 talented, hardworking and committed employees and a market capitalization in excess of RM2billion, Air Asia has earned a reputation as a consistent performer no matter what the external environment.
They have seen a future in which their success is not constrained by resources or opportunity. ORGANIZATIONAL ANALYSIS Company Background AirAsia is Malaysia’s second national airline was incorporated in 1993 as a full-service regional airline under DRB-Hicom. They started their operations on 1996. After starting their operations for few years, AirAsia failed to attract enough passengers to establish its own niche market. AirAsia was also facing problems such as the demise of Tan Sri Yahaya Ahmad and 1997-1998 Asian financial crisis.
Due to 1997-1998 Asian financial crisis, AirAsia was heavily indebted. On 8 December 2001, music mogul Dato’ Seri Tony Fernandes decided to retire from music industry and purchased 99. 25 per cent equity (51. 68 million shares) in shares from DRB-Hicom via his company Tune Air Sdn. Bhd. with a token sum of one ringgit. Without looking back, Tony Fernandes transformed AirAsia as a low fare airline together with Conor McCarthy, the former Ryanair director of group operation.
Known of its corporate tagline “Now everybody can fly”, AirAsia became the first successful low cost and ticket-less airline in the Southeast Asian region. AirAsia offers a simple service at fares lower than those offered by other full-service airlines. It was modelled on U. S. -based Southwest Airlines and Dublin-based Ryanair. AirAsia was established to create a new aviation product in Malaysia, revolutionize air travel, and grow the local aviation market by providing low fares so more people can fly.
AirAsia now flies to over 60 destinations in Malaysia, Thailand, Indonesia, Singapore, China, Philippines, Brunei, Cambodia, Laos, Vietnam and Myanmar. It also formed 2 successful joint ventures in Thailand through Thai AirAsia, and Indonesia through Indonesia AirAsia, expanded its fleet from the two to twenty eight. To date the AirAsia group, has carried over 35 million guests. AirAsia Group of Companies Corporate Vision, Mission and Values Vision| 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. Mission| * To be the best company to work for whereby employees are treated as part of a big family * Create a globally recognised 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 level| Values | * Safety FirstPartnering with the world’s most renowned maintenance providers and complying with the world airline operations * High Aircraft UtilisationImplementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity * Low Fare, No FrillsProviding guests with the choice of customising services without comprising on quality and services * Streamline OperationsMaking sure that processes are as simple as possible * Lean Distribution SystemOffering a wide and innovative range of distribution channels to make booking and travelling easier * Point to Point NetworkApplying the point to point network keeps operations simple and costs low| SWOT ANALYSIS Strengths| Weaknesses| * Low cost operations i. e. offering “no frills” * Low cost per average seat kilometre (ASK) of 2. 5 cents * Fewer management level, effective, focused and aggressive management * Simple proven business model that consistently delivers that lowest fares * Penetrate and stimulate to potential markets * Multi-skilled staffs means efficient and incentive workforce * Single type fleet minimize maintenance fee and easy for pilot dispatch * Flying out of secondary airports i. e. minimise takeoff and landing fee * Short travelling distance * Higher capacity per aircraft Lower turnaround times i. e. 25 minutes * First mover advantage in Asia * Multi-currency online sales platform * World recognition by Skytrax as “The World’s Best Low-Cost Airline” for 2009 and 2010| * Service resource is limited by lower costs * Limited human resources could not handle irregular situation * Overdependence on few key staff * Non-central location of secondary airports * Brand is vital for market position and developing it is always a challenge * Heavy reliance on outsourcing * New entrants to provide the price-sensitive services * Flight delays * Regulation on airport deals and passenger compensation| Opportunities| Threats| Long haul flight is a trial to get undeveloped market share * Differentiation from traditional LCC model by adding customer services or operation as full service airline with low fare * Ongoing industry consolidation has opened up prospects for new routes and airport deals * High fuel prices will squeeze out unprofitable competitors * Venture out other business prospects e. g. business solutions| * Full service airlines start cut costs to compete * Entrance of other LCCs * High fuel price decreases yield * Accident, terrorist attack, disease, and disaster and affect customer confidence * Aviation regulation and government policy * Increase in operation cost in producing value-added services * System disruption due to heavily reliance on online sales * Network security i. e. hackers and viruses * Economic slowdown could reduce demand. | 5 PORTER FORCES 5 Porter Forces| Description|
Bargaining Power of Suppliers| Supplier power is high due to industry monopolisation by Boeing and Airbus. Although there are only two companies provide aircraft purchase or lease, the global crisis has limited new entrants into this market and reduced planes upgrading for the immediate future. | Bargaining Power of Customers| Buyer power is high because customers can access Internet via computer or mobile phone to find cheaper prices. Furthermore, changing from one airline to another has no costs and is easily achieved. | Rivalry amongst existing competitors| Price has being the main battlefield of competition. AirAsia leads the way due to its low operating costs.
However, there are more competitors entering the market that have major carriers as backers or owners which may lead to an ‘unrealistic’ price war in the future. | Threat of substitute products or services| As an Asian region being so huge and with its geographic ‘make-up’, air travel becomes the most efficient and convenient transportation mode. This makes the threat of substitution low to AirAsia. Moreover, with border controls remaining incredibly bureaucratic in certain areas, i. e. Thailand-Cambodia, then flying is easily the most suitable travel plan. | Threats of new entrants| The threat of new entrants is moderately in AirAsia’s favour at present. The high capital requirements and start up capital prevents many new entrants.
In addition, AirAsia’s current leading role and favourable brand awareness make it a first choice amongst the current competition. However, potential new entrants from full service carriers could be threats in the future and long term. | VALUE CHAIN ANALYSIS In order to understand and analyse the specific AirAsia’s activities which can create a competitive advantage, a value chain analysis has been conducted as below to model AirAsia as a chain of value-creating activities. The goal of these activities (Inbound logistics, Operations, Outbound logistics, Marketing and Sales, and Service) is to create value that exceeds the cost of providing the product or services, thus generating a profit margin. PEST ANALYSIS PEST analysis are segments that are external to the Company.
It is an important element that has an impact on the industry and the Company. The analysis are as follows, Political | * Used political connection to request aviation license from the then Prime Minister, Tun Dr Mahathir Mohamad * Political uncertainty in Malaysia with Prime Minister Dato’ Seri Abdullah Ahmad Badawi set to step down in March 2009 – Khairy Jamaluddin’s involvement in AirAsia * Deputy Prime Minister Dato’ Seri Najib Razak to take over the ruling-coalition party, but with a cloud of allegations. * Political unrest in Thailand recently when anti-government protesters recently blocked flights for a week at Bangkok’s main airports. * ASEAN nations have been pushing Indonesia to scrap its Rp. million ‘Fiscal’ charge to all Indonesian citizens and expatriates when leaving the Republic of Indonesia either for business or tourism. * Resurgence of violence in Southern Thailand – Northern Malaysian border. * Malaysia granted exploration rights in oil-rich waters off the coast of Borneo; increased tensions with Indonesia. * Terrorism has occurred in Thailand and Indonesia; most notably the Bali bomb of 2002. | Economic | * National trends: * Malaysian economy registered a strong growth of 10. 1% in the 2010 first quarter led by continued expansion in domestic demand and stronger external demand * BNM raised Overnight Policy Rate (OPR) to 25 basis point (0. 5%) on 13 May 2010 due stronger economic outlook and to normalise monetary conditions. * For 2010 1st quarter, ringgit appreciated by: * 4. 6% against the US dollar, broadly in tandem with regional currencies. * 12. 2% against the Euro * 11. 5% against the Pound Sterling * 5. 9% against the Japanese Yen * International trends: * Malaysia ranks 23rd for its ease of doing business out of a total of 183 economies surveyed in the World Bank Doing Business 2010 report. * Asian governments are defending less national-flag carriers; in order to revitalize under used airports and increase tourism spending. | Social | * AirAsia operates in Southeast Asia with many countries and languages. Southeast Asia countries have diverse cultures and religions; troubles continue particularly on the Thai-Malaysian border, Indonesia and Brunei. * Individualism is less common than cooperation in Asian business values. * Acceptance of laws and rules can vary; many Indonesians, for example, rarely abide to baggage allowance rules and these rules are seldom enforced due to corruption and indolence. * Urbanization: 7 out of the top 10 most populated cities in the world (;14 million) are predicted to be in Asia by 2015, according to the UN. | Technological | * Over 80% of AirAsia’s tickets are sold on-line and paperless; thus eliminating travel agent fees. * Ticket-less travel and ‘e-tickets’ have lowered distribution costs. AirAsia has the youngest fleet in Asia with the new Airbus A320 and A330-300; allowing state-of-the-art technology and high fuel efficiency. * Information and communications technology (ICT) has allowed AirAsia to reduce operating costs and provide fast, efficient service in areas including: check flight schedules, book seats, electronic check-in, and pre-order meals. | Air Asia Strategies-Success Factors 1. A Profitable Business Model How AirAsia manage to draw in a profit in its first year of operations? With huge capital outlay required, paying pilots and other staff, meeting rising fuel costs and other numerous expenses. The answer are as follows: a. AirAsia focus on the areas where people are not being served well.
The Company penetrated by offering superior products and services to the budget traveller knowing that this untapped market held a great number of prospects for low-cost carrier. b. AirAsia opt the business model that generate a clientele who keep coming back through many discounts fairs and low-fare promotions. c. Air Asia focus on the Asia population where billions of people live in Asia which spreads over 30% of earth’s land area. A small percentage, would be enough to make it happy for a long time to come. d. AirAsia has chosen a model that had already proven its success in Europe and the US. e. AirAsia keeps costs down to bare minimum through, i.
Scratching meals off and make it ready for sale on board for those wanting them. ii. Mostly flight take around 3 to 3. 5 hours max, enabling them to use same crew for the return flight from an arriving destination back to the departing destination while carrying a new load of passengers. This holds down the cost of crew salaries. iii. No cost incurred for crew accommodation at the arriving destination as they arrive home on the same day, after 8 to 10 hours, same length time normal working hours. Also no additional cost on subsistence allowances for the crew. iv. AirAsia plans its destinations very carefully, flying places that can be reached in 3 to 3. 5 hours.
Longer flights that take 4 hours or more are only considered if they make business sense. v. Customers are encourage to purchase tickets on the Internet to avoid the need for ticket counters and ticketing staff, thus saving on rental and staff salaries. vi. AirAsia looks for landing at the cheapest airports. vii. It foregoes all frills such as aerobridges and opt to land by the lounge further from the heart of the airport which is lower cost. f. AirAsia hedge for fuel cost by paying for fuel in advance to qualify for very low prices, thus minimising its risks to increasing fuel prices. g. AirAsia running a promotions by offering very low fares for destinations that their planes do not always carry full loads everyday.
This in turns has filled the vacant seat on that destinations. h. With such low prices, people with just a few ringgit who could not afford to fly previously are able to do so, Now Everyone Can Fly. i. AirAisa gets plenty of free publicity in the media because of its fairy-tale success story. 2. Advertising ridiculously cheap seats for certain destinations AirAsia tickets are so cheap that it’s cheaper to use the airline than to take a bus or to drive to some of those local destinations. Whether or not the seats are sold, AirAsia is entrenching its position in the minds of customers as a true low-cost airline. They do so by: a. Sells seats that would otherwise remain unoccupied. b.
Sells seats weeks in advance, filling up the plane more than it could before. c. Attracts enquiries from prospects who otherwise wouldn’t even think of flying. d. Converts some of the prospects into regular paying customers when the cheap seats are sold out. e. Enables doubters to experience its services. f. Further entrenches its position as a low cost airline by regular advertising and regular free publicity in the media on its low-cost tickets. g. Creates word of mouth marketing through the ads and from its customers’ experiences. h. Easily achieve top-of-mind awareness, edging out competitors from the minds of its prospects and customers. 3. First Mover Advantage
Be the first mover has an advantage for being the first to be seen everywhere by offering the products and services. With this advantage, AirAsia began reaping in profits its first year of operation, and has continues to do so for five years now. It is a remarkable feat, especially since AirAsia took over an ailing business with a RM40 million debt on it head. 4. Well executed marketing strategy AirAsia is the leading Asian low-cost carrier today because of its simple and well executed marketing strategy. All of AirAsia’s marketing campaigns focus on this one easy to understand, very desirable core message, that AirAsia is the most affordable airline in Asian Skies.
In order to put the brand to the world, the Company has looked at sponsoring on sports, specifically football and motor racing, two of the world most popular sports, as a way of bringing it worldwide attention. AirAsia has sponsored a famous football club, Manchester United and the Formula 1 team BMW-Williams and has made AirAsia known to the millions who follow these sports avidly. 5. Additional revenue from ancillary income AirAsia made hugh profit through its low fares was not the only source of revenue. They other income from other sources like charging customers onboard meals that the customers are paying at three to five times their regular price.
Hot seats are also other additional income where the Airline is charging RM25 for a seat form 1 to 5, 12 and 14. Being a partner for credit card company i. e Citibank, holiday packages, travel insurance companies, hotels, car rentals companies, cruises, services of healthcare and many more has contributed to the ancillary income. There are also revenue generated through advertising, such as from providing advertising space on the side of the stairs leading into the aircraft, at the back of each seat, at the back of the meal tray behind each seat, on overhead bins, air sickness bags, on the AirAsia website that draws hundreds of thousands of visitors every month, and in the airline’s new in flight agazine called ‘Travel 3sixty’ which is have attracted a readership of at least 700,000 a month and has gain an advertising revenue in excess of RM1 million within its first year of launching. 6. Standardised new fleet that is Airbus 320 These newer planes are technologically advanced in various departments: 1. Lower fuel burn. 2. Lower maintenance costs. 3. Increased capacity. 4. Wider cabins. 5. Larger cargo payloads. 6. Cabin equipped with state-of-the-art touch screen management system. 7. Enhanced entertainment system. The Airbus A320-200 will allow AirAsia to operate at lower costs due to the reduction in fuel charges and operating costs. In addition, they will be able to increase capacity on flights and maximize profits per flight. Awards and accolades
AirAsia being the Asean leader in affordable Asian travel and award winning low-cost carrier. Below are the awards and accolades won by Air Asia: Year 2009| | • | AirAsia & AirAsia X – Airline Of The Year By Centre for Asia Pacific Aviation (CAPA)| | | • | Tony received the 2009 Frost & Sullivan Excellence in Leadership Award by Frost & Sullivan| | | • | Best Asian Low-Cost Carrier By TTG Travel Awards 2009| | | • | World’s Best Low Cost Airline by Skytrax | | Year 2008| | • | The Laureate Award for Best Commercial Airport Transport from Aviation Week | | | • | Tony awarded the Malaysia Brand Icon Award from Deputy Prime Minister YAB Dato’ Seri Najib Tun Razak at the Global Brand Forum Malaysia | | • | AirAsia – Malaysia’s 30 Most Valuable Brands 2008 By Malaysia’s Most Valuable Brands (MMVB)| | | • | PIKOM ICT Organisation Excellence Award 2008 By Association of the computer and multimedia industry (PIKOM)| | | • | AirAsia X – Best New Airline Of The Year By Centre for Asia Pacific Aviation (CAPA)| | | • | Best Asian Low-Cost Carrier By TTG Travel Awards 2008| | | • | Top CEO brand & 3rd Best Corporate Brand in Malaysia By Pulse Group Survey | | | • | World’s Best New Airline (AirAsia X) By Budgie World Low Cost Airline Awards 2008| | | • | Friends Of Thailand Award 2008 By Tourism Authority of Thailand| | | • | Asia Pacific’s Top 1000 Brands 2008 Survey (AirAsia- Top 5 Airline) by Taylor Nelson Sofres | | • | Asia’s Best Budget Airline under Best In Travel Poll 2008 by SmartTravelAsia. com| | | • | AirAsia wins Airline Strategy Award in the Finance Category by Airline Business | | | • | AirAsia recognized as one of the 50 Most Innovative Companies In The World by FastCompany. com | | | • | Airline Market Penetration Leadership of the Year by Frost & Sullivan| | | | | • | Rising Leaders – The Next 10 Years by Singapore Institute of International Affairs (SIIA) in collaboration with AXN Asia| | | • | Commendations of Prestige Award for outstanding contribution in Macau by Macau Special Administrative Region | | AirAsia performances 1. Financial highlight- Income Statement Item| | FY2007| FY2006 | Increment| | (RM Million)| (RM Million)| (%)| | | | | | Net income| | 498 | 202 | 147%| Ticket sales| | 1,494 | 997 | 50%| Ancillary income| | 109 | 62 | 77%| Revenue| | 1,603 | 1,058 | 52%| Pretax profit| | 278 | 86 | 223%| Net profit| | 498 | 202 | 147%| Pretax profit margin| | 17. 30%| 8. 10%| 9. 20%| Net income margin| | 31. 10%| 19. 10%| 12%| Earnings per share (EPS)| 21. 2| 8. 6| 147%|
Based on the income statement as shown above, Air Asia has shown a tremendous growth from 2006 to 2007. Its revenue has grown more than 100% after one year. With a target of 60 planes in operation by 2011, one can imagine the profit that AirAsia will be raking in. The key to greater profits for AirAsia is more routes and more planes. Base on the information gathered, the airline is already looking forward to operating a fleet than 100 airbus in due time. 2. Passengers carried by AirAsia ( Includes Malaysia, Thailand and Indonesia) Month| | FY2007| FY2006 | Increment| | | | | | July| | 1,032,129 | 601,390 | 71. 6%| August| | 1,130,469 | 591,556 | 91. %| September| | 1,005,902 | 617,906 | 62. 8%| October| | 1,084,055 | 592,583 | 72. 5%| November| | 1,167,995 | 738,915 | 58. 1%| December| | 1,364,829 | 812,492 | 68. 0%| January| | 1,174,233 | 825,786 | 42. 2%| February| | 1,070,263 | 778,287 | 37. 5%| March| | 1,215,718 | 927,492 | 31. 1%| April| | 1,201,277 | 939,062 | 27. 9%| May | | 1,259,771 | 919,896 | 36. 9%| Jun| | 1,285,610 | 930,921 | 38. %| Total| | 13,992,251 | 9,276,286 | 50. 8%| We can see that the number of passengers carried by AirAsia every month are a lot higher than for the corresponding period the year before, suggesting that the airline is growing healthy, despite of having to face all types of challenges. 3. Performance indicators Item| | FY2007| FY2006 | Changes| | | | | | RPK (milliom)| | 12,391 | 8,646 | 43%| ASK (million)| | 9,863 | 6,702 | 47%| Average fares (RM)| 171 | 174 | -2%| Load factor (%)| 79. 6%| 77. 5%| 2. 1%| Revenue per ASK (sen)| 3. 64 | 3. 29 | 11%|
Cost per ASK (sen)| 3. 16 | 2. 95 | 7%| Cost per ASK ex fuel (sen)| 1. 57| 1. 63| -4%| Aircraft (average)| 27. 1| 20. 5| 32%| ASK – is the Available Seat per Kilometre, which is the total number of seats available on scheduled flights multiplied by number of kilometres these seats were flown. ASK is generally be used as the denominator when calculating “unit cost”. RPK -Revenue Passenger per Kilometre, which is the number of paying passengers carried on scheduled flights multiplied by the number of kilometres those seats were flown. Load factor – RPK divided by ASK. Aircraft utilisation – The amount of time that an aircraft spends in the air carrying passengers.
Cost per ASK – Total operating expenses (excluding finance costs and taxation) divided by ASK. In the airline industry, thus is comparable to “unit cost”. Revenue per ASK – Total revenue divided by ASK. Based on the performance indicator above, the revenue as well as the cost has increased simultaneously. However, it manage to sustain the average airline fares and manage to increase the load of the aircraft by 2. 1%. RECOMMENDATIONS 1. The key to greater profit for AirAsia is to have more routes and more aircrafts. 2. AirAsia needs to work closely with software developer to develop a comprehensive, yet simple distribution system that capable of handing the most technologically savvy customer to the most technologically deprived. 3.
Air Asia should improve on the customer service as a lot of complaints were received to get the refund on the cancelled flights. 4. The customers do not really know the level of flight safety or maintenance which will be a high priority. AirAsia should disclosed more on the safety and scheduled maintenance on the aircrafts. 5. AirAsia should explore more on Countries like India, China and Bangladesh as they are booming at the moment and are creating large middle-classes within their respective countries. The more people are employed in cities over 15 million people, the more need there will be for journeys to homes in the countryside. 6. The need for more fuel-efficient airplanes to reduce their operating costs. 7.
AirAsia needs to be aware that system failures with the internet would seriously damage operations for such a technologically reliant company. Conclusion From the inception of Airasia, the CEO has been busy fending off the naysayers. “since we started, we have never heard anyone say ‘AirAsia’s going to work’. There hasn’t been believer since day one. They said that the AirAsia and the LCC model wouldn’t work. The airline has been experiencing too many challenges, SARS, terrorism, bird flu, surging oil price and many more but they have never held back. They foresee whatever challenges they saw an opportunity. That is why they still be flying to Bali although Bali had been bombed by terrorist as they have to bring back the crowd.
In just merely 8 years, the airline has grown from a two aircraft and one destination to an Asean-wide Group with almost 7,500 employees, 92 aircraft and more than 65 destinations. Achieving this might not have been easy, but this is proof that if one dares to dream the impossible, believe the unbelievable & never take no for an answer… all things will be possible. With the unbelievable tagline “Now Everyone Can Fly” has made the airline a leading low-cost carrier in Asian today and be aware of AirAsia, that red flash in the sky travelling at an unimaginable speed!! REFERENCES: www. airasia. com www. wikipedia. com www. facebook. com/airasia www. bnm. gov. my http://www. doingbusiness. org/economyrankings/ http://www. nst. com. my AirAsia Annual Report (2009) The Air Asia Story –Revised Edition