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MGT 423/420 Strategic Management

Table of Contents
1.0 Introduction ....................................................................................................................................... 1 1.1 AirAsias Background ................................................................................................................ 2 1.2 Philosophy, Vision, Mission and Values ............................................................................. 3 1.3 Substantial Shareholders ......................................................................................................... 4 1.4 Board of Directors ...................................................................................................................... 5 1.5 Organizational Structure.......................................................................................................... 6 1.6 Marketing Strategies.................................................................................................................. 7 2.0 Internal and External Environment Analysis .................................................................... 13 2.1 Internal Environment Analysis (S.W.O.T) ...................................................................... 13 2.2 External Environment Analysis (S.W.O.T) ..................................................................... 17 3.0 Analysis of Strategic Factors (S.W.O.T) ................................................................................ 20 3.1 Internal Environment Analysis .......................................................................................... 20 3.2 External Environment Analysis.......................................................................................... 25 4.0 Current Issues of Air Asia today ............................................................................................. 30 5.0 Recommendation.......................................................................................................................... 32 6.0 Evaluation and Control ............................................................................................................... 39 7.0 Conclusion ....................................................................................................................................... 40 8.0 Harvard Referencing ................................................................................................................... 41

MGT 423/420 Strategic Management

1.0 Introduction
According to Davis and Keller (2002), strong brands will encourage the realization of higher long-term and short-term returns for organizations, and therefore, most of the product and brand management have put more effort in building strong brands. Branding has becoming the key component in the business world today, just like any products, airline industry will do. According Deyes (2008), a research found out that 35% of passengers choose an airline on the basis of punctuality while pricing was at the second around 30%. He says that the remaining 35% is based on other factors which is undeniably will include branding. Branding plays a vital role in the airline industry as it helps to differentiate themselves from the others. However, as the launch of new budget airlines increasing nowadays, this has made it more crucial for airlines to differentiate themselves in their respective markets and segments. Deyes (2008) also said that differentiation has become a necessity ever since low-cost airlines entered the market requiring airlines to improve the quality and experience. It is because if passenger decision-making is based on the price, low-cost airlines with the lowest fare will always be chosen. In the past decade, it has about twenty low cost carriers in the Asia Pacific region has emerged such as the Tiger Airways and Lion Airways (Singapore); Adam Air (Indonesia); Ozjet and Virgin Blue (Australia); Air Decan, Air Once, Air India Express Alliance Air, Kingfisher Airlines and Spice Jet (India); One-to-go and Nok Air (Thailand); Viva Macau (Macau) as well as Jeju Air (South Korea). Undeniably, one of the most successful in this industry was Malaysias AirAsia. However, as competition heats up, the low cost airlines ought to expand their use of marketing strategy that goes beyond low cost fares. In this paper will be investigating the strategies used by the AirAsia airline as well as it current issues.

MGT 423/420 Strategic Management

1.1 AirAsias Background

Air-Asia Berhad is a low cost airline in Malaysia. It is the largest low-fare, no-frills airline and the first choice of low-cost travel in Asia. (AirAsia, 2012) Air-Asia runs domestic and international flights and it is the first airline in the country practicing fully ticketless travel and unassigned seats. (Faridtk, 2010) It has a fleet of 72 aircrafts, route network to over 61 domestics and international destinations, and operates over 400 flights daily from centre located in Malaysia, Philippines, Indonesia, Thailand and Japan. In 5th February 2009, AirAsia has applied allocated seating across all AirAsia flights including in their associate companies like AirAsia X, Thai AirAsia, Philippines AirAsia Inc, Indonesia AirAsia and AirAsia Japan. (AirAsia, 2012) Today if we look into the progress, AirAsia has over 55 million passengers across the country and wants to continue expand to more inclusive route network through its associate companies. (Wong P.M, 2009) Prior to its take-over by Tune Air Sdn.Bhd. AirAsia was first established in the year of 1993 and began its operation on 18 November 1996. (Flightpedia, 2011) This airline was originally founded by DRB-Hicom which is a government-linked company. However, on 2 December 2001, the former Time Warner executive of Tune Air Sdn Bhd, Tony Fernandes has bought the heavily-indebted airline for the token of RM1 (about USD 0.26 at that time) with USD 11 million (RM 40 million) worth of debts.

(malaysiaairlinesfamilies, 2012) Tune Air was founded by Tony and four other entrepreneurs, some of them who worked in the music industry which inspired the name of the company as Tune. Tony Fernandes said that It is not easy to sell the idea of operating an airline particularly to the government. In fact, his request for a license to operate from the government was rejected two times. (Lim, 2009) However, with the former Secretary General of the Ministry of Transportation, Pahamin A Rejab, their case was presented to the then Prime Minister, Dr. Mahathir Mohamad who gave a green light, not for a new company but to take over the ailing Air-Asia. Within two years, Datuk Tony Fernandes has proved the critics wrong and was able to turn AirAsia into a profit-making company and launch new routes from its hub in Kuala Lumpur. After three years of operation, AirAsia has listed in the Kuala Lumpur bourse with one of the largest IPO offer of RM717.4 million. (AirAsia,2008) In addition, AirAsia had also won awards

MGT 423/420 Strategic Management such as certification by Superbrands International and this has made another award to Fernandes - the Best Entrepreneur of the Year by Ernst & Young Entrepreneur Award in 2006. (AirAsia, 2008) In March 2006, with the huge load of passengers to such a capacity, a new LCCT (Low-cost terminal) was built in Kuala Lumpur. According to AirAsia (2008), this LCCT can fill up 10 million passengers every year and has 30 parking lots for the aircrafts.

1.2 Philosophy, Vision, Mission and Values

Our Philosophy - Now Everyone Can Fly Our 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. Our Mission -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. Our Value -We make the low fare model possible through the implementation of the following key strategies, Safety First: Partnering with the worlds most renowned maintenance providers and complying with the with world airline operations. High Aircraft Utilisation: Implementing the regions fastest turnaround time at only 25 minutes, assuring lower costs and higher productivity. Low Fare, No Frills: Providing guests with the choice of customizing services without compromising on quality and services. Streamline Operations: Making sure that processes are as simple as possible. Lean Distribution System: Offering a wide and innovative range of distribution channels to make booking and travelling easier. Point to Point Network: Applying the point-to-point network keeps operations simple and costs low.

MGT 423/420 Strategic Management

1.3 Substantial Shareholders

Based on the Register of Substantial Shareholders, the direct shareholdings of the shareholders holding more than 5% in AirAsia Berhad as of 9th May 2012 are as follows: (, 2013)

Tune Air Sdn Bhd ("TASB") Tan Sri Dr. Anthony Francis Fernandes Dato' Kamarudin bin Meranun Employees Provident Fund Board Wellington Management Company, LLP

Direct No. of % of Shares Issued Held Shares

640,608,3 23.06 82(1) 3,227,010 0.12 (2) 1,692,900 0.06 203,186,6 7.31 00(4) 263,704,8 9.49 73(5)

Indirect No. of % of Issued Shares Shares Held

640,608,3 82(3) 640,608,3 82(3) 41,375,80 0 23.06 23.06 1.49

MGT 423/420 Strategic Management

1.4 Board of Directors

The Non-Executive Director of AirAsia, Dato Abdel Aziz @ Abdul Aziz Abu Bakar, Malaysian, aged 61, was appointed on 20 April 2005 and on 16 June 2008. He was re-designated to Non-Executive Chairman. The Group Chief Executive Officer of AirAsia since December 2001, Tan Sri Dr. Tony Fernandes. He was re-designated as the Non-Independent NonExecutive Director of AirAisa and yet he is also one of the members of the Employee Share Option Committee of the Board. The Director of the Company on 12 December 2001 was Dato Kamarudin Bin Meranun. He was appointed as Executive Director and he was re-designated to Group Deputy Chief Executive Officer on 8 December 2005. The Non-Executive Director of AirAsia was Conor Mc Carthy was appointed on 21 June 2004. He heads the Safety Review Board of the company as well. Aireen Omar was appointed as Chief Executive Officer of Airasia Berhad on 1st July 2012

MGT 423/420 Strategic Management

1.5 Organizational Structure

MGT 423/420 Strategic Management

1.6 Marketing Strategies

In order for AirAsia Berhad to stay alive in the airlines industry, they have to use well of the marketing strategies. One of the marketing tools used by the AirAsia Berhad is the 8Ps service marketing mix. This concept is one of the most popular and useful marketing tools used by every business world especially for the introductory marketing course. According to Wirtz (2007), in order to capture the distinctive nature of service performances, we need to modify the original terminology and speak instead of product elements, place and time, price and other user outlays, and promotion and education. This is then extended to the mix of other four service delivery elements which are the physical environment, process, people and productivity and quality. These eight elements which is known as the 8Ps of service marketing is to create viable strategies for meeting customers need profitably in market place. (Khan, 2012) Product Elements The term product is refers to tangible or physical products however service is an intangible and do not have physical presence. (Frog, 2010) In this context, a welldesigned service is very important and it consists of a core product that responds to the customers needs and others supplementary services are to help customers to use the core product effectively as well as adding value through welcomed enhancements. (Keyur D., 2012) Guest Convenient AirAsia believes that by providing convenient services will make the travelling easier and to achieve their customers satisfactions. AirAsia had made a lot of changes in delivering their products especially the new invention where guests can make booking through combination of ways. The launch of this innovative technology was officiated by YAB Dato Seri Abdullah bin Haji Ahmad Badawi, the Deputy Prime Minister of Malaysia in August 2003. (PressRealease, 2003) The company had become the first airline in the world which offer guests to book and pay for the AirAsia seat, check flght schedule as well as to obtain latest update on AirAsia promotions through short messaging service or commonly known as SMS. (Claret, 2008) Besides that, AirAsia also practicing the airlines online programme where guests can book tickets through online.

MGT 423/420 Strategic Management Frequent flights According to Admin (2011), AirAsia practices a quick turnaround of 25 minutes, which is known as the fastest throughout the region, and resulting in high aircraft utilization, lower cost and higher productivity. This is to ensures guests convenience and satisfaction is met. Ticketless Services This concept was launched on 18 April 2002 with the idea of complements the airline s booking through internet and call centre service. The guests are no longer need to the hassle of getting printed tickets.

Price and Other User Outlays Price refers to the value or worth of a product or service that attracts the buyer to exchange money and also assess the outlays of their time and effort. (Pearson, n.d.) Low fare, no frills As per discussion above, AirAsia is practising a significantly lower price than those of other airline operators. This service is targeting to those who will take flight without frills of meals, airport lounges and so on. The airlines have no complements for meals and drinks but recently the AirAsia has introduced the snack- attack on board at a very affordable price. Guests are now have their choice to purchase any meals offered. (massod, 2008) Place and Time Distribution is about how the service is being delivered to the customers, looking at location and where a service is delivered. This shows whether the guests need to collect it or the company deliver it to the customers. Internet Booking One of the criteria for those low-cost companies is the direct booking through internet because this can avoid being extra charged through commissions or credits to travel agents. (, 2012) Raja Azmi claims that over half of AirAsia bookings are done via internet while the rest are through sales office, the internet, as booking tool for travelling has remains an exotic curiosity for a sophisticated few.(Claret, n.d) As Asia first online airline, the AirAsia allows guests to book seat online through its website

MGT 423/420 Strategic Management . On 10 May 2002, the website is available in 7 languages namely English, Bahasa Malaysia, Mandarin, Tamil, Bahasa Indonesia , Thai and Tagalog. Reservation and Sales Office This is convenient for the walk-in customers and it is available at airport and town centers.

Promotion and Education In service marketing, the education communication plays a vital role especially for the new customers. The company need to educate these customers about the benefits of the service that they can obtain and generate a positive customer response. One of the recent example is the AirAsia had an advertising deal with Time. This is done by having the local mobile phone operators logo on one of AirAsias plane. Besides that, there will be more promotions on pull-down trays. In addition, it is also obvious that AirAsia starting offered low fares or sometimes the Zero-fares makes people lining up for hours. (AirAsia berhad, 2008) As a conclusion, this has brought a lot of public to AirAsia and they got more publicity out of that. People The people are one of the important key for Airasia to run their business successfully by influencing customers perceptions on their service quality. However, Airasia do not refer to them as their employees, they are Allstars for Airasia. The philosophy at AirAsia is to attract the best, train and retain them.(, 2012) A Corporate Culture Department was set up in 2004 and came up the same values and vision among the Allstars with an emphasis on One People, One Culture, One AirAsia, One Family. Training will also be provided in order to improve quality of services and also to monitor the workers performance. For example, Airasia is providing a NGL (Next Generation Leaders) programme for those who are highly organized, creative and always prepare for challenge before they join Airasia. Besides, Airasia also has training partnership with CAE Company and Aviation Australia. (, 2012)

MGT 423/420 Strategic Management In addition, all top managers will share experiences through internet social media such as blogs, mails and twitters. Even the Group Chief Executive Officer, Tan Sri Tony Fernandes will check in guests at the counters or handles baggage on the ramp to keep in touch with all the activities that are happening on the ground and in the air. (Airasia Annual Report, 2010)These are how the employees in Airasia work to keep the AirAsia brand flying. This company will always recruit someone who is able to fit into the Allstar culture, which is to care about safety, being innovative and creative, working hard and having fun.

Process AirAsia is set to take low-cost flying philosophy which requires its operations to be simple and efficient. Customers can place their order through visiting reservations and sales offices or online booking. Customers can visit Airasia homepage then select the language that they want. After that, they may join member if they want to. No fees will be charged to join member and customers can save their time by avoiding filling up their personal information each time they online booking a ticket since the information has already been saved in the system when they joined member. Select departure and arrival places following by selecting which routes that they prefer. Finally, email of confirmation for the booking will send to customers email address or phone number after they have made their payment by credit card or online transferring. (, 2012)

The process of online booking ticket is simple since AirAsia has upgraded its latest booking innovation in the form of New Skies. This has benefited all the customers to manage their online bookings easier. Besides, they also can check-in through the web without queuing up at the counter. AirAsia Group Chief Executive Officer, Tan Sri Tony Fernandes says, Of course, the self check-in options will still be made available for international flights to further enhance the travel experience and avoid congestions or long queues at the counters. We would still encourage all our guests to conduct self check-in, especially those without any check-in baggage, as well as guests traveling to domestic destinations. (Sepang, 21 December 2011)


MGT 423/420 Strategic Management Productivity and Quality From 2001 to 2010, Airasia had came up with the result for more than 100 million guests are placing their faith in AirAsia and choosing them as the airline of choice. AirAsias revenue increased from RM3.13 billion in 2009 to RM3.95 billion in 2010. In 2009, and they had grown their fleet from 84 to 90 aircraft. Several methods have been taken for leading them to the way of succeed. One of the main factors would definitely be the practicing of low-cost philosophy and passengers could customize their choices of services without compromising on quality and services. Airasia have created a brand Now everyone can fly in order to increase their reputation and gain loyalty and satisfaction from the customers. Nevertheless, Airasia practices a quick turnaround of 25 minutes, which is the fastest in the region, resulting in high aircraft utilization, lower costs and greater airline and staff productivity (Air Asia home page, 2012). While on 1st March 2002, Airasia came up with the idea of Easy to Book, Easy to Pay & Easy to Fly, and they were t he first airline in Malaysia that allowed customers order their bookings through phone and paid by credit cards. The most important factor that makes Airasia becomes so success is definitely the Allstars. They really provide a very good service and friendly enough to satisfy all the customers needs.

Physical Environment Physical environment is carefully handle by Airasia too as this can have profound impact on customer impressions. For example, the Allstars are all wearing red colour uniform which is matching the theme colour of Airasia--Red. This colour makes them look smart and professional and thus the customers can feel the passionate of them. On the other hand, entertainment such as portable players and Premium FlatBed seats is only applicable in AirAsia X Flight subject to a fee; however the in-flight reading material Travel 3 Sixty, food and beverages and newspapers are available on all the flights. AirAsia X Premium FlatBed thoughtfully features a universal power socket, a personalized reading light, and a foldaway table for maximum productivity and convenience in order to let their passengers to enjoy more comfortability. (, 2012) Passengers could also spend their time in flight by purchasing AirAsia


MGT 423/420 Strategic Management Merchandise and duty-free goodies, which range from electrical accessories to personal care items, and chocolates to watches through magazine.


MGT 423/420 Strategic Management

2.0 Internal and External Environment Analysis

2.1 Internal Environment Analysis (S.W.O.T)
SWOT analysis is represented as Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are considered as internal factors which can be controlled. Opportunities and threats considered as external factors which virtually no control. SWOT analysis is the most used by business environment to identify the strategies that will align an organizations resources and capabilities to the requirements of the environment in which the firm operates (Management Study Guide , 2008). SWOT analysis will identified the external and internal factors that Air Asia need to concern to be the lowest cost airline in the airplane industry. Strengths

Low Cost Model Air Asia is a leader of low cost airline among the regional airlines in Asia. A low cost airline mentality has been successfully created by and with the help of Air Asia among their workforce (Kulo, Strategic Analysis and Thoughts, 2008). Air Asia becomes the lowest cost airline in Asia just due to their workforce is very flexible, critically in making and high committed (Kulo, Strategic Analysis and Thoughts, 2008). Air Asia minimizes labor while Air Asia sells tickets to passengers directly (Zhu, Strengths and weaknesses of Air Asia, 2013). While passengers are purchasing air tickets, they can choose to not buy seats, meals, and so on. Due to the low aircraft tenant rates, low long term maintenance rates, and low airport fees, so that Air Asia able to provide the lowest fares (Zhu, Strengths and weaknesses of Air Asia, 2013). Besides, Air Asia also provided insurance policies for their passengers while can increase passengers confidence (Zhu, Strengths and weaknesses of Air Asia, 2013). Low in Distribution Costs Air Asia saved the cost of printing physical ticket to their passengers. Their passengers will purchase their tickets via online purchase and self check-in before boarding (Zhu, Strengths and weaknesses of Air Asia, 2013). Air Asias website was


MGT 423/420 Strategic Management voted as the most popular site for online shopping in Malaysia in year 2004. Air Asia internet bookings have increased from 5 % in 2002 to 50% in 2004 (Zhu, Strengths and weaknesses of Air Asia, 2013). Besides, Air Asias tickets also available via post offices and ATM machines for their customers while Air Asia carrying out the lower distribution costs (Zhu, Strengths and weaknesses of Air Asia, 2013). Flat Organizational Structure and Effective Staff Policies Air Asia provides a high portion in salaries and benefits for their staffs. Air Asia also allowed their stuffs to perform themselves with multiple roles within a simple and flat organizational structure (Zhu, Strengths and weaknesses of Air Asia, 2013). Although Air Asia is a low cost airline standard, but it can keep staff costs at the level of consistent while focused on maximize their efficiency and productivity (Zhu, Strengths and weaknesses of Air Asia, 2013). Air Asia offered their staffs benefits such as share offers, stock options, productivity and bonuses based on their performance (Zhu, Strengths and weaknesses of Air Asia, 2013). This will motivated them work hard for Air Asia. Strong Branding and Marketing Air Asia was able to run through potential markets due to the strong expansion. Air Asia has joint ventured in Southeast Asian with countries such as Thailand (Thai Air Asia) and Indonesia (Indonesia Air Asia) (Zhu, Strengths and weaknesses of Air Asia, 2013). So, Air Asia has become the leader in the low cost carriers in Southeast Asia. Air Asias slogan Now Everyone Can Fly is successfully promoting their brand name of Air Asia with low costs of tickets (Zhu, Strengths and weaknesses of Air Asia, 2013). The average growth of 45% for sales between 2001 and 2004 showed that strong customer growth and high customer loads. Besides, Manchester United is the major sponsorship of Air Asia (Zhu, Strengths and weaknesses of Air Asia, 2013).


MGT 423/420 Strategic Management


Service is limited Air Asia is the lowest cost carrier among the regional airlines, so that Air Asia cannot provide additional service requested by their customers (Shrestha, 2010). Services that can provide by Air Asia are limited due to Air Asia is the budgeted flights. Air Asia does not have business class services for their passengers (Shrestha, 2010). So, passengers would like to choose Malaysia Airline that has provided business class flight for them, they rather to pay more for the services that they needed (Shrestha, 2010). Air Asia flights are just suitable for budget travelers (Shrestha, 2010). Aircraft Financing Cost Surging Air Asia is facing the problem of financing cost surging due to the global credit crunch which has hit Air Asias growth period at critical time (, Air Asia SWOT Analysis: Tough second quarter ahead, but fundamentals solid, 2009). Air Asia is facing the aircraft financing costs surged 212% in the first quarter at least for few more months (, Air Aisa SWOT Analysis: Tough, second quarter ahead, but fundamentals solid, 2009). Arrivals of new A320 helped to replace the old B737s in Thailand and Indonesia. Since fuel costs have rise up, new A320 will become more important (, Air Aisa SWOT Analysis: Tough, second quarter ahead, but fundamentals solid, 2009). Human Resources are limited Air Asia is the leader of low cost carriers among the regional airlines, so that it would be less staffs are employed by Air Asia (Kulo, Strategic Analysis and Thoughts: SWOT analysis for Air Asia, 2008). Hence, staffs of Air Asia could not handle irregular situation so that Air Asia received complaints from passengers. One employee of Air Asia may take few positions due to the limited human resources (Kulo, Strategic Analysis and Thoughts: SWOT analysis for Air Asia, 2008). While passengers check-in at the counter, we can see that there are lots of counters but just 15

MGT 423/420 Strategic Management few counters are working because there are limited human resources (Kulo, Strategic Analysis and Thoughts: SWOT analysis for Air Asia, 2008). Due to limited human resources, sometimes there is flight delayed, passengers do not receive any announcement from Air Asia. High Reliance on Outsourcing Air Asia is relying too much on online sales, so that while any flight delays or confirmation booking tickets would not represent efficiently to their passengers due to the system disruption (Zhu, Strengths and weaknesses of Air Asia, 2013). It would be cause Air Asia lost their customers and affected their profits. So, Air Asia needs to invest in technological equipments and connections to support and service its huge network company subsidiaries (Zhu, Strengths and weaknesses of Air Asia, 2013).


MGT 423/420 Strategic Management

2.2 External Environment Analysis (S.W.O.T)

Opportunities Huge Market Potential Indonesia is a country that with a billion of people, but unfortunately, their airline industry is underground and weak (Ohnhbaiz, 2009). There is a comparison between Indonesia and United States that Indonesia have 12 million people travel by air every year while 3 million people who fly everyday in the United States, although their population is one out of four of Indonesias population (Ohnhbaiz, 2009). Besides, even if we presume that there is only one out of four of the large middle class could render and would be ready to travel by air, it would be has an increase at least 5 to 6 fold in the capacity (Ohnhbaiz, 2009). It shows that a huge market potential for Air Asia airline in general (Catatanraufmendunia, 2009). Yet, it recognized by all and this is the reason why new players are waiting to enter the industry to take advantage of this huge market potential (Catatanraufmendunia, 2009). Through the estimation of Amadeus Worldwide, it is related to the growth of air travelers of Indonesia on the year of 2005 until year of 2008 (Ohnhbaiz, 2009). ASEAN Open Skies What is ASEAN Open Skies? It refers to airline markets have the freedom to invest in infrastructure development which is including airports, other member countries within ASEAN especially Singapore and Thailand (Yean, 2008). Through the ASEAN Open Skies, there is an allowance of unlimited flights among ASEANs regional airlines start on December 2008. Due to the unlimited flights, there is an increasing of competition among the regional airlines (Kulothunkan, 2008). By the way, it shows that an opportunity is appeared due to the first mover with its strengths in management, formulation of strategy, execution of strategy, strong brand name and low lost culture among the workforce (Kulothunkan, 2008). Through this, this agreement can be as an opportunity for Air Asia.


MGT 423/420 Strategic Management Partner with Other Low Cost Airline Air Asia has the opportunity to partner with other low cost airline such like Virgin airline (Catatanraufmendunia, 2009). While Virgin collaborates with Air Asia, it would help up Air Asia with their brand name, landing rights, and landing slots which means time to land (Catatanraufmendunia, 2009). So, Air Asia would build up their brand name and customers trust of their company. Through this, Air Asia has increased their unlimited flights in order the sales are rising too. Besides, Southwest airline also is one of the lower fare travel carrier (, 2013). According to Rollin King and Herb Kelleher (2013), they are started a different kind of airline which at the lowest possible fares with high quality services for their passengers. So, Air Asia should try partner with Southwest airline in order of to learn from each other.


Impact of Fluctuating Oil Price When the fuel prices are too high, there will be a fluctuation of oil price impact on operation costs (Zhu, External Analysis of Air Asia, 2013). This probably will affect the profit of Air Asia and lost few rates of customers. While economic downturns, low fares of Air Asia will be increased amongst budget travelers (Zhu, External Analysis of Air Asia, 2013). Start from economic downturns period, the oil price have increased to six month high above USD65 per barrel so that Air Asia could experience on 50% increase in fuel costs while compare with the average of around USD40 per barrel (, Air Aisa SWOT Analysis: Tough, second quarter ahead, but fundamentals solid, 2009). Through this, we can see that Air Asia would be effect on earnings when there is happening the fluctuating of oil price (, Air Aisa SWOT Analysis: Tough, second quarter ahead, but fundamentals solid, 2009). By the way, it would be good news for the competitor, Malindo Airways which is also offer the lower fares tickets.


MGT 423/420 Strategic Management Risk of System Disruption There would be a risk of system disruption if Air Asia did not handle properly, for example, the backup system and maintenance (Zhu, External Analysis of Air Asia, 2013). Besides, if Air Asia depends too much on online sales, it would be a risk of system disruption (Zhu, External Analysis of Air Asia, 2013). In other hand, if Air Asias systems are not backed up and maintained properly, it would be a threat for the company so that, Air Asia should have a contingency plan for the backup and maintained while they faced the problem of system disruption (Zhu, External Analysis of Air Asia, 2013). Global Uncertainty We cant expect what will happen on the next, so it calls global uncertainty. Global uncertainty such like accidents, disasters, horrible attacks and so on. All of these can affect the confidence of customers (Zhu, External Analysis of Air Asia, 2013). Once confidence of customers is affected, there is threat that Air Asia would face the problem of losing profits, the worst maybe bankruptcy (Zhu, External Analysis of Air Asia, 2013). Air Asia, the leader of low cost airline must subject to caption the aviation regulations, government policy and government restraints which is government protection in favor of full service airlines (Zhu, External Analysis of Air Asia, 2013). Besides, Air Asia should make sure that they are dependent on the geography and infrastructure of Asia and the travelling preferences of customers.


MGT 423/420 Strategic Management

3.0 Analysis of Strategic Factors (S.W.O.T)

SWOT analysis is designed to help identify several areas of a business that may need improvement and other areas where the company may be able to improve upon. By Identifying internal (strength and weakness) and external (opportunities and threats) factor for Air Asia Company helps to achieve their goals and objectives to be low cost carrier company in airline industry. Strengths, weaknesses, opportunities and threats analysis are one of the important things in a company. To be successful in the company marketing and management, a company needs to take consideration of the company ability and how to integrating it with the as well as main factor in the internal and external factor. The main factor in the internal and external factor can be identified using SWOT analysis. On this section, the strength, weakness, opportunities and threats in Air Asia Company will be identified. The purpose of this analysis are for identify the strength, weaknesses, opportunities and threats that Air Asia need to consider to become a leading low cost carrier in airplane industry. (G. Houben, 1999)

3.1 Internal Environment Analysis

An Internal Analysis of a company focuses on the strengths and weaknesses of internal factors that give a company certain advantages and disadvantages in meeting the needs of its target market. Strengths refer to core competencies that give the firm an advantage in meeting the needs of its target markets. Weaknesses refer to any limitations a company faces in developing or implementing a strategy. The aim of the internal analysis is to identify the companys strengths and weaknesses and as a result the company should be able to identify what it is or is not capable of doing and what it needs to address before pursuing certain strategic options. On this section, Air Asia Company contains several type of strengths and weaknesses which we think it is important to draw out to further our understanding of our report. (Eoindonovan, 2013)


MGT 423/420 Strategic Management Strengths

Low Cost Model: Operation cost & Distribution cost AirAsia is the lowest cost airline in Asia and has been successfully created low cost airline mentality among their workforce. In addition, this low cost can let all various income customers to have enjoyed the affordable air fees. The excellent utilization of IT have directly contributed to their promotional activities such as email alerts and desktop widget which was jointly developed with Microsoft for new promotions, brand building exercise with over 3 million hits per month and on the most widely surfed booking engines in the world as well keep the cost low by enabling direct purchase of tickets by consumer thus saving on airline agent fees. The main vision of the Air Asia that have make Air Asia being successful is the logo of A low cost carrier which offers five-star service where everybody can fly. Not to mention, Everybody Can Fly was the famous tagline of Air Asia, Air Asia was able to fulfil their tagline Air Asia implement the low cost operations into their management. The operating fees were as low at the minimum wage. Low airport fees, for example at Kota Kinabalu International airport most people can see that the technology or systems that was being use by Air Asia was totally different compare to MAs. Other than that, Air Asia also using only one type of Airplane for every flight this is because Air Asia will only need the same engineers for every airplane in order to save the cost. (Chin and Tay, 2001) Furthermore, Air Asia has provided various local Malaysia foods for all the Malaysian customers and offers in-flight services that promote Malaysian hospitality with their friendly and warm welcoming service. Besides of providing a good hostility service, Air Asia also has provided internet and mobile services as mediums for check-in and booking. Customers can always use their mobile phone to serve internet and online booking the seats or reserves. Moreover, it is quite convenience for customers is, Air Asia provide fly schedule and the prices from Malaysia to other countries or other countries to Malaysia price. Besides, customers can easily check out the time of fly schedule of Air Asia. With all the convenient, Air Asia become the most favourite airline in Malaysia for the customers. On the other hand, Air Asia provides comfortable seats, secure safety and a cleanliness environment for the customer so those customers feel


MGT 423/420 Strategic Management comfortable during their fly times with the low price.

Flat organization structure & strong management team A high portion of Air Asia costs was the salaries and benefits for its employees. Hence, the airline implemented flexible work rules, streamlining administrative functions which allowed employees to perform multiple roles within a simple and flat organizational structure. In Air Asias case, a flatter hierarchy improved (sped -up) communication, resulting in an effective and focused workforce. Air Asias rumination policy focused on maximizing efficiency and productivity, whilst keeping staff costs at levels consistent with low-cost carrier industry standards. Although salaries offered to employees were below that of rivals, all employees were offered a wide range of incentives such as productivity and performance-based bonuses, share offers, and stock options. This motivated employees, giving them a sense of ownership Adding to that, all the staff of Air Asia was the contributors where there are no ranks or hierarchy in the company where the upper management and their staff will be in the same room. However, all the staff was concern and focused to their customer needs such as offering the lower fares during festive season. Air Asia has indeed a strong management team. This is clearly known as it has very strong links with the governments and airline industry leaders. This is partly contributed by the diverse background of the executive management teams which consists of industry experts and ex-top government officials. For example, Air Asia has formed the joint venture with Shin Corporation to a new discount airline, called Thai Air Asia, based on Bangkok. The executive of Air Asia plans to replicate the Thai joint-venture model across Asia. (Wall Street Journal Asia, 2004) Strong branding & marketing Air Asia is a brand name which is very well established in Asia Pacific. Besides the normal print media advertising & promotions, Air Asias top management also capitalised on promotions through news by being very media friendly and freely sharing the latest information on Air Asia as well as the airline industry. For example, their partnership with other service providers such as hotels and hostels, car rental firms,


MGT 423/420 Strategic Management hospitals (medical tourism), Citibank (Air Asia Citibank card) has created a very unique image among travellers. Alliance with Galileo GDS (Global Distribution System) that enables travel agents from around the world to check flight details and make bookings have also contributed to their string brand name. Air Asias local presence in few countries such as Indonesia (Indonesia Air Asia) and Thailand (Thai Air Asia) have successfully elevated the brand to become a regional brand beyond just Malaysia. The links with Manchaster United (one of the worlds most famous football teams) and AT&T Williams Formula One team have further boosted their image to a greater extend beyond just the this region. Furthermore, Air Asia has a very strong promoter and media of advertising. Air Asia always has promotions that attract customers interests. Besides that, Air Asia has good marketing skills employees and technology of advertising which can influence customers attractions and choice of purchase. Moreover, Air Asia is a well -established LCC operating out of South East Asia and it has operations in over 25 countries and over 400 international and national destinations, and the most famous destination is BaliIndonesia, Thailand Bangkok, Korea-Seoul, Japan- Tokyo and Nagasaki, Taiwan and the other. Meanwhile, it has subsidiaries in Indonesia, Thai, Philippines, Japan and it has a fleet size of nearly 300 aircrafts. Therefore, Air Asia needs to remind customer constantly of its benefits. Regular advertisement showing unbelievable low ticket prices are a good way to do this. According to Tony Fernandes, he had a strategy term called make the lemonade out of lemons, right where the lemons are found (Ze and Ng, 2008)


Service Resource is Limited by Lower Costs Due to the lowest cost of operating by Air Asia the service resources is limited. For example Air Asia cannot provide additional service to the customer as per the customer requirement. The service provided was very limited, there werent business class, no frill service and other service. On the other hand, limited aircraft causes Air Asia was cannot prepare of standby aircraft if there is any problem in the operation. This can caused poor on time performance by Air Asia because of limited aircraft also means unavailability of


MGT 423/420 Strategic Management standby planes in the event of operational problems. Passengers have to face trouble travelling on-time, which ultimately affecting brand equity. Limited Human Resources could not handle Irregular Situation Being budgeted airlines, the human resources are limited to reduce the cost, the staffs member cannot cater various situational needs and handle irregular situation that arises during their operations. For example, limited number of human resources it causes Air Asia could not handle irregular situation such as when there is high demand from customer they cannot fulfil each demand because there is no enough of workers, it causes some of the customer go to another airlines. This would result in the loss of customers, as confidence and satisfaction levels drop, affecting profitability. However, due to lack of workers it also causes Air Asia has poor services and eventually Air Asia have received a lot of complaints from customers on their services. For example, the typical complaints would be of flight delays, being charged for a lot of things and not able to change flight or get a refund if customers could not make it. Government interference and regulation on airport deals and passenger compensation. If government announce that any flight from Malaysia to country that was having crisis, will affect Air Asia and any flight schedule will be delay until there is an announcement again from government. It is compulsory for each airline to follow the government order. Other that, Air Asia also must follow each regulations that was been set up by the government and if there is any changes of the regulation Air Asia must changes they operation accordingly to the new regulation on the airport. Air Asia also was also must deal with the passenger compensation if there is any delay of flight and it will cause the passenger/customer facing loss. High Fuel Costs have resulted in a Lower Expected Profit The rising of fuel costs will reduce Air Asia revenue since Air Asia is a low cost carrier (LCC) airway which having higher frequency of flights to compete with commercial airway. Therefore, the higher frequency of flights will incurred higher quantity usage of fuel and higher fuel price will induced higher operational cost for Air Asia.


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3.2 External Environment Analysis

The External Analysis examines opportunities and threats that exist in the environment. Both opportunities and threats exist independently of the firm. The way to differentiate between a strength and weakness from an opportunity or threat is to ask: Would this issue exist if the company did not exist? If the answer is yes, it should be considered external to the firm. Opportunities refer to favourable conditions in the environment that could produce rewards for the organization if acted upon properly. That is, opportunities are situations that exist but must be acted on if the firm is to benefit from them. Threats refer to conditions or barriers that may prevent the firms from reaching its objectives. (, 2012)


Huge Potential Market Generally, low cost airlines are anticipated to have greater potential in Asia as there are many Asian cities with a population above one million people each as well as a rising middle class population such as countries like Indonesia, India, China, and Philippines. This growth of middle class in Asia provides a huge market potential for Air Asia to grow. However, as the market is becoming larger, more airlines or new comers would like to get a piece of the action. For example India, India is the country that has the higher population among Asia. Hence, on 6th March 2013, India's Foreign Investment Promotion Board (FIPB) granted permission for Air Asia to invest in a proposed joint venture with the Tata Group and Telstra Trading to launch an LCC in India. Tata Group is an Indian multinational conglomerate company encompasses seven business sectors:

communications and information technology, engineering, materials, services, energy, consumer products and chemicals. Whereas Telstra Corporation Limited (known as Telstra) is an Australian telecommunications and media company which builds and operates telecommunications networks and marketing voice, mobile, internet access and pay television products and services. Air Asia India will enter the market as a wellbacked group with the support of a USD100 billion conglomerate, the Tata Group, together with Telstra Trading. The LCC will operate with a strong focus on low-cost/lowfare operations in a market that Air Asia Bhd CEO Tony Fernandes says that it is also


MGT 423/420 Strategic Management contributes the opportunity of the increasing traffic from India and Indians prefer budget airlines as they are cost conscious. However, he also believes that its model, which operates under the now everyone can fly mantra, is well-suited to the highlycompetitive yet high-potential domestic Indian aviation market, which is expected to almost triple to 160 million passengers annually by 2021. (Capaforaviation, 2013) ASEAN Open skies agreements Developing countries serve as untapped markets Open skies agreements now gaining momentum in many regions Companies cutting back on spending due to financial crisis view low fare airlines as viable option for travel Increasing disposable income and standard of living of the middle class in Asia. ASEAN Open Skies allows unlimited flights among ASEANs regional air carriers. This is a good opportunity to offer new routes. Thus, Low cost, sustainable philosophy allows new routes to be opened and exploit growing markets due to surging middle-classes in China, India, Pakistan and Bangladesh. This creates a larger market and a huge opportunity for all low cost airlines in this region including Air Asia. Meaning, increasing middle-class population in Asia allows more people to travel by air which will be faster. Low-cost airlines make the cost of air travel comparable to that of buses or private cars. Increasing middle-class could also indicate higher consumer spending which may include expenses for vacations. For instance, the agreement between the Malaysia and Thai governments allows for new services and increases frequencies to be introduced to the market. Generally, these two countries were taking advantage to promote heavily on secondary international destination access rights for tourism, such as Phuket in Thailand and Langkawi in Malaysia. In 2005, 1.3 million passengers travelled between Thailand and Malaysia. Of this total, over 370,000 can be attributed to the combination of the liberalized regime and the entry of low cost carries. (Boettner and Haval, 2007) Advancement in Information System and Technology As Air Asia venture into internet booking and ticketless services for their marketing processes, they would be open to electronic commerce business solutions for their enterprise, such as Supply Chain Management (SCM), Enterprise Resource Planning (ERP), and Electronic Data Interchange (EDI) etc. Furthermore, the use of internet services for their services would open more opportunities for Air Asia in the process of


MGT 423/420 Strategic Management solving network, communication, and information related problems that could be inherent in the organization and their market segment is poised for rapid growth. For an example: Internet development and 3G coverage allows bookings to be done on-line. In term of technology advancement, Air Asia Vista Gadget allows customers to access live information direct from Windows Vista interface. Air Asia is a low cost airlines and using advance technology such as internet communication directly with the customers and travel agencies and their commission charges. This can be done by advertised at website and showing currently achievements by how many person of booking-online to prove customers that Air Asia is doing efficiency. (Buhalis, 2003) Products and Services differentiation Companies can differentiate themselves from traditional LCC model by adding customer services or operation as full service airline with low fare. The airline could add features (with extra charge) to be able to differentiate themselves from other low-cost airlines. This could include full meal offerings, entertainment devices, or on-air duty free shopping. In economics and marketing, product or service differentiation is the process of distinguish a product or service from other firms in order to make it more attractive to a particular target market. Another thing that Air Asia is different from other low-fare airline is because they aimed to make flying affordable for everyone. Air Asia also aims at making travel easy, convenient and fun for its guests. Therefore, with these unique of services are eventually became guests most preferable airline as long as they are convenience with the idea of providing ticketless services, easy payment channels, internet booking and improving customer service.


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Fuel Price Fluctuations The unstable fuel prices are certainly a threat to all in the airline industry. It specially affects low-cost carrier because they basically compete on price. Fuel price hikes might push then to increase ticket prices. According to Gerald Arpey, the chief executive of American Airlines Corporation argues that falling oil prices will not guarantee falling ticket prices. In facts, airlines generally are very slow to adjust fare prices, waiting to see whether oil prices stay under a certain acceptable price before considering any possible rate adjustment (Lipsith, 2008) Certain Rates like Airport Departure, Security Charges and Landing Charges are Beyond the Control of Airline Operators it would involve certain rates like airport departure, security charges and landing charges which would be beyond the control of airline operators and this would thus be a threat, especially to low cost airlines which tries to keep their cost as low as possible. For example, Singapores Changi Airport charges S$20 for every person who departs from Singapore. (Joel, R. 2009) Network Security and Risk of system disruption The internet is a public domain and as such is vulnerable to attacks from hackers and viruses, Air Asia ought to be conscious of these threats and have proper plans and control to counter any of these. Air Asias online booking system will face major interruption due to high online users traffic. This happened when Air Asia offer some discount or fare at lower price where most of the consumer will be logging in at the same time to purchase the fare. System failures with the internet would seriously damage operations for such a technologically reliant company. Local Competitors Another threat to Air Asia is from the local competitors in the various countries they are having affiliates or subsidiaries. Air Asia needs to be in accurate pace with the market demands and policies for these local territories, because economic slowdown could reduce demand. Local Airlines would have easy access to certain information that could aid them; therefore, Air Asia needs to be on constant market audit, market researches and


MGT 423/420 Strategic Management control to keep up with such competition. Owning to the facts that most organization are struggling for survival, major players may enter targeted market segment. Alternatively, Market segment's growth could attract major competition. Nature and Disaster Threats from areas outside of Air Asias control such as terrorism and global conditions will affect customer confidence. For example the incident happened in Japan back years have given a huge impact on travel agency companies and the number of tourism was decreased due to the strong earthquake, tsunami and nuclear crisis. According to International Air Transport Association (IATA), Japan's 83 million passengers per year domestic market are the most exposed. Internationally, the top international markets connecting to Japan include the US, China, South Korea, Taiwan, Hong Kong, Thailand, France, Germany, the UK and Australia. Travel retailers in Japan and those locations will be hit hard by the decline in travel to and from the crisis-ravaged country. But due to the natural disaster in Japan, most of the international market cancelled or postponed their trips or switch to other nearby destinations. (The Moodie Report; Travel Journal International (TJI), 2011)


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4.0 Current Issues of Air Asia today

Sound Pollution Caused by Environment inside the Airplane Air Asia airline is rather capture among the middle-class passengers to achieve their company objective. This can be proving by their company vision which is to be the leading of low cost carrier in the region. In order to achieve this, Air Asia offer lowest airfares to every passenger within the tagline Now everyone can fly. Air travel always considered as luxury service to people in the past (AirAsia, 2008). Within brand vision of Air Asia airline, it means that recently, money is no longer become a barriers for people who hunger on travelling around the world. Hence, its promotion on lowest airfares activity had succeeded attract crowd of customers. However, at the same time, it has raised a current issue that may affect reputation of their company. The current issue that rises by economic airfares is sound pollution inside the airplane. This incident happened when it normally meet with some festival such as New Year or Christmas Eve. On these important festivals, Air Asia passenger seat will be full house and at the same time it makes shorten time for break or transit in each destination. According to Guang Ming daily (2013), a passenger namely Wong Chan had bleeding ear that is caused by the increasing speed of flight by the pilot from China to Kuala Lumpur. She also claimed that she is now only has 5% of her right ear hearing which been consider almost deaf. Besides, she also mentioned that the flight had delay 45 minutes until 9.30pm on 8th of May but arrive Kuala Lumpur at original time of 12.55am. Besides, she also mentioned this incident is affected to most of the passengers in the same flight to cover their ear because of the discomfort of the cabin pressure. Regarding to the issue raised, Air Asia has make responded of they admit to receive this complaint and encourage others passengers can provide some details who faced the same situation. Failed on Targeting Share of Upper-income Wallets

Another current issue raised by Air Asia company is that they unable to target high level income passengers to their company. However, it is Air Asia brand positioning strategy which target on individual who looking for affordable airfare rates. According to Khor et al (2012), he stated that Air Asia tagline is clear enough to state that it will remain brand for low cost and remain unchanged from its concept. Besides, Airasia also received a lot customers complaint about the uncomfortable seat in the cabin. Its still acceptable for


MGT 423/420 Strategic Management short distance flight but not for long hours flight as the space inside is packed and unsuitable for westerner whose are more taller than Asian. Although Airasia do provide premium class for their passengers, it still can be improved to attract more high level income passengers (Moreira, 2005). Competition in the Low Cost Airplane Industry

Airasia has been approving as the cost leadership through sustain their competitive advantage by provide the lowest airfares compared to its other competitors. Regarding to airline industry, todays customer not only concern on services provided but also the price offered by the airline company (Vollmen et al, 2005). Hence, there is increasing number of airlines in Low Cost Carrier (LCC) industry which is competing on lower cost. This issues make Airasia as its brand positioning on low cost carrier airplane industry have to more focus on their competitors in order to offered lowest airfare to compete with others. According to Catatanraufmendunia(2009), the LCC industry has attract more airline to launch its version. Although Airasia used to be market leader in LCC industry, recently there will be added more new players as well as competitors in this industry. Hence, Airasia not only to concern about the current competitors but also new players entered to LCC industry.


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5.0 Recommendation
After years of surviving in the airline industry, AirAsia now becomes the dominance of the low cost carrier in the industry. CEO of Airasia, Tony Fernandes proudly claimed that AirAsia had transform from an airline

company with only two aircraft to the largest LCC in Asia with more than one hundred aircrafts, becoming the most profitable airline in the whole Asia. He also said that Malaysia is the origin and the stepping stone for AirAsias brand and had broaden the boundaries to Thailand, Indonesia, Philippines and Japan correspondingly. Fernandes had finalised its five years strategy for the coming years beyond year 2013: Despite being the dominant carrier in terms of market share and profitability in Malaysia, we have to ensure we maintain the discipline in maximising our revenues, capital, human resource, increasing passengers carried as well as keeping cost down. AirAsia also foresaw the opportunities of the market in Thailand and Indonesia as both the countries are almost generating the similar profits to Malaysia, and will as well in the future. Not only that, AirAsia promised to keep their words by delivering their first listing in Thailand and later on in Indonesia in year 2013 as both AirAsia companies in Thailand and Indonesia are able to be financially independent on their own financial statement and balance sheet. (CAPA 2013)

Broadening AirAsia

AirAsia had been dominating the low cost carrier airline for quite a period of time and we understand the coming years would be the challenging years as competitions are strong due to the born of new airlines and existing one. Although we understand that AirAsia has gain the competitive advantages as discussed in the SWOT analysis but yet the weaknesses are more deadly than the strength itself. We identify AirAsias strongest strength as low operational and distribution cost because that is the core value of the


MGT 423/420 Strategic Management business as well that brings the near death AirAsia back to life. The deadliest weakness is that the service resource is limited by lower costs only. Also AirAsia has great opportunity from the ASEAN Open Skies agreements that encourage unlimited flight among ASEAN countries. The great opportunity to offer more flights to every corner of the region promotes AirAsia to be able to attract middle class customers from China, India, Pakistan and Bangladesh. However, competition is still remain the threat for AirAsia and the competition can be fierce when more and more low cost carriers are introduced into the market to share a piece of the big pie. After analysing the SWOT, we ensure that AirAsia should broaden their market to not only serving the low and middle-income customers but as well the higher income class consumers. Knowing that Asia is one of the largest markets, there are no reasons AirAsia shouldnt focus on it. Firstly, AirAsia must understand the new customers and new environment before actually look into broadening. Although the scope for high income class customers is wide, we would think of focusing on only certain groups of customers first: the businesses people, professionals and tycoons. Therefore, we would recommend AirAsia to come out with different strategy which is in contrast to the low cost leadership strategy. Differentiation strategy is recommended can help a company to create something that is apparently unique in the industry. Differentiation can be done in several ways, through brand image, design, characteristics, features, customer service, technologies and plenty more. Ideally, companies should differentiate themselves along several dimensions. Differentiation can be sorted into three types: 1. A firm focus directly on product or service characteristics (features, complexity, launching timing or location) 2. A firm focus on relationship with customers (product customisation, consumer marketing) 3. A firm focus on relationship with other firms (product mix, distribution channel and service support) Therefore, differentiation strategy is chosen to focus on AirAsias new product and service characteristics that further emphasis on customers relationship.


MGT 423/420 Strategic Management The new differentiate strategy is mainly concentrate on building a new customers relationship through the new product and services that will be provided. Hence, the result of this differentiation strategy is to generate superior profitability by gaining competitive advantages for the new product and service of AirAsia that build and create a stronger brand loyalty that reflect lower sensitivity on the prices. Since the strategy is meant for the upper income class customers, AirAsia should of course think from the point of view of these upper income class customers. Therefore, a comprehensive of analysis should be carried out to understand an unchartered territory of new market which is different from the previous customers. It also tells AirAsia that they should no longer use the previous strategy to tackle the new market. We suggest AirAsia to fully analyse the markets, competitors, new environmental factors and customer analysis to get better understanding.


MGT 423/420 Strategic Management After doing a comprehensive analysis of the new business project, we then introduce the big picture of AirAsia should focus on. Here, we tend to see quality is the crucial point for higher income customers because price factors tend to have less influence on customers decision. The strategy here is to create a new image for AirAsia while providing premium flight to target upper income customers. Upper income customers normally tell people that they dont have time and busy. Some of them couldnt even leave their hand phone aside while majority of them are busy with those phone calls, busy giving orders or communicating with customers or supplies and so on. Not only that, some have important messages or mails to replies or unfinished project reports to be done, and these are all the symptoms of what an upper income group looks like. The symptoms tell us that what the low cost carrier offers are far insufficient to satisfy their needs and wants that at the end makes them to feel AirAsia is not the one for them. Sometime, these customers demand are very particular and they are not only wanting the basics but also something extra that can give them high level of customers experiences. Therefore, AirAsia must invest in new aircrafts that can satisfy these new customers at the greatest extent. So, we recommend the experiences that deliver to new customers must be unique which can help to differentiate AirAsias new product and service to them. For the product, we would like to see better and higher classes of features to be installed. What we can think of maybe hard to achieve but yet still are achievable that can greatly stimulate the excitement and experience from customers. By analysing the symptoms mentioned, we suggest AirAsias new product which is the aircrafts to integrate those features and also to provide services that are specially made for them. The add-ons here can be on-air internet, telecommunication signals or even a little meeting room for special on-air meetings. The services that the new aircrafts offered will definitely be different from the low cost carrier, and are something far more exceptional or outstanding. To target these new customers, the strategy here is to create special aircrafts that provide


MGT 423/420 Strategic Management more facilities and are more comfortable than the usual aircrafts. There are wider gaps and seats, or much better leather seats with more individualized space for each customer. After all, the routes provided are now even more and complex, associated by easier, faster online booking and payments, and also superior vehicle and accommodation booking or rental services. The concept here is to provide everything look-alike first class to customers and that should become the unique selling point of the new product. Perhaps the new product and service are determined; AirAsia should then focus on customer relationship. The strategy proposed here is relationship marketing. Marketing is the process of establishing, maintaining and enhancing the customers relationships for profits. The process is also known as the mutual exchange and fulfilment of promises. (Hellas 2005) Relationship marketing is also a way of conducting business that focus more on keeping and retaining customers so that they are always coming back for future purchases. The value that they are pursuing can transform them to become the royal customers. So, how AirAsia can maintain a certain level of relationship with the customers? That depends on the trust, reliability and promises from the company to customers. Building trusts with customers are in long term and consistency comes into play. To build relationship with customers, AirAsia must maintain a frequent communication with customers. That should not be a problem because AirAsia had been practicing relationship marketing when they always share information about their latest offers or promotions and that makes customers to feel they are paid attentions. However, that level of attention is not enough for our new customers since we are offering higher level of flight experiences. AirAsia should always bare in mind that the main thing is to offer extra and the superiority to maximise customers satisfaction. Rather than using the world relationship, we propose emotion as replacement. AirAsia is encouraged to create some sort of new brand ability to create an emotional connection with customers (Olenski 2013) Not only that, the value-creation part is also crucial. This value-creation process is to build on the competences and enthusiasm of the AirAsias employees to craft innovation based on customers needs. Therefore, we can summarise that AirAsias relationship marketing should be able to create values that generate positive emotions by


MGT 423/420 Strategic Management having the crew to bring something extra that fit the customers needs to cultivate long term interaction. After all, it is still important to do marketing. Every product or service is subjected to marketing so that people will be aware and interest in it. Also we can say one of the success factors for this new AirAsia broadening strategy will be

marketing. For marketing part, we see pricing strategy to be less important because we know the approximate value that AirAsia will create may not be tied directly to the prices. Understanding that price is not sensitive, we will not recommend AirAsia to overprice or underprice because there is always an equilibrium point which the high income level will accept that. However, we want the pricing to be different from the low cost carrier because that range of prices are not in the list and cheap prices will only position the new product and service as inferior. Other than pricing, we would do a simple advertising plan too for AirAsia to tell the world about their new venture. To advertise, we plan to use the simplest way but yet to maximize the effects. The tools are mainly billboards, website ads, emails, and magazine. To be consistent, all these tools are subjected to be used frequently and among all, email and website ads are most useful to create new market customers.


MGT 423/420 Strategic Management The schedules of marketing tools are as below: Billboards Website Ads Emails Magazines 5 months on, 1 months off, different ads each time Consistently on everyday but frequently change ads content Consistently sending emails of new offers to customers Advertise once per month of new products and offers

The budgets of the tools are as below: Billboards Website Ads Emails Magazines Rm50,000,000 Rm120,000 Rm240,000 Rm240,000

Why we choose above tools are because these are what they have been using all the way and to make it consistent. Consistency is the key point here but we want AirAsia to create something out of the consistency. We would prefer creative ads through the same old advertising tools. To create awareness and to make customers to remember the new brand, we suggest new slogon rather than using Now Everyone Can Fly! We can use something stronger to represent the new brand which we want to project a powerful and leading image and therefore, we will use Fly like a boss! The tag words clearly identify what kind of product and services we will be offering and it basically says them all, effortlessly.


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6.0 Evaluation and Control

Anything we do will be evaluated through the market awareness and responds. Basically, sales effect is useful to evaluate whether the strategy works. The sales volume for the new brand can help to indicate the success of the strategy. But we will need to set an objective or target sales volume because without a standard of target we will not be able to evaluate the result. Also, it is necessary to monitor the monthly sales volume or any periodic sales volume will do as long as we set targets for it. Also, financial statement will tell whether the new brand will be successful or not because if it shows profits means AirAsia can focus and improve on it which targets are set to achieve. Unfortunately, the whole market takes time to react on the strategy to ease the evaluation process and we would suggest at least a year of full operation to be observed. Other than analysing and evaluating sales volume, we can also collect customers feedback or do a rating system for customers to rate about the new product and services. It is much easier because customers will mirror the satisfaction and the acceptance truthfully and immediate after experiencing the new brand. We would suggest AirAsia to send emails to the customers who had experienced the product and service to understand the satisfaction level. For the controlling part, we would suggest a back-up or reinforcement plan to support the evaluated result. If the result is good, AirAsia should focus deeper in the new industry and to explore the impossible and turn all the impossible to become possible in the future. However if things goes bad, we would do an assessment on the strategy or perhaps we will revise the whole strategy again to figure out the problems and issues before the whole things turn worst. When the whole plan was ruined, we had an exit strategy where we would advise AirAsia to sell the new brand to other airline company to at least minimise losses although such method will affect the original low cost carrier of AirAsia.


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7.0 Conclusion
In a nutshell, according to the SWOT analysis that we had done, Air Asia Berhad surely a potential company and still have wider opportunities to making it more better and maximize revenue. The strength of this company can be proved as their hard work would lead them to be success and its weaknesses can motivate them to become stronger. Opportunities element in SWOT analysis also may show the potential of Air Asia in the future, it help company to have clear understanding about its chance to be better. However, threats are to give pressure to the company as it may turn them into power to success. Besides, it also makes them understanding on some issues that should be aware before it harms badly to Air Asia. Moreover, there are some recommendations discussed for Air Asia to increase its revenue or to overcome the weaknesses discussed in SWOT. Hence, we are highly recommended that Air Asia should broaden their market as to attract more customers in other categories such as high income wallet. In order to make the implementation plan effectively, variety of strategy should be considered by the company for instant differentiation strategy. This strategy is to concern on Air Asia new products and service as well as to emphasize customers relationship. Last but not least, evaluation and control had discussed to make sure the strategy we suggested do really work effectively and efficiently towards the company. Yet, we chose sales effect, financial statement and customers feedback as our evaluation tools. Finally, back-up and reinforcement plan are the must and suggested to use as control for the evaluated result.


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8.0 Harvard Referencing

AirAsia, 2012, Investor Relation, viewed on 1st 1st 1st May 2013 , < > Wong P.M., 2009,, viewed on May 2013,

< > Flightpedia, 2011, AirAsia Sdn. Bhd., viewed on May 2013,

< > Malaysiaairlinesfamily, 2012, The Three Musketeers who co-designed a masterpiece conspiracy plan to END Malaysia Airlines for SAVING AirAsia, viewed on 2nd May 2013,

< > Lim KY, Mohamed R., Arifin A. and Goh, 2009, Branding An Airline : A Case Study Of AirAsia, viewed on 2nd May 2013,

< %20KHOR%20YOKE%20LIM,%20RAMLI%20MOHAMED,%20AZEMAN% 20ARIFFIN.pdf > Keller, K., 2002, Strategic Brand Management (2nd ed), New Jersey, Pearson Education. Davis, S.M., 2002, Brand Asset Management: Driving Profitable Growths Through Your Brands San Francisco: Jossey-Bass Inc. Deyes, R.A, 2008, Branding a key component for developed of airlines. Emirates Business 24/7 AirAsia Berhad, 2012, Annual Report 2012, viewed on 5th May 2013, <> AirAsia, 2013, Biography, viewed on 5th May 2013,

< > Witz, 2007, New Perspective on Marketing in the Service Economy, viewed on 5th May 2013 , < >


MGT 423/420 Strategic Management Shanghai, 2010, Tangible ways to create intangible value, viewed on 5th May 2013 , <

new-social-power-of-marketing-can-help-transform-organizations > Keyur D., 2012, Basics of service marketing, viewed on 5th May 2013 , < > Onwutalobi and Claret A., n.d., Understanding Marketing Mix in AirAsia Airline Bhd, viewed on 5th May 2013 ,

< > Admin, 2011, AIRASIA, viewed on 6th May 2013, < > Pearson, n.d., Pricing understanding and capturing customer value, viewed on 6th May 2013 ,

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