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Case study: Asiana Airlines

By Kim Hyun-jung, Shin Eun-jai, Kim Soo-wook Established in February 1988, Asiana Airlines was created with the support of the government. The initiative was to operate a second national carrier in order to diversify the airline industry, which had been monopolized by Korean Air. Challenge Competition in the airline industry has become fiercer than ever. Each company is implementing aggressive service improvement policies for a larger market share. The big carriers have declared a war against low-cost airlines, which are threatening their existing field of expertise. Budget airlines are holding promotional events, providing heavy discounts to lure travelers who would otherwise choose the service of more reliable and long-established carriers such as Asiana Airlines. Furthermore, airlines are drastically innovating their in-flight services and reinforcing their offline and online marketing. Last year, Korean Air took measures to introduce over 35 new aircraft for medium- and longdistance flights alone, and to redesign all its cabins from head to toe. Competition has made companies remain alert and innovative to constantly impress their customers. To deal with this competition, Asiana Airlines recently decided to make a bold investment in restructuring its existing operation by introducing new business class seats, adding new aircraft and introducing new technology.

Strategy 1. Carriers within Carriers (CWC) One of the competitive practices implemented by non-budget airlines is the introduction of Carriers within Carriers (CWC) to cope with the industry turbulence coming from price competition. The idea is to create a low-cost subsidiary to face off with low-cost carriers more

effectively in their own area of specialty and prices. Asiana Airlines has made Air Busan, its low-cost subsidiary, to service routes departing from Busan only. Although the firm has succeeded in preventing market cannibalization by overlapping routes with Air Busan, the limited routes of the latter entailed the rapid dominance of its rival Jin Air in the low-cost airline market. Weighting the cost and the benefit of the CWC strategy, Asiana is trying to improve the situation by increasing the subsidiarys size and expanding its routes. 2. Customer-oriented Services Asiana Airlines strives to provide a differentiated set of services under the business philosophy ofServing customers in a fast and convenient way, wherever and whenever. There are a number of innovative services it has introduced under the slogan. For instance, the online seat assignment enables customers to choose seats on the internet. It also provides numerous in-flight entertainment programs such as Face Painting, Magic Show and Flying Magic Service - a birthday party on the airplane. Moreover, Asiana airlines took the initiative in 2006 to introduce for the first time in airline history an In-flight Professional Chef service. The chef boards the plan with travelers and takes charge of the meals served on the flight.

Result During the implementation stage of the aforementioned strategies, Asiana Airlines saw a record-high performance in the 3rd quarter of 2010. In spite of its unchanging corporate image as a second market player lagging behind Korean Air, Asiana Airlines is highly reputed for its tireless efforts to offer the best services to customers. Asiana has been awarded numerous times by industry associations and magazines for its service. Recently, Global Travelers Magazine gave it two awards for in-flight and flight attendants services, for the seventh consecutive year. Also, the company has been awarded as the Best Airline in Northeast Asia and the Pacific Rim, five-star airline and Airline of the Year 2010 by Skytrax, which is an industry consulting and research firm.

Lessons Suggesting for cost leadership and differentiation strategies as the most important generic tools for firms to succeed in the long-term, Michael Porter argued that these two types of strategy had a trade-off relationship and were not necessarily compatible. Asiana Airlines is literally stuck in the middle between the market leader Korean Air and low-cost carriers. Asiana Airlines has for now safely opted to invest in Air Busan by leasing several aircraft out in order to preserve its original brand value and compete partially with low-cost carriers. At the same time, it has been innovating its services. Whether Asiana Airlines will maintain its record-high performance of 2010 depends on how effectively the company can overcome the dilemma _ whether it should follow Korean Airs reliable brand image, or go after price leadership adopted by budget airlines. When the market heats up, most companies choose diverse competitive strategies to survive. However, the most effective alternative is to go my way and focus on the firms own core competences. This means that managers should decide between giving more weight on the differentiation strategy, or on the cost leadership strategy in order to become a successful market leader. Fortunately, Asiana seems to be slipping little by little away from its position of being stuck in the middle by sculpting a brand image that inspires more creativity and innovation in customer service. In that sense, if Asiana succeeds in differentiating itself with a solid customeroriented service system, it is on the right track to acquire a genuine competitive advantage in the market.