Air Asia has implemented APS (Advanced planning and scheduling) system which is
triggered off by Air Asia current market condition that saturated market with high degree of
rivalry among the existing competitors. APS system works as the brain supply chain activities
(Ahmed, 2004) by gearing activities in relation with customers and suppliers requirements. It
helps Air Asia to optimize its supply chain management as clusters and classifies customer
orders, forecasts future fulfillment requirements, set order priorities and checks resources
availability. APS system provides visibility across supply chain in term of cross functional
scheduling and planning with suppliers and customers. APS system will able to further
improve Air Asias processes performance and it also analysis the flying routes which optimal
flying route is imperative in deciding new destinations for Air Asia to serve in future.
Air Asia has implemented the Database Managing System in order to share the centralized
date amongst all functional areas to ensure daily operation is sufficient. Perriodot system had
been signed up to develop the travel itinerary gateway for Air Asia to process all confirmed
bookings with skylights Navitaire, where a final PDF processing will be handle through their
XML driven itinerary processing server At the same time, Air Asia has signed up PEP
(Process Flow Enterprise Portal) system for their internal intranet operation whereby modules
to be implemented including news and announcement, leave management, claims processing
lost luggage management and staff scheduling.
In order to successfully maintain process integrity, reduce financial month-end closing
processing times, and speed up reporting and retrieval processes (Microsoft Malaysia), Air
Asia had implemented a full fledged ERP (Enterprise Resource Planning) system powered by
Microsoft Business Solutions (MBS) on Microsoft technology platform recently (May 2005)
by Avanade consultants. ERP is the system that integrated comprehensive software to make
the IT system works more effectively and efficiently. ERP system helps Air Asia to collect
data from various key business processes in manufacturing and production, finance and
accounting, human resources, sales and marketing, and storing the date in a single central
date repository. Information is easily shared across the firm to help the different parts of
business work together closer and this lead a better decision making of management level.
Air Asia has implemented YMS (Yield Management System) to optimize prices and allocate
capacity to maximize expected Revenues. YMS helps Air Asia to understands, anticipates and
reacts to the behavior of customer to maximize the revenue of the organization. The
optimization is done on two levels:
Route (By adjusting the prices for destinations that have higher demands in the
market).
Seat (Seat are available with various prices during different time. The reservation fee
will be higher for the same seat at the later date. Thus, every seat is considered an
opportunity to increase revenue).
Air Asia have actually lowered their revenue as YMS has given Air Asia the window to
increase their revenue by offering higher discounts, more frequently during off-peak times
while raising prices only marginally for peaks time. Air Asia was able to increase avenue (34%) for the same number of aircrafts by charging a premium for late bookings and by taking
advantage of the forecast of the high/low demand period.
Furthermore, the other information system that Air Asia has implemented is CRS (Customer
Reservation System) which is the Open Skies by Navitaire. CRS has helped Air Asia to grow
Finance Section
Introduction
The report discusses the reason behind the volatility of Airasia share price. The main area of concern
regarding the volatility of the share price will be highlighted and that include; the high fluctuation in cost of
aviation fuel, the global economy downturn, the global treat of terrorism, the high cost of purchasing aircraft
and the stiff competition in the business environment. Apparently, the influence of the strategic
management, the analysis of different business environment, and the marketing strategies the AirAsia was
able to establish the low-cost fare strategy while at the same instance, maintaining their effectiveness in the
competitive market environment.
To justify the share price volatility and the marketing strategy, report adopts the marketing models SWOT
analysis and diagrams to emphasise the propositions. The assignment concludes by summarising the key
areas identified and what are the lessons learnt.
The volatility in share price, commodity or a stock market index is the fluctuation and the risk-ness of
assets, which implies that the higher the volatility, the higher the risk of the investor losing money in the
value of the share price (Temple, P. 2008). Also, volatility is a normal business scenario that simply
measure the standard deviation of the fluctuations or movement in the price of the share held by the
company or the investor. The Bizweek (2004) stated that Airasia is facing enormous challenge in its
operating cost as a consequence of the hike in aviation fuel and as reported "Fuel cost now takes up about
43% of its operating expenses, compared with one third of costs during its first three years of operations".
The operating cost was too high and this could generate lack of confidence from investors and could trigger
the cost of the share price. The estimated projection categorise the cost as forever $1 increase in the fuel
cost, will lead to about RM5.79 million and will reduce the consolidated profit after tax and minority interest
for the airline.
Apart from the fuel cost hike in the airline industries, Airasia was facing rigid competition from the external
environment. The Airasia is continuously treading in a dangerous market as a result of the price war
mechanism associated with Asian airliners (Ng, E. 2008). The Bizweek (2004) agree with this argument by
emphasising on the market competition of Airasia with other 12 major low budget carrier operating in the
same region, this has generated in a price war environment irrespective of the operation expenses and
cost. Also, the increase in the cost of purchasing airline, created a high risk in the industry without running
assets, has seen operating expenses going too high. Effectively, speaking this development contributed
immensely to the sporadic fluctuation in the value of the share price of Airasia. Another critical factor
affecting the volatility of the share price is the global economic downturn. See the financial statement of
2007 and 2008
According to a reported obtain from Airasia.com (2008) that Airasia made a loss of (176,905) on net profit
for the year 2008 which represent a total of -21% cumulatively compare to that of the preceding year of
2007 of 38.8% rise in profit margin. The passengers are more conscious and reluctant due to the economic
downturn which impacted heavily on the performance of the industry. Also, the financial meltdown has
contributed in the decline of the numbers of air passengers, who prefer opportunity cost in the time of the
crisis. The figure below shows the decline in marginal propensity of air travellers in Asia pacific region
where Airasia is a dominant force as a consequence of the global downturn. The growth rate of the Asia
pacific was very low and it reveals why the company performance was in turmoil.
According to Airasia.com (2008), the threat of global terrorism that befell the aviation industry especially the
Asia pacific region is a critical factor that hampers the stability of the Airasia share price, the tsunami in that
region equally contributed and the high cost of borrowing i.e. the interest rate, all play a major role in the
making the share price highly volatile, this is a worrisome concern for investors and market players.
However, despite the dark gloom surrounding airline industry in the Asian region, Airasia has been able to
pull the plough in the wheel and steer the ship to safety.
The company has reported huge profit, high numbers of customers and a better performance as the world
economy recovers from recession. The airliner has adopted some major strategic advantage to reposition
itself as a major player in the sector. The adoption of total quality management, offers to customers,
delivery of brand new airbus A320 aircraft and on time guarantee to their esteem customers. The year 2009
outlook is very impressive performance especially, the continuous growth rate of its passengers as shown
in the table below.
Marketing
MARKETING STRAGERY
The emergence of budgeted airline industry or low cost carrier (LCC) is the biggest and most momentous
changes in decades that Airline industry has gone under and Airasia is one of best the LCC in South East
Asian region. Its USP "now everyone can fly" has proved to be more than a rambling promise. AirAsia's
success is entirely built around on its Forward-thinking Strategy. Tony Fernandes, group CEO of Air Asia
has redefined the marketing concepts as the way he built Air Asia brand into a house hold name in
Malaysia is marvellous (Air Asia is the among the 30 Most valuable brand in 2008 [1] ).
COST LEADERSHIP
Before the emergence of Airasia the traditional methods for air travel were in practice in Malaysia i.e.
booking through travel agents, paper tickets & its postage and list goes on but Airasia revolutionized the
whole process by disintermediating all these elements and adopted the best and most cost-effective
alternate for these. It saves huge amount of cost by replacing brick and mortar outlets with call centres for
booking and through its website. There are some areas for improvement where it can work to reduce its
cost. It can use the popularity of its website that attracts more than 20 million unique visitors [3] every
month to generate ancillary revenue and thus using this revenue in subsidizing cost. Airasia can also use
this huge traffic to market its product, festive promotions, and brochures and can increase the significant
amount load capacity by announcing vacant seats as well.
Although 2008 is considered to be the most troublesome year for the airline industries that of which fuel is
the main cost as the fuel rates were recorded at the highest moreover this was not the only problem to
maintain the cost; the history's worst recession struck with its venomous force in this year. Despite this
Airasia continued to grow and indeed it carried 22 percent more people this year and added more new
routes. One thing is clear about the future pricing strategy of Airasia will be much more consumer focused
and make it stand out of crowed in competitive market because the Airasia started to buy fuel on the spot
market and consequently its unit cost will be lower and it will be in good position pass this direct effect to its
customers.
Differentiation Strategy
Simple and one liner differentiation strategy of Airasia is to offer lowest fares without compromising on
quality and services. Airasia has been awarded world 3Star low cost airline according to SKYTRAX [4] .
This rating is awarded upon the quality performance and refers to a satisfactory standard of core Product
for most travel categories. Most of the LCC are categorized in 2Star like Europe biggest low cost airline
Ryanair. Their distribution system is wide, innovative, flexible and easily; designed according to the
consumer's ability to access. Nearly all of Airasia's flights are booked online or telephone booking; it is
operating at industry's most desirable figure for online sales. They are not only using their website for their
core reason selling tickets but they have integrated it with social networking sites (see Appendix) this helps
to retain not only the customer's loyalty but also works as cost effective promotion. Airasia has its own
blogging site and have even opened a YouTube channel. All these measurement simply locks in the
customers because more and more people are spending their time on these social networking sites.
Focus
Airasia is successfully implementing focus strategies to retain its position by share force of its well defined
focus on market segment. Airasia knows what the consumer's need is and moreover consumer's
perception about their product is very clear and they are becoming more discriminating in their purchase.
For them cheap fares is the only concern and Airasia is well focused in cutting cost in every possible in
order to provide lowest fare and the fact is, it is operating at industry's lowest unit costs per available seat
mile.
Input
The input of the Airasia consist staffing of employees,, offices, aircrafts, ground crews, pilots, flight
attendants, customer services centre, air mile vouchers and other activities like outlets and promotions.
Airaisa's consumers can now have a brand new experience with Airasia's newly acquired fleet, more
customer friendly staff, and improved promotional campaign. Airasia has acquired Airbus 320 for short haul
flights and airbus 330 and 340 for long haul flights as these planes are industries most fuel efficient and
therefore results in optimised operational management.
AirAsia's operational activity will be boosted and expanded to new destinations by the delivery of 29 new
Airbus A320 aircrafts. "Brand new planes promise to be a wonderful experience with spacious cabins,
reclining seats and extra overhead baggage space. Airbus 320: You can choose from Hot Seats for extra
legroom or keep your travel party together with Standard Seats Airbus 330 and 340: Enjoy in-flight
entertainment, comfort kits or choose from Premium Economy Seats for more legroom and extra large
seats."
Their employees represent the true brand image of Airasia along with their operational policies that how
Airasia improve their work efficiency by providing them more relaxed working environment. Airasia's flight
attendants and ground crew members have much more relaxed and refreshing image than its competitors'
staff. The hairstyle, makeup and uniform colour of their cabin crew also reflects broadly company's brand
image.
Process
Processes are involved any activities which enable the provision of the service, the provision of the
products that facilitate the use of the service and customer care services or online booking procedure.
Airasia's whole business process is designed in a way that it serves every possible customer needs that
arise through online and telephonic booking and reservation as majority of their sales are through this
channel and Airaisa assures that this systems keeps running smoothly. Growth in the number of internet
shoppers and the percent of internet sales are expected to continue (Maloy, 2003; Siddiqui et al., 2003).
What AirAsia's customer need is the internet, a printer and travel itinerary and after that customer be able
to check-in 48 hours prior and up to 4 hours before the schedule departure time using Web Check-In
process offered by Airasia website. Consumer can not only manage their bookings online but also they
perform further amendment if necessary. One more aspect of Airasia that stand it out of the overcrowded
market that is it has started offering baggage tracking service, in which a customer can check the status of
the baggage and find out where it is in case of mishandling.
Booking Process
Airasia considered as a pioneer in South East Asia in adopting e-commerce strategy because it has
foreseen the socio-technological changes by Internet. It was far beyond the effect of Information
Technology, where the connection to the communication technology in mobile has provided Air Asia with a
new business activity (Feldman, J.M., 2002).Traditional method of booking and generating tickets and then
delivering it to the customers consume huge resources in terms of cost but Airasia has successfully
removed these element from its process and simply saving on these costs allowed Airasia to pass these
savings to customers vice versa.
To book a flight with AirAsia, customers can choose the following channels
1.
Call centre
2.
3.
4.
Or simply by visiting their where customer can book and confirm in 5 effortless steps as shown below.
Choose your tip type, select the departing and arriving cities, departure and return date, and select number
of guest and infants and starts searching the fights.
Select a departing flight with the chosen fare and time the available list to fare and time from the available
list to show the summary information of the flight and cost break down
Login with AirAsia member account, enter the guest information, and contact person details
The name of the guest will be displayed and verity the total price of the flight(S), and select one of the
payment methods (S): credit car, direct debit, and e-gift voucher
Once the payment has been processed, your flight itinerary will be displayed on the screen and send to
your email.
Output
The Strategy that AirAsia practicing to keep its customer happy is simply remarkable. Even employees are
encouraged to put forward any suggestions that help that customer locked in with it. Likewise its business
process, it is utilizing the full potential of all internet and social networking site to strengthen the bond. For
instance, it is running 'Have You Flown AirAsia Lately? Contest' on facebook that has 215000 fans so far.
Along with this, it has many promotional activities and offering wonderful tour packages, air gifts, home
appliances, air miles and exclusive offers and tariffs to lock-in its customers.
AirAsia successfully maintaining its huge data base system to retain customer data and then using this
data to inform and promote their ongoing offers and discounts. Airasia also give chance to participate in
contests and survey to its existing customers. Charter flights and travel agents services are also a good
source of providing products and services for its customers. Exclusive bookings for Citibank cardholders,
exciting tales of India with blog of Airasia with madam Airasia, passes to a GP race to participate and win,
pre-book meal online to save money are part of output activities that Airasia is doing to strengthen the
customer relationship.
Volume
Airasia is a low-cost airline. It is famous for its "no frill" offerings. Airasia is not a labour intensive sort of
company. Company's business model has a low repetition in its operations.
Variety
Airasia offers a variety of products, tariffs and packages according to the needs of its customers. All the
travel packages and tariffs are low-cost and flexible Along with its core activity of air travel, it also integrate
its subsidiaries' products such as car rental by tune care, budgeted accommodation by its Tune Hotels ,
Airasia cargo, Airasia courier, Tune Money, and redtix entertainment and redmegastores.
Variation in demand
AirAsia group had a fleet of 42 aircraft, of which 25 were operated by AirAsia,10 by Thai AirAsia, and eight
by Indonesia AirAsia. The group's fleet is planned to increase to 83 aircraft .AirAsia has been taking
delivery of one to two new Airbus A320s per month since December 2005, as part of its purchase
commitment for 100 new A320s, and has an option to purchase a further 40 A320s. AirAsia currently serves
70 point-to-point domestic and international flights from six hubs: Kuala Lumpur, Johor Bahru, Kuching,
Kota Kinabalu, Bangkok and Jakarta. Since its inception in 2001, AirAsia group has carried 20 million
travellers to meet the demand of this large-scale market and airline industry.
Visibility
Low Fares, No Frills
Pay for only what you need! AirAsia lets you choose what you truly need on every single flight.The World's
Best Low Cost-Carrier is unlike any legacy carrier. Flying is now affordable with Airasia's amazingly low
fares. Forget about the steep fares from luxurious airport lounges and other frills - with AirAsia, you get to
choose exactly what you need. Customize the way you fly and opt to add-on hot, delicious in-flight meals,
seat selection or comfort kits. You will only need to pay for what you want.
References:
1.
2.
3.
Ng, E. (2008), Malaysia Air offers a million free seats on Regional flight, Available at
http://www.usatoday.com/travel/flights/2008-05-14-malaysia-air-free_N.htm,( Accessed 25th
March, 2010)
4.
5.
6.
7.
8.
9.
11. Airasia.com, (2010), Exclusively for Citibank Credit Card members only, Available from,
http://www.airasia.com/card/my/citibank_exclusivegold_fares.htm, (Accessed 15th March,
2010)
Bibliography:
1.
Michael E.Porter, 1998, Competitive Strategy: Techniques for Analyzing Industries and
Competitors, 1st edition, Free Press Image Sources:
2.
http://indahnesia.com/Images/20080415_air_asia_diskon.jpg
3.
http://www.sgrate.com/forum/attachments/month_0908/20090805_66fe3af93f3d440cc2c6ayo
WgyVJFw9S.jpg
4.
http://1.bp.blogspot.com/_l5OM3OirUuE/RgkQJ7Z6hI/AAAAAAAAAEU/lHwXL5mFV9c/s400/school07_en.gif
5.
http://travelmalaysiaguide.com/images/airasia-promo.gif
6.
http://upload.wikimedia.org/wikipedia/en/5/52/AirAsia_Logo.svg