This case study aims at evaluating the rationale of AirAsia’s strategic plan and how have these strategies been associated with its structure and system. It further aims at assessing the sustainability of the business model and its competitive advantage. AirAsia’s performance and business process management will also be discussed in details.
AirAsia- A Case Study
Contents
Introduction
This case study aims at evaluating the rationale of AirAsia’s strategic plan and how have these strategies been associated with its structure and system. It further aims at assessing the sustainability of the business model and its competitive advantage. AirAsia’s performance and business process management will also be discussed in details. The case study will also discuss the culture and management style of AirAsia and its ability to address to the challenges faced by the company. Furthermore, the report aims at highlighting the expansions of AirAsia with future expectations. Background of AirAsia
Air Asia, an ailing, in debt, government owned airline was purchased by Tony Fernandes, a Malaysian Indian entrepreneur in 2001. Fernandes invested all his valuables and saving in purchasing this airline company that only possessed two Boeings and was deeply surrounded by many debts. Initially, when Fernandes purchased AirAsia, most of the leading entrepreneurs claimed that the airline won’t survive for long. Tony Fernandes appointed leading experts who possessed expertise in low cost airline strategies to reconstruct the business model of AirAsia. AirAsia was relaunched by the end of 2001 in Malaysia introduced as a low cost airline for domestic travels with three Boeings. Just after one year of his takeover, the company cleared all the debts it had and opened many new routes leaving behind the most dominating airline of that time, Malaysia Airlines. Within no time, AirAsia became a profit making firm from a debt ridden company. Mission Statement of AirAsia
The broad term mission of AirAsia is to gain global recognition as an ASEAN (Association of Southeast Asian Nations) brand and provide high quality products to its customers by reducing cost and enhancing the level of services provided. Its vision is to be known as the largest low cost airline whose objective is to let the passengers enjoy low fares with premium service in terms of safely, hospitability and simplicity. AirAsia also aims at integrating technology to cut down cost and enhance services for the valuable customers. Business Model
The competition between airline companies that provide full services and no-frills is getting intense across the world (O’Connel & Williams 2005). Businesses that excel high and dominate in the market tend to have a competitive advantage over others (Laudon & Laudon 2010). There are two main reasons of having a competitive advantage over other competitors, one having some special and unique resources that others cannot access and second having the ability to use the commonly used resources effectively and efficiently. The results of the mentioned reasons lead to profitability, productivity and growth of an organization. Low Cost Carriers
Low cost carriers (LCCs) offer low cost services to its passengers and in return provide ‘no-frills’ services to them. ‘No-frills’ means that the airlines eliminate all value added services such as meals and entertainment on flights. These facilities are made available to passengers travelling from full-service airlines. (Saha & Theingi 2009). AirAsia’s Business Model
AirAsia being a low cost airline follows the business model of Low Cost Carrier (LCC) for achieving its desired goals and objectives. A journal explains the sustainability of low cost carrier model by stating, ‘The LCC model is appropriate for the Southeast Asia environment. This is because the market environment in Southeast Asia remains favorable for the LCC model. Enormous, widely dispersed populations and rapidly growing economies have pushed the LCC model into the ascendancy’ The model of LCC can be characterized into three categories as follows:
Simple Product can be explained as provision of services that are simple and adds no extra-value products . This type of model caters the demand of the customers on the basis of extra payment. The planes categorized for this model are with narrow seating arrangements and caters only a single class usually all economy flights. There are no assigned seats in these carriers; passengers have to take any seat that is available when they board the plane. These kinds of services do not offer frequent flyer programs to its customers. The basic aim of low cost carrier model is to get the passengers travel from one place to another not paying any noticeable attention to the additional services. Low Operating Cost can be classified as a characteristic of the model that has very low operational cost and a very lean structure. The airlines in this category pay low wages to their staff, they usually don’t hire very experienced crew member and usually pick on the freshly graduated candidates. It charges low airport fees and spends low cost on maintenance and training of staff. They have very simple process of boarding, no air freight, no hub services and have short cleaning times. Their main sales are booked online which prevent them from giving commission to travel agents. They possess high resource productivity. Positioning low cost airlines mainly target tourist, non-business passengers and those who are price conscious passengers. It works very well with short haul traffic that is point to point and has high frequencies. These airline companies possess an aggressive strategy of marketing and have competition with different kinds of transport carriers such as railways and road. Most of the low cost carriers use secondary airports due to its cheap availability . Sustainability
AirAsia has always been keen towards providing low fare to its passengers without any compromises in terms of quality and services. The low cost approach with high productivity has enabled the company to sustain good standards and continue to satisfy its valuable customers. AirAsia apply point to point networks to make the operations simpler and cost effective. Modernized operations and integration of technology at different levels allows the company to dominate in the market with best products at best price. . More details of sustainability are provided in the following section of AirAsia’s business strategies. AirAsia’s Business Strategy
Business strategies enable the firms to develop a detailed framework for monitoring and evaluating the business goals and objectives. The developed framework highlights the potentials for gaining competitive and cost advantages . In the light of its mission statement, AirAsia has developed the business strategy on cost leadership. The main target audiences of the strategy laid by the company are the customers who are generally price conscious and need short-haul flights to travel. Since many years, Porter’s generic strategies are most commonly used by companies to discuss, categorize and decide on different strategies. These generic strategies can be further classified into differentiation, focus or cost leadership. A journal on Porter’s generic strategies quotes, ‘Porter contends that by implementing one of these strategies, a company will have a competitive advantage and earn above average industry returns.’ According to the generic strategies by Porter, strategy by AirAsia can be classified into a cost leadership chart.
COMPETITIVE ADVANTAGE
Lower Cost Differentiation
Cost Leadership
Differentiation
Cost Focus
Differentiation Focus
Broad Target
COMPETITIVE
SCOPE
Narrow Target
Figure
By providing quality services at a competitive price, AirAsia manages to develop and sustain its competitive advantage in the market. The two main features and characteristics of running low cost companies are effectiveness in operations and possessing outstanding efficiency. Recently. Many low cost airlines have penetrated in the market giving direct competition to AirAsia. The most significant objective of AirAsia is to gain higher cost advantage as compared to its rivals. This is managed by the company by searching for cost reduction areas continuously including its value chain. AirAsia’s value chain helps to analyze the determinants of how cost advantage is created. AirAsia’s operational strategies are as follows, 1. Primary
a. Inbound Logistics: AirAsia gain cost advantage in this category by utilizing just one kind of aircraft. This act results in reducing the maintenance cost along with administrative cost and inventory cost. These costs are considered to be the major expenses within an airline industry. b. Operational and Outbound Logistics: AirAsia benefits cost advantage by eliminating extra value services such as provision of meals and entertainment on flight. The company further assigns no seat to the passengers. On receiving the boarding pass, passengers are to sit at any available seat and AirAsia’s flights are not classified into classes. They have made the process simple for their customers and staff hence resulting in technical efficiency. The two most important cost advantage over operations possessed by AirAsia is the high utilization of their planes and turnaround time as quick as twenty five minutes. c. Marketing and Sales: The most significant feature of AirAsia is the low cost but creative advertisement they produce. This advantage cuts down major costs of marketing for the company. AirAsia’s feature of embracing technology to extend their services online to the customers allows them to do direct sales. This saves a significant amount of cost that could have been gone to the travel agents if this feature wouldn’t have been made available. d. Customer Services: Call centers established by AirAsia enable them to efficiently and effectively deal with customer’s queries and complaints. This feature helps them to stay aware of their weaknesses and satisfy customers in the best possible way.
2. Supporting:
a. Firm Infrastructure: AirAsia is recognized worldwide for its simplicity and transparency. b. Human Resource: AirAsia provides cost effective training to its crew staff and also works towards providing them rewards and incentives to maintain their motivation level. c. Technology:AirAsia works towards embracing technology for business requirements as well as to maintain cost effective strategies. AirAsia uses Navitair’s Open Skies computer reservation system (CRS) for tickets reservation which is directly linked with AirAsia’s call center. The above mentioned sources of the cost advantage that AirAsia has over other airline companies are summarized in the flowchart below.
These features of AirAsia enable it to compete successfully with its rivalry airlines and dominate the market. When considering low cost carrier business model, cost management is the key that leads the company to leading position in the market. Capabilities Analysis
Capabilities analysis takes place once the business plan and strategy are streamlined and in proper positioning. Applegate, Austin and Soule (2009, p. 215) defined capabilities as,
‘Capabilities enable a company to execute current strategy while also proving a platform for future growth. They define the resources needed to execute strategy and define the cost model of an organization. Capabilities also defines the assets of a firm and the efficiency with those assets are used.’ AirAsia’s capabilities and competitive advantage over other rivalry firms are discussed in details below: 1. Analysis of process and infrastructure: AirAsia’s most significant competitive advantage is by providing the customers with the lowest fares and eliminating all the non essential services to the customers. An example can be installation of kiosks by AirAsia to speed up the process of checking in. The technological innovations by the company satisfy the customers and makes the company gain competitive advantage in the market. 2. Evaluation of staff, customers and partners: With an aim to provide quality service to its passengers, AirAsia focuses more towards the training of its crew and staff. A series of sessions are planned for the staff to enhance their skills to serve people better.
The agenda of the training sessions include procedures for in flight services, aviation terminology, safety and security procedures, gaining knowledge of the product and many more. AirAsia works with direct and indirect partners with an aim to make their services even better and low cost. Direct partners can be categorized to have strong ties with the company. These include hotels, resorts, travel agencies etc. Whereas, indirect partners include social media websites such as twitter, facebook etc. AirAsia has a firm belief of integrating technology into all its operations hence aims at strengthening ties with its customers through online communities too. 3. Assessment of organization and its culture: Keeping in consideration the mission statement of AirAsia, it focuses on streamlining its organizational structure and integrates use of information and technology (IT) to make the structure even simpler. 4. Evaluating leadership and governance skills: All the staff at AirAsia is treated with equality and the company doesn’t believe in giving ranks to people. The organizational structure of AirAsia has no ranks and there are no levels of hierarchy observed in the company. Management Style
At AirAsia, the bond between the staff and other stakeholders is considered to be the strongest. They have no levels of hierarchy that means no ranking discrimination happens. The staff and crew understand their roles and responsibilities and understand the basic strategy of the company that is low cost maintenance resulting in high productivity. The employees at AirAsia are self motivated and look forward to take an initiative for the betterment of the company. AirAsia gives rewards and incentives to its employees to maintain the level of motivation in them. The company favors the employees by giving them incentives and in return demands for staff loyalty and credibility. The company encourages its staff to have open communication and learn from each other. AirAsia inculcates an environment of zeal and enthusiasm and expects its employees to work in the same way. They organize various different social events for the staff to social and interact with each other. These kinds of events contribute in maintaining healthy and friendly working environment. Secondly, AirAsia believes in honest and transparent relations with customers, staff and even with its partners. AirAsia encourages an environment that is free of racial, ethnic and cultural discrimination. Last but not the least, AirAsia, strives hard to maintain the quality of its services and operation nationally and internationally.
Challenges Faced by AirAsia
Every firm, whether successful or weak, has to face challenges when dealing with different operations and situations. The major challenge that AirAsia is facing currently is the increasing competition of low cost airline services. AirAsia possesses the ability to face this challenge confidently because of its strong organizational structure. The second major challenge faced by all the airlines is the constant rise of fuel prices. No matter how much an airline tries to chop their cost, fuel cost cannot be reduced or addressed. This is one challenge that may affect AirAsia negatively and may lead to losses. Although AirAsia lays extra emphasis on the safety and security of its stakeholder, still there are certain incidences beyond their control. Increasing level of terrorism and attacks may cause severe damage to AirAsia. For these incidences, AirAsia may have some contingency plans; however they don’t work at all times. AirAsia’s Expansion
Since the relaunch of AirAsia in 2001, it has been excelling in different areas and operations. Trying different innovative ideas and technologies has enabled AirAsia to dominate in the market and stay a step ahead from its rival competitors. Later, AirAsia X, a sister organization was introduced with an intention to facilitate specifically long-haul flights. AirAsia X used airbus that had more than 330 seats with economy and premium class facility. It also facilitates the advance booking of seat as per customers’ choice and preference. In order to avail any service such as meals etc, passengers have to pre-order the full meals and a wide range of menu is offered to the passengers. By considering the rapid growth and successful expansion of AirAsia, it is expected that upcoming expansions will be sheer successes for the company too. Conclusion
AirAsia, being a world class leading low cost airline firm has developed a wide range of strategies and plans to help its customers benefit from quality services. In this case study, AirAsia’s business plan and strategy, sustainability, cost and competitive advantage it has and its management style has been discussed in details. As a conclusion, AirAsia is doing a wonderful job in terms of satisfying its customers by providing them with quality services. Not only that, AirAsia also takes initiatives for its employees and has provided them with friendly and tension free environment to work on. AirAsia’s one of the prime objectives is to keep innovating technology and keep on integrating it in its different operations. AirAsia has no doubt given a new dimension to the low cost airlines and businesses.
