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Organizations and Management Assessments Organizations and Management Assessments
Case Study Case Study
The ascendance of AirAsia: Building a successful budget airline in Asia The ascendance of AirAsia: Building a successful budget airline in Asia
Executive Summary Executive Summary
Pestle analysis of the AirAsia shows that liberalization in the air market of Asia Pacific Pestle analysis of the AirAsia shows that liberalization in the air market of Asia Pacific countri
countries es hhas improas improveved wd w iith the interth the internanatiotionnaal ml market access. It has also been arket access. It has also been ffoound that there hasund that there has increase in growth of number of airlines operating in this region and also the number of increase in growth of number of airlines operating in this region and also the number of passenger has
passenger has imimproved proved after after the the mmarket arket lilibberalization. Feralization. F ive ive fforces orces model amodel a nalynalysis sis indiindiccate ate thatthat this industry is highly competitive and high threat of new competitor in this industry and other this industry is highly competitive and high threat of new competitor in this industry and other substitute of domestic market. SWOT analysis of this AirAsia has shown that company has its substitute of domestic market. SWOT analysis of this AirAsia has shown that company has its strength in the management, operation efficiency and low cost and its weaknesses are highlighted strength in the management, operation efficiency and low cost and its weaknesses are highlighted with the poor staffing, no response customer care and other attractive marketing strategy. It is with the poor staffing, no response customer care and other attractive marketing strategy. It is highly recommended to the company to expand its business in the European Countries and highly recommended to the company to expand its business in the European Countries and Wes
Introduction Introduction
Market liberalization in the Asia Pacific countries has vast impact on the Airasia Airline Market liberalization in the Asia Pacific countries has vast impact on the Airasia Airline Company, as this company firstly operates in Malaysia and after the virtue of market Company, as this company firstly operates in Malaysia and after the virtue of market liberalization Airasia Airline Company got the chance to enter in other countries of Asia Pacific liberalization Airasia Airline Company got the chance to enter in other countries of Asia Pacific that leads to boom to its on-going journey in the Malaysia. This report is written to investigate that leads to boom to its on-going journey in the Malaysia. This report is written to investigate the case of
the case of “The ascendance of AirAsia: building a successful budget airline in Asia” as written“The ascendance of AirAsia: building a successful budget airline in Asia” as written by
by ThomThomas as LawtLawtoon n and and JonatJonathan han Doh Doh (Shaw, (Shaw, 2012). 2012). The The case case is is oon n the the journey journey oof f AiAirasrasiiaa Airline Company in the Asian Pacific countries before and after the market liberalization. In this Airline Company in the Asian Pacific countries before and after the market liberalization. In this report two main tasks will be carried. One is related with conducting of Pestle analysis to know report two main tasks will be carried. One is related with conducting of Pestle analysis to know how market liberalization in the
Asia-how market liberalization in the Asia-Pacific assisted AirAsia’s growth in the regionPacific assisted AirAsia’s growth in the region. Another is. Another is related with the conducting of SWOT and porter five forces model analysis to know how the related with the conducting of SWOT and porter five forces model analysis to know how the market liberalization trend on the company. AirAsia is the Malaysian low cost air carrier that market liberalization trend on the company. AirAsia is the Malaysian low cost air carrier that charges the l
charges the lowest owest fares per kilfares per kilometer ometer iin the worln the world d (Case S(Case Study).tudy).
Analysis and Research Analysis and Research
PESTEL analysis
PESTEL analysis of Air Asia will help to develop a significant understanding of the impact of of Air Asia will help to develop a significant understanding of the impact of Market Liberalization in the Asia-Pacific on the growth and development of Air Asia. PESTEL Market Liberalization in the Asia-Pacific on the growth and development of Air Asia. PESTEL analysis
analysis of of the the airlairlineines s coconducted is as nducted is as folfolllowsows::
Political f Political factorsactors: Air Asia faces increases challenge while operating is business outside: Air Asia faces increases challenge while operating is business outside
Malaysia due to bilateral agreements. Bilateral agreement is one of the major obstacles Malaysia due to bilateral agreements. Bilateral agreement is one of the major obstacles ffoor r the the growtgrowth h and and dedevelopvelopmmeent nt oof f llow ow coscost t carriers in carriers in the Asia-the Asia-PacPacific ific regregion. ion. InIn add
growth and development of Air Asia in country (Subra and Gopal, 2001). However, the growth and development of Air Asia in country (Subra and Gopal, 2001). However, the market liberalization in the Asia-pacific region has eliminated the problem of air market liberalization in the Asia-pacific region has eliminated the problem of air transport charges and has provided the opportunity for the airline to operate its business transport charges and has provided the opportunity for the airline to operate its business outside Malaysia.
outside Malaysia.
Economic Economic factorsfactors: Air Asia offers cheap tickets to the customers in Asia-Pacific region: Air Asia offers cheap tickets to the customers in Asia-Pacific region
that is responsible for increasing customer satisfaction in the region. The low cost fare that is responsible for increasing customer satisfaction in the region. The low cost fare model of the airline has enabled it to grow and develop in the Asia-pacific region. model of the airline has enabled it to grow and develop in the Asia-pacific region. Economic recession in the Asia-Pacific region is responsible for the success of low cost Economic recession in the Asia-Pacific region is responsible for the success of low cost fare model of the airline as large number of customers want to air tickets at reduced fare model of the airline as large number of customers want to air tickets at reduced pri
prices ces (Su(Subra bra and Gopaland Gopal, , 2001).2001).
Social Factors: The increasing number of tourists and population across the Asia-PacificSocial Factors: The increasing number of tourists and population across the Asia-Pacific
region is also supporting the growth and development of the airline. Air Asia emphasis region is also supporting the growth and development of the airline. Air Asia emphasis on ‘Safety First’ and follow all the quality standards for providing best services o the on ‘Safety First’ and follow all the quality standards for providing best services o the custom
customers ers iin n a a cost-cost- effeffective ective mmanner(Shaw, anner(Shaw, 2012012).2).
Technological Factors: Air Asia provides online services for air ticketing so thatTechnological Factors: Air Asia provides online services for air ticketing so that
customers can easily gain access to tickets. In addition to this, airline has recently customers can easily gain access to tickets. In addition to this, airline has recently introduced an airline online program where guests can easily book their holiday introduced an airline online program where guests can easily book their holiday packag
packages. es. TechnolTechnoloogical gical ffactors actors hhave ave increaincreased sed the the eefficifficiency ency oof f aairliirline ne in in ddififfereferenntt co
countriuntries es in in the the Asia-Asia-PaPacificific c region.region.
Env Environmental ironmental FactorsFactors: The Company has implemented several measures for the: The Company has implemented several measures for the
environm
environmentaental protection in order to protect the environmel protection in order to protect the environme nt frnt from aom a ny negany negative impact otive impact o ff pollution.
operating in the Asia-Pacific region to implement proper measures for the environment operating in the Asia-Pacific region to implement proper measures for the environment protect
protectiion(on(Shaw, Shaw, 2012).2012).
Legal Legal FactorsFactors: Market liberalization in the Asia-pacific region has provided enormous: Market liberalization in the Asia-pacific region has provided enormous
gr
growth oppowth opportunity ortunity ffor tor the Air Asihe Air Asia a airliairline bne b uut has at has also increaslso increased ed the legal cothe legal connsideratsideratiioonnss for the airline (Subra and Gopal, 2001). Airline has to fulfill all the legal requirements for the airline (Subra and Gopal, 2001). Airline has to fulfill all the legal requirements and
and popolliciicies es for for condconducting their busiucting their business ness opoperaeratitions in ons in various various cocountriuntries.es.
Thus, it can be inferred that Market Liberalization in the Asia-Pacific region has provided Thus, it can be inferred that Market Liberalization in the Asia-Pacific region has provided huge opportunity to the airline that is driving the present growth and development of the airline. huge opportunity to the airline that is driving the present growth and development of the airline. However, the increase o
However, the increase o f f cocommpepetition in tition in the exterthe external mnal maa rket place rket place iis one of ths one of the serioe serious us coconcernsncerns for th
for the e airlairline ine in order in order to suto sustain its ongoistain its ongoing ng growth and developmegrowth and development.nt.
SWOT Analysis and Porter Five Forces Analysis SWOT Analysis and Porter Five Forces Analysis
SWOT and Porter five force analysis of Air Asia airline will help to analyze its present SWOT and Porter five force analysis of Air Asia airline will help to analyze its present and future competitive state in the global market place. SWOT analysis helps to analyze the and future competitive state in the global market place. SWOT analysis helps to analyze the strength,
strength, weakweakness, opness, oppoportunirtunity ty and and threat of threat of the the airlairline ine as as folfollows:lows:
Strengths: The major strength of airline is its low operational and maintenance cost dueStrengths: The major strength of airline is its low operational and maintenance cost due
to which it is able to adopt a low cost fare model for increasing customer satisfaction. to which it is able to adopt a low cost fare model for increasing customer satisfaction. The low operational cost of the company is on account of use of online reservation The low operational cost of the company is on account of use of online reservation sy
systestems, nms, no o ffrill, quick check that helps trill, quick check that helps the company to reduce its he company to reduce its operatoperational costional cost.. Strength of AirAsia can be found in its strong management team and its operation is Strength of AirAsia can be found in its strong management team and its operation is managed by the ex-Ryanair director who has the experience of reducing the expenses in managed by the ex-Ryanair director who has the experience of reducing the expenses in the low cost environment (Shaw, 2012). This company has good technology the low cost environment (Shaw, 2012). This company has good technology
infrastructure that helps in carrying the business in the low cost market. Strength of this infrastructure that helps in carrying the business in the low cost market. Strength of this company
company is breakeven load factor of 52 % and world’s low traveling cost of 0.23 peris breakeven load factor of 52 % and world’s low traveling cost of 0.23 per kilometer.
kilometer.
Weakness: The major weakness of the company as analyzed by the given case isWeakness: The major weakness of the company as analyzed by the given case is
implementation of latest technologies that requires huge amount of investment. In implementation of latest technologies that requires huge amount of investment. In addition to this, increasing fuel price also presents a major potential threat for the airline addition to this, increasing fuel price also presents a major potential threat for the airline as it will increase the operational cost of the airline. Due to the low cost approach as it will increase the operational cost of the airline. Due to the low cost approach company has less number of staff as compare to other rivalries in this segment. Lessor company has less number of staff as compare to other rivalries in this segment. Lessor number of employees creates trouble when there is peak time at the airport and there is number of employees creates trouble when there is peak time at the airport and there is very
very short tishort timme e avaiavaillabablle e to to the emthe employees ployees (Hahu(Hahua, a, 2012013).3).
Opportunity: Opportunity can be seen with the increase in the customers in the AsianOpportunity: Opportunity can be seen with the increase in the customers in the Asian
market sue to low cost approach of the airline companies. Low cost fare model of the market sue to low cost approach of the airline companies. Low cost fare model of the airline will prove beneficial for the company in attracting customers from all over the airline will prove beneficial for the company in attracting customers from all over the worl
world d and thus will heand thus will hellps in eps in enhancing the profitabilinhancing the profitability oty o f the cf the coompany in order to remainmpany in order to remain sustainab
sustainablle e for for fufuture.ture.
Threat: Major threat to the AirAsia CoThreat: Major threat to the AirAsia Co mmpanpany is the increase y is the increase in thin the coe competitmpetitoor worldwir worldwidede
especially in the Asia Pacific Countries. Increase of competition in the Asia-Pacific especially in the Asia Pacific Countries. Increase of competition in the Asia-Pacific region presents a potential threat that can negatively impact the growth and sustainability region presents a potential threat that can negatively impact the growth and sustainability of
of the aithe airlinrline e in in fufuture ture (Shaw, 2(Shaw, 201012).2).
P
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Porter five force model help to gain a proper understanding of the potential profitability Porter five force model help to gain a proper understanding of the potential profitability of
Bargaining Power of Customers: The bargaining power of customers is high due to largeBargaining Power of Customers: The bargaining power of customers is high due to large
number of competitors existing in the market. Thus, customers have high bargaining number of competitors existing in the market. Thus, customers have high bargaining power as t
power as they chey caan select a specific an select a specific a irline that cost them cheaper. irline that cost them cheaper. The bThe buyeuyer power power in ther in the Asian countries in respect of airline industry is weak due to fragmentation of buyers and Asian countries in respect of airline industry is weak due to fragmentation of buyers and large number of potential buyers in this industry. In East Asia the propensity of air travel large number of potential buyers in this industry. In East Asia the propensity of air travel is comparatively low as compared to global average of 2.0 per trip. In India it is 0.1 and is comparatively low as compared to global average of 2.0 per trip. In India it is 0.1 and with that of China it is 0.3. Buyers in this industry can be segmented into the two main with that of China it is 0.3. Buyers in this industry can be segmented into the two main categories business travelers and recreational travelers having different price sensitivity. categories business travelers and recreational travelers having different price sensitivity.
Bargaining power of suppliers: Barging power of suppliers is not as high as switchingBargaining power of suppliers: Barging power of suppliers is not as high as switching
cost for the airline companies is not as high as there is large number of suppliers available cost for the airline companies is not as high as there is large number of suppliers available for eth airline companies. Supplier in the airline industry is limited and it consists of for eth airline companies. Supplier in the airline industry is limited and it consists of aircraft manufactures, producers of airports and air fuel. So it can be said that power of aircraft manufactures, producers of airports and air fuel. So it can be said that power of these suppliers is moderate and is limited to certain category. The producers of aircraft these suppliers is moderate and is limited to certain category. The producers of aircraft has moderate bargaining power has it is unfeasible to shift from one supplier to another has moderate bargaining power has it is unfeasible to shift from one supplier to another with
without out nay nay major almajor alterateratitioon n cacaused used iin the n the resprespectectiive ve compacompany.ny.
Threat of new Entrant: Threat of new entrant is high as the liberalization of the marketThreat of new Entrant: Threat of new entrant is high as the liberalization of the market
has provided opportunities for many foreign airlines to enter into the Asia-Pacific region. has provided opportunities for many foreign airlines to enter into the Asia-Pacific region. It has been estimated that there is very threat of new entry in this market (Asia Pacific It has been estimated that there is very threat of new entry in this market (Asia Pacific Countries). Although the cost of Aircraft are very high but airline companies can enter in Countries). Although the cost of Aircraft are very high but airline companies can enter in this industry with few aircraft as AirAsia has done in 2001. After the liberalization in this this industry with few aircraft as AirAsia has done in 2001. After the liberalization in this market has eliminate the government barriers that decreases the cost of entering in the market has eliminate the government barriers that decreases the cost of entering in the m
ThrThreat oeat o f f SSubstitutubstitutes: es: ThrThreat oeat o f f substitutes substitutes iis also s also high as consumers re preferring rail andhigh as consumers re preferring rail and
road transport more in the Asia-Pacific region due to low cost involved in these modes of road transport more in the Asia-Pacific region due to low cost involved in these modes of transportation. It has been examined from the data given that there is very high threat of transportation. It has been examined from the data given that there is very high threat of domestic market due to increase in airline companies in Asia Pacific market at relatively domestic market due to increase in airline companies in Asia Pacific market at relatively very high speed. On looking at overall market it can be said that there is moderate threat very high speed. On looking at overall market it can be said that there is moderate threat of
of substitute substitute iin thin this s market market arearea a but in but in some region some region iis very his very high gh sucsuch as h as India aIndia and Chind China.na.
Competitive Rivalry: Competitive rivalry is high in the industry due to high cost of fixedCompetitive Rivalry: Competitive rivalry is high in the industry due to high cost of fixed
asset
assets as and lnd loow w swswititching cost in ching cost in the industry. the industry. PPrice rivrice rivalralry iy is one s one oof thf the proe prominentminent examples of intense competitive rivalry in the airline industry (Pauna, 2011). Customers examples of intense competitive rivalry in the airline industry (Pauna, 2011). Customers can easily switch from one airline to another due to price issues and thus airlines faces can easily switch from one airline to another due to price issues and thus airlines faces increasing pressure to adopt and implement a low cost fare model for providing increasing pressure to adopt and implement a low cost fare model for providing increasing customer satisfaction.
increasing customer satisfaction.
Impact of market liberalization on the AirAsia Company and future strategy of the Impact of market liberalization on the AirAsia Company and future strategy of the company
company
It can be judged from the overall analysis of the pestle, SWOT and five forces model that It can be judged from the overall analysis of the pestle, SWOT and five forces model that AirAsia has been very much impacted by the market liberalization both is positive as well as in AirAsia has been very much impacted by the market liberalization both is positive as well as in n
neeggatativive wae wayy. O. O n n ooverall suverall success occess of thf the Ae AirAsiirAsia Aa Airliirline Cone Commpapany in the East Asia ny in the East Asia has mahas made tde thihiss company a successful company in this market. The success of the company can be due to company a successful company in this market. The success of the company can be due to company willi
company willingness to ngness to take risk through using ttake risk through using the innhe innovatovat ivive e strategies thstrategies that redat reduucces the cost andes the cost and also provi
also provides des huhuge proge proffiitabiltability ity (Case (Case Study).Study).
Conclu
On complete analysis of AirAsia Airline Company using various models it can be said On complete analysis of AirAsia Airline Company using various models it can be said that future of the company is very bright and company must frame some new strategies to put that future of the company is very bright and company must frame some new strategies to put themselves in new shelf where new entrants to the market cannot reach. Air Asia should expand themselves in new shelf where new entrants to the market cannot reach. Air Asia should expand its market in the intercontinental market of East Asia especially in the Europe with its main hub its market in the intercontinental market of East Asia especially in the Europe with its main hub at Abu Dhabi (Shaw, 2012). In Addition to this Company should add some more aircraft in there at Abu Dhabi (Shaw, 2012). In Addition to this Company should add some more aircraft in there fle
fleet et mmainly A320 aainly A320 airirbbus at it provides very high at lower cost. us at it provides very high at lower cost. It hIt has beeas been that 8% of passengersn that 8% of passengers in the Asia Pacific market are business class, so it is highly recommended to the AirAsia to put in the Asia Pacific market are business class, so it is highly recommended to the AirAsia to put iits mts main focus ain focus on on the the recrecreareational tional segment osegment of f thithis markes market.t.
References References
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Subra, R. and Gopal, P. 2001. The market orientation: the performance relationship.
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