STRATEGIC MANAGEMENT

Content

The Industry Environment

The Competitive Environment
The Macro Environment
Key Strategic Issue
Alternatives
Decision
Implementation and Contingen

Brief Introduction

How did it start?

They started in 2001 with 2 old aircraft, having bought the then loss making
AirAsia from its Malaysian owner DRB-Hicom, for a token of MYR1 (USD0.25
cents) and MYR40 million (USD11 million) in debt.
Born in the aftermath of 9/11 and coming through the global financial crisis,
AirAsia has faced some of the most turbulent times in the airline industry. With
their successes today, AirAsia stand as testimony to the power of great
innovation, passion, teamwork and well-executed ideas.

How did AirAsia do it?

a) Low fares
- AirAsia commitment to low fares lies in AirAsia promise ofNow
Everyone Can Fly. AirAsia service targets guests who can do without
the frills of full-service airlines in exchange for low fares.
b) Low cost carrier model
-) Self automation
-) No frills
-) Cost-saving innovations
c) Great value, amazing quality
- Safety first
4

What AirAsia have won?

AirAsia always strive to give the best to their guests. AirAsia

biggest pride is winning Skytraxs Worlds Best Low-Cost Airline
for7 years running.

 In June 2011 AirAsia ordered 200 AirbusA320at theParis Air Show.

On 13 December 2012, AirAsia placed an order for an additional
100 Airbus A320 jet.
With this, the total number of orders that AirAsia had placed for
the Airbus A320 had gone up to 475.
6

The Industry Environmen

e Industry History & Introduction

Low Cost Carriers (LCC)
1996

Skymark
Airlines
Japan

2000

Cebu Pacific
Philippines

Lion Air
Indonesia

2001

AirAsia
Malaysia

Hokkaido
International Airlines
(formerly Air Do)
Japan

Factor that leads to the exponential

growth in this industry
Emerging high demand
of low fare flight for
business traveler and
it was sparked due to
the financial crisis in
1997.

Governments had a
financial constraint
and declined the
permit of national
airline provider to
operate on
international route.

Asian government
removed the air travel
boundaries and started
to promote open skies
policy.

Development of low
cost terminal across
this region.

ustry Analysis Porters Five For

Low
Threat of
new
entrants

High
Bargaining
power of
suppliers

High
Competit
ive
rivalry

Moderate
Threat of
substitute
products or
services

High
Bargaining
power of
buyers

10

Threat of new entrants

Bargaining power of buyers

Low

High

Low High capital requirement

High

High product similarity

Low Strict government regulations

High

Low switching cost

Low customers switching

High cost

High

Middle class buyer segment

High Low customers brand loyalty

High access to market

High information

Low Efficient distribution channel

Low Diversified in product offered

11

Bargaining power of supplier

Threat of substitutes

High

Moderate

High
High
High

Moderat
e

High switching cost

Limited vital supplier

High

Weak supplier relationship

High

Alternative transportation
Relative price
Performance of substitute

Rivalry among existing firms

High
High numbers of
High competitor
High
High

High fixed cost

High exit cost
12

e Competitive Environm

13

The Competitive Environment Major

Strategic Groups
There are few dimensions to identify and
profile the strategic groups in the airline
industry in Malaysia
Market Share
Variable: Pricing Strategies (budget vs.
premium)
Variable: Geographical Coverage Area
(long haul vs. short haul)

14

Market Share - Airlines Industry in Malaysia

Market Share (%)

AirAsia 32.8%
Malaysia Airline
30.2%
AirAsia X 6.7%
Malindo 5.3%
Firefly 3.5%
Source: CAPA Centre for Aviation

15

Variables: Pricing Strategies & Coverage Are

2 Main Strategic
Groups
Low cost and short haul
carrier
Eg: AirAsia, Malinda Air,
Lion Air, Tiger Air,
Jetstar
Medium to long haul air
flight service with
higher price.
Eg: Mab, SilkAir,
Emirates Airline

16

Key Industry Trend

Monthly household income
- 55% (< RM5,000)

Strategic group
which provide
affordable price
with short haul
destination are
more likely to
perform better
and sustain in
long run
Cost optimization and
operational efficiency

Ext. Environment
depreciation in Ringgit, decline
in oil prices, increase cost of
living and the weak market
sentiment
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Monthly Households Income Malaysia - 2014

24%
45%

31%

RM2,999 and below

RM3,000 - RM4,999

RM5,000 and above

Source: Department of Statistics

Malaysia

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Stringent cost
control

Technological
innovation
Streamline the
entire operational
process, enhance
the customer
interface, gather
and analyse
customer profile

Enhancing the
organization
structure, work
practices and
processes and the
business operating
model

Capable
workforce
Involve technical
experts and
customer service
personnel

Key
Succe
ss
Facto
rs

Outstanding
branding and
promotional
strategy
Conventional &
non-conventional
strategies

Diversify and
venture into
related
business
such as hotel
and insurance
service

19

Key Strategies

20

Air Asia Strategy

21

AirAsia have six major elements to follow to maintain as the lowest

airlines and also to sustain its competitive advantage
Leanest Cost Structure
Efficient and simple point to point operations
Attracting and retaining hardworking and smart people
Passion for continuous cost reduction

Maximize Shareholders' Value

Resilient profit growth through our lower cost base
Expansion of the AirAsia network in a prudent and disciplined
manner
Invest and enhance the AirAsia brand to increase investors' returns
Safety
Comply with the highest International Aviation Safety
Standards and practices
Keep operations simple and transparent
Ensure the security of our People and Guests
22

AirAsia have six major elements to follow to maintain as the lowest

airlines and also to sustain its competitive advantage
Passion for Guests' Satisfaction
Maintain simplicity in every application
Practice the unique and friendly AirAsia experience at every
opportunity

Recognize the linkage between guests' satisfaction and longterm success

Transparency
Transparency in decision-making and information
sharing
Optimum disclosure - higher than industry norms
Timeliness in disclosing information
Human Capital Development
Invest in both hard and soft skills
Recognize all our People as contributors to
our success
Reward excellence and individual
contributions
Maintaining one brand across the Group

23

Porters Value Chain

Model

24

Air Asia Value chain

Activity

Sources of cost advantages

Inbound
Logistics

Utilizing one type of aircraft (Boeing 737-300 which

will be fully replaced with Airbus A320) results in
reduction of maintenance cost (one of the major
expenses in airline industry), scheduling cost,
administrative cost, and inventory of parts.

Operation and
Outbound
Logistics

No frills, no assigned seat, one class, and ticket-less

policies significantly reduce cost. Understanding of
processes results in technical efficiency. Effective
flying procedure. High utilization of aircraft and
quicker turnaround time are two major operational
cost advantages that AirAsia possessed.

Marketing and
Sales

Creative and low-cost advertising significantly

reduces marketing cost. On the other hand, AirAsia
direct sales through internet, call centers, walk-in
airport sales, and sales offices significantly reduce
the commission fee to travel agents as AirAsia only
assigned its sales to limited travel agents.

Customer

Effective and efficient handling of customer

25

Air Asia Value chain

Activities
Firm
Infrastructure
Human
Resources

Sources of cost advantage

Maintaining simplicity, higher disclosure than
industry norms, and transparency in decision
making.
AirAsia assigned multi-skilled cabin crews (2-3
crews/flight),

cost-

effective

performance

based

reward

training,
and

and

incentives

Technolo

systems.
Business requirements related technologies and

gy

cost effective technology supporting AirAsia's

Develop

core competency.

ment
Procurement

Effective and efficient technology acquisition (It

and Communication
26

The Macro Environment

Strategic Issues Air Asia is Facing

27

 Air Asia Thailand, Indonesia and India not fully owned by AA

Government Policies disable them from having major controlling
Governm
shares in the aviation industry
ent

Policies Not being able to have full control, hence outcome effects AA

Depreciation of ringgit against dollars, increases operating cost

Economic Increase in purchase price of planes
al
Slump in economy could see a fall in passengers travelling
Factors
Natural disasters and environmental factors could result in flight
cancelation and suspension of service
Environm i.e. Chennai due to flooding, Bali due to volcanic eruption and
Langkawi due to haze
ental
Factors Could result in drop in revenue

Safety
(Technol
ogical
Factors)

recent air crashes caused a panic among air travelers

importance and priority for safety are at all time high
AA experienced its first air plane disaster, AirAsia flight 8501
Bad for business

28

Key Strategic Issue

29

Major Opportunity

Solution

Drop in profits in
AirAsia Malaysia due to
stiff competition from
MAS and Malindo
2 new LCC soon to
open in Thailand will
make market
conditions worse
Competition in
Indonesia is intense,
the least profitable
group
Failed venture in Japan

to form a strategic
alliance
similar to the one
between AirAsia
Philippines and Zest Air

30

AirAsia Philippines and Zest Air

The Philippine LCC market is dominated by Cebu
Pacific
AirAsia Philippine incurred a net loss of $7m in
2Q12 and $8m in 2Q13
March 2013 partnership with Zest was formed
Zest an independent LCC which was struggling
financially
Zest fly's out from Manila unlike AirAsia which
operates from Clark
Both carriers able to fully integrate their operations
AirAsia started selling Zest operated flights on its
website
both carriers remained separate and are 2 different
products
Carrier's network is expanded and utilization in 31

AirAsia
Indone
sia

AirAsia
Thailan
d

Who
can
benefi
t?
AirAsia
India

32

Benefits of
Strategic
Alliance
decreasing ticket
price when linking
cities to each other,
hence increasing
load factor and
reducing trip cost for
both aircraft and
carrier

provide passengers
with varied flight
schedules and wider
choice of take-off
and landing times,
which lead to
reduced travel time

Alliances seek to
improve quality
standards and
passenger services,
and apply minimum
standards at all
stages, including
ticket sales, choice of
destinations,
baggage procedures,
lounges, passenger
travel, passenger
complaints, and
provision of
necessary services
33

Alternatives

34

ALTERNATIVE PROBLEM
S
SOLVING

COMPETITIVE FINANCIAL
ADVANTAGE ANALYSIS

Added perks into

service
Eg;

Improve customer

preference towards Air

Asia
Added customer value
Improves perception

- Free water and

light snacks
- Excess baggage
allowance
- Inflight
Entertainment

Improves market
penetration

Incurs added cost

Middle class to
higher middle
class
One of the reason
why Malindo is
rapidly gaining
market share
Evidenced by
aggressive
advertising by
Malindo on this
aspect
Even though
Malindo flights are
slightly more
expensive
compare to AA

35

36

ALTERNATIVE PROBLEM
S
SOLVING

COMPETITIVE
ADVANTAGE

FINANCIAL ANALYSIS

Cut on low
Gain market
yielding routes share
Re fleet
Use only single
type of Air
craft

Able to concentrate
on profit yielding
routes by increasing
the number of fleets
and frequency and
this attracts more
customers because of
the flexibility of
timing of flights. It
also allows the airline
to explore other niche
market such as
Maldives by MAA and
China by PAA.

Reduction of fleet
also means reduction
of cost and hence
reduction in ticket
price pr0viding a
competitive
advantage.

PAA already reduced its fleet from 20

to 17 aircraft in 1H2015, enabling it to
improve average aircraft utilisation
rates as passenger traffic remained
flat at 1.8 million in 2015
IAA is also following PAA in boosting
aircraft utilisation rates and
implementing self-handling at its
bases. IAAs average aircraft utilisation
rate is expected to improve from about
10hrs in 2Q2015 to 11.3hrs in 4Q2015
as the size of the fleet is reduced.

PAA still has 15 aircraft on its books

but is in the process of selling older
aircraft and aircraft powered with
V2500s that were inherited from Zest.
PAA will be left with 12 newer model
CFM56-powered A320s, giving it one
type of aircraft that is consistent with
the rest of the AirAsia Group and
generating operational efficiencies.

37

Philippines AirAsia scheduled international seat capacity by

hub/base/station: 21-Sep-2015 to 27-Sep-2015
https://vimeo.com/140259799

38

ALTERNATIVES PROBLEM
SOLVING

COMPETITIVE FINANCIAL
ADVANTAGE
ANALYSIS

Frequent Flyer
Program
Loyalty program

Expand revenue
opportunities
Enhance Market
share

Customer
satisfaction and
customer
profitability
Attract and retain
more customers
Brand loyalty
which is lacking
now in v/o fierce
competition

One of the most

important factor
that promotes
brand loyalty and
repeat customers
Most important
contributor to
increased ROI in
CRM activities

39

40

Decision

41

Decision Matrix
Table below represent the alternatives that AirAsia should pursue
and the weightage of each item.
Alternative

Added perks
into service

Cut on low yielding

routes

Frequent Flyer
Program

Weighta Ratin Scor

Scor
Scor
ge
g
e Rating e Rating e
0.07
2 0.14
1
0.07
3
0.21

criteria
Onboard Catering
Comfort and
Cleanness of seat
0.15
3 0.45
4
0.6
4
0.6
Onboard
Entertainment
0.01
1 0.01
1
0.01
3
0.03
Cabin Safety
Procedure
0.15
4
0.6
3
0.45
3
0.45
Accident Rate
0.23
4 0.92
4
0.92
4
0.92
Responsiveness of
Crew
0.1
2
0.2
1
0.1
3
0.3
Efficiency of Crew
0.07
2 0.14
1
0.07
2
0.14
Event Risk Sensitivity
0.14
1 0.14
4
0.56
3
0.42
Customer
Concentration
0.08
1 0.08
4
0.32
2
0.16
Weightage:1.Major
Weakness;2.
Minor
Weakness;3.
Minor
Strength;4.
Total Weight Score
1
20 2.68 23
3.1
27 3.23

Major Strength

42

Decision
AirAsia
market being
taken by
other
competitors
(Malindo)
Introduction
of more
services
would retain
& attract
more
consumer
Improve
with more
choice with
payment method

Alternative 3 is selected
as best decision on bring
AirAsia to next stage.

Suggestion by
group to focus
on building
loyal base
customer

Frequent Flyer Program

is already existing in
Airline industry

BIG by AirAsia

Creating awareness
on BIG . Add On
services are
Premium Seats,
Baggage, Meal,
AirAsia Insure Travel
Protection, and
43
Comfort Kit

BIG

Customer
Loyalty

Virtual
currency

Value of A
Points

Mileage Run

Elite Status

Convenienc
e

Integrated
with
Business
Activities

Creating
Loyal Base
Customer
44

Implementation
and
Contingency
45

How to
implement
alternatives
successfully
Commitment
Ability and
willingness to
change
An
organizational
structure that
supports the
strategy
A clear
understanding
of priorities

AirAsia commitment
to bring loyalty
program to
appreciate frequent
fliers efforts
Organization
to bring change over
traditional and
change over fast
reliable online
ticketing
The organizational
structure must be
designed to support
the priorities required
by the strategy.
Management is often
distracted from its
strategy by
opportunities that
continually pop up

This also bring new

fliers that attracted to
price reduction value
Consumer gain
advantage and
benefit in using single
method payment that
AirAsia ezpay
VirtualCard
Additional services
can be offered
through this new
loyalty program
AirAsia gain
Knowledge and
prediction on most
attractive packages
and routes
46

Thank You

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