Airasia is a Malaysian low-cost airline headquartered near Kuala Lumpur, Malaysia.

AirAsia group
operates scheduled domestic and international flights to 100 destinations spanning 22 countries. Its
main hub is klia2, the low-cost carrier terminal at Kuala Lumpur International Airport (KLIA)
in Sepang, Selangor, Malaysia: all its Kuala Lumpur departures and arrivals operate through this
terminal. Its affiliate airlines Thai AirAsia, Indonesia AirAsia, Philippines AirAsia,AirAsia Zest,
and AirAsia India have hubs in Don Mueang International Airport, SoekarnoHatta International
Airport, Ninoy Aquino International Airport, and Kempegowda International Airport respectively, while
its subsidiary, AirAsia X, focuses on long-haul routes. AirAsia's registered office is in Petaling
Jaya, Selangor while its head office is at Kuala Lumpur International Airport.AirAsia is one of the

award winning and largest low fare airlines in the Asia expanding rapidly since
2001. With a fleet of 72 aircrafts, AirAsia flies to over 61 domestic and international
destinations with 108 routes, and operates over 400 flights daily from hubs located
in Malaysia, Thailand, and Indonesia. Today, AirAsia has flown over 55 million guests
across the region and continues to create more extensive route network through its
associate companies. AirAsia believes in the no-frills, hassle-free, low fare business
concept and feels that keeping costs low requires high efficiency in every part of the
business. Through the corporate philosophy of Now Everyone Can Fly, AirAsia has
sparked a revolution in air travel with more and more people around the region
choosing AirAsia as their preferred choice of transport. Airasia is a low cost Malaysian

airline that operates scheduled international and domestic flights. It is the largest no frill,
low fare airline in Asia and it was the first airline to implement ticketless travel in the
region. This analysis breaks down the external influences that affect the company and
the strategy it used in order to get the most from the same.
Political
It has proven difficult to fly outside Malaysia and this is because of bilateral agreement
which is a major obstacle in the path of carriers that charge low costs such as Airasia.

Another influencing factor is landing charges which have led to underdevelopment as

the aviation market remains tightly regulated by air rights agreements. Other political
factors that affect this airline include:

Disagreement about the uniform worn by the hostess with the UMNO members
preferring one that is more Islamic
Government decisions such as service to specific routes, landing rights as well
as equity ownership have affected the operations of the company. For instance, the
government turned down the companys decision to use Subang as its hub while
allowing its rivalry, to operate from the same location.
Human resource policies are also affected by political influences as it means the
selection and recruitment of staff is not based on merit but rather, racial composition.
Economic
Despite the competition the company receives from Malaysian Airline, Airasia has low
cost carriers that offer cheap tickets and its in-flight services have attracted great
attention in the region. Because the company offered cheap tickets, when recession hit,
majority of travelers preferred to use the companys services

The rising oil costs have however impacted the operations of the company
Increasing competition from new airlines that also offer low cost flights
Airasia lacks the financing that is needed to make investments and most of the
financial institutions are not willing to avail the same.
Social
The company operates in a region that has many languages and countries. Because of
the diverse religions and cultures, trouble continues to brew especially on the Indonesia
and Thai-Malaysian border. In addition to this:

The people who live in the region where the airline operates are well able to
afford costs of air travel
The lifestyles and tastes of the people make it easy for them to pay for low cost
air travel
The nature of the workforce makes it easy to cope with changes implemented by
the company.
Technology
The company has advanced technologically making it possible for people to make
bookings through use of the internet. Technology in the region is dependent on the
overall performance of the IT infrastructure though the company has at some point, lost
customers because of technological problems.

SWOT Analysis for AirAsia

Strengths, Weaknesses, Opportunities and Threats Analysis for
AirAsia
1.0 Strengths

 Air Asia has a very strong management team with strong links with
governments and airline industry leaders. This is partly contributed by
the diverse background of the executive management teams which
consists of industry experts and ex-top government officials. For
example, Shin Corp (formerly owned by the family of former Thai Prime
Minister - Thaksin Shinawatra) holds a 50% stake in Thai AirAsia. This
has helped AirAsia to open up and capture a sizeable market in
Thailand. With their strong working relationship with Airbus, they
managed to get big discount for aircraft purchase which is also more
fuel efficient compared to Boeing 737 planes which is being used by
many other airlines
The management team is also very good in strategy formulation and
execution. The strategy that they have formulated at the beginnings
was a clever blend of proven strategies by other low cost airlines is US
and Europe. They are Ryanairs operational strategy (no frills, landing
in secondary airport), Southwests people strategy (employee comes
first) and Easyjets branding strategy (linking with other service
providers like hotels, car rental).
AirAsias brand name is well established in Asia Pacific. Besides the
normal print media advertising & promotions, AirAsias top
management also capitalised on promotions through news by being
very media friendly and freely sharing the latest information on Air
Asia as well as the airline industry. Their partnership with other service
providers such as hotels and hostels, car rental firms, hospitals
(medical tourism), Citibank (AirAsia Citibank card) has created a very
unique image among travellers. Alliance with Galileo GDS (Global
Distribution System) that enables travel agents from around the world
to check flight details and make bookings have also contributed to
their string brand name. Air Asias local presence in few countries such
as Indonesia (Indonesia AirAsia) and Thailand (Thai AirAsia) have
successfully elevated the brand to become a regional brand beyond
just Malaysia. The links with Manchaster United (one of the worlds
most famous football teams) and AT&T Williams Formula One team
have further boosted their image to a greater extend beyond just the
this region
AirAsia is the low cost leader in Asia. With the help of AirAsia
Academy, AirAsia has successfully created a low-cost airline
mentality among their workforce. The workforce is very flexible and
high committed and very critical in making AirAsia the lowest cost
airline in Asia.
The excellent utilization of IT have directly contributed to
their promotional activities (email alerts and desktop widget which was

jointly developed with Microsoft for new promotions), brand building

exercise (with over 3 million hits per month and on the most widely
surfed booking engines in the world) as well keep the cost low by
enabling direct purchase of tickets by consumer thus saving on airline
agent fees
2.0 Weaknesses
Air Asia does not have its own maintenance, repair and
overhaul (MRO) facility. It may be a good strategy when they first
started with only Malaysia as the hub and few planes to maintain. But
now, with few hubs (Malaysia, Thailand and Indonesia) and over 100
planes currently owned and about another 100 planes to be received in
the next few years, AirAsia have to ensure proper and continuous
maintenance of the planes which will also help to keep the overall
costs low. It is a competitive disadvantage not to have its own MRO
facility
AirAsia receives a lot complaints from customers on their service.
Examples of complaints are around flight delays, being charged for a
lot of things and not able to change flight or get a refund if customers
could not make it. Good customer service and management is critical
especially when competition is getting intense.
3.0 Opportunities
There are 2 major events that are taking place now or going to take
place in less than 6 months from now. First, is the ever increasing oil
price. Second, is the ASEAN Open Skies agreement that has
been reached.
The increasing oil price at the first glance may appear like a threat for
AirAsia. But being a low cost leader, AirAsia an upper hand because its
cost will be still the lowest among all the regional airlines. Thus, AirAsia
has a great opportunity to capture some of the existing customers of
full service and other low cost airlines customers. However, there will
be also some reduction in overall travel especially by casual or budget
travellers.
The ASEAN Open Skies allows unlimited flights among ASEANs
regional air carriers beginning December 2008. This will definitely
increase the competition among the regional airlines. However, with
the first mover advantage as well as its strengths in management,
strategy formulation, strategy execution, strong brand and low-cost
culture among its workforce, this agreement can be seen as more of an
opportunity.

 There is also some opportunity to partner with other low cost

airlines as Virgin to tap into their existing strengths or competitive
advantages such as brand name, landing rights and landing slots (time
to land).
The population of Asian middle class will be reaching almost
700 million by 2010. This creates a larger market and a huge
opportunity for all low cost airlines in this region including AirAsia.
4.0 Threats
Certain rates like airport departure, security charges and
landing charges are beyond the control of airline operators and
this is a threat to all airlines especially low cost airlines which tries to
keep their cost as low as possible. For example, Changi airport in
Singapore charges SGD21 for every person who departs from
Singapore.
AirAsias profit margin is about 30% and this has already attracted
many competitors. Most of the full service airlines have or
planning to create a low cost subsidiary to compete directly with
AirAsia. For example, Singapore Airlines has created a low cost carrier
Tiger Airways.
Users perception that budget airlines may compromise safety to keep
costs low.
Porter's 5 forces analysis on Air Asia

Porter's 5 forces analysis on Air Asia

Threat of new Entrants

The extent of barriers to entry depends on the strength
of:

Customer has little brand loyalty. If consumers of

Air Asia do not have brand loyalty, then the strength
of the threat of new entrants is very high. The high

numbers of competitors in the industry also decrease

Air Asia customer loyalty. Most of the travelers prefer
low cost. New competitors which want to come in the
industry have to spend little to compete with Air
Asia.

High capital requirement. The industry of airline

needs large volume of start-up capital. The cost of
setting up of offices, buying or leasing aircraft,
hiring pilots and other staffs like air stewardess and
etc incur a high start-up cost. Thus, the threat is low
for Air Asia.

Different
product
offered. Air
Asia
offers
different product compared to other competitors in Asia
like
Bangkok
Airways,
Tiger
Airways,
and
Air
Philippines. Other than the passenger sales ticket, Air
Asia also include holiday packages which is affordable
around Asia. Air Asia has good connection with hotels
and tourism companies around Asia, which it is hard for
new competitors to compete.

Low switching costs. Customers do not need to spend

more on switching to another airline. The price would
not be very significant in differences, which it
depends on the availability of competitors services
and suitability of the flight time that prompts them to
switch.

Moderate access to distribution channel. Air Asia

is the first airline company to enable customer book
and purchase air tickets online in Malaysia. This makes
its website www.airasia.com very famous among frequent
travelers. Although new competitors can create a
website for their company, it is quite difficult to
compete with Air Asia website. The website is known of
its simplicity and user friendly. Thus, new competitors
are
difficult
to
make
known
their
websites
to
travelers.

Strict government regulations. In obtaining license

and permit to operate an airline company is quite
restricted. This is because in Malaysia, the airline
industry is very competitive already and that the

government also wants to protect the interest of its

national airline, MAS which is operating on loses a few
years back.
Rivalry among existing firms
The strength of this factor depends on:

High numbers of rivals. There are approximately 59

low fares and no frills airlines compete with Air Asia
Among of them are Tiger Airways, JAL Express, Jet Star
Airways, Air Arabia and etc. Some of the airline does
not compete directly with Air Asia, but it competes
indirectly in routes that Air Asia does not fly. Thus,
the higher the number of competitors, the more fierce
the competition.

High fixed cost. The airline industry incurs high

fixed cost which consists of finance cost, hire
purchase, and staff costs. The airline companies have
to gain more market share to cover the fixed costs. In
doing that, constant price reduction is done by them to
compete with others. Thus, the rivalry is strong.

Customers easily switch. The nature of airline

industry is that customers priority is to look at
price and flight schedule that suits them the best when
buying air tickets. The main purpose of using the
airline services is to get to the destination intended.
Customers can switch to other airline easily which
makes the industry so competitive.

High exit cost. It is hard for an airline company

to exit the industry. It is because the cost is high in
paying the loans, staff retrenchment and flight
cancellation refunds. Even making losses, the companies
have to get running to cope with fixed costs. This
makes the industry very competitive.

Products are similar. As mentioned earlier, the

main purpose of using airline services is to reach the
destination. Every airline provides similar services to
customers. Though Air Asia provides other added

services like hotel booking, and tour packages, it is

subject to the customers choice. An industry with
similar products offered is highly competitive
Threat of Substitute product.

Easy to switch. There are about 59 low cost

airlines competing in the industry. The airlines serve
over one hundred cities and islands across the subcontinental regions of South Asia, Southeast Asia and
Northeast Asia. Although some of the budget carriers
only fly domestic routes within the country of origin,
while
only
a
few
operates
international
routes
connecting nearby countries, customers will always look
for alternatives.

Performance of substitutes. Performance of other

airlines are quite similar with Air Asia given there is
no obvious product differentiation. Performance of
airlines normally consists of the accuracy of take off
time, aircraft performance and staff services. So far,
Air Asia had constantly reviewed its performance and
improve its services.

Relative price. The prices of substitutes are about

the same with Air Asia. Some of the airlines offers
cheaper price to achieve profitable passenger loads.
The price offered depends on the time gap between the
booking date and flight date. The longer the date, the
cheaper will be the price. If the tickets are purchased
last minutes, the price will be about the same with
premium airlines like MAS and Singapore Airlines. Thus,
in this situation customers would switch to the premium
airlines.
Bargaining power of buyers

No significant product differentiation. The only

difference Air Asia product with others airlines is the
holiday packages offered. Most of the low cost airlines
concentrate on providing flight services only to

customers. There is some offers hotel booking at the

city that the airline flies to. However, Air Asia makes
the difference by providing holiday packages like
example 3 days and 2 nights to Bali at RM 800 per pax
includes
flight
ticket,
accommodation
and
travel
guides. For customers who do not want to follow the
travel agencies and enjoys freedom, they will look for
Air Asia packages, but the customers portion of this
type is small. Thus the bargaining power of buyers is
strong as the main thing they look for is to fly to
destinations.

Low switching costs. Cost of switching to other

airlines is low, so bargaining power of buyers is
strong. Air Asia is not the only airlines operates in
Asia. Other than that the price offered by other
competitors are not much different. The customer choice
is subject to their convenience and flight schedule
that fit them best.

Portion of buyers expenditure on airline is

moderate. This factor depends on portions of income an
individual earns. The higher the portion, the more the
customer look for cheaper price and thus, the stronger
the bargaining power of buyers. E.g. when a student
without earning any income, will look for the cheapest
price available as the portion of his expenditure will
be very substantial.

Customers have access to market information. The IT

world had emerged since 20th century. Many big and
success companies in the world uses IT and e-commerce
to operate. Without IT, the business had boundaries and
international
business
will
be
prohibited.
With
worldwide web, information can be gathered on one
click. Customers access to the current airline market
information is easy and available all the time. The
airline companies have less room for negotiation. Thus,
customers had strong bargaining power.

Buyers power concentration in many hands. Most of

the airline company customers are individual travelers,
only some travel in groups. So the air tickets are

purchased individually. The airline companies are not

relying on a few groups of customers only. Thus, the
bargaining power of buyer is strong,
Bargaining Power of Suppliers

Supplier concentration in a few hands. The supplier

of airline companies is the fuel supplier, foods
supplier, merchandise supplier and aircraft supplier.
There are few suppliers in the market, e.g the aircraft
supplier; the companies are either Airbus or Boeing. In
this case the power of supplier is strong. Other
supplier like foods supplier and fuel supplier, the
term of the supply must be based on the market
condition. The supplier cannot increase too much of its
price or risk losing long term business with the
aircraft companies.

High switching costs. Most of Air Asia aircraft are

Airbus models. Previously the company used Boeing
models, which they lease it and the company had since
phased out most of the models and replace with Airbus.
If Air Asia is to switch to Boeing again, then the cost
will be high, because training cost for employees to
suit the aircraft features must be provided. Other than
that, the technology used by Airbus is the most
advanced, thus Air Asia must rely to the Airbus
engineers to do maintenance of the aircraft and seek
advice Thus, bargaining power of suppliers is strong.

Relative
lack
of
importance
of
buyers
to
supplier. Airbus is a UK based aviation company. Its
customers come from around the world. So far 9,113
aircraft had been ordered, out of which 5,408 aircraft
had been delivered by the company. Air Asia had ordered
200 aircraft from Airbus and so far only 54 aircraft
had been delivered. The percentage of less than 1%,
0.99% proves that Air Asia is not Airbuss important
buyer. Thus, Airbus had strong power over Air Asia.