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1.0

Introduction

AirAsia originally was founded by government and on 2 December 2001 was bought by

Tony Fernandes. AirAsia was established in year 1993. AirAsia has travel around the earth

and

ascend to become the world’s best in year 2001. AirAsia continues to spread out the way

for

low-cost

aviation

through

the

innovation,

efficient

and

passionate

approach

to

business

with

a

route

a

network

that

extent

through

over

20

countries.

There

are

some

companies

which link with AirAsia such as AirAsia X, Tha

i AirAsia, Philippines’ AirAsi

a Inc., AirAsia

Japan and Indonesia.

In addition, for the vision part in AirAsia, AirAsia aims to be the largest low cost airline

in Asia and serving the 3 billion people who are currently underserved with poor connectivity

and

high

fares.

While

for

the

mission

of

AirAsia,

AirAsia

wants

to

be

the

best

airline

company to work whereby employees are treated as part of the big family. Besides, AirAsia

try to maintain the lowest cost hence everyone can fly with AirAsia. Highest quality product,

embracing technology to lower the cost and improvement in service levels will be maintained

by the AirAsia airline also.

Lastly,

create

a

globally

recognized

ASEAN brand

will be the

mission part of AirAsia.

In the values part, AirAsia will implement trough the following key strategies which are:

?

Safety

?

Low fare, no frills

?

Lean distribution system

?

Point to point network

?

High aircraft utilization

?

Streamline operation

The loyalty programmed

of AirAsia will be “BIG”. BIG was known

as the kind global

programmed

where can earn BIG Points to redeem “free airline flight”.

Members can enjoy

the preference booking, special offers and discount as an AirAsia BIG dedication member in

term and condition apply. (AirAsia, 2013)

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UGB202 Introduction To Strategic Management

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2.0

Strategic Analysis

Strategy

analysis

was

known

as

the

process

of

developing

strategy

for

business

by

searching the business and environment in which it operates. (BusinessDictionary, 2013)

2.1

PEST analysis

PEST will be the type of situation analysis in political, economic, socio-cultural and

technological

factors

are

investigate

to

chart

of

an

organization’s

long

-term

plans.

(BusinessDictionary, 2013)

In

the

political

part,

AirAsia

found

that

it

is

difficult

to

fly

outside

the

Malaysia.

Double-sided agreement will be the main barriers in the way of low cost carriers. The landing

charges

will

also

be

another

big

factor

which

influence

on

costing

of

low

fare

airlines.

Besides,

the

low

cost

airline

industry

which

situated

in

South

East

Asia

has

been

underdeveloped

just

because

the

aviation

market

is

tightly

adjusted

by

bilateral

air

rights

contract.

While in the economic part, AirAsia airline offers the low-cost carriers by providing

inexpensive ticket and few in flight services. These may help in obtaining the attraction in the

district despite having the strong competition from MAS (Malaysia Airline). For the current

depression will hit on the aviation business. With the slow down economy, more people will

want

to

buy

the

cheap

tickets

and

enjoy

the

flight.

Besides,

the

prices

of

the

oil

may

be

another factor for the airlines. It is difficult to control the operation’s cost once the pri

ce of

the oil increasing.

For the social part, passengers are not willing to take the expensive airline for a long-

haul flight.

To help for the world’s population increasing, the numbers of tourist and educated

person

are

needed

as

help

for

increasing

the

growth

of

aviation

industry.

SARS

had

scare

people

to

fly

over.

“Safety

First”

was

committed

by

the

AirA

sia,

implement

with

all

regulatory

institutions,

set

and

maintain

constantly

high

standards

and

the

last

will

be

guarantee the security of staff and guests.

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While in the technology part, AirAsia provides the online service which can combines

the air ticketing with hotel bookings, car hire and travel insurance. AirAsia had pushed the

internet booking services in order to keep costs in check. Besides, AirAsia also introducing

the

GO

holiday,

the

online

programmed

where

consumers

can

book

the

holiday

package

online in real time. With the airbus A320, there will be better performance and reliability as

help in proving the fuel efficiency and extra capacity. (UK Essay, 2013)

2.2

Porter 5 forces

Porter

5

forces

are

a

model

which

used

by

the

company

for

industry

analysis

and

corporate

strategy

development.

This

5

forces

include

supplier

strength,

competition,

customer

power,

the

potential

for

new

companies

join

the

industry

and

threat

of

substitute

products (BusinessDictionary, 2013)

Figure 1: Porter 5 Forces diagram

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2.2.1

Bargaining power of customers

Bargaining

of

buyers

will

be

the

ability

of

customers

to

put

the

firm

under

pressure. (Wikipedia, 2013) There are 2 types of buyer

power which are customer’s

price

sensitivity

and

negotiating

power.

The

Revenue

Management

System

was

the

only system

which

used by AirAsia. This

system

had made the airline understands,

anticipates,

and

react

to

the

behavior

of

customer

to

maximize

income

from

organization. This takes account into the operating costs and AirAsia has to optimize

prices and distribute amount to maximize the expected income. Seat and route will be

the 2 levels which optimize to be done in AirAsia.

Seats

are

available

at

various

prices

in

different

points

of

time.

Reservation

will be charged once consumer changed the previous booking time to the earlier or

late

after

the

days.

While

for

the

route,

it

can

be

done

by

adjusting

the

prices

for

destinations

that

have

higher

demand

when

compare

with

others.

Combination

of

these 2 levels for all flight will be the best effective method. (UK Essay, 2013)

2.2.2

Bargaining power of suppliers

Bargaining power of supplier can describe as market of input. Supplier can be

a

source

of

power

over

the

firm.

(Wikipedia,

2013)

To

overcome

the

problems

of

bargaining power of suppliers, AirAsia has opted for the full fledged ERP system in

year 2005. By implementing the package, AirAsia is looking into well retain process

incorruptness,

reduce

financial

month-end

closing

processing

times,

and

speed

up

reporting

and

data

restoration

processes.

For

the

aircraft

supplier,

the

power

of

supplier will be strong. Other supplier like food supplier and fuel supplier, the supply

will base on the market condition. Prices could not be increasing too much as this may

become the risk for the long term business.

The second problem will be the high switching costs. Most of the AirAsia’s

aircraft are Airbus models. Besides, the technology which used by the Airbus is the

most

progressive

if

compared

with

the

previous

Boeing

model.

This

is

why

bargaining power of suppliers is strong. (UK Essay, 2013)

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2.2.3

Threat of new entrants

Threat of new entrance can be the profitable market that give high return and

attract

the new

firms.

(Wikipedia, 2013)

There

is

a high barrier

entering the airline

industry since they postulate high resource to set up everything such as purchase or

rent

the

aircraft,

set

up

office,

hire

the

new

employees

and

etc.

this

may

help

in

reducing

the

threat

to

AirAsia.

Brand

awareness

will

be

important

for

industry.

To

enter the industry is not only ask for the high capital and at the same times create the

brand

awareness.

Consumers

will

just

choose

the

products

and

services

which

they

most trust on. Brand loyalty can help in reducing threat to AirAsia too. Leading role

and

favorable

brand

awareness

had

made

to

become

a

first

choice

among

the

competition. (UK Essay, 2013)

2.2.4

Threat of substitutes

Threat

of substitute will be the existence of products

outside the area of the

common

products

boundaries

increases

the

propensity

of

customers

to

switch

alternatives. (Wikipedia, 2013)

For

the

substitute

products

of

AirAsia

will

be

train,

busses

and

cruise.

But,

busses

and

cruises

are

not

viable

due

to

the

geographical

factor.

Besides,

business

traveler’s

telecommunication and video conferencing was also seen as the substitute.

Cisco Webex offers unlimited meeting as low as USD 19 per month and the substitute

is moderate.

2.2.5

Rivalry among existing competitors

For most industries, the intensively of

competitive rivalry is the major stator of

competitiveness of industry. (Wikipedia, 2013) The main competitors of AirAsia will

be

MAS

and

Firefly.

Through

the

agreement

in

August

2011

between

AirAsia

and

MAS, Firefly will be full abroad airline and MAS will focus on the strength and not

directly compete with AirAsia.

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2.3

Value Chain

Value chain will be the activities that convert input into output which add into bottom

line

and

help

to

create

competitive

advantage.

(BusinessDictionary,

2013)

value

chain

can

divide into primary activities and supportive activities

2.3.1

Primary activities

Primary activities in Porter’s value

chains are as follows:

Inbound logistics

Inbound logistics includes few types of categories in airline industry such as

how to progress flights, keep eye on competitors and how to get the lowest price as

the control fuel efficiency by purchasing the advance when price is low. And last will

be plan routes.

Outbound logistics

AirAsia mostly use the operation through online and customers can get their

tickets by online booking. Customers can print out boarding tickets at homes. Besides,

AirAsia

uses

general

electric

engine

for

the

customer

safety

as

customers

are

the

priority of company.

Sales & Marketing

AirAsia has the strong brand name and marketing have significant collision on

any organization sales. Hence, AirAsia sponsors “The amazing race” and mu football

club. AirAsia paints some aircraft with club color and sports star, and Tony Fernandes

wears AirAsia official red cap and T-shirt in every official events.

Services

AirAsia provides different t type of services to customers such as delay flights

more than 3 hours then US$$ 61 e-gift will be given. Customers can also pre-book the

checked baggage in lower rate. Online booking hotels rent a car and medical services

also being provided by AirAsia.

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2.3.2

Supportive activities

The

supportive

activities

is

took

keep

business

clean

and

operational.

There

are:

Firm infrastructure

AirAsia

has

advances

from

a

classic

lcc

into

integrated

service

provider.

AirAsia

focuses

on

goals,

provides

cheap

fare

and

explores

the

new

markets.

The

decision making process is simple.

Human Resource Management

AirAsia

hires

the

competent

workers

and

assign

multi- skilled

people

so

that

AirAsia can overcome the price in term of HR. this can sustain company mission and

recompense employees in term of performance.

Technology department

AirAsia uses many types of technology to minimize cost and makes operation

easier and

efficient.

AirAsia

uses YMS which takes into account

the operating cost

and envisaged revenues. Besides, CRS used by AirAsia for web-based reservation and

inventory system as CRS is a direct sale engine. ERP was implemented by AirAsia as

helps for time saving and speed up reporting and data restoration processes

2.4

SWOT Analysis

SWOT analysis will be a tool to identify strength, weakness, opportunities and threat

of an organizational.

This

can be internal

and

external.

(Investopedia,n.d.)

For the strength

part, AirAsia has maintained the low operational and maintenance cost by changing the type

of Airbus from Boeing 737 to A 320. Besides, AirAsia having the low operating cost due to

the

online

reservation

system,

no

frill,

quick

checked

in

and

etc.

There

is

huge

untapped

market

in district, especially for business travelers and segment of “for

-the-first-time-

flying”.

And the last benefit of AirAsia will be the low cost airline.

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While

for

the

weakness

part,

AirAsia

having

the

huge

investments

to

acquire

airplanes

and

executing

the

latest

technologies

there

is

high

amount

of

the

operating

cost.

Besides,

the

fight

time

for

the

AirAsia

is

more

or

less

limited

to

2.5

hours

and

could

not

operate flights of longer duration without any frill. No Frill becomes impossible to implement

for

passengers.

While

comparison

with

MAS,

MAS

will

be

the

full

service

airline

where

AirAsia is a no frills airline. Besides, MAS flights depart and arrive at KLIA but AIRASIA

just depart and arrive

at

LCCT.

In addition,

MAS

offers the higher luggage

allowance but

AirAsia just offer not more than 15kg luggage allowance. Foods are not serving in AirAsia

but MAS has the offering the foods and drinks for the passengers.

For the opportunity part in AirAsia, AirAsia should offer low fares which encourage

people from all walks of life style to fly. Moreover, Airbus A320 should stimulate superior

amount of passengers. Offering the comfortable services for every consumer might be one of

the opportunities also. AirAsia might introduce the SMS booking which allows the customers

to book their seats at anytime and anywhere. With the acceptance in warranty the security of

stuff and customers, customer will have more confident and trust to flight via AirAsia.

And

the

last

will

be

the

threats.

For

the

threat,

there

is

no

more

no-frills

airline

in

AirAsia in order to meet numbers of customer demand increasing following with the success

story

of

Malaysia’s

budget

carrier

AirAsia.

Singapore

airlines

plan

to

develop

a

budget

carrier once Singapore airlines see the success

of AirAsia. This

can be the big market

and

opportunity in Asia. Furthermore, passengers would not choose AirAsia if passengers need to

travel the long distance flight. Passengers would choose for the MAS or SIA which provide

the better services.

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3.0

Strategy Formulation

Strategy formulation is the process of choosing the most suitable course of actions for the

realization

of

organizational

goal

and

objectives.

The

process

of

strategy

formulation

normally involves 6 steps which are:

?

Setting organization’ objectives

?

Evaluate the environment of organization

?

Setting quantitative target

?

Aiming with divisional plans

?

Performance analysis

?

Choice of strategy

(Management Study Guide, 2009)

3.1

Business level

Figure 2: Porter’s generic strategies diagram

From the diagram above, it will become the simple way to let consumer know about

the Porter generic strategies

and how it’s apply in AirAsia airline transportation.

Aligned with

the

mission

statement,

the

business

strategy

of

AirAsia

is

more

focus

on

leadership.

Nevertheless, AirAsia business strategies focus on specific market especially for customers

who sensitive in pricing.

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UGB202 Introduction To Strategic Management