airasia an evaluation

8/8/2019 AirAsia an Evaluation

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N O W E V E R Y O N E C A N F L Y N O W E V E R Y O N E C A N F L Y

Air Asia:An evaluation

6 December, 2010


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Behaviour Cognitive: Why does the customer choose Air

Asia?

Price Service: From buyingpreferred seatto checkingin

online

Affective: Does the customer feelgood when

flyingwith Air Asia?

Conative: Whatis the customers intentions?

Toget from A to B quickly, economically, with little

hassle


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Background LCC MalaysianLow CostCarrier

formed in 2001

Low cost = No frills

Targets both ends ofthe market

corporate people tolow income

citizens

Offer courier and cargo services

Air Asiais the brand with 18

subsidiaries

Adapting itsbusiness model?


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The Air Asia brand


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FactsIn 2001 Air Asia held 2

planes and had 6 routes

Today, there have over

80 planes doing nearly

3,700 flights every week

1st successful

low cost, ticket-

less airline inSouth East Asia

44% of flights out of KL are Air Asias

17 countries

130 routes

66 destinations

9 hubs

Main hub at KL

25 minute turn-

around time


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ObjectivesValuesValues MissionMission

To be the largestLCCin Asia, serving

3 billion people whoare currently

underserved with poor connectivity

and high fares

To be the best where employees are

treated as a family

Create aglobal brand Attainthe lowest cost

Maintainthe highest quality product,

embracingtechnology to reduce cost

and enhance service


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Strategy


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Tactics & Actions

SAFETYSAFETY LOW FARELOW FARE

SERVICESERVICE SIMPLICITYSIMPLICITY


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Productive andskilful employees,and simple,aggressive andfocused managementand structure

Courteous, butlimited passengerservice (no meals)

Short haul, point-to-point routes,often to secondaryairports

Highaircraft utilisation

Standardisedfleet of aircraft

Frequent,reliable schedules

CompetitiveAdvantage

Tactics & Actions


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ControlYield optimisation:

25-min turnaround

Strategically build,

organise and sustain

the advantage

Operational

integration:Maximisation

of ground

handling

operations

Response to environmental

uncertainties:

Focus on ancillary businesses

as natural hedge against fuel

price increase

Related

diversification:

Air courier

services

Network synergy:

Leverage on the

subsidiaries to

cover weaknesses


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Risks & Issues Challenges in keepingcosts down

FuelPricesFuelPrices InflationInflation Price WarPrice War

Risingfuel prices

increase costs

substantially, which if

too high will reduce

profitor even create a

loss-makingsituation

Affects exchange rate,

may throw company into

economic bubble and

may create complex cost

and profit calculation

More LCCs may create

unhealthy price war,

impactingthe

companys profits and

market share


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Risks & Issues Ability to retain customers

Limited ServiceLimited Service Uncompetitive Prices orUncompetitive Prices or

ServicesServices

Loss ofTrustLoss ofTrust

The difference between

LCCand regular airlines

are notonly in price, but

alsothe limited services

provided, which may put

off some customers

Need to balance

between prices and

services expensive

tickets or bad services

may lose customers but

cheap tickets may mean

reduce services which

some customers may

notlike

Air Asia has had

reliability issues inthe

past. For example, the

airline cancelled

Chengdu to Kuala

Lumpur flight without

satisfactory explanation

and failed to

compensate properly,

resultingin customers

losingtheir confidence


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Political OutlookFor Against

ASEAN Open-sky Agreementtoliberalise the

regionalairspace by 2020 means easier

access to markets

ASEAN establishinganintegrated economic

market by 2015 means less proceduralor tariff

hindrances thus propellingmore travels

ASEAN governments policy of encouraging

political stability would attractgreater

investments

More uniform labour laws across the region

may make it easier to move resources around

Indonesia declared as not ready to freely

compete by imposinglanding-rights limittoonly

5 ofits large airports

China sets strict fly-zone corridors citing

national security reasons

More awareness and regulations on workers

protections and rights may increase

operational costs

Pressure for tighter environmentallaws such

as Carbon Footprint could lead to higher

operational costs

Score: +4 Score: -4

Political outlook: 0


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Economic OutlookFor Against

IMF predicted strongeconomic growth inthe

next 2-3 years for ASEAN due to steady

demands from North Americanand European

countries as wellas stronggrowth intourism

related incomes

Growth from Indiaand Chinathat flank the

region will create trickle-down effect into ASEAN

countries

Leisure travels would increase as disposable

income increases and air travel becomes more

accessible

The regionoffers some ofthe lowestlabour cost

anywhere

As economies strengthen, labour cost will

become more significant inthe long-term

Score: +4 Score: -1

Economic outlook: +3


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Social OutlookFor Against

As prices fell, new kinds of behaviourare

established (McKinsey Quarterly, June 2010)

More educated generations have different

attitudes towards traveland leisure activities

Education, jobs and careers are less restricted

by national boundaries

Youngpopulation inthe regiongives good

prospect for long-term availability of workforce

and customers

Skills shortage in highly competitive

environment means high investmentin HR

trainingand development

As educationand income levels rise, so will

environmental consciousness that sees air

travelas less green

Score: +4 Score: -2

Social Outlook: +2


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Technological OutlookFor Against

The region has one ofthe highest Internet

penetrationand mobile network growth inthe

world, essentialtothe success ofthe business

model

More use ofautomation reduces operational

costs (e.g. self check-invia mobile, web portal

and airport kiosks)

Commitmentto use modernaeroplanes with

better engines would help to reduce fuel

consumption, lower operational costs and

moderate the greenoppositions

As technology become more accessible, so

will barriers to entry, hence erodingcompetitive

advantage

Alternative modes oftransportation, such as

motorway networks and high-speed/bullet

trains, are invarious stages of beingbuilt,

planned or studied for the region

Score: +3 Score: -2

Technological Outlook: +1


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Conclusion The politicaloutlook is neutral but, with better education

and economy, the socio-politicallandscape is changing

to be more openand democratic

Other outlooks are positive, but particularly strongontheeconomy and socialaspects which have provento besome ofthe strongest drivers for change inthe region

Informationgathered implied that most passengers do

not choose Air Asia because of Affective reasons butmainly Cognitive and to some extentConative

Analysis made led tothe conclusionthat Air Asia has theaptitude and attitude to sustainits business inthe long-

term

airasia an evaluation

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