Introduction to the Research of Air Asia
AirAsia is a reputed and leading Asian based airline company, which is headquartered in Malaysia by a government-owned corporation named DRB-Hicom. It is the largest airline company based on the concept of the Low-Cost Carrier (LCC) (Zhang et al., 2017). The company was established in 1993, and the official operation of the company was started on 18 November 1996. AirAsia offers transportation services to its passengers along with several other services, which includes courier services and cargo services. AirAsia was bought over by Tony Fernandes, the current chief executive officer of AirAsia from DRB-Hicom on 2nd December, 2001 (Soon, 2017). AirAsia managed to become one of the most popular and profitable airline companies in the world by implementing visionary leadership and innovative business approach. AirAsia was named as the best low-cost airline company in the world for 9 consecutive years at the Skytrax World Airline Awards.
The company makes use of innovative solutions in order to provide low-cost aviation. The route network of AirAsia is one of the largest in the world, which covers more than 20 countries all around the world. In 2002, AirAsia became the first airline company in the region that allowed passengers with the facility to pay for their bookings by using credit card. Furthermore, AirAsia adopted a fare structure, according to which, the people who book tickets earlier will get a cheaper fare (AirAsia, 2018). The first main hub of AirAsia was launched in Kuala Lumpur and Malaysia, and it was known as Low-Cost Carrier Terminal (LCCT). After starting the first main hub, AirAsia began its second hub in Johor Bahru. AirAsia has expanded its routes to different countries all around the world including Indonesia, China, Singapore and the Philippines. AirAsia launched AirAsia Berhad in 2001, which provides air transportation services, particularly in Malaysia. It offers scheduled flights and chartered flights for passengers, and also provides air cargo services (AirAsia, 2018). AirAsia Berhad also facilitates in operating businesses, related financial services and airline operation services.
The focus of AirAsia was on maintaining its low-cost policy and in context to that AirAsia X was launched in 2007. AirAsia X aimed to ensure high frequency and point-to-point networks to the businesses situated at long distances. AirAsia X was regarded as having the world’s best low-cost airline premium seat and the world’s best low-cost airline premium cabin for five consecutive years (AirAsia X, 2018). AirAsia X has amplified its profit-making routes to multiple countries such as Australia, France, Iran, South Korea and New Zealand. AirAsia is involved in many Corporate Social Responsibility (CSR) activities so that it can contribute towards the welfare of the community. UNICEF collaborated with AirAsia to raise $ 128 million for the people who were affected by the earthquake in Haiti. Tony Fernandes was recognised as for his outstanding work in AirAsia, and he was awarded by the International Herald Tribute Award and he also became the Malaysian CEO of the year in 2003 (Roy, 2014). AirAsia also acquired recognition for improving its supportive and constructive management, as it received rewarded by Center Asia Pacific Aviation (CAPA) as the best airline of the year.
The purpose of this report is to examine the market environment for AirAsia, which has established its business in Malaysia. Specific analysis has been conducted in order to analyse the market environment for AirAsia. Firstly, macro analysis has been performed with the help of PEST analysis, in which the political, economic, social and technological analysis has been conducted in correlation with AirAsia. Secondly, microanalysis has also been conducted for AirAsia with the help of PORTER’s five forces model. Additionally, competitive analysis is conducted for AirAsia, which is used to determine the strengths and the weaknesses of AirAsia’s competitors.
Furthermore, competitive analysis has also been conducted for AirAsia in this report along with marketing mix 7 Ps’ and SWOT analysis. Marketing mix 7 Ps’ and SWOT analysis can improve the brand value of AirAsia and identify the strengths and weaknesses of AirAsia along with determining the future opportunities. At last, Strategic priorities are identified and analysed to provide the values that help AirAsia in fulfilling its aim.
Company/Brand Background about Air Asia
AirAsia is one of the largest low fare airline companies in Asia, which has been expanding its routes to different countries since 2001. It was started in 1993, and the operations began in 1996. It has a fleet of over 70 aircrafts, which fly to over 120 destinations and operates over 400 flights daily from its hubs situated in Thailand, Malaysia and Indonesia (AirAsia, 2018). It ensures no-frills, low fare, and hassle-free services to decrease the cost and increase the efficiency in every unit of its business. The airline claims ‘No Admin Fee’, but all the services provided by AirAsia are not free, it has some fees for some services. The company makes use of Yield Management System (YMS), Customer Reservation System (CSR) and Enterprise Resource Planning (ERP) system, which makes it more effective in providing its services, reduces overall cost, and eliminates inefficiency in their business.
AirAsia is a Malaysian low cost and no-frills airline company, which has a unique slogan stated as “Now Everyone Can Fly.” AirAsia adopted the Computer Reservation System (CRS), which enabled it to introduce the first-ever ticket-less travel facility and also provides features such as advanced boarding passes and online ticket booking. AirAsia offers the cheapest flights to over 120 destinations across Asia and Australia (AirAsia, 2018). The company makes use of robust enterprise resource planning system, which allows it to successfully maintain process integrity, speeds up reporting, and data retrieval process. AirAsia has the vision to be one of the best and largest airlines that operates at a low cost. Furthermore, the company wants to serve the 3 billion people who are currently out of connectivity and cannot afford high fares. It works towards providing the highest quality products by making technological advancement to reduce cost and enhance service levels.
There are several companies associated with AirAsia including AirAsia X, Tun Hotel, Tune Monkey, AirAsia Berhad, Thai AirAsia Co. Ltd., AirAsia Japan Co., Ltd., PT Indonesia AirAsia (India) Limited. AirAsia’s mission is to be the best company, which ensures good relations between its management and employees, to make everyone fly with AirAsia by attaining the lowest cost, employ new technology to maintain highest quality products and enhance service levels. It follows vital certain strategies, which include safety first, high aircraft utilisation, streaming operations, lean distribution system and point-to-point network to amplify the working of its low-cost model (Zhang et al., 2017). The company has partnered with the world’s most famous maintenance providers to ensure its passengers’ safety. It allows its customers to choose the services they want without compromising on quality. Itoffers a broad and innovative variety of distribution channels to ease the travelling and booking process.
Macro Analysis for Air Asia
It has been observed to be critical to fly outside Malaysia which can be accounted as a forbidding factor for AirAsia considering its low-cost carrier facility. Furthermore, landing charges can be identified as the negative aspect resulting into underdevelopment of the airline industry as the aviation sector is strictly obligated to abide by precise air rights regulations and norms. In addition to this, various political factors can be highlighted by influencing the operations and management of AirAsia which have been mentioned below.
- Strict regulation and prioritisation by the UMNO (United Malays National Organisation) authorities to implement uniforms for the hostess.
- Government regulations which target various aspects such as particular routes, landing permissions and share possession cause a drastic impact on the operations of the organisation. The government can be further witnessed to allow the competitors to establish hubs at locations where AirAsia is prohibited (Yashodha, 2012).
- Human resource management undergoes significant political pressure as the recruitment process of AirAsia is focussed on the racial determination of the applicants rather than their merits.
Considering the competitive characteristic of Malaysian airline market, AirAsia has comparatively gained significant customer attention from the customers due to its affordable tickets and additional services. The company was observed to initiate low-cost tickets during the recession which assisted in establishing a prioritised reputation for the organisation.
- The increase in oil prices has critically impacted the operations of the organisation.
- The market has confronted critical competition in the form of new competitors who have also introduced low-cost flights.
- AirAsia can be accounted to lack financial assistance from organisations or sponsors which consequently minimise the investment opportunities for the organisation (Abdullah, 2010).
The operational region of AirAsia comprises different countries which introduce diversity in religion, language, culture and approaches. The diversity results in critical issues and problems for AirAsia to manage and operate all its functions accordingly. Furthermore,
- The diverse people are capable of affording the costs concerning their location and currency as the organisation operates widely among the diverse locations.
- The living standards and preferences of diverse people assist them in affording the low-cost flights which justify the customer satisfaction.
- The adaptable quality of the employees with changes and amendments ensures ease in amending and improvising the operations of the organisation (Lim et al., 2009).
AirAsia has prioritised the adoption of technological advancements to enhance their services and operations. The approach towards technology assists the organisation in minimising risks and problems and facilitating enhancement in customer services. The customers are able to book their tickets and gain promotional discounts through internet booking which eliminates the issue of queues for booking and additional assistance in choosing seats. Technology is a major component of organisational structure which is completely analysed on the basis of IT framework of Airasia in particular region. In addition to this, the IT management of AirAsia adopts precise and effective approaches to ensuring the convenience of its customers (AIRASIA.COM, 2017).
Micro Analysis for AirAsia
The microenvironmental analysis for any company or organisation is performed using Porter’s Five force model. This model is widely implemented by various organisations for the development of their strategies in the industry. Porter’s five force analysis for Air Asia is as under:
Bargaining power of Supplier– Analysis of the bargaining power of suppliers is crucial for any organisation, as with the help of this, an organisation manages the capital and makes decisions regarding financial management (Thomas and Housden, 2017). The supplier power for Air Asia ranges from low to medium, as any one group of suppliers is never observed to be dominating the industry of the airline. Although the two major suppliers of aeroplane structures are Airbus and Boeing, the suppliers of other facilities required in an aeroplane, for hospitality services including food and merchandise, are available in adequate amount in the market. Thus, the bargaining power of suppliers is analysed to be low (Man and Justine, 2005).
Bargaining power of Buyers– The buyer power for Air Asia is analysed to be high as with increasing options in the international market and decreasing prices of air tickets, people of every category of society can afford flying, and hence, the bargaining power of buyers is also high. Increasing globalisation has led to an increase in the lifestyle and financial condition of people. This increases the probability of people to avail of airline services frequently. In accordance with the increased demands, the options available for flying has also increased, and hence, the bargaining power for buyers is examined to be high for Air Asia.
The Threat of Substitution– The international airline market has sufficient low-priced airline options available for passengers to travel. This is because of increased globalisation among industries and travelling, and the tourism industry has been severely affected by it. This has raised the threat of substitution for Air Asia, as in any case of customer dissatisfaction or unavailability of service, it will be easy for the passengers to shift to some other airline company. Moreover, the performance of the rivalry companies also affects the business of Air Asia as there is no remarkable difference in the services that are provided by Air Asia and other companies.
The Threat of New Entrants– In the business of airlines, the loyalty of the customers is found to be weak. In the context of this fact, the loyalty of the customers of Air Asia has been decreased because of the increasing competitors of Air Asia in the airlines, such as Jet Star and Tiger Airways. However, there is also a barrier to the establishment of the new entrant in the airlines, which is the high start-up cost that is required for the airline services. In order to establish a new airlines company, high amount of capital along with risk-bearing capabilities and monetary funds to cope up with the challenges faced while sustaining in the airline industry are required. This reduces the chances of small or medium enterprises to enter this industry, and hence, the threat of new entrants for Air Asia is very low. Another reason for the threat of new entrants being low is government laws and regulations which pose restrictions on applying for permissions and license for operating an airline company.
Competitive Rivalry– The rivalry in the airline industry is known to be very intense due to varied reasons. The major reason is that the number and type of competitors remain the same for a long time, and this reduces the chance of an airline company at a lower level coming higher in the market.Different airline brands are known for various services, for instance, JetBlue is known for the quality of services and amenities and Air Asia is known for its low cost. The major competitors for Air Asia as per the market analysis are Jet Star Airways, Tiger Airways, JAL Express, and Air Arabia. Brands, such as Jet Star Airways and Tiger Airways, are sustaining in the competition as they also provide air transportation at cheap costs to people along with enhanced in-flight services and varied options for passengers.This directly affects the customer strength of Air Asia, and these companies pose a threat to the company. In the similar context, Air Arabia provides the facility of carrying extra baggage for passengers, and this makes Air Arabia a preferred choice over Air Asia. Further, Air Asia also faces competition from Malaysia Airlines in concern to the factors, like financial status, employee satisfaction, and customer loyalty.
Competitive Analysis of Air Asia
In the increasing demand of the airline services, there is a tough competition in the airline industry because of the varied numbers of the competitors that are providing the airline services. Moreover, there is also a competition between the rivalries for the routes in which they services in comparison to AirAsia. With the increasing number of services by different competitors, AirAsia has also expanded its facilities including the tour packages and hotel booking services that help the company to sustain in the market. AirAsia has been facing the competition with the varied existing low fare airlines that include Jet Star Airways, Tiger Airways, JAL Express and Air Arabia. The two closest competitors that are considered against AirAsia include Jet Star Airways and Malaysia Airlines (AirAsia, 2018).
Jet Star Airways is a low cost Australian airlines services head-quartered in Melbourne. Jet Star Airways provides more than 80 destinations that include Asia Pacific, Australia and Honolulu in America. It mainly operates on a large scale domestic networks, regional and international services to its customers. In contrast to this, AirAsia is offering more than 130 destinations that include the Middle East, Honolulu and the Asia Pacific. Moreover, it also provides numerous opportunities to travel and explore overseas, developing skills for new cultures. Jet Star Airways are considered as the safest low cost carriers among the 10 safest carriers in the airline industry of Australia. in the world Therefore, in the increasingly competitive market, AirAsia flies to more number of destinations in comparison to its competitors. However, AirAsia provides service packages to its customers at a very reasonable charge that is affordable to the customers in comparison to the competitors in the airline industries. In contrast to this, Jet Star Airways has more types of planes that are provided to its customers that includes A320, Bombardier Q300, A321 and Boeing 787 Dream Liner; whereas AirAsia offers only two types of planes to its customers, which are A330 and A320. Furthermore, Jet Star Airways has comparatively more number of payment options that are available for the convenience of the customers (Finder, 2018).
Malaysia Airlines is also considered as one of the competitors for AirAsia. Malaysia Airlines is a member of the oneworld airline alliance and it is also considered as the flag carrier of Malaysia which is head-quartered in Kuala Lumpur International Airport. It mainly constitutes of two major subsidiary airlines that includes MASwings and Firefly. As compared to the services of the AirAsia, Malaysia Airlines provides better services and gain efficient customer satisfaction. Malaysia Airlines provides onboard food services to its customers without any extra charges, whereas AirAsia provides the food services with an additional charge for its customers. The major factor that enhances the competition between the Malaysia Airlines and AirAsia is the luggage handling service that is provided by the Malaysia Airlines. Luggage handling is the major factor that is considered by the customer as well as the airlines industries and in context to this fact, Malaysia Airlines provides average 15 kg of luggage, and it does not include any additional charges in case there is few more luggage than the normal capacity provided by the airlines. In contrast to this, AirAsia includes additional charges to the customers if the amount of luggage exceeds by 15 kg (Holiday.My, 2018).
As per the past experiences and the feedback of the customers, Malaysia Airlines are found to react their destinations on time in comparison to AirAsia. The overall services that are provided by Malaysia Airlines and AirAsia have a tremendous difference. The check-in services in Malaysia Airlines are very convenient and comfortable as compared to AirAsia. As per the results of the survey, AirAsia has
gained a smart rating of 54 whereas Malaysia Airlines has gained the rating of 85 which, signifies the contrast of both the airlines in terms of acceptance of the services and feedback by the customers (Holiday.My, 2018).
Marketing Mix 7 Ps’ of Air Asia
The marketing mix’s 7 Ps model is a marketing strategy tool that is used in a business in order to gain the feedback from the market in relation to marketing objectives. The 7 Ps of the model are price, product, promotion, place, people, process, and physical environment (Fine, 2017). This marketing mix 7 Ps’ model is used to explain the marketing strategy of Air Asia.
Air Asia is known as one of the most low-cost airlines in the airline industry. It is an international air travel carrier that started its flights in Malaysia and expanded its base globally. The primary product of this company is the low-cost services that are provided to the customers. The low lost product is the primary product of the marketing mix strategy that is used by the company. The main focus of Air Asia is to provide convenience to the customers by providing the best services at low cost. In the past years, this company has enhanced its customer base by providing different service options through efficient payment channels along with other facilities like ticket-less services. The company develops the products and services that are convenient for its customers (Mele, Pels and Storbacka, 2015).
Air Asia is known for its low pricing, as well as a no frill policy. The company engages in anchor pricing strategy in its marketing mix. This pricing strategy helps the company to create a base for pricing all the operations that are carried by them. In anchor pricing strategy, the company prices its services along with the tickets at a low price. This strategy encourages the customers to choose Air Asia over any other airline company. The importance of pricing strategy is to know the strategies that are used in the market and to analyse the rivals that are present for Air Asia n the airline industry (Shaw, 2016).
There are a lot of operations that are conducted by the company as it is spread across 25 countries in more than 160 destinations. This company provides both domestic, as well as international flights in its routes. The distribution channels for the tickets include different sources such as internet ticket booking, exclusive reservation, and sales offices along with the agents that are authorised by the company. This company also operates through affiliated airlines, such as Thai Air Asia, Indonesia Air Asia, Philippines Air Asia. The Air Asia X mainly focuses on the long-haul routes (Yarimoglu, 2014).
Air Asia has established itself as a strong competitor in the airline industry. The company’s primary focus is to build customer value. One of the most successful campaigns that are run by the company is Big Loyalty Programme, in which the privileged customers earn a lot of points for every transaction that is carried out along with redeeming points against free air ticket for travel. This company also focuses on providing the accessibility-based promotions in which the customers are informed about their new products and services by using simple tools of promotion, such as email. The cheap flight tickets are given to the customers on the basis of the demand in the form of promotional schemes. Air Asia also engages itself in the promotion of the company through social media, print advertisements, and effective billboard advertising (Mele, Pels and Storbacka, 2015).
Air Asia is known for treating its employees and customers well. The company also engages in direct service development strategy by treating employees as an essential part of the organisation. There are many services that are provided to the employees of the organisation, such as training and motivational lectures. It is essential to choose the right set of employees for the organisation in order to maintain their position. Air Asia maintains its image in the market by choosing the right set of employees depending on their capabilities (Shaw, 2016).
Air Asia comprises of a capable and dedicated customer care team, which is committed to resolving the complaints by the customer as soon as possible. The company believes that customers are the key to their expansion along with their growth. Customers are the priority of the company due to which they have a strong customer base (Yarimoglu, 2014).
Physical evidence encompasses the ways in which the company can maintain their position in the industry. The branding of the logo of Air Asia is essential for them. The company maintains its logo by providing high-quality exterior services of the aircraft along with the interior seats and the uniforms. The brand colours of Air Asia are red and white, which represent determination along with passion, perfection, and positivity to serve customers’ high-quality services at low prices (Mele, Pels and Storbacka, 2015).
Market segmentation is the concept where the potential target customers for any organisation are divided into groups or segments based on various characteristics. The created segments consists of consumers who share similar interests, requirements and locations. The company AirAsia, demographic segmentation is preferred. The company provides its services to people of every age group of society, and to the people belonging to the medium and high ranged of income or financial status.
SWOT Analysis of Air Asia
- The company is observed to possess a significant reputation among the competitors, customers and the markets of the establishment. The organisational image is consistent and successful concerning the competition in the market.
- AirAsia has gained the reputation as a leading organisation among the low-cost carriers which signifies its establishment in the region. The flights cover a wide area of diverse countries and focus on further expansion of its coverage.
- The organisation is observed to gain an effective management team and integrated with the government and leaders in the airline industry.
- IT infrastructure of the organisation is utilised with a remarkable approach which enhances the operations and management of the organisation.
- The cost-cutting strategies of AirAsia are effective and beneficial in terms of financial growth and maintenance (Ahmad and Neal, 2006).
- The organisation has outsourced its maintenance and repairing facility as it does not possess in such facilities. Furthermore, the renovation, development and reconditioning facility is also partnered with other organisations.
- The company confronts various complaints and issues from the customers who are numerous to resolve instantly and result in customer dissatisfaction.
- The dynamic oil prices and service costs result into criticality for maintaining the low-cost flights as the organisation focuses on facilitating the most affordable costs to its customers (Daft, Murphy and Willmott, 2010).
- The approach towards providing the lowest costs results into a low opportunity for gaining significant profits as the company abides by its approach of maintaining lowest flight costs.
- The complaints received by the organisation are identified to be the consequences of low prices as the organisation may face critical problems in ensuring service and assistance with the low-cost flights.
- The introduction of ASEAN open skies policy facilitates opportunities for expansion and generalised airline regulations among the south-east countries of Asia which would benefit the organisation.
- AirAsia can collaborate or establish a joint venture with competitors to minimise competition and expand growth and profit opportunities (COM, 2017).
- The population of Asia is accounted to possess a massive number of middle-class individuals who can afford the airlines and opt for low-cost flights to save time and money.
- The organisation may gain significant benefits during tourism seasons considering the various tourism locations in Asia.
- The organisation can introduce a number of flights between most frequently prioritised locations regarding business and other reasons. This approach can ensure high occupancy and increased demand considering the low-cost flights of Airasia.
- The company cannot control a number of charges and costs which are regulated by government and airline authorities which may result in a significant loss in profits and consistency of the organisation.
- The profits of the organisation have been observed to be remarkable which introduce an opportunity to new competitors causing a severe threat to AirAsia for sustainable profits.
- Consistent complaints concerning services and facilities may result in a downfall for the organisational reputation and prioritisation.
- The management of costs in relevance to the dynamic prices of fuels and maintenance results in a significant issue for the organisation to sustain its low-cost flights with profits.
- The organisation can be witnessed to confront critical competition from the competitors who are facilitating similar costs and additional services and privileges which act as a drawback for the organisation (Man and Justine, 2005).
Strategic Priorities for the Coming Year
Air Asia in order to sustain in the ever-growing international market of the airline industry needs to enhance the existing strategies and develop new strategies for effective sustainability. Currently, the priority for the company is to maintain the fundamental principle of keeping travel fair as low as possible so that people with weak financial status can also afford to travel in flights. The major issue with maintaining low ticket price is the increasing competition in the airline industry.
As there are adequate options available for passengers to choose from, at the similar price as Air Asia, the company needs to focus on the amenities and hospitality services it provides to the customers. In this context, Air Asia will be focusing on the use of the strategy of service innovation as it is the best strategy to effectively implement the factor of providing new and enhanced services to passengers at low cost. The company constantly invests in improving the facilities it provides to the passengers and has introduced facilities, such as in-flight meals, complimentary WiFi, entertainment facilities such as separate televisions for passengers, and seat options including flatbeds (Abdullah, Chew and Hamid, 2017).
Another strategy that the company will implement in the future is networking. Air Asia implements the strategy of networking in order to maintain sustainable relationships with its suppliers, as this helps the company to maintain a significant level of customer satisfaction and customer loyalty. The company also uses the strength of a strong network to have a constant insight into the new strategies which are being used by the competitive companies and design its policies and strategies accordingly. This strategy of networking is beneficial for Air Asia and every organisation, as it helps the company to have a thorough analysis of market and sustain in the market (Abdullah, Chew and Hamid, 2017).
Air Asia can also implement a cost leadership business strategy. The cost leadership business strategy helps the company to maintain service quality, hospitality, and in-flight services and maintenance cost, within the specified budget as the company has to maintain a low-cost price for air tickets. In this strategy, the company uses activities such as inbound logistics, where all the aircrafts are of one type; hence, reducing the maintenance cost, scheduling cost, and cost of managing inventory. Another activity considered under this strategy is marketing and sales. Air Asia uses direct sales methods, such as sales through the internet, call centres, and walk-in airport sales. This results in significant reduction in the cost as the commission fee paid to travel agents are saved and can be used to maintain the facilities and services of the company (Pinto et al., 2015).
Another important strategy that Air Asia will consider enhancing is improving Information Technology (IT) services in the company, as well as in the aeroplanes. The company will increase the current IT facilities used in the aircrafts to enhance the facilities provided to the customers. Features, such as improved WIFI and other entertainment facilities, can be improved with the help of latest trends and technologies in the IT industry. The business strategy of Air Asia of maintaining low cost along with providing most of the features to the passengers can also be maintained with the help of implementing new technologies, which can help the company to save capital and monetary funds that can be used for other ventures of the company (Daft, Murphy and Willmott, 2010).