1.

What are the major elements (mission /vision, objectives and strategies) of Air
Asias strategy?
Vision: 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.
Mission:
To be the best company to work for whereby employees are treated as part of a big family
Create a globally recognized ASEAN brand
To attain the lowest cost so that everyone can fly with Air Asia
Maintain the highest quality product, embracing technology to reduce cost and enhance
service levels
Objectives:
Provide full fledged training and development to Air Asia pilots, aircraft engineers, cabin
crew and guest services staff.
Develop the Academy as an aviation training ground towards fulfilling Air Asia's
aspiration in becoming a regional aviation training hub.
Serves as a platform to keep Air Asians on track with the latest industry developments
and to incorporate best practices into their operations.
Air Asia strategies:
Safety First: Partnering with the worlds most renowned maintenance providers and
complying with the world airline operations.
High Aircraft Utilization: Implementing the regions fastest turnaround time at only 25
minutes, assuring lower costs and higher productivity.
Low Fare, No Frills: Providing guests with the choice of customizing services without
compromising on quality and services.
Lean Distribution System: Offering a wide and innovative range of distribution channels
to make booking and traveling easier.
Point to Point network: Applying the point to point network keeps operations simple and
costs low.
Management/ culture:
The corporate culture of the company is flexible, open, strong and team-oriented. Because
employees are aware of the companys core strategy, they actively focus on maintaining low costs,
and this leads to high productivity. Employees are rewarded with bonuses based on individual
performance. In all, the culture shows enthusiasm, commitment, honesty and transparency

amongst staff and with third parties. The management also fosters a non-discriminatory,
meritocratic environment that is dedicated to constant high quality.
2. Did these strategies make sense?
Air Asia is need to aware and consider with the strategic management. The reason of the airline
industry is a unique and complex industry, not just how to reduce cost and make the operational
activities running effectively. But, AirAsia needs to come out with the strategy that can make
competitive position that the company performs different activities from rivals or performing
similar activities in different ways to achieve their business successfully, and the last one is
because the effect of globalization and E-commerce becoming an effective tool in a company
nowadays.
3. Conduct a SWOT analysis of Air Asia?
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 that
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. And
also, 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
capitalized 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 makes 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) has successfully elevated the brand to become a regional brand beyond just
Malaysia. The links with Manchester 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

Air Asia is the low cost leader in Asia.

With the help of Air Asia Academy, Air Asia 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
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.
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 complaint 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.

Fair availability

The availability of AirAsia is not good as traditional airline as it only provide unique aircraft.
However, it cannot be the cost leader if it offers customized features or comprehensive support
which will result in increasing operational cost. However, focus on a specific customer may avoid
straddling.
Opportunities
There are 2 major events that are taking place now or going to take place in this case study
period. 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 travelers.
Second, is 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 they
exist 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.
Threats
Certain rates like airport departure, security charges and landing charges are beyond the
control of airline operators
This is a threat to all airlines especially low cost airlines that 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

4. How does the competitive environment of Air Aisa look like? Use Porters fiveforces framework to analysis it competitive environment?
Threat of new Entrants
Threat of new entry is moderate, because it requires high capital to support and government
barrier is high such as the air service agreement can build barriers to those new entrants.
The degree of barriers to entry depends on the strength of:-

Customers have a little bit of brand loyalty.

If customers of AirAsia do not have brand loyalty, then the threat of new entrants will be very
high. But the higher numbers of competitors in the industry also will decrease AirAsias customer
loyalty. Due to most of the travelers prefer low cost. New competitors which want to come in the
industry need to spend a little to compete with AirAsia.

Higher Capital Requirement

The airline industry needs large volume of start-up capital. The cost of setting up of offices,
buying or leasing air craft, hiring pilots and others staffs like air stewardess and etc incur a high
start-up cost. So that, the threat if AirAsia is low.

Offered different product

AirAsia offer different product to compare with other competitors in Asia, for example, Bangkok
Airways, Tiger Airways, and Air Philippines.

Government Legislation

Air Asia very difficult gets a new route from government because Malaysian Airlines System
(MAS) has been protected by Malaysia government on the route to Sydney and Seoul Incheon.
Therefore, it will affect the time line set by AirAsia and the most important is also influence their
profit. Thus, this is the limited of the new entrance duo to government policy.
Bargaining Power of suppliers
Every industry has someone to play the role as suppliers. Power of the suppliers is important as it
will affect the industry. In airline industry, the power of suppliers is quite high since there are

only two major suppliers which are Airbus and Boeing hence there are not many choices to airline
industry. Nevertheless, the global economic crisis has limited the new entrant and also reducing
the upgrade of planes in the immediate future. However, both suppliers provide almost same
standard aircrafts and hence the switching to Air Asia is low
External Environment Analysis
Political
Flying outside Malaysia is difficult. Bilateral agreement is one of the obstacles in the way of truly
pan-Asia budget carriers. Landing charges at so-called "gateway airports" and navigation charges
are often prohibitively expensive, and in key destinations like Bangkok, Beijing, Hong Kong and
Singapore there are no cheaper, secondary airports. The budget airline industry in south-east Asia
has been underdeveloped because the aviation market is tightly regulated by bilateral air rights
agreements.
Threat of terrorism, people is afraid to fly after the September 11 terrorist attacks incident.
5. What are the current challenges/ issues facing Air Asia?
The issues in AirAsia Company are more focused in the competition of the cost among an airplane
industry. AirAsia as an industry company which is more focusing in the low cost carrier airplane
industry need to consider making the lowest possible cost to compete with the other competitors
in their airplane industry. To achieve the lowest possible cost, AirAsia Company has some strategy
to achieve it. The lowest possible fare that AirAsia was implementing is the best strategy that they
are used to compete with their rivals in the airplane industries. AirAsia believes with the lowest
fare that they are offering to the customer, they can attract customer more than their rival in the
airplane industries.
6. How AirAsia can solve the current issues to be a low cost carrier leader in
airplane industry?
First is to identify and analyze the SWOT analysis, and than to solve the current issues with some
strategies such as Maximized IT and implementing E-commerce in AirAsia business, Operation
effectiveness and outstanding efficiency, and the last one is implemented outsourcing in the
AirAsia business.
7. Explain the strategy Air Asia follow to solve the issue?

The strategy that AirAsia was implementing to make they are being a successful in low cost carrier
and can compete with other competitors in this field of business are:

Maximized IT and implementing E-commerce in AirAsia business

Nowadays, E-commerce has become a vital strategic management as it is minimizing the expense
and cumbersomeness, improved products, and higher profitability.
AirAsia is one of the airplane companies, which is implementing E-commerce and maximized
their information technology usage to make the efficiency and effectively in their company and
make possible low cost carrier in their business.
Moreover, to maximize their IT, AirAsia implemented current IT such as yield management
system (YMS), computer reservation system (CRS), and enterprise resource planning (ERP)
system.

Yield management system (YMS) as revenue management system it understands,

anticipates, and reacts to the behavior of customer to maximize revenues for the
organization. In this system, AirAsia used it to takes into account the operating costs and
aids AirAsia to optimizes price and allocate capacity to maximize expected revenues.

Customer reservation system (CRS) is an integrated web-based reservation and inventory

system. It includes Internet; call center, airport departure control and more. It is a direct
sales engine that effectively eliminates the middleman (travel agents) and the sales
commissions that need to be paid to them. By using this system effectively, efficiency,
customer satisfaction, fast and secure in buying a ticket already met. It means the lowest
cost can possibly achieve.

Enterprise resource planning (ERP) is the system that integrated comprehensive

software to make the IT system is more effectively and efficiently. By implementing this
package AirAsia is looking to successfully maintain process integrity, reduce financial
month-end closing processing times, and speed up reporting and data retrieval processes.
Operation effectiveness and outstanding efficiency

AirAsia move from the traditional business into modern business by implementing Ecommerce and maximize the information technology (IT) in their business.

The implementation of E-commerce can reduce the cost of travel agents, and less of ticketing
paper cost. AirAsia also choose the route by adjusting prices for routes/destinations that have
a higher demand when compared to others. AirAsia also trying to reduce by using better
maintenance management.

Implemented outsourcing in their business

By implemented outsourcing in their business strategy will provide:

-

Cost benefits to AirAsia because it can be eliminated in more resource consumption

(time financial).
By implemented outsourcing in the IT field, AirAsia also can reduce cost in IT system
activities which is can make possible more cost in their business.
AirAsia can easily to control all the system that is outsourced to another vendor or
company. The control in this strategy also gives benefits because AirAsia function only to
be a controlled a system that is AirAsia used.
AirAsia also can reduce risk, and it can make AirAsia not spend their financial to cover
the risk factor in this strategy.
It can give competitive advantage in AirAsia because the strategy can be greater rather
than created by AirAsia itself.

Some of outsourced example that AirAsia did are in AirAsia computer reservation system
(CRS) by Navitaire Open Skies Technology Company, and than implementing enterprise
resource planning (ERP) by Microsoft Corporation, and also implementing AirAsia X. By
implemented outsourcing better than in house operation, because it can give lowest cost,
reduce risk, more effectively and efficiently, and also can easily control by AirAsia and than
more fast in AirAsia Company.
8. How does Air Asia attract their customers?
With believes to make a low possible fare for to the customer, AirAsia was becoming an Airline
company that is chosen by so many customers. The best philosophy of AirAsia now everyone can
fly means to giving an opportunity to all the people to flight with the lowest possible fare and
making them can flight even they only have the less money. More and more people around the
region choosing AirAsia as their preferred choice of transport. As Air Asia continuously strives to

promote air travel, AirAsia also seek to create excitement amongst their guests with the range of
innovative and personalized service.
9. What are the Success factors in AirAsia?
Absolute Cost Advantage

Low cost per average seat kilometer

AirAsia focused on ensuring a competitive cost structure as its main business strategy. It has been
able to achieve a cost per average seat kilometer (ASK) of 2.5 cents, half that of Malaysia Airlines
and Ryanair and a third that of EasyJet. AirAsia can lease the B737-300s aircraft at a very
competitive market rates due to the harsh global market conditions for the second-hand aircrafts
because of the September 11th event in 2001. On the other hand, the operating cost of the company
is also dropped drastically.

Low distribution cost

AirAsia focus on Internet bookings and ticketless travel allowed it to lower the distribution cost.

Attractive ticket price

With the average fare being 40-60 % lower than its full-service competitor, AirAsia has been able
to achieve strong market stimulation in the domestic Malaysian air market. For instance, the fare
for the trip from Kuala Lumpur to Penang on AirAsia starts from 39 ringgit. Comparing to trip by
bus charge 40 ringgit and 80 ringgit by car. The effect of attractive low fare is more travelers
switching from bus to air, similar case as Ryanair in Europe.

Good Management Team

AirAsia value proposition is more sophisticated than Ryanair placing equal emphasis on brand
reputation and customer service/people management, by a senior advisor to AisAsias top
management team. AirAsia pursue a Ryanair operational strategy, Southwest people strategy and
an Easyjet branding strategy.
10. What Air Asia does to sustain its competitive advantage in the market?/
Comment on Air Aisa capabilities core competence and competitive advantage, if
any.

In order to sustain its competitive advantage, AirAsia needs to leverage its competency in creating
cost advantages across multiple value chains. Operation effectiveness and outstanding efficiency
are the two main characteristics of low cost business including in AirAsia. The demand for lowest
cost carrier is will be growing rapidly; it can be the great opportunity for AirAsia Company to run
their business.
11. Reasons why AirAsia more stressed to be low cost carrier in airline industry?
1.

AirAsia believes to compete in the airline industry, it must be cost-efficient and

profitable, and it must create value. Costs that do not add value must be contained,
reduced and even eliminated.
2. Demand for low cost carrier (LCC) industry will keep growing rapidly.
3. And than the best philosophy of AirAsia now everyone can fly means to giving an
opportunity to all the people to flight with the lowest possible fare.
12. Should AirAsia expand its long haul business and to what extent should AirAsia
and AirAsiaX be integrated operationally?
AirAsia has had success with its short-haul operations in South-East Asia based on the LCC
business model. Some of its greatest achievements have been its excellent cost efficiency, its
growth rate, and customer-service awards. AirAsia was able to achieve such cost efficiency due to
many factors inherent to a short-haul operation. For example, having no meals on flights (with
the option of purchasing food), and only one type of aircraft (decreased maintenance costs)
decreases costs. It is debatable whether expanding its operations to the long-haul is profitable or
whether it will result in a loss of focus and a decreased margin.
AirAsia should stick to its vision to run long-hauls because the company has the capacity to offer
these flights at lower costs than competitors. An amalgamation of the AirAsia and AirAsia X
brands will reduce brand confusion. However, it is important to expand strategically in order to
keep the integrity of the LCC strategy. I suggest that AirAsia limits its long-hauls to countries with
favourable weather conditions and similar socio-economic conditions.
Advantages:

New markets and growth opportunities

Expansion of trunk routes

Increases market share

Disadvantages:

Moves away from successful LCC strategy

Difficulties with external factors
Loss of competitive advantage

13. Compaer between the Air Asia and Aire Aisa X ?/ What are the principle
differences in Aire Asia and Air Asia Xs operations?
Air Asia
Low cost haul, no frills

Air Asia X
Low cost long haul, no frills

Flying range

Within 4 hours flying times

from departing city

More than 4 hours flying time

form departing city

Aircraft

Airbus A 320 with 180 seats

Airbus A330 with more than

330 seats

Seat Type

Single seat

Airbus A330 with more than

330 seats

Seat Type

Single seat

Economy seat and XL seat

Seat Option

Free seating with Xpress

Boarding option

Assigned seat with advance

seat request option

In-flight dining

Range of light meals and

snacks available for purchase
onboard

Pre-ordered full meals

available including Asian,
Western, vegetarian and kids
meal; light snacks also
available for purchase onboard

Concept

The Outlook for Long-haul

There can be little doubt that AirAsia has been remarkably
successful in building a budget airline in South-East Asia. Its cost
efficiency, growth rate, brand awareness and awards for customer
service, airline management and entrepreneurship all pointed to
outstanding achievement, not simply in replicating the LCC
business model pioneered by Southwest Airlines but adapting that
model and augmenting it with innovation, dynamism and
marketing flair that derived from Tony Fernandes personality and
leadership style.

However, its AirAsia X venture presented a whole set of new

challenges. AirAsia had successfully transferred several of its
competitive advantages from AirAsia to AirAsia X. The low costs
associated with fuel-efficient new planes, secondary airports and
human resources practices had allowed AirAsia X to become the
low cost operator on most of its routes. The AirAsia brand and
reputation provided AirAsia X with credibility and reputation on
each new route it inaugurated. By sharing Web-based and
telephone flight booking systems along with administrative and
operational services between the two airlines, AirAsia X was able to
secure cost efficiencies that would not be possible for an
independent start-up.
Nevertheless, doubts remained over AirAsia Xs ability to
compete against established international airlines. Unlike AirAsia,
which was attracting a whole new market for domestic and regional
air travel, AirAsia X would have to take business away from the
established international airlines whose business models offer
some key competitive advantages over that of long-haul LCCs. In
particular, its dense domestic and regional route networks offer
feeds for their intercontinental flights. These complementarities
are supported by through-ticketing, baggage transfer, and frequent
flyer schemes. Its sources of profit are very different from the

LCCs: most of their profit is earned from first class and business
class travelers, which allows it to subsidize its economy class fares.
These challenges pointed towards the advantage of closer
integration of AirAsia X with AirAsia. AirAsia Xs CEO, Azran
Osman-Rani, has argued for the operational and financial rationale
of merging AirAsia X into AirAsia: It would be difficult for AirAsia
in the future if it did not have trunk routes as (this) is where the
traffic volumes come from, so AirAsia needs growth from AirAsia X
and the merger allows it to tap growth opportunities in the longhaul markets. Responding to allegations that the real rationale for
the merger was to allow AirAsia to finance AirAsia Xs losses, Azran
said: Rubbish, we can clearly dispute that. For the first quarter
ended March 31, 2009 our net profit was RM 18 million and we are
net cash flow positive. We even had a little cash at RM 3million. We
are in a very good position and on a much firmer footing and now
is an interesting time to talk about a merger.
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