A Comprehensive And Complete Strategic Report On Airasia Marketing Essay

The report includes a detailed description of the company and highlights the achievements and strategic decisions that the corporate has undertaken since its establishment in 1993.

Furthermore the report will carry on a detailed Macro environment analysis to evaluate the external factors which may affect the company currently or in the future.

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After analyzing the external factors and their impacts on the company, the report moves on to analyzing the company’s micro environment. The comprehensive SWOT analysis also applied for understanding the company’s current situation.

The company occupies a strong position within Asian civil aviation, according to its successful low-cost business strategy model and financial resources.

After great consideration and analyzing different strategic options for the company, this report recommends two possible future strategies for AirAsia, which are aligned with its current cost leader strategy.

2.0 Introduction

AirAsia was established in 1993 in Malaysia. It was originally founded by a government conglomerate DRB-HICOM Holding Berhad. On the second of December 2001, the heavily- indebted airline was purchased by partners Dato’ Pahamin Rejab (former chairman of AirAsia), Dato’ Kamarudin Meranun, and Dato’ Aziz Bakar, Dato’ Sri Dr Tony Fernandes [1] .

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AirAsia began its operation as a low-cost carrier with two planes (both ageing Boeing B737 aircraft), serving five destinations (Kota Bahru, Kota Kinabalu, Kuching, Labuan, Langkawi and Penang) and a staff of 250.

In 2003 the company opened a second hub at Senai International airport near Singapore and launched its first international low-cost flight to Bangkok. Since then it started a Thai subsidiary and launched Low-cost flights to Singapore and Indonesia. In 2004 flights to Macau were launched and in following year, 2005 flights to China, Philippines, Vietnam and Cambodia been launched by the company.

AirAsia now is one of the award winning and largest low-cost airlines in the ASEAN which is expanding rapidly. It started with a simple goal that how to free air travel and make it so affordable that “now everyone can fly”. AirAsia Group (including its Thai and Indonesian affiliates) now operates a fleet of 90 aircraft and flies to more than 60 destinations from hubs in Malaysia, Thailand and Indonesia.

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AirAsia operates more than 3,500 flights a week, colouring the blue skies over Asia a bright red with their striking livery. The Group employs close to 7,500 staff and in its short history, has ferried more than 90 million passengers.

AirAsia has become recognised as The ASEAN airline. It has achieved this by providing effective route connectivity and launching direct, unique and high-frequency flights linking ASEAN towns and cities such as Kuala Lumpur- Vientiane, Kuala Lumpur-Bandung, Phuket-Ho Chi Minh City and Bali-Bangkok.

2.1 Vision statement

‘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 [2] ‘.

2.2 Mission statement

‘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 maintain the highest quality product, embarking new technology to reduce cost and enhance service levels’ [3] .

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2.3 Business Strategy

The foundation of the business has been set to deliver a no-frill, low cost, hassle-free and reliable flights and services to its passengers. The company believes in keeping costs consistently low which requires high efficiency and maintaining simplicity in every part of the business.

http://www.airasia.com/iwov-resources/my/common/images/AirAsia/aboutus/strategy.gif

source:aurasia.com

2.3.1 key strategic implementations

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High Aircraft Utilisation: quick turnaround of 25 minutes

Low Fare, No Frills

Streamlined Operations: making the process as simple as possible, single aircraft fleet

Lean Distribution System : ticketless service

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Point to Point Network

2.4 Highlights of the company

According to IATA in 2009 the traffic dropped 3.5% overall in aviation industry which included 5% decline in Europe, North America and the Asia Pacific region. However in 2009 despite of global economic downturn and fear of A(H1N1) influenza pandemic, AirAisa managed to produce an astounding 148% increase in its core operating Profit to RM447 million [4] . The company ferried around 22 million passengers. It also succeeded in driving its Ancillary services by introducing new lines of the service. It expects deliveries of new Airbus A320 aircraft and the phasing out of its Boeing B737 aircraft in 2010.

In addition despite tight credit lines it was able to secure financing at competitive pricing for all its aircraft deliveries for 2009 and 2010 [5] .

Five years financial highlights

(RM million, unless otherwise stated)

For the year ended June

For the 6 months ended 31 December

For the year

ended 31 December

 

2006

2007 Restated

2007 Restated

2008 Restated

Revenue

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1,094

2,855

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Operating expenses

997

1,341

875

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3,207

Operating profit/(loss)

74

262

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219

(352)

Associates contributions

(0.5)

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(3.9)

–

–

Profit/(loss) before tax

86

278

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Tax

116

220

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149

373

Net profit/(loss)

202

498

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426

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BALANCE SHEET

 

 

 

 

Deposits, cash and bank balances

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426

595

425

154

Total assets

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2,574

4,779

6,430

9,406

Net debt

627

1,959

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3,272

6,453

Shareholders’ equity

1,148

1,662

2,099

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1,606

CASH FLOW STATEMENTS

 

 

 

 

Cash flow from operating activities

282

595

256

(416)

Cash flow from investing activities

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(1,249)

(1,943)

(1,581)

(2,602)

Cash flow from financing activities

1,067

1,509

1,141

2,749

Net Cash Flow

How Do You Handle Long-Term Projects?

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100

161

(184)

(269)

CONSOLIDATED FINANCIAL PERFORMANCE (%)

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Return on total assets

7.8

10.4

6.6

–

Return on shareholders’ equity

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17.6

30.0

20.3

–

Return on capital employed

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4.2

7.2

4.1

–

Operating profit margin

6.9

16.3

20.0

–

Net profit margin

18.8

31.1

38.9

–

CONSOLIDATED OPERATING STATISTICS

 

 

 

 

Passengers carried

5,719,411

8,737,939

5,197,567

11,808,058

Capacity

7,378,075

11,140,764

6,621,276

15,660,228

Load factor (%)

78

78

78

75

RPK (million)

6,702

9,863

5,930

14,439

ASK (million)

8,646

12,391

7,919

19,217

Aircraft utilisation (hours per day)

12.0

12.0

11.9

11.8

 

Average fare (RM)

174

171

195

204

Revenue per ASK (sen)

12.4

12.9

13.8

13.9

Cost per ASK (sen)

11.5

10.8

11.0

11.4

Cost per ASK – excluding fuel (sen)

6.6

5.2

5.4

4.2

 

Revenue per ASK (USc)

3.35

3.65

4.06

4.22

Cost per ASK (USc)

3.12

3.06

3.25

3.49

Cost per ASK – excluding fuel (USc)

1.79

1.46

1.60

1.27

 

Number of stages

48,339

68,195

38,507

89,118

Average stage length (km)

1,163

1,088

1,183

1,207

Average fleet size (Malaysia)

20.5

27.1

31.6

36.6

Size of fleet at year end (Malaysia)

26

34

39

44

Size of fleet at year end (Group)

42

54

65

78

Number of employees at year end

2,224

2,924

3,474

3,799

Percentage sales via internet (%)

60

65

65

70

Source:airasia.com

2.4.2 Ancillary Services

The company offers different ancillary services, such as AirAsia cargo, insurance, holiday packages and credit cards. Since 2010 it offers a non flight ticket booking service called AirAsia RedTix which offers ticket booking for concerts, musicals, theatres, sports and other events. It also offers some loyalty programs. Furthermore it is focusing on building its own supply chain for ancillary services to provide better pricing for its passengers. The company mainly use its website as a distribution channel to offer its services.

The company achieved 34% growth in its ancillary income in 2008 and it expect around 50% growth in 2010.

2.5 Company description

Its subsidiaries are Crunchtime Culinary Services Sdn Bhd; AA International Ltd, which is an investment holding company; AirAsia Go Holiday Sdn Bhd, which is engaged in tour operating business; AirAsia (Mauritius) Limited, which is engaged in providing aircraft leasing facilities to Thai AirAsia Co. Ltd ; Indonesia AirAsia ; VietJet AirAsia ; AirAsia RedTix ; Airspace Communications Sdn Bhd; AirAsia (B) Sdn Bhd; AirAsia Corporate Services Limited; Aras Sejagat Sdn Bhd, which is a special purpose vehicle for financing arrangements required by the Company, and Asia Air Limited, which is engaged in the provision and promotion of AirAsia Berhad’s in-flight food to the European market [6] .

2.6 AirAsia organizational structure

The following chart shows the corporate structure and principal operating companies for AirAsia.

http://www.airasia.com/iwov-resources/my/common/images/AirAsia/aboutus/chart_organization.gif

Source: aiasia.com

2.7AirAsia route Network

One of the key strengths for its business is to continuously expand its route network and the frequency of flights, which provides the advantage of more connectivity for the passengers.

AirAsia operates from nine regional hubs. AirAsia flies to over 60 cities in 16 countries with 126 domestic and international routes [7] .

When the company attempts to launch its low cost long haul flights (AirAsiaX) most of the airlines assumed that such attempts will fail due to the more cost and complicity in long haul flights. However the company were quiet successful since it has launched its long haul flights name as AirAsiaX and has earned numerous industry awards, including Asia Pacific’s best New Airline in 2008 for its low cost long haul business model. Now there is huge market to expand its long haul flights to different countries. Currently AirAsiaX flies to China, India and Indonesia. The company uses the brand likening agreement which allows it to use the AirAsia brand and a shared services agreement which will benefit the company by sharing resources such as marketing team, distribution channel, cabin crew and pilots. The combined short-haul and long-haul networks feed each other.

In the six short years since its inception, Thai AirAsia has become Thailand’s largest low cost carrier with a market share of 67.81% by passengers and of 67.80% by aircraft movement. It has ferried over 19 million passengers to various destinations. In 2009 the company expanded its roués in Thailand from 19 to 26 destinations.

AirAsia now has two Airbus A320 aircraft based in Phuket, and achieved a load factor of 76% (79% domestic and 74% international) [8] .

AirAsia currently operates four hubs in Indonesia. As the main hub, Jakarta connects Indonesian passengers to many cities across ASEAN.

In 2009, it expanded its routes to Australia, Bangladesh, Sri Lanka and Taiwan. The company key focus in 2010 is India. Apart from Tiruchipillai, the company has added Kolkata, Kochi and Trivandrum to their network. Furthermore the company will focus into six new India routes in 2010 [9] .

2.8 Joint venture and strategic partnership highlights

The company business strategy is cantered on cost leadership, which is focused on price-sensitive customers on long-haul and short-haul flights. The company is mainly focused on joint venture partnership to expand its long-haul flights globally. As AirAsia chief executive Tony Fernandes said: ”With joint purchasing power it means that we can potentially work with airline manufacturers on the right configuration and design of an aircraft specifically for

AirAsia and that the best suits our operational needs for the future [10] “

Airaisa recently (09/04/2010) singed a strategic partnership agreement with VietJet Aviation Joint Stock Company. The company earlier had acquired a 30 percent equity stake in VietJet Air( Vietnam Airlines) which was the first step to lunch of a Vietnam-based, low-cost subsidiary. The trade name is VietJet AirAsia which will be operating both in domestic and international market. The governments of respective companies were fully supportive to the lunch of VietJet AirAsia which will be offering low fares to boost the travel and tourism in Vietnam and the rest of ASEAN region [11] .

http://www.asianewsnet.net/home/images/space.gif

AirAsia recently (06/01/2010) signed an airline alliance agreement with Australia’s Jetstar to pool recourses and expertise, procure new aircraft and revenue-sharing deals which could lead to cost savings of $200m and $300m annually. The next step for the partners would be to look at joint venture on routes and other commercial activities including joint procurement of hotel inventory for holiday packages. Plans include saving on costs including aircraft purchasing, maintenance and design, since both airlines operate with similar fleets [12] .

The Virgin Group became an investor in AirAsia X to the tune of a 16% stake. The majority stake with 48% is a Malaysian group that includes Fernandes, while AirAsia itself has 16%; Japanese aircraft lessor Orix Corporation has 10% and Bahrain’s Manara Consortium has 10%. AirAsia X began operations in late 2007 to Australia’s Gold Coast and now flies to three destinations in that country and two points in China, as well as the UK. It is seeking more A340-300s for longer-haul routes and has 23 A330-300s on order.

3.0External analysis

3.1 PESTEL analysis

POLITICAL

ECONOMIC

SOCIAL

Political uncertainly in Malaysia and Thailand

Increased tension between Malaysia and Indonesia

Severe Security Measures and Restrictions

Terrorism attacks mostly in Malaysia and Thailand

Increase in route charge by the Government

Government support for national carriers

Establishment of “Climate Protection Charge”, so the aviation industry has to compensate further taxes for carbon emission.

.

Currency fluctuation

GPD growth rate

The low-cost airline industry is in the growth rate of the life cycle

High price ceiling of petroleum products and fuels

Recession

Changing economy leads to change in lifestyle which includes frequent flying for vacations

Operating in ASEAN with different cultures and languages

Operations increased in grey market

Increasing Population

Rising in middle class

TECHNOLOGICAL

ENVIRONMENTAL

LEGAL

Fuel efficient engines and air frames

Teleconferencing for business

Technology expansion in terms of internet sales

Online check in

Use of technology for ancillary services

Wireless technology expansion

Use of new Airbus A330-300

Use of information and communication Technology(ICT)

Yield management system

Computer reservation system

Enterprise resource planning system

Strict checks on Green house and global warming issues due to pressure from eco-friendly friends.

Emission trading scheme

Energy consumption and noise pollution controls

Land for growing airports

No food and beverage service inside the flights so reduce leftover waste

Restrictions on mergers

Preferential airport rights for some carriers

ASEN Regulations

Health and safety

Other landing charges

Compensation

Political

Political uncertainly in Indonesia and Thailand is not in Airasia’s favour as it operates mainly in both countries. Since 2006, Thailand has been facing many political issues. In April 2009, Red shirt protestors, who were angry that Thaksin’s government was forced out of office, caused the cancellation of ASEAN summit and their latest antigovernment protestors went on March 2010 which caused the closure of some airports in Thailand. Moreover as a result of granted exploration rights in oil rich waters off the coast of Borneo have increased tension between Malaysia and Indonesia [13] .

As mentioned earlier, AirAisa offers long haul flights through strategic alliance with different airlines and willing to expand it further. The main political issue which the company may face in the future is the political relationships with the respective countries which may affect the operation of the company.

Economic

Fluctuating fuel prices: It has increased turbulence in aviation industry. According to the International Energy Agency the world aviation fuel demand will grow through 2010 led by Asia [14] . This current technique of global supply chain incurs large-scale costs to AirAsia who is unable to secure low-cost fuel. This is not good for this no-frills airline ait wants to stay in the market as a low-cost airline and to deliver customers what they want without added costs.

Malaysia GDP Growth Rate: The Gross Domestic Product in Malaysia is in company’s favour as “GPD contracted at an annual rate of 2.60 percent in the last quarter. Malaysia Gross Domestic Product is worth 192 billion dollars or 0.31% of the world economy, according to the World Bank. Malaysia is a rapidly developing economy in Asia. Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. The Government of Malaysia is continuing efforts to boost domestic demand to wean the economy off of its dependence on exports [15] .

Country

Interest Rate

Growth Rate

Inflation Rate

Jobless

Rate

Current Account

Exchange Rate

Malaysia

2.75%

-2.60%

1.70%

3.70%

30449

3.1820

Economic Forecast 2009 – 2010

Malaysia GDP Growth Rate

Sources: ASEAN Finance and Macro-economic Surveillance Unit Database; national statistical offices.

Social

AirAsia operates in a region with diverse culture, language, origin and religion. As a result the company operates in a market where consumer preferences and demographics are different and uncontrollable. Consumer behaviours are becoming increasingly difficult to predict as contemporary consumers tend to shift loyalties from one brand to another due to price differences or even lack of basic consumer consistency. The competition in low-cost airlines within Asia region is increasing, giving consumers vast choices to choose an airline. Thus in order to fully utilise a market, bring value, increase its consumer generated revenue and relate to the diverse consumer needs, AirAsia must completely understand the market.

Technological

AirAsia uses the latest information and technology system which allows it to reduce its operating costs. The company has adopted variety of information technologies such as Yield management system, Computer reservation system (CRS), Enterprise Resource Planning System (ERP). Furthermore the company operates with youngest fleet, Airbus 300-330 which again allows the company to operate more efficiently.

Environmental

In the Asia Pacific region, rapid economic and population growth creates serious social consequences from environmental problems of global warming and air pollution. The air travel is constantly increasing in that region as consumers are more driven with better technology; this has however increased issues related to global warming and green house effects. AirAsia is always expanding which spells disaster for the planet as more flights mean busier airports, bad sound quality for people living and working near the airports, more noise and air pollution. The company however says its airplanes are more efficient, quieter and thus have less environmental impact.

CO2 Emissions from Malaysia

Total Fossil Fuel CO2 Emissions from Malaysia graph

Source: http://cdiac.ornl.gov/trends/emis/mys.html

Legal

As mentioned earlier, AirAisa offers long haul flights through strategic alliance with different airlines and willing to expand it further through more partnerships all over the world. The main legal concern for the company is to sort out the legal issues and obtain clearance from the respective countries. As AirAsia Group CEO Fernandes has said that “the budget airline would fly to North America once it sorted out the legal issues and obtained clearance from the respective countries [16] “. Also the company has signed sponsorship deals with different companies, such as its sponsorship deals with National Football League’s (NFL) Oakland Raiders, which brings its own legal issues. Furthermore the company should pay more attention to health and safety regulations as well.

Overall it can be said that the external environment (PESTEL) for AirAsia is relatively stable, however the company’s biggest problem involves the legal obligations. It should try to keep the Legal environment as steady as possible. Furthermore the perception of consumer behaviour is another issue for the company and it should develop strategic tools to improve total consumer investment and sales performances.

4.0 The industry environment

AirAsia is engaged in the civil aviation industry where it provides low fare, long haul, short haul, point-to-point scheduled passenger airline services. In 2009 AirAisa managed to produce an astounding 148% increase in its core operating Profit to RM447 million [17] . The company ferried around 22 million passengers. It also succeeded in driving its Ancillary services by introducing new lines of the service.

4.1 Porter five forces

Power of the supplier

Supplier power is moderately high. Airbus is AirAsia’s main aircraft supplier, which means they have high supplier power. Also the switching cost from one supplier to another one is high as it involves lots of hidden costs, e.g. retraining pilots and mechanics. Airports also plays a crucial role as suppliers, the charges for main airports are very high as they are dominant player in supply chain, but the secondary airports have lesser bargaining power.

Power of the buyer

Buyer power is moderately high due to no switching cost from one airline to other one and it can be easily achieved. Also the easy access to the internet will allow customers to gain information on the prices which are charged by other airlines.

Rivalry

Rivalry power is in the company’s favour. The low-cost operation of the company allows it to offer the cheapest price in the market. However there is a threat that, the profitability of LLC will attract full service airline to lunch its LLC version which will increase the degree of rivalry in the industry.

Power of substitute

Fortunately, the geographic structure of Asia which is so vast and the large distance between countries has made the air travel the most efficient and convenient way to travel, which makes the power of substitution such as trains or ferries low to the company.

Power of new entrant

The threat of new entrants is moderately in AirAsia’s favour at present. The high capital requirements to enter the market and high exit barrier prevent many entrants to the market. In addition, AirAsia’s current leading role and favourable brand awareness make it a first choice amongst the current competition. However, potential new entrants from full service carriers could be threats in the future and long term.

Based on the industrial scanning, the demand for low-cost airlines in Asia is expanding. The profitability of LLC will attract full service airline to lunch its LLC version which will increase the degree of rivalry in the industry.

However AirAsia is the market leader in Malaysia, Thailand and Indonesia and in order to overcome the future rivalry it should focus to add value to its services in order to keep its position in the market.

4.2 value chain

The value chain logic is that every company occupies a position in the chain which is then passed downstream to the customer. Inbound Logistics is the start of the value chain which includes airport agreements, low cost suppliers and so on. AirAsia serves through secondary airports (significant savings) in various locations where it is able to get good contracts with the airport authorities. It even attempts to negotiate discounted fees by delivering an annual increase in passenger traffic where practical. So it has good relations with its contractors, Airbus being its main supplier of aircrafts provides on-time delivery, gives discounts so it is able to maintain common fleet which reduces costs and saves time. It also does outsourcing in the form of its online web check-in for its passengers.

Support activities

Firm infrastructure

Finance

Accounting

Quality assurance

HR management

Providing recruitment and staff training

Providing pilot training

Providing Yield analyst training

Providing In-flight training

Technology

Adopting information technology such as CRS, FSS, YMS

Baggage tracking system

In-flight system

Procurement

Technology acquisition

Primary activities

Inbound logistics

Aircraft purchasing or leasing

Aircraft fuel and parts purchasing

Landing slot acquisition

Flight and crew scheduling

Operations

Transporting passengers

Flight scheduling

Courier operation

On-board services

Outbound logistics

Providing transportation

Baggage claiming

Marketing and sales

Advertising and promotion: the most important activity to create more brand awareness.

Direct sales

Selected travel agent

Services

Call centre system: to tackle problems with customer enquiries

Lost and found services

AirAsia’s value network is a combination of players which comprises of its external network of its customers, stakeholders, complementors, open innovation networks, intermediaries and suppliers, and its internal network focusing on key activities, processes and relationships such as order fulfilment, innovation, customer support and so on. In order to add value it is necessary to position all parties in the value network business model so they can then deliver value to customer supply. Based on the information collected, value can be analyzed, and within this network a company’s value share position can be determined.

5.0 Internal analysis

5.1 Current strategic implementations

AirAsia has currently adopted information technologies strategically to integrate the operations and coordinate all the business and management functions. The followings are few system implementations that AirAsia has done in its marketing and sales activities as well as operation activity in the value chain.

Yield management system

Computer reservation system(CRS)

Enterprise Resource Planning System(ERP)

IT implementation and strategic alignment

5.2 Positioning

The company has p

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