.

Table of Contents
1.0 Introduction of Company background .............................................................................................. 4 1.1 History .......................................................................................................................................... 4 1.2 Vision ............................................................................................................................................ 4 1.3 Mission.......................................................................................................................................... 5 1.4 Main Activities.............................................................................................................................. 5 1.5 Board Of Director ......................................................................................................................... 6 1.6 Financial........................................................................................................................................ 7 1.6.1 Financial Highlight ................................................................................................................ 9 1.6.2 Financial Analysis .................................................................................................................. 9 2.0 Current Strategies that employed by Air Asia ................................................................................ 11 2.1 Single Class, No Frills Service, Lowest Fare.............................................................................. 11 2.2 Low Cost Operations .................................................................................................................. 11 2.3 Single Aircraft Type ................................................................................................................... 12 2.4 Safety Concern ............................................................................................................................ 12 2.5 Minimizing Personnel Expenses ................................................................................................. 13 2.6 Utilizing Information System...................................................................................................... 13 2.7 Maximizing Media Coverage...................................................................................................... 13 3.0 Internal Analysis of Air Asia .......................................................................................................... 14 3.1 Strength....................................................................................................................................... 14 3.1.1 An expanding revenue with low cost operations ................................................................. 14 3.1.2 Fewer management level, effective, focused and strong management team ....................... 14 3.1.3 High Aircraft utilization and efficient operations ................................................................ 15 3.1.4 Single type fleet minimize maintenance fee and easy for pilot dispatch ............................. 16 3.1.5 Practice of E-distribution ..................................................................................................... 16 3.1.6 Commitment for the delivery of the highest level of safety performance............................ 16 3.1.7 Have proper Information System (IS) .................................................................................. 17 3.1.8 Strong branding .................................................................................................................... 18 3.2 Weaknesses ................................................................................................................................. 18 3.2.1 Delays and Cancellation....................................................................................................... 18 1

3.2.2 Copying outdated practices .................................................................................................. 19 3.2.3 Service resource is limited by lower costs ........................................................................... 19 3.2.4 Provide limited services ....................................................................................................... 19 3.2.5 Heavy reliance on contracts and outsourcing....................................................................... 20 3.2.6 Heavy reliance on Information Technology ........................................................................ 21 4.0 External Analysis of Air Asia ......................................................................................................... 21 4.1 Economic Forces ......................................................................................................................... 21 4.1.1Opportunities......................................................................................................................... 22 4.1.2 Threats.................................................................................................................................. 22 4.2 Social, Cultural, Demographic and Natural Environment Forces ............................................... 23 4.2.1Opportunities......................................................................................................................... 24 4.2.2 Threats.................................................................................................................................. 24 4.3 Political, Governmental and Legal Forces ................................................................................... 25 4.3.1 Opportunities........................................................................................................................ 26 4.3.2 Threats.................................................................................................................................. 26 4.4 Technological Forces .................................................................................................................. 27 4.4.1 Opportunities........................................................................................................................ 27 4.4.2 Threats.................................................................................................................................. 28 4.5 Competitive forces ...................................................................................................................... 29 4.5.1 Malaysia Current Competitions ........................................................................................... 29 4.5.2 Lower Cost Carrier (LCC) Current Competitions ............................................................... 30 4.5.3 Opportunities........................................................................................................................ 31 4.5.4 Threats.................................................................................................................................. 31 5.0 SWOT Analysis .............................................................................................................................. 32 6.0 Porter Five Force (Industry Analysis) ............................................................................................. 33 6.1 Buyers or Customers ................................................................................................................... 34 6.2 Substitute Product or Service ...................................................................................................... 34 6.3 Supplier ....................................................................................................................................... 35 6.4 New entrant ................................................................................................................................. 35 6.5 Industry Competitor .................................................................................................................... 36 7.0 Benchmark Air Asia among Airline industry ................................................................................. 37 7.1 Benchmark Air Asia among airlines industry in terms of safety ................................................ 37 7.2 Benchmark Air Asia among airlines industry in terms of quality............................................... 39 7.3 Benchmark Air Asia among Asian airlines in terms of on-time performance ............................ 41 2

7.4 Benchmark Air Asia among Airlines Industry in terms of capacity ........................................... 43 7.5 Benchmark Air Asia among airlines industry in terms of Top Performance ............................. 44 8.0 Analyze and Evaluate the Suitable Strategies for Air Asia............................................................. 45 8.1 TOWS Analysis .......................................................................................................................... 45 8.1.1 SO strategies ........................................................................................................................ 45 8.1.2 WO strategies ....................................................................................................................... 45 8.1.3 ST strategies ......................................................................................................................... 45 8.1.4 WT strategies ....................................................................................................................... 46 8.2 TOWS MATRIX ........................................................................................................................ 46 9.0 Rating of Recommended Strategies ................................................................................................ 48 9.1 Best Strategy Selected................................................................................................................. 49 9.1.1 Cooperative Strategy ............................................................................................................ 49 9.1.2 Increasing Frequency of Flight Strategy .............................................................................. 52 10.0 Conclusion .................................................................................................................................... 54 11.0 REFERENCE................................................................................................................................ 55

1.0 Introduction of Company background

Air Asia is a Malaysian low-cost airline, Air Asia (low-cost airline) headquartered in Kuala Lumpur and it main hub is the low-cost carrier terminal (LCCT) at Kuala Lumpur International Airport (KLIA) Sepang. Air Asia is one of the award winning and largest low fare airlines in the Asia expanding rapidly since 2001. With a fleet of 72 aircrafts, Air Asia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from hubs located in Malaysia, Thailand, and Indonesia. Today, Air Asia has flown over 55 million guests across the region and continues to create more extensive route network through its associate companies. Besides that, Asia's leading airline was established with the dream of making flying possible for everyone. Since 2001, Air Asia has swiftly broken travel norms around the globe and has risen to become the world's best. With a route network that spans through to over 20 countries, Air Asia continues to pave the way for low-cost aviation through their innovative solutions, efficient processes and a passionate approach to business. Together with their associate companies, Air Asia X, Thai Air Asia, Indonesia Air Asia, Philippines' Air Asia Inc and Air Asia Japan, Air Asia is set to take low-cost flying to an all new high with their belief, "Now Everyone Can Fly".

1.1 History
Air Asia was established in 1993 with commenced operations on 18 November 1996. it was originally founded by a government- owned conglomerate, DRB Hicom. On 2 December 2001, the heavily- indebted airline was purchased by former Time Warner executive Tony Fernandess company Tune Air Sdn. Bhd. for the token sum of one ringgit, with USD 11 million(MYR 40 million) of debts. Fernandes turned the company around, producing a profit in 2002 and launching new routes from its hub in Kuala Lumpur, undercutting former monopoly operator Malaysia Airline. Air Asia has been operated in low cost carrier terminal (LCCT) that known as budget terminal in Malaysia, since 23 March 2006. LCCT is said to be carried about 10 million passengers a year. On 2003, Air Asia opened a second hub at Senai International Airport in Johor Bahru and launched new route and its first international air transportation to Bangkok. Coming soon, Air Asia will shift their
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main hub from LCCT to new Kuala Lumpur International Airport 2 (KLIA 2) in order to fit the demand of increasing air transport passenger.
1.2 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.

1.3 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

1.4 Main Activities

The main activity on Air Asia is providing air transportation services. With a route network over 20 countries, Air Asia provides air transportation around the world. The principal activities of the subsidiaries are provision of in flight meals, tour operating business, providing aircraft leasing facilities, media owner with publishing division. Air Asia Berhad (AIRASIA), was incorporated as a private limited liability company and is both incorporated and domiciled in Malaysia. With a route network over 20 countries, Air Asia provides air transportation around the world. Furthermore, in Malaysia, Air Asia also provides air transportation with low-cost for everyone, and now, Air Asia serving the 3 billion people who are currently underserved with poor connectivity and high fares.

1.5 Board of Director

Dato' Abdel Aziz @ Abdul Aziz Bin Abu Bakar (Non-Independent Non-Executive Chairman) Tan Sri Dr. Anthony Francis Fernandes (Group Chief Executive Officer) Dato Kamarudin bin Meranun (Deputy Group Chief Executive Officer & President Of Group Finance) Conor Mc Carthy (NonIndependent NonExecutive Director) Dato Leong Sonny @ Leong Khee Seong (Independent NonExecutive Director) Dato Mohamed Khadar bin Merican (Independent Non-Executive Director)

Dato Fam Lee Ee (Independent NonExecutive Director)

Datuk Mohd Omar bin Mustapha Datuk (Independent Non-Executive Director)

Figure 1: Organization chart of Air Asia

1.6 Financial

Figure 2: Five year financial highlight of Air Asia

1.6.1 Financial Highlight

16000

14000

12000

10000 Revenue Profit Before Taxation Total Asset 6000 Shareholders' Equity

8000

4000

2000

0 2008 -2000 2009 2010 2011

Figure 3: Bar chart of revenue, profit before taxation, total asset and shareholders equity of Air Asia in four years.

1.6.2 Financial Analysis From the bar chart as shown in figure 3, indicate that on the year 2008, the total revenue collected for that particular annum was RM2, 855 million. The revenue on 2009 had hit an amount of RM3, 133 million with overall increase of RM 278 million. For the year 2010 the total revenue collected were much higher from the previous year with RM 3948 million which the revenue increased by RM 815 million. Lastly, for the year 2011, the total revenue collected by Air Asia was RM

4,495 million. The revenue for the past 4 year since 2008 till 2011 show significant increased which give a good prospect for the company growth. On the year 2008, the profit gained by the Air Asia group before the taxation period was RM 869 million. For the 2009 annum the profit gained was RM 622 million which is lower than the previous year. On the year 2010 the profit collected before the taxation period was RM 1099 which shown a significant increased from the previous three years. For the 2011 period the profit collected was RM 777 million which we can see a decreased in profit for about RM 322 million from the previous year. For the total assets collected for the past 4 years, the total assets collected for the year 2008 was RM 9406 million. It had a gradually increased in the year 2009 with RM 11398 million been collected that eventually contributed RM 1992 million which was higher from the previous year. For the 2010 period the total assets collected was RM 13240 million and for the year 2011 the total assets collected was RM 13906. Basically the total assets collected by the Air Asia group were significantly increased year by year. In terms of shareholders equity starting from 2008 to 2011 had shown a gradually increased year by year. For the year 2008, the shareholders equity recorded was RM1606 million. For the 2009, the amount of the shareholder equity was estimated to be RM 2621 million and for the year 2010, the equity for that period was RM 3641 million and for the year 2011 the shareholder equity amount was RM 4036 million.

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2.0 Current Strategies that employed by Air Asia

To be competitive and continuous leading in low cost carrier industry, Air Asia had done real great in their business strategies by fully optimizing and utilizing its limited resources in order to produce efficient operations and quality services to its customers, at the same time it also try to eliminate its competitors from the industry by gaining sustainable advantage in costs. The following are the current business strategies that used by Air Asia:

2.1 Single Class, No Frills Service, Lowest Fare

As with most low-cost airlines, Air Asia operated a single-class service without frills, at substantially lower prices. Passengers are allocated seats randomly by system, no meals and drinks be served, entertainment and amenities for example, pillows or blanks are not provided too. According to the Chief Executive Officer (CEO) of Air Asia, Tony Fernandes, he said that those conveniences are considered as extra services because not all passengers will need it. By cutting down the costs in providing those services, Air Asia is strongly capable to be always the one which could give the lowest fare to their customers.

2.2 Low Cost Operations

By aligning its vision which is to attain lowest cost so that everyone can fly with Air Asia, it has exerted many efforts in designing the most efficient operations, policies and procedures in order to optimize its cost. Over the years, Air Asia finally has proved its capability to operate at lowest cost due to several reasons. Firstly, Air Asia has no ticketing service where it could save about US$1 for each ticket. This is because one page of boarding pass which can printed from the website after the online transaction done can be used as a ticket to take the flight. Secondly, it provides no meals, drinks, and entertainment while passengers are needed to pay to have it. Thirdly, Air Asia is able to minimize their turnaround time due to the fast and simple boarding process, no air freight, no hub services and short cleaning
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times. Lastly, it eliminating the need for large and expensive booking tickets or reservation system and agent commissions, but it capitalizes on the information technology by providing the service of E-booking to its customers where all the transactions are done online. Besides, Air Asia also achieved low fixed costs through successful negotiations for low lease rates for its aircraft, low rates for its long-term maintenance contracts and low airport fees. This enabled Air Asia to reduce its overhead and investments in equipments substantially in absence of fringe services.

2.3 Single Aircraft Type

Operating a single aircraft types has enabled Air Asia to have substantial cost savings; maintenance was simplified (e.g. made cheaper), spare parts inventory were minimized, infrastructure and equipment needs were reduced, staffs & training needs were lowered (e.g. easy for pilot dispatch) and better purchase terms could be negotiated. For instance, its large purchase of A-320s would make Air Asia on of the relatively few low cost airlines operating this aircraft. With fuel accounting for almost 50% of the total operating costs for the airline, the A-320s would provide an important cost saving of lower fuel usage by about 12%; increasing the airlines profitability.

2.4 Safety Concern

All levels of management and employees of Air Asia are very concerned of safety of their passengers and strongly committed for delivery of the highest level of performance in order to build good reputation. To ensure the safety of its airplane and passengers, Air Asia is partnering with the worlds most renowned maintenance providers to comply with the world operations to ensure passengers safety. For example, the machine used by Air Asia airplanes are taken care by GE Engine Service since July 2002 and Volve Vero is responsible in providing plane structure and machine spare parts for Air Asia.

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2.5 Minimizing Personnel Expenses

Due to its flexible work rules and streamline administrative functions which allowed employees to perform multiple roles within a simple and flat organization structure, Air Asia is able to deploy fewer employees per aircraft. Therefore, it could save a lot of overhead costs and maximizing productivity as efficiency of the operations is improved. In addition, rather than an hourly pay scale for its pilots, Air Asia adopted a sector pay policy where pilots are provided incentives to enhance flight operations efficacies by keeping flight and operating times to a minimum and to cover as many flight sectors as possible within a day.

2.6 Utilizing Information System

One of the reasons why Air Asia been so successful in its business operations over the years is due to its great utilization of information system such as Yield Management System (YMS), Computer Reservation System (CRS), and Enterprise Resource Planning (ERP). All these systems have effectively smoothened Air Asias business operations and optimizing the costs where Air Asia could gain competitive advantage over its rivals.

2.7 Maximizing Media Coverage

Being a leader among the budget airlines in Southeast Asia, Air Asia received regular coverage from media outlets. Therefore, Air Asia managed to promote brand awareness without incurring high marketing expenses. For instances, previously Air Asia became one of the sponsors for the famous football team, Manchester United but now Air Asia is the sponsor for another football team, Queen Park Ranger (QPR). Besides, Air Asia also partnering with service providers such as hotels, car rentals, hospitals, and Air Asia Citibank in order to increase brand awareness for customers.

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3.0 Internal Analysis of Air Asia

3.1 Strength
3.1.1 An expanding revenue with low cost operations Over the years, Air Asia has been proved its capability to operate at low cost. Many award has been received by Air Asia such as the Best Asian Low -Cost Carrier 1 , World Best Low Cost Airline 2012 2 , ATN 2013 Low-Cost Airline of the Year Award 3, LIMA 2013 ASEAN Low Cost Airline of the Year 4, and many more. Air Asias strength as a low fare carrier success is due to several reasons. First, Air Asia operates on a non-ticket service that saved the airline about US$1 for each ticket. Second, it offers no meal or other services. Instead the airline sells meals and snacks to the passengers. Third, Air Asia works through supply chain management to get its supply-part inventory. It has a strategic alliance with GE Engine Services Malaysia Sdn Bhd and Airline Rotables Limited. Fourth, it cuts unnecessary cost through not offering any connection flights and trains pilots to save fuels. In addition, the airline does not offer onboard entertainments, which consume fuels and their maintenance is high. Fifth, the airline operates only one type of aircraft. Sixth, low aircraft lease rates, low long-term maintenance contracts rates, and low airport fees, enabled Air Asia to provide the lowest fares.

3.1.2 Fewer management level, effective, focused and strong management team Air Asia has fewer management level (Wong, 2009). It implemented flexible work rules and streamline administrative functions so that employees are allowed to perform multiple roles. In Air Asias case, a flatter hierarchy improved (sped-up) communication, resulting in an effective and focused workforce. Besides, Air Asia practices low costs by giving bonuses to the

1 2

http://www.airasia.com/my/en/press-releases/ttg-best-asian-low-cost-carrier-award.page http://www.worldairlineawards.com/awards_2012/lowcost2012.htm 3 http://www.airasia.com/ot/en/press-releases/airasia-wins-air-transport-low-cost-airline-of-the-yearaward.page 4 http://malaysiatravelnews.wordpress.com/2013/03/31/airasia-wins-lima-2013-award/

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employees as a motivation to them. ECOS (Employee share ownership scheme) is also made available to all employees to increase loyalty at work. In addition, Air Asia has a strong management team that links with the governments and other airline industry leaders (Wong, 2009). For instance, Shin Corp owned by the former Thailand prime minister, Thaksin Shinawatra holds fifty percent share in Thai Air Asia helping Air Asia in Thailand market to growth 5. Air Asia good working relations with Air Bus has managed to get them a reasonable discount for airplane purchase which are fuel efficient compared to other planes such as Boeing 737.

3.1.3 High Aircraft utilization and efficient operations Air Asias aircraft usage was more efficient as compared to other airlines. Air Asia provides no free meal on board which this save space for storage. Result from this, Air Asia can have more added seats per aircraft (Budhiarta, 2009). For instance, seating configurations to Air Asias Boeing 737-300 aircraft have 16 more seats than the standard configuration adopted by full-service competitors. Besides that, according to Wong (2009),the practice of point-topoint services that kept flight to no more than 4 hours contributed to Air Asia has more flights in one day. Furthermore, Air Asia are able to kept their turnaround time at minimal due to simple boarding processes, no air freight, no hub services, and short cleaning times (Wong, 2009). Thus, Air Asia enjoyed quick turnaround of 25 minutes, which is noted as the fastest as compared to that of a full-service airline which may take 45-120 minutes (Ze & Ng, 2008 as cited by Liao, n.d.). The high aircraft utilization contributes to lower costs as well as greater airline and personnel productivity and thereby results to cost advantage.

http://www.shincorp.com/interdb/iNewsE-form.asp?news_no=18&cateid=101&searchField=

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3.1.4 Single type fleet minimize maintenance fee and easy for pilot dispatch Operating a single aircraft type enabled Air Asia to have substantial cost savings: maintenance was simplified, spare parts inventory was minimized, infrastructure and equipment needs were reduced, staff and training needs were lowered, and better purchase terms could be negotiated.

3.1.5 Practice of E-distribution Air Asia focus on Internet bookings and ticketless travel allowed it to lower the distribution cost. Air Asia utilize e-ticketing can saved on cost of issuing ticket, costs to print, mail and process tickets (Budhiarta, 2009). In addition, Air Asia used mobile phones as a distribution channel and is the first airline to offer comprehensive booking system via wireless devices (Raymond, 2007 as cited by Liao, n.d.). For instance, Shin Corp which has synergy in information technology and telecommunication support Air Asia internet and mobile phone bookings. Also, Shin Corp allows its subscribers to book ticket through short messaging services (SMS). The utilization of Information Technology increasing accessibility to consumers while having lower distribution costs, gaining more market share in the process. In 2004, Air Asias website was voted the most popular site for online shopping in Malaysia: internet bookings increased from 5% of all bookings in 2002, to approximately 50% in 2004.

3.1.6 Commitment for the delivery of the highest level of safety performance Safety is a dimension of quality in operation management (Russell & Taylor, 2006). Safety is the air transport industrys number one priority. Air Asias approach is to simplify practices, promote a cost efficient environment, and produce high quality products and services with the underlying focus on safety first and safety always. So, all levels of management and employee of Air Asia are very commitment for the delivery of the highest level of safety performance to passengers. Air Asia has committed itself to a program of reducing risks and hazards normally associated with the industry through a Safety Management System. Air Asia is commitment to ensure the full
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integration of a safety culture, safety policy and safety objectives in a proactive approach to aviation safety. So, there is no disciplinary action will be taken against any employee for reporting a safety hazard or concern to this companys management. In addition, Air Asia is partnering with the worlds most renowned maintenance providers to comply with the world operations to ensure passengers safety. To guarantee the safety of the airplanes, the machines are taken care by GE Engine Service since July 2002 for 5 years. Air Asia has also partnered with Volvo Aero to provide plane structure and machine spare parts for all Air Asia planes.

3.1.7 Have Proper Information System (IS) Air Asia has proper Information system to run its operation smoothly such as Yield Management System (YMS), Computer Reservation System (CRS), Enterprise Resource Planning (ERP). Air Asia used Yield Management System (YMS) to anticipate and reacts to the behaviour of customer to maximize revenue for Air Asia. It aids Air Asia in operating costs to optimize prices and allocate capacity to maximize expected revenues. Besides, Air Asias Computer Reservation System (CRS) powered by Navitaires Open Skies enabled Air Asias growth. It is an integrated web-based reservation and inventory system. It includes internet, call center, airport departure control and more. Centralized customer data is maintained by Open Skies and this helps Air Asia to track booking and schedule flight activities with real-time, ondemand reporting feature. This CSR enabled Air Asia to introduce the first ticket less travel option and also provides features such as advanced boarding passes in addition to online booking that enabled the growth of Air Asia as these features attracted customers that did not have the time for purchasing tickets from counters and coming in 1 hour early for securing a seat on the aircraft. Also, Enterprise Resource Planning (ERP) powered by Microsoft Business Solutions (MBS) enabled Air Asia to successfully maintain process integrity, reduce financial month-end closing processing times, and speed up reporting and data retrieval processes.

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3.1.8 Strong Branding Air Asia has branded itself being very media friendly through advertising, promotions and sharing information about itself and the airline industry. For instances, Air Asia became sponsorship for Manchester United has helped promote their brand name. Besides, Air Asia partnering with service providers such as hotels, car rentals, hospitals and Air Asia CitiBank Card increase brand awareness for customers. In addition, with the strong brand name of Air Asia, it offers up shares of its company for sale to the public which known as Initial Public Offering (IPO) to raise capital for growth and expansion. The IPO has helped the Air Asia strengthen its system of accountability and transparency. Also, strengthen Air Asia balance sheet, further cuts its existing low costs at 2.5 US cents per ASK. The IPO also allows Air Asia to expand its fleet of 18 Boeing 737-300s.

3.2 Weaknesses
3.2.1 Delays and Cancellation Air Asia sometimes delays and cancelled its flights. Air Asia has the practice of combining flights if passenger loads are low without regards to disrupting their passengers schedules which this is Tony Fernandezs costing strategy in order to save Air Asias operating costs. The practice of Tony Fernandezs idea to delay all Air Asias flights with the motive to fill at least 90 percent of passengers in one flight before the aircraft is released for departure will cause passengers to shift to another airline due to the risk of delay and poor service. Those whose flights have been cancelled are entitled to get refund. However, they are asked to wait 30 to 60 days to process their refunds6.

https://malaysiaairlinesfamilies.wordpress.com/2012/07/14/great-news-for-malaysians-now-air-asia-to-giverefund-for-delay/

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3.2.2 Copying Outdated Practices Air Asia copies a lot practices that some of the practices are outdated from Western budget airlines like Virgin Airways. Air Asia carried out many very inflexible practices. For instance, it may seem clever to refuse to check in a passenger who arrives 1 minute later than the counter closing time so that he has to buy another ticket. Besides, other practices such as credit card charges, counter check-in charge and seat selection charge to passenger. In case like seat selection charge, it is very annoying as for those who do not pay to select seats are randomly distributed so families will be split up and passengers are not charged for any real goods or services but for the right to sit together which should be theirs in the first place. Apart from this, Air Asias RM1.95 a minute charge to talk to a service staffs practice has also make customers felt annoying as they have to pay by minute to complain like flight delays, claim of refund, lost luggage or being overcharged on their credit cards and others. Moreover, they are frequently made to wait on hold while the charge keeps ticking.

3.2.3 Service Resource is Limited by Lower Costs Air Asia which is a budgeted airline has limited the human resources to be hire. In order to reduce cost of employment and operate as a low cost carrier or budgeted airline, Air Asia could not hire many staffs. Fewer workforce cause staffs could not handle irregular situation that arises during their operations and could not cater various situational needs to customers.

3.2.4 Provide Limited Services Due to Air Asia operate as a low cost carrier, it has create a cost limitation to its operation. This can be seen in the latest development of Kuala Lumpur International Airport 2 (KLIA 2). Air Asia was sitting with the MAHB team to develop the KLIA 2, they actually requested for a single level terminal without fully automated baggage carousel system and aerobridge as these ground support systems will cost them much. However, fully automated baggage
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carousel system and aerobridge are necessary for passengers comfort, security and airport operations and ground handling efficiency. Especially if they are handling 80% of 68 pier contact points at any one time and making the 45 million passengers per annum operation a reality. Apart from this, Air Asia has eliminated from providing free basic services such as foods and drinks on board to its passengers. Passenger need to pay extra in order to get those services. Also, there will no in-flight entertainment due to low cost carrier concept. This will make the passengers feel bored during their flight especially for customers who take long haul flights of ten hours or more. In addition, based on the low cost strategy, there are extra charged by Air Asia for the special needs. For instances, Air Asia charged RM 12 for renting out a wheelchair, which a passenger could use to go from the ticketing counter to the departure hall. Air Asia charged RM 20 for a comfort kit that includes pillow, blanket and eyeshade. Other than that, there are no special rates for Senior Citizens.

3.2.5 Heavy Reliance on Contracts and Outsourcing Air Asia has engaged in many contracts and agreement were made to outsource different operation, including maintenance and repair service to others in order to minimize cost. For instance, according to news, Malaysia Airline (MAS) and Air Asia have inked two new memorandum of understandings (MoUs) for joint maintenance services and the establishment of a special purpose vehicle (SPV) to extract procurement synergies such as fuel oil, aircraft components and parts 7. Other than that, the heavy reliance on outsource operation will bring about impact on overall operation of Air Asia. For instance, failure to provide service in time by ground support service contractors may cause boarding time be delay.

http://www.thechoice.my/top-stories/40183-mustapa-says-mas-airasia-deal-reversal-a-win-win-analystsagree

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3.2.6 Heavy Reliance on Information Technology Air Asia reliance a lot on online sales and therefore there will be a risk of system disruption. Any flight delays or calling their customer line to confirm bookings would indicate that Air Asias system is not robust enough to handle booking efficiently. Thus, this would lower the customers satisfaction and may result in loss of customers ultimately.

4.0 External Analysis of Air Asia

According to Fred R. David, external forces can be divided into five broad categories which are economic forces; social, cultural, demographic and natural environment forces; political governmental and legal forces; technological forces and competitive forces. External forces affect the types of products developed, the nature of positioning and market segmentation strategies, the type of service offered and the choice of businesses to acquire or sell. By identifying and evaluating external opportunities and threats, enables organizations to develop a clear mission, to design strategies to achieve long term- objectives and to develop policies to achieve annual objectives.

4.1 Economic Forces

Economic factors have a direct impact on the potential attractiveness of various strategies. For example, as interest rates rise, then funds needed for capital expansion become more costly or unavailable. Therefore, as interest rates rise, discretionary income declines, and the demand for discretionary goods falls. As stock prices increase, the desirability of equity as a source of capital for market development increases. Also, as the market rises, consumer and business wealth expands. According to Prediscan Mariana and Roiban Roxana Nadina, the main economic forces that have shown and continue to show their influence are the

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domestic and international market, development pace of the economy, purchasing power of the population, financial potential and infrastructure8. Based on our analysis in identifying and evaluating external opportunities and threats in Air Asia, we would found that the accomplishments of economic forces in this company are:

4.1.1Opportunities 4.1.1.1 Economic Downturn There are an opportunity for Air Asia when the economic downturns. For example, when there are global financial crisis which are worldwide stock market plunge, aircraft leasing costs were reduced and indirectly may creating an environment with lesser competition and enabled Air Asia to lease their aircraft at a cheaper rate. Therefore, in this circumstance it may lead to cheaper ticket prices for customers. As a result, Air Asia can use this opportunities to expand its business during times of economic downturns which demand for affordable low fares would increase amongst budget-conscious travelers, especially from leisure and corporate travelers9.

4.1.2 Threats 4.1.2.1 High Fuel Prices As we know the market price of oil is not fixed because it may increase or decrease rapidly. Therefore, the problem raise here when fluctuating oil prices would have an impact on operation costs when fuel prices are too high. Yield and profitability would decrease for Air
8

Prediscan Mariana and Roiban Roxana Nadina (n.d.). External forces driving change in the Romanian small and medium sized enterprises. 9 http://centreforaviation.com/analysis/airasias-2013-outlook-marred-by-intensifying competition-andcontinued-losses-at-new-affiliates-99766

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Asia if fuel prices become too high 10 . For instance, Air Asia has decided to cancel their flights to Paris, London and Mumbai because of high fuel prices. This decision was made by the company because of high fuel prices, the newly introduced European emission tax, and the reduced flow of passengers, which was caused by the European debt crisis. This was also largely influenced by the increase in visa limitation and service costs in Indian airports. Consequently, Air Asia definitely does not afford to give low fares for their customers.

4.2 Social, Cultural, Demographic and Natural Environment Forces

Social and cultural forces at local, national, and often regional levels have profound influence on the way organizations conduct their work and on what they value in terms of outcomes and effects. By understanding the national, regional, local values toward learning and research provides insight into the type and nature of research that is valued. Active involvement by consumer and pressure groups has forced the need for social responsibility and protection of the companys reputation to be important for marketing and operation decisions11. Based on our analysis in identifying and evaluating external opportunities and threats in Air Asia, we would found that the accomplishments of social, cultural, demographic and natural environment forces in this company are:

10

Air Asia refuses to fly to Europe and India because of high fuel prices (2012, January). Retrieved April 29, 2013 from http://bnn-news.com/airasia-refuses-fly-europe-india-high-fuel-prices-46729
11

Yvette James-Gordon, Andy Young and Jay Bal (2003). External environmental forces affecting e-learning providers. Marketing Intelligence and Planning, 168- 172

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4.2.1Opportunities 4.2.1.1 Asia Trade, Tourism and Brand Awareness Increased Currently, trade and tourism within and into Asia are rising and welcome tourists to come and indirectly, the demand for air travel are increased. Therefore, amongst budget-conscious travelers, more people were willing to compromise on food and other services in exchange for lower prices. The attractiveness of budget airlines is primarily their low ticket prices, which can be as lower than those charged by full-service airlines for example Malaysia Airlines.

Air Asia grabs these opportunities for further increasing brand awareness and value for customers. In order to achieve that, they try to be competitive advantage by differentiate itself from competitors by adding customer services or operation as full service airline but with low fare. For instance, Air Asia has provision of in-flight food and drinks, and online sales of hotel, car, and holiday reservations, as well as travel insurance, and corporate travel services, with its own branded credit card12.

4.2.2 Threats 4.2.2.1 Change in Perception of Customers Growth of the middle class in Asia provides a huge potential market for Air Asia to grow. It is because as there are many Asian cities with a population exceeding one million residents each and a growing middle class, therefore, the low-cost airlines are expected to have greater potential in Asia. Therefore, more airlines or a newcomer will look to

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No

reason

to

say

no

to

shuttle

now

(2012,

December)

from

http://www.asiaone.com/print/News/Latest%2BNews/Singapore/Story/A1Story20121224-391336.html

24

get a place to expand their companies when the market becomes larger. For example, the budget airlines, it is estimated, will capture at least 25% of the Asian air travel market in the last 10 years. Therefore, Air Asia will face more competition at the same time. Apart from low-cost airline, Air Asia still has to compete with conventional airlines. Although additional passengers a low-cost airline will come from new demand that will be created by low-cost, growth may not be entirely 'stolen' from major flag carriers.

4.3 Political, Governmental and Legal Forces

Globalization saw a trend of increased privatization and deregulation of governments across the world, which resulted in the ongoing consolidation of the airline industry. As governments were crucial drivers of airline success in Asia, most airlines in East and Southeast Asian countries had full or substantial state ownership, management, and control, often subsidized and protected by the governments from competition. Therefore, profits were often sacrificed for the sake of national objectives and pursuit of non-business goals. According to Yvette James-Gordon, Andy Young and Jay Bal (2003), the political and legal processes in society affect the way they operates. If any changes in legal regulations and requirements give rise to many new opportunities and threats, and influence the way in which products and services are marketed13. Based on our analysis in identifying and evaluating external opportunities and threats in Air Asia, we would found that the accomplishments of political, governmental and legal forces in this company are:

13

Yvette James-Gordon, Andy Young and Jay Bal (2003). External environmental forces affecting e-learning providers. Marketing Intelligence and Planning, 168- 172

25

4.3.1 Opportunities 4.3.1.1 Malaysian Government Support In 2001, the Malaysian Government has supported the establishment of Air Asia to help increase the use of the Kuala Lumpur International Airport (KLIA). For Air Asia flights from Senai is intended to rival Singapore and Johor as well developed as a transportation hub. Besides fight from Singapore to Bangkok, Air Asia now provides an alternative route to travel to Bangkok, by using Senai Airport in Johor Bahru, in southern Malaysia. Seeking to cater to the different markets, fares for Johor Bahru to Bangkok are generally 20 % lower in comparison to Singapore to Bangkok.

4.3.2 Threats 4.3.2.1 Global Uncertainty and Subjected to Government Interference and Regulation Accidents, terrorist attacks, and disaster are the example of global uncertainty which definitely can affect customer confidence. Air Asia would face the threat of losing its profitability, or even bankruptcy when lack of customer confidence. By being as a low-cost carrier, Air Asia is subjected to aviation regulations, government policy and government restraints and dependent on the geography and infrastructure of Asia, and the travelling preferences of customers. As Air Asia is are subjected to government interference and regulation on airport deals and passenger compensation, Air Asia can only minimize its negative impacts by selecting routes (countries) that are favourable. For instance, Air Asia wanted to start flights from the southern state of Johor, near Singapore, it hoped to attract passengers by running a convenient bus service to the city-state. However, Singapore quickly rejects that idea. The Singapore government said it would not approve a bus link for Air Asia because it was not in her national interest,
26

reflecting fears that Singapores Changi airport would lose business to Johors new Senai airport. This makes Air Asia cannot abandon the use of Changi airport, and therefore suffer from a higher cost. Air Asia had asked the Singapore government to waive the fees, however, a request that was not only rejected but also criticized. This is because Air Asia flying to Singapore needs to suffer from flight congestion of Changi. Changi has drawbacks of flight congestion that could prevent the quick turnarounds essential to keeping down costs. Air Asia finds it stuck between big planes and circling to wait for a slot to open up, which means extra fuel costs.

4.4 Technological Forces

According to Prediscan Mariana and Roiban Roxana Nadina, technological forces is include the technical level of machinery, equipment and facilities that may be purchased by organizations, the number of patents, licenses etc14. Based on our analysis in identifying and evaluating external opportunities and threats in Air Asia, we would found that the accomplishments of technological forces in this company are:

4.4.1 Opportunities 4.4.1.1 Introduce First Operator in the World to Fly the Airbus A320 Equipped with New Fuel-Saving Wing-Tip Devices Technology is very important in the airline industry to ensure that they are able to maintain their capacity for growth. Air Asia has designed a new wing-tip devices reduce fuel burn and emissions by improving the aerodynamics of the aircraft. Air Asia became the first airline in the world to operate the Airbus A320 with sharklet wing tips would help
14

Prediscan Mariana and Roiban Roxana Nadina (n.d.). External forces driving change in the Romanian small and medium sized enterprises.

27

drive costs further down and enable airlines to optimize revenue and helping to maintain a low cost leadership status. The sharklet wing tip to be installed on previously ordered in the newly-built Airbus A320 for low cost flights. The sharklets will reduce fuel bills by about 4% per aircraft per year and can either increase the range by about 100 nautical miles (185km) or allow increased capacity up to 450kg. The savings from the reduced fuel consumption would, in turn, reduce the airline's cost structure by a certain amount. Therefore, this new technology brings out opportunity to Air Asia in providing the efficiencies and reliability required to keep the airline's costs as low as possible15.

4.4.2 Threats 4.4.2.1 Rapid Technological Change Planes will be a Burden to Compete in the Market

Air Asia is involving in the aircraft industry with high technology to build aircraft that adaptation to hybrid, electric and advanced engine technology. Therefore, Air Asia research and development should continue to strive for improve the quality of their aircraft. The design and technology of the new aircraft will be a threat for Air Asia when they need to keep on invest in new aircraft in a way to be competitive in the market and that will involve a lot of capital. Rapid technological change planes will be a burden to Air Asia to compete in the market.

15

AirAsia becomes first airline to use Airbus A320 with fuel-saving wing tips (2012, December) from http://biz.thestar.com.my/news/story.asp

28

4.5 Competitive forces

According to Bickerton et al. as cited in Yvette James-Gordon, Andy Young and Jay Bal (2003) said that competition is probably the most dynamic of all the environmental factors affecting the marketplace. A marketing strategy must take into consideration the competitive situation of the environment in their operation. Successful company must satisfy the needs of the customer better than its competitors do in order to win market share. By understanding competitors strengths and weaknesses, market share and positioning are essential. Careful monitoring and evaluation of the competition is crucial to make better decisions for the company 16(Kotler et al., as cited in Yvette James-Gordon, Andy Young and Jay Bal; 2003). Based on our analysis in identifying and evaluating external opportunities and threats in Air Asia, we would found that the accomplishments of competitive forces in this company are:

4.5.1 Malaysia Current Competitions

16

Prediscan Mariana and Roiban Roxana Nadina (n.d.). External forces driving change in the Romanian small and medium sized enterprises.

29

From the pie chart graph sources by Centre for Aviation & Innovata (CAPA), the focus will be on maintaining Air Asias leading position in Malaysias domestic market, where it currently accounts for 51.5 % of seat, followed by Malaysia Airlines (40%), Firefly (6.9%) and Berjaya Air (1.6%)

4.5.2 Lower Cost Carrier (LCC) Current Competitions

Indonesia's Lion Air Group, which has quietly overtaken Air Asia as the largest LCC group within Southeast Asia (albeit mostly domestic), captured headlines in late 2011 when it one-upped Air Asias order for 200 A320neos from mid-2011 by committing to 201 737 MAXs17. In Indonesia and Malaysia, Air Asia faces in Lion a LCC with an extremely low cost structure and an ambitious expansion plan that is supported by an order book that is almost as massive as Air Asias. Lion will challenge Air Asia to maintain its extremely high profit margins.

Figure 4: Leading LCC groups within Southeast Asia based on seat capacity
17

AirAsia accelerates fleet expansion as battle with Indonesia's Lion Air moves up a gear (2012, December) from http://centreforaviation.com/analysis/airasia-accelerates-fleet-expansion-as-battle-with-indonesias-lionair-moves-up-a-gear-91790

30

Within ASEAN, which Air Asia now considers its home market after moving its regional headquarters from Kuala Lumpur to Jakarta earlier this year, Lion has already overtaken Air Asia as the largest LCC group. According to Centre for Aviation & Innovata (CAPA) and Innovata data as shown in figure 4, the Lion Group now accounts for 32% of the LCC seat capacity within Southeast Asia, compared to 30% for the Air Asia Group.

4.5.3 Opportunities 4.5.3.1 Developments in the Domestic Market Air Asia view this as an opportunity to increase profits. For example Air Asia has announced 10 additional aircraft added in Malaysia in 2013 will be used primarily to increase the capacity of existing lines. In particular, the airline plans to use 89% of the additional capacity driven by fleet expansion on existing routes while 11% will be used to launch a new route. Air Asia said that there will be developments in the domestic market in Indonesia and Malaysia as well as China18. 4.5.4 Threats 4.5.4.1 New Entrance of Other LCCs

Air Asia is taking the threat of increased competition with Lion, which is planning to launch a new affiliate in Air Asias home market of Malaysia in 2013 very seriously. Its no surprise Air Asia is using the latest order in part to accelerate expansion in Malaysia, where it will aim to beat new Lion subsidiary Malindo into oblivion, and in Lions home market of Indonesia.

18

AirAsia accelerates fleet expansion as battle with Indonesia's Lion Air moves up a gear (2012, December) from http://centreforaviation.com/analysis/airasia-accelerates-fleet-expansion-as-battle-with-indonesias-lionair-moves-up-a-gear-91790

31

5.0 SWOT Analysis

According to Oxford Dictionary, SWOT analysis is refer to situational analysis in which internal strengths and weaknesses of an organization, and external opportunities and threats faced by it are closely examined to chart a strategy. SWOT stands for strengths, weaknesses, opportunities, and threats. From our studied, we have identified several strengths, weaknesses, opportunities, and threats of Air Asia as shown in figure 5 as below:

Figure 6: Strength, weaknesses, opportunities, and threats of Air Asia

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6.0 Porter Five Force (Industry Analysis)

Air Asia one of company in Aircraft industry, this industry is serve the customer with airline service to customer from country to country. Industry analysis will help Air Asia to adapt the current market condition or external environment to strategic planning19. Part of the strategic planning process requires an analysis of the environment that the organization operates within (Kaplan, 2012). Various type model can use to analyze the external environment consist of PEST, Porter diamond, Lifecycle analysis, Five Force Porter and others 20 . Five Force Porter is most suitable model to analyze the airline industry because this model is focus on 5 type force will influence the industry market. Five Force Porter consists of force from industry competitors, buyers, suppliers, new entrant and substitutes product or service.

Figure 7: Portal five forces of Air Asia

19 20

Investopedia. (n.d.). Retrieved from Investopedia: http://www.investopedia.com/terms/c/customer.asp Kaplan. (2012). CIMA Official Text Book Enterprise Strategy. Kaplan Publishing.

33

6.1 Buyers or Customers

Customer is an individual or business that purchases the goods or services produced by a business (Investopedia). Customers will influence the demand of Air Asia service and directly impact to the price offered. Customers of Air Asia is who are want to fly to going certain destination and the number of customer are high but they have several choice to fly with other competitor. 21 With low switching of airline service to others competitors like Indonesia Lion Air Group, will increase the power of customers in the airline industry. Therefore, Air Asia must give the customers extra value to the customer by low price to increase the customer satisfaction.

6.2 Substitute Product or Service

Substitute service is alternative approaches to satisfying the customer's in needs difference way. Air Asia are serve customer with freight from one destination to others destination with low cost strategy. Price will be major factor influence the substitute product to occur and the substitute service for Air Asia is automobiles, buses, trains, and ocean liners. Although this substitute service can replace the needs of customer to reach the destination with low price but there are some needs of customer not be offered by them like time taken, conformableness and punctuality. The substitute service for airline also suitable for low range of travelling and new technologies implement the Bullet train might be the potential substitute service to the airline service because bullet train will reach the destination with low time taken and low price. Although Bullet Train can be substitute service to the Air Asia, but only for travelling within the country. Therefore, substitute product or service had low force to the airline industry.

21

Kaplan. (2012). CIMA Official Text Book Enterprise Strategy. Kaplan Publishing.

34

6.3 Supplier
Supplier is who are supplying material to the business before become finished goods. Supplier had high power will control the price of material and directly impact the cost of operation and production. The power of suppliers will influence by several factor which is number of supplier and switching cost. In the airline industry, had few numbers of fuel suppliers, aircraft suppliers and spare part suppliers 22 . Airbus and Boeing is the only major aircraft suppliers, therefore they will control the price of aircraft in the market and Air Asia should build up good relationship with them. In term of switching cost, airline industry had high cost of switching cost especially for aircraft suppliers because mostly Air Asia are using Airbus models. Cost for changing from Airbus aircraft to the Boeing will involve the cost of training cost for employee for suit with the new features and cost of engineering to do maintenance. Therefore, bargaining power of supplier is high and strong.

6.4 New Entrant

Threat of new entrant will depend upon to which there are barriers to entry like economic of scale, capital requirement for entry, cost advantage, differentiation and others (Kaplan, 2012). The industry of airline needs big volume of start-up capital consist of setting up of offices, buying or leasing aircraft, hiring pilots and other staffs. So, capital requirement will increase the barrier to the new entrant and reduce the threat of new entrant. In term of differentiation Air Asia offers special product and service compared to other competitors like Bangkok Airways, Tiger Airways, and Air Philippines. Air Asia introduce holiday packages which is inexpensive around Asia. Air Asia has good relationship with hotels and tourism companies around Asia, which it is hard for new entrant competitor to compete.

22

Prediscan Mariana and Roiban Roxana Nadina (n.d.). External forces driving change in the Romanian small and medium sized enterprises.

35

6.5 Industry Competitor

Some market is more competitive than other when companies regularly monitor competitors. Each competitor offers a set of products and services that attempts to grant higher value to the product-market segments they deal with. That are influence with factor of how similar the product offering to customer, level of leaving the industry, how easy customer can switch to others competitor and others. The main point of using airline services is to reach the destination. Every airline provides similar services to customers. Although Air Asia provides other extra services like hotel booking, and tour packages, it is matter to the customers preference. So we can say mostly the competitor will provide with similar product encourage to high rivalry among the existing competitor. Other than that, customer also easily can switch the Air Asia to others company. The nature of airline industry is that customers right of way is to look at price and flight schedule that suits them the best price when buying tickets. Customers can switch to other airline easily based on their price and time which makes the industry so competitive.

36

7.0 Benchmark Air Asia among Airline industry

According to Reid and Barrington (1999) cited by Coleman and Ingram (2004), describe benchmarking as the search for best practices that lead to superior performance, with the aim to enhance quality, product reliability and client satisfaction. By consciously comparing an organizations own current reality, this can lead to judgements on whether to bridge the gap and, if so, how. Therefore, in our studied, we benchmark Air Asia with others Airlines. Air Asia is benchmark for several criteria such as safety, quality, on-time performance, capacity, and top performance.

7.1 Benchmark Air Asia among Airlines Industry in terms of Safety

In this context, we benchmark Air Asia among other airlines in the world. Air Asia is focus on the concept of safety. Air Asia well trained their pilots through Air Asia Academy to ensure aviation safety. Also, Air Asia has committed itself to a program of reducing risks and hazards normally associated with the industry through a Safety Management System. Air Asia maintains their safety quality by complies with the conditions set by regulators in all countries where the airline operates. Air Asia always ensures that all the activities run can meet the international safety standards as well as achieve the highest level of safety performance. This can be proven through its low accident rate record. In the recent of year 2013, Europes Jet Airliner Crash Data Evaluation Centre (JACDEC), which recognize safety in the aviation industry had calculates its Safety Index ratings, which rank 60 airlines, by taking hull loss accidents (major accidents in which the aircraft is destroyed and written off) and serious incidents suffered by airlines over the past 30 years and comparing them to the revenue passenger kilometers the same airlines have performed over the same period. Airlines are also measured against international safety benchmarks, with near misses and other factors counting. Air Asia was rank at 29 among 60 airlines as shown in Table 1 below.23

23

http://www.eglobaltravelmedia.com.au/airline/revealed-the-safest-60-airlines-in-the-world.html

37

Table 1: The JACDEC Safety Index ranking Rank Airline 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Finnair Air New Zealand Cathay Pacific Emirates Etihad Airways EVA Air TAP Portugal Hainan Airlines China Virgin Australia British Airways Lufthansa All Nippon Airways Qantas JetBlue Airways Virgin Atlantic Airways Transaero Airlines EasyJet Thomas Cook Airlines WestJet Jetstar Airways Southwest Airlines Qatar Airways Air Berlin EL AL Israel Air Canada Thomsonfly KLM Delta Air Lines AirAsia Singapore Airlines
38

Rank 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

Airline United Airlines Ryanair Swiss Condor Malaysia Airlines China Eastern Airlines Jet Airways Alitalia Aeroflot Russian Airlines LAN Airlines Air France American Airlines Air China US Airways Alaska Airlines Asiana Japan Airlines China Southern Airlines Iberia SAS Scandinavian Airlines SkyWest Airlines South African Airways Thai Airways International Turkish Airlines Saudia Korean Air GOL Air India TAM Airlines China Airlines

Source taken from: http://www.eglobaltravelmedia.com.au/airline/revealed-thesafest-60-airlines-in-the-world.html

7.2 Benchmark Air Asia among Airlines Industry in terms of Quality

In the rating of SKYTRAX, Air Asia was awarded as 3-Star status. The highest rating is 5-Star. According to SKYTRAX, 3-Star Airline rating signifies a "satisfactory" standard of core Product across most travel categories but reflects poor or less consistent standards of Staff Service and/or Product quality in selected Onboard or Airport features. 24 Figure 8 shows the rating of detail product and service standards of Air Asia assessed by SKYTRAX. Figure 8: Air Asia 3-Star Airline Rating assessed by SKYTRAX BOOKING : WEBSITE : CUSTOMER SUPPORT - AirAsia Website : Language options Website : Ease of Use Website : Product information Website : Fares & Taxes info Fares : Clarity of add-on charges Credit Card payment fees Checked baggage charges Online Check-In facility Online Manage Booking facility Departure / Check-in information Ease of contacting Customer support Cost of contacting Customer support Quality of customer support help Handling schedule changes /cancellations Handling refunds / compensation Excess Baggage charges

24

http://www.airlinequality.com/Airlines/AK.htm

39

AT THE AIRPORT - AirAsia Check-in : Waiting times Check-in : Service Efficiency Check-in : Staff service courtesy Check-in : Excess baggage charging Advice about delays / cancellations Cancellation handling efficiency Boarding : Delay information Boarding : Paid-for boarding service Boarding : Main boarding efficiency Boarding : Staff courtesy Arrivals : Staff visibility Arrivals : Staff availability to assist Arrivals : Baggage Delivery Airport Services "Stress" factor

ONBOARD THE FLIGHT - AirAsia Cabin Storage Seat Comfort Condition of seats, cabin interior Cabin cleanliness Washroom cleanliness Inflight Entertainment options Standard of Safety display PA information from flightdeck Staff - Assistance thru Boarding Staff - Welcome to boarding PAX Staff - Assisting with seat changes Staff - Attention to safety procedures Staff - Inflight service efficiency
40

Staff - Service courtesy Staff - Cabin presence thru flight Staff - Language skills Staff - Friendliness of service Staff - Service proficiency / confidence Quality consistency amongst staff Airline Magazine BOB - Beverage selection Notes: BOB = Buy Onboard products BOB - Snack selection Notes: BOB = Buy Onboard products BOB - Hot/Cold Meal selection Notes: BOB = Buy Onboard products BOB - Prices of Food + Beverages Notes: BOB = Buy Onboard products BOB - Exchange rates applied Notes: BOB = Buy Onboard products BOB - Quality of Food choices Notes: BOB = Buy Onboard products BOB - Availability of Choices Notes: BOB = Buy Onboard products Source taken from : http://www.airlinequality.com/Airlines/AK.htm

7.3 Benchmark Air Asia among Asian Airlines in terms of On-time Performance

In this context, we benchmark Air Asia among Asian Airlines. Punctuality is one of the key performance indicators in the airline industry. It is very important to attract and retain customers. There is potential profit improvement if an airline can achieve punctuality. Table 2 shows the ranking of Air Asia among Asian Airlines. All these airlines is based on a 15-minute arrival punctuality. From the Table 2, we can know that four Asian Airlines which are Air Busan, Japan Air Commuter, Japan Transocean and Japan Airlines achieved more than 90%. Air Asia ranked at 12th in the Asian list by delivering 82.15% of its flights to the gate on time in February 2013 25.

25

http://www.prweb.com/releases/Feb2013_FlightStats/On-time_performance_repor/prweb10499897.htm

41

Table 2 : On-time performance among Asian Airlines

Source taken from: www.flightstats.com

42

7.4 Benchmark Air Asia among Airlines Industry in terms of Capacity

In this context, Air Asia is benchmark among other Low Cost Carrier worldwide by capacity (ASKs per week). The capacity of Air Asia in august 2010, august 2011, august 2012 were 431440954, 458817923, and 526,606,679 respectively. Air Asia was rank at 11 among top 25 Low cost carriers. Southwest Airlines remains the worlds biggest Low cost carrier with the highest capacity of 3203873890 in august 2010, 3427935137 in august 2011, and 3,263,059,323 in august 2012. The lowest rank at 25 was Cebu Pacific with capacity of 231829196 in august 2011, 258948889 in august 2012 and the data in august 2010 was not available.26 Table 3: Rankings of Low Cost Carrier worldwide by capacity Rank Airline 1 2 3 4 5 6 7 8 9 10 11 12 13 Southwest Airlines Ryanair EasyJet JetBlue Airways Gol WestJet Jetstar Airways Lion Airlines AirTran Airways Norwegian Air Shuttle Air Asia Berhad Condor Vueling Airlines Rank 14 15 16 17 18 19 20 21 22 23 24 25 Airline Indigo Virgin America Wizz Air Monarch Airlines Spirit Airlines Pegasus Airlines Frontier Airlines Volaris Tuifly Jet2.com SpiceJet Cebu Pacific

Source taken from: http://centreforaviation.com/analysis/traffic/worlds-largestairlines-cautious-with-capacity-some-big-moves-in-global-airline-rankings-79657

26

http://centreforaviation.com/analysis/traffic/worlds-largest-airlines-cautious-with-capacity-some-bigmoves-in-global-airline-rankings-79657

43

7.5 Benchmark Air Asia among Airlines Industry in terms of Top Performance
According to Aviation Week which is the highly influential aviation industry magazine in the United States, announced Air Asia as the winner in the magazine's Top-Performing Airlines 2012 report. This award is based on a statistical analysis of an airline's financial and operational performance in five different performance categories, from which the total score was derived. 27 A common scoring system allows airlines to be categorized by size or region in Aviation Week magazine and Air Asia emerged top overall with 81 points in the small segment, Ryanair received 78 points which was the leading airline in the midsize tier, and Singapore Airlines came in at 70 points in the large size. 28 Ten Topperforming airlines in the world can be seen in Table 4 as below. Air Asia also rank at 22 among 100 airlines in the Worlds Best Airlines29. Table 4: 10 Top-performing airlines in the world Global Rank 1 2 3 4 5 6 7 8 9 10 Air Asia Air Arabia Ryanair Hainan Airlines Allegiant Air TransAsia Airways Vueling Airlines Copa Airlines Singapore Airlines WestJet Airlines 81 point 78 point 78 point 77 point 77 point 72 point 72 point 71 point 70 point 69 point Airline Score

Source taken from: http://www.rediff.com/business/slide-show/slide-show-1-10-bestairlines-in-the-world/20120717.htm#11 30

27 28

http://ireport.cnn.com/docs/DOC-811347 http://www.aviationweek.com/Article.aspx?id=/article-xml/awx_07_02_2012_p0-472905.xml 29 http://www.worldairlineawards.com/awards_2012/Airline2012_top40.htm 30 http://www.rediff.com/business/slide-show/slide-show-1-10-best-airlines-in-the-world/20120717.htm#11

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8.0 Analyze and Evaluate the Suitable Strategies for Air Asia Although Air Asia has ran its business well and established a great brand name over the years, but it still facing some unsolved problems either internally or externally. Air Asia will need to form several sustainable strategies in order to resolve and minimize the severity of their problems to minimum level. In order to formulate, develop and choose the most suitable business strategies. Threats-Opportunities-Weakness-Strengths (TOWS) matrix will be preferred.

8.1 TOWS Analysis

It is a structured planning method that assists companies in determining strategic alternatives by examining external opportunities and threats and how they compare to existing strengths and weaknesses. This analysis could help managers of the company to develop four types of strategies which are Strength-Opportunities (SO) strategies, h-Weakness-Opportunities (W0) strategies, Strength-threats (ST) strategies, Weakness-threats (WT) strategies.

8.1.1 SO strategies SO strategies use a firms internal strengths to take advantage of external opportunities. All managers would like their organizations to be in a position where internal strengths can be used to take advantage of external trends and events. 8.1.2 WO strategies WO strategies aim at improving internal weaknesses by taking advantage of external opportunities. Sometimes key internal opportunities exist, but a firm has internal weaknesses may prevent it from exploiting those opportunities. 8.1.3 ST strategies ST strategies use a firms strengths to avoid or reduce the impact of external threats.

45

8.1.4 WT strategies WT strategies are defensive tactics directed at reducing internal weakness and avoiding environmental threats.

8.2 TOWS MATRIX

External Factors Internal Factors

Strength(S)

Weakness(W)

-Expanding revenue with low cost -Delays and cancellation operations -Strong management team -Copying outdated practices -Service resource is limited by

-High aircraft utilization & efficient lower costs operations -Practice of E-distribution -Highest performance -Proper Information System -Strong branding level of -Limited services -Heavy reliance on contracts and safety outsourcing -Heavy reliance on Information Technology

Opportunity(O)
-Economic downturn -Increase in

SO Strategies
-Cost leadership strategies (O1,S1)

WO Strategies
-Increasing the capacity of flight (O1, W1) -Diversification (O4,W5)

Asia -Market penetration (02, S1)

Trade, Tourism, and -Market development (04,S1) stronger awareness. -Privatization deregulation government -Lower Cost Carrier (LCC) competition current and of brand

46

Threats(T)
-High fuel prices

ST strategies
-Decrease the impact of fluctuation

WT Strategies -Improve in Services (T2, W4)

-Change in perception of resources prices (T1,S3) of customers -Global uncertainty -New technologies of aircraft -New entry of -Create entry barrier (T5,S1) -Insists safety image (T3, S6)

competitor

Table 5

47

9.0 Rating of Recommended Strategies

Cost Leade Strateg rship Strate ies gies

Marke t Penetr ation

Market Develo pment

Air Asia Vision Missio n Human Resour ce Finance Depart ment Researc h& Develo pment Depart ment Marketi ng Depart ment Operati onal Depart ment Risk/ Uncerta inty Total

4 4 4

4 3 5

5 4 5

Increa Diversifi Decre sing cation ase The The Frequ Impac ency t of of Fluctu Flight ation of Resou rces Prices 5 1 3 5 2 3 4 1 3

Cre ate Ent ry Bar rier

Insi sts Saf ety Im age

Impr ove in Serv ices

Coope rative Strateg y

4 4 3

4 3 3

3 3 3

4 4 5

28

29

25

31

9 Table 6

23

25

24

24

34

Rating Scale: Difficulty Level 5- Extremely Low, 4-Low, 3-Medium, 2- High, 1- Extremely High
48

9.1 Best Strategy Selected

Todays turbulent business environment has shown us a clear picture that low cost airlines face stiff competition among themselves. Every firm is vulnerable to be attacked by its competitors. Therefore, Game theory, Sun Tzu Art of Wa and, Blue Ocean Theory could provide ideas to the airlines in planning and implementing strategies that constitute the best defence against such attack. Based on the analysis of rating system for strategy selection, one of the best strategies may be chosen for future implementation. In our point of view, we propose that the best strategy for Air Asia is cooperative strategy by forming strategic alliance and followed by increasing the frequency of flight which seems as a great opportunity for Air Asia in existing routes.

9.1.1 Cooperative Strategy Air Asia should concern about the possibility of strategic alliance with other players in the same industry such as Tiger Airways and Virgin Blue. These two airlines sharing the concept of business same as Air Asia whereby they always practicing low cost operation, some more they have the similar vision and mission as a low cost carrier. Therefore Air Asia should put more efforts to set up a pan-Asian low cost airline with Virgin Blue in order to grow even further in Asia and also help Virgin Blue to extend services to south-east Asia. In addition, strategic alliance may provide the players with sufficient number of ground crews, flight attendants and pilots. A sufficient number of crews are very important especially during the peak hours and season where the demand of air transport is typically high compared to normal days. Air Asia nowadays has the capability to support enough workforces for strategic alliance since it has been long in this industry. With combining workforces, crews are provided with the opportunity to service in both airlines whereby they can share their own culture, experience knowledge and even explore in another country. Thus, Air Asia can retain their experience and skilled workforces with greater loyalty to the airline because it is the best company to work with such attractive offering.
49

Furthermore, Air Asia financial department would prefer to have good financial position instead of having high debt on hand. The department is the heart of company that support other departments, thus it is stringent to ensure a proper cash inflow and outflow. However, looking for fund is not an easy task and the department will support any implementation of strategic alliance that may help Air Asia to reduce their financial burden especially during the critical times such as economic recession and spreading diseases like SARS, H1N1 and H7N9. All of these may bring a huge impact to airline industry and some of the airlines may file into bankruptcy due to high debt incur for such unexpected incident. Through strategic alliance, both airlines can share resources to support each other during the difficulty. Besides, both airlines can organize a training program for flight attendants and pilots at the same time and place to reduce cost. Other than that, as we know that Air Asia outsource their Research and Development department to the outsider. In order words, it means that Air Asia depends on outsourcer to discover possible improvement for the business but the outsourcer mostly focus on the external environment and less on internal environment since some of the information is confidential. Thus it could be hard for strategic alliance if two airlines running different concept of business such as premium and low cost carrier. However, if two airlines with same concept of business forming strategic alliance, they can invest into a new Research and Development department that not only promote growth but also save cost in research expenditure . Marketing also play an important role in the success of a business. Air Asia with currently strong support marketing workforces, outlets and information technology support system can achieve another milestone in history if Air Asia successfully forms a strategic alliance with the competitors. Passengers nowadays are more concern about price instead of quality and most of the low cost carriers have to compete in prices to get business. In current Malaysia market, there are some low cost carriers such as Air Asia, Firefly and Malindo, they are competing among themselves. However, if Air Asia can form a strategic alliance with one of them, then the intense of competition can be reduced and both airlines can join forces on fighting the same enemy with
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the objective of kicking out the enemy from business through offering an attractive promotion package. Operation is the output department of an airline. Aircraft utilization is a tool to maximize profit. Remember An aeroplane is not a plane, if it is not flying. An aeroplane is an expensive transport vehicle, thus most airlines have to fully utilise the aircraft to pay for the price. However, sometimes Air Asia has to cancel or delay flight due to insufficient demand on that particular time. In general, strategic alliance can maximize the operation output for both airlines. For instance, both airlines can utilise the aircraft by combining passengers with same destination into one flight especially during the normal days whereby demand for air transport is low. Initially, every strategy has a risk which gives uncertainty in the future. But what we need to do is formulating, implementing and evaluating well throughout the whole process before we achieve the desired goals. Air Asia has the ability to implement such strategy with current resources as a support to sustain for another 10 years. Conclusively, we can see that the greatest benefit of moving toward cooperative strategy by forming strategic alliances to gain mutual economic gain rather than Air Asia adapting to competitive strategy. This suggestion is made because Airline industry is a high risk industry whereby it involves huge investment and cost in term of operation. No one competitive strategy is guaranteed to achieve success and some companies have found that they could not sustain the strategy. By competing each other in the industry, no any company may be cost leader as well as differentiation may sustain by. This is because competitors will always imitate and technology always keeps changes. Therefore, we think rather than competing each other why dont Air Asia adapt to cooperative strategy.

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9.1.2 Increasing Frequency of Flight Strategy Besides cooperative strategy, we also proposed another best strategy for Air Asia which is increasing the frequency of flight in attractive route. Most countries in Asia are developing countries and the influx of foreign direct investment and tourism also contribute to the high demand of air transport that not only within the region but also involve Asia with Europe countries. However, the vision and mission of Air Asia is to be one of the best low cost carriers in Asia region. Therefore Air Asia should consider this strategy by increasing the frequency of flight to support the high demand in Asian region from time to time. For instance, Air Asia can start this strategy by increasing number of flight from Malaysia to Hong Kong, Shanghai, Banglore and Jakarta. In our opinion, human resources such flight attendants and pilots are not a big problem for Air Asia since they operate majority in short haul trip. Thus, they have sufficient crews to support the increasing frequency of flight in attractive route. Furthermore, financial department will support this strategy because their main objective is to maximize profit and minimize cost. They will allocate high portion of financial resources to those attractive routes that provide high return in investment. Air Asia has been doing well for the previous years because they have a clear scope and only focus on the Asian Region. Even though they have tried to operate a long haul trip to Europe but it ended with closing the route in the first quarter of 2012. Due to the closing route in Europe, the Research and Development department can concentrate all available sources by focusing in a particular region, Asian where they are more familiar with. Thus, they can easily identify the needs and demand of customer in Asian region. Air Asia has well established marketing supportive resources for many years. For instance, they have sales outlets, sales man and electronic commerce purchasing system. Besides this, we always can see the package of promotion in the newspaper, official website and even in the Facebook. Hence,
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customers can easily get latest news about detail of the flight promotion package and even the frequency of flight per day. The operation department may able to cover the increasing workload especially during peak hours and seasons. However, we cannot say that it is 100% true because when frequency of flying flight increase, more concern should be put on the maintenance to ensure that flight is always safe for takeoff. Risk and uncertainty will also increase if the frequencies of flight increase. Sometimes airlines may face with the problem of low demand for air transport due to the economic recession, terrorist attack, war, SARS and H7N9. Thus they have to cancel or delay the flight in order to save cost and subsequently it will lead to the unsatisfactory of customers. In a nutshell, we still recommend that cooperative strategy by forming strategic alliance is the best choice for Air Asia and Air Asia also can select the increasing frequency of flight strategy as well.

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10.0 Conclusion
In conclusion, Air Asia is one of the leading airlines in Asia with providing everyone a chance to fly in the sky. Air Asia also gained the status as the best organization as well in air-line industry. Based on our research study, we have identified several internal and external forces that help for developing several analyses such as SWOT and TOWS. These analyses show that Air Asia can perform even better by strengthen up the strengths and pick up the opportunities provided, some more minimize their weaknesses and threats with effective strategy management from time to time. Lastly, we proposed that Air Asia should implement cooperative strategy by forming strategic alliance with their enemy because what we think in the next 20 years, the whole world business will be more challenging and none of the companies will be a perfect leader in the field of industry even though the company has plenty of financial resources but without a supportive partner, it will be one of the loser soon. Remember people with more friends will live a happy and wonderful life journey than those alone, and same to the industry as well whereby companies cannot go even further without a great partner.

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