We oftenly talk about the cost once we mention AirAsia, a famous airline that most of us (especially student) knows. AirAsia has been experiencing tremendous expansion since 2001 as the largest low cost carrier in Asia. Their subsidiary companies located in Thailand and Indonesia. In Thailand, AirAsia has hub in Suvarnabhumi Airport and in Indonesia at Soekarno-Hatta International Airport. AirAsia operates scheduled both in domestic and international flight and in Asia. In 2009, AirAsia was voted by Skytrax, to be the best quality with low cost airline in the world. AirAsia has been known as a successful airline in near past 10 years from 2001 to 2011 in operating its business, with many different activities and missions that was achieved write me an essay uk.
1. AirAsia mission:
Their mission is to be the best company to work for whereby employees are treated as part of a big family, to create a globally recognized ASEAN brand, to attain the lowest cost so that everyone can fly with AirAsia, to maintain the highest quality product, embracing technology to reduce cost and enhance service (1). AirAsia focuses on several major issues. First, it is partnering with the world??™s most renowned maintenance providers and to comply with world airline operations to guarantee the passengers??™ safety. Second, implementing the regions fastest turn around time at only 25 minutes, to assure lower costs and higher productivity. Third, creating low fare without compromising on quality and services. Fourth, streamline operations and lean distribution system. Fifth, applying the point-to-point network to keep operations simple and low costs. Adapting those strategies in its business model, AirAsia have won many awards and recognitions. Some lists of awards and recognition in 2008 and 2009. The recent awards are Airline of the Year by Centre Asia Pasific Aviation (CAPA), Best Asia Low-Cost Carrier by TTG Travel Awards 2009, and World??™s Best Low-cost Airline by Skytrax (2).
2. AirAsia activeities:
In order to create more competitive advantages, AirAsia also perform several activities that call value chain activities. The goal of these activities (Inbound logistics, Operations, Outbound logistics, Marketing and Sales, and Service) is to create value that exceeds the cost of providing the product or services, thus generating a profit margin.
Come to AirAsia most of the passengers will be offerred fast and easy services to buy an air ticket. Passengers can order online or directly go to the AirAsia center to have their ticket. Super low-cost-tickets are offerred in short period, but very oftenly, for lucky passengers who in need to fly during that event happen. The price of low-cost-ticket is about only 20% (or even lesser) of normal ticket??™s price which is already at low cost. Last few years, I bought a two ways ticket (fly and return) for only RM300 which was included insurance. The flying activities of this airline are quite stable and seldom to be delayed, right after you finish check-in you can go and wait for your fly, which is olny start at the time stated in your ticket. The estimated flying time will only be about 30 minutes later or earlier than the time stated, that??™s mean you have a chance to go home 30 minutes earlier than you expected. You will find that it is terrible if you have to wait in the airplane for any time longer than the time they stated right in the ticket for you. AirAsia knows very well the feeling of their customer so they do offer a very stable time schedule to their every passenger (even the time of taking you from your place to the air station buy AirAsia bus is also never delay). Those activities above are seemed to be the most basic activilies that every airline must have, but the point AirAsia can get is that they doing very well and create a close and friendly relationship with the customer.
b. Marketing and sale:
Creative and low-cost advertising significantly reduces marketing cost. On the other hand, AirAsia direct sales through internet, call centres, walk-in airport sales, and sales offices significantly reduce the commission fee to travel agents as AirAsia only assigned its sales to limited travel agents. Effective and efficient handling of customer enquiries and complaints Maintaining simplicity, higher disclosure than industry norms, transparency in decision making AirAsia assigned multi-skilled cabin crews (2-3 crews/flight), cost-effective training, performance based reward and incentives systems Business requirements related technologies and costeffective technology supporting AirAsias core competency.
c. Inbound Logistic:
This involves all areas of receiving, storing of inputs when producing outputs. So far, AirAsia only operates on a single type of aircraft, the Boeing 737-300. Based on a report published by Aero Connections in 2004, that particular model was the best selling commercial jet of all times due to its efficiency and cost effectiveness. AirAsia also has 1382 employees and they received proper on-the-job training workshops so that they can perform multiple roles effectively within a simple and flat organisation structure.
d. Operation and Outbound Logistics:
No frills, no assigned seat, one class, and ticket-less policies significantly reduce cost. Understanding of processes results in technical efficiency. For example, 26% saving in fuel cost can be achieved by simple yet effective flying procedure. High utilisation of aircraft and quicker turnaround time are two major operational cost advantages that AirAsia possessed. Its policy of not using the aerobridge also cuts cost while revenue is earned by providing ground shuttle services (3).
Through out all of the AirAsia activities, we now can say that this airline is pursuing the low-cost provider strategy. The reason of pursuit this strategy is that AirAsia wants to attract the customer by the value of the services and make them believe that they had services that worth more than what they paid for. And hence creating profit for the company.
3. AirAsia need to develop in some functions:
In order to gain market share and sustain its competitive advantages to be the low cost carrier in the high demanding environment, AirAsia must develop new ways to manage both customer relationships and suppliers or partners to optimize customer loyalty, supplier relationships, and revenue. The following diagram shows the strategic forces of value proposition of the airline industry, showing that the focus on Supplier and Alliances and Customers will drive positive values to AirAsia can achieve. Customer Relationship Management (CRM) application will be one of the areas of strategic IT implementation that AirAsia can focus to achieve high values to both shareholders and customers.
The Strategic Forces of Value Proposition
In long term, customer relationships should be fostered for AirAsia to maintain competitive advantage and profitability. When planning and implementing CRM application, management is recommended the following approaches:
– Customer segmentation ??“ mileage-based segmentation is inadequate, rather should focused on value-based and needs-based approaches can guide investment decisions and drive greater insight into the needs of highvalue customers.
– CRM initiative development ??“ to differentiate from other competitors, AirAsia should not adopt the ???fast follower??? approach to CRM initiative development, i.e. learning from other competitors??™ approach (e.g. installing kiosks for fast check-in). AirAsia should implement CRM program in favor of investing in initiatives with a high return, which respond to the needs and desires of their own customers
– Organizational design and management ??“ AirAsia needs to train the employees, empowering them with a complete view of the customer and clearly articulating the employee??™s role in the CRM strategy (4).
Question 2 – South East Asian Airline and Porter??™s Five-forces model:
The Porter five forces model can be used to assess the? competitiveness of the airlines industry. It is the framework for the industry analysis and business strategy development. It was developed by Michael E. Porter of Harvard Business School in 1979. There five forces will shape the? competition? scenario of an airline within the industry, where it has to compete with the other airlines as well as others organisation and services outside the industry.
* Competitive within the airlines: This is the rivalry with other airlines in your existing markets or future markets. Take for example of Malaysia Airlines, The possible market segments are: geographical markets, demography, Travel purposes. Let view one of the segment, geographical for Malaysia. Then we can see straight away the prominent competitor for any airline company in the area of South East Asia, which is Air Asia. The competitor will be one of the considerations for any airline to develop operation functions, and enhance strategy activities.
* Threat from substitution: Let have a look at the market segment based on travel purposes. So one of the purposes of travelling is for business dealing, like meeting or discussion. With the advance in internet, some of the discussion can be done online, either through video conferencing or the simple chatting. Now we can see the real meaning of the threat to substitution.
* Threat on new entrance: Like the case of the two airlines in Malaysia, MAS and Air Asia, there is always possibility that another airline will be formed to service the existing market. The likeliness of another airlines being formed, will depend so much on the barrier to entry and the lucrativeness of the business.
* The Power of the Buyers: Some companies have small number of customers which purchase a high volume of the products. Taking the example of Malaysian Helicopter Services (MHS) who has customer like SHELL and PETRONAS, will acknowledge the power these two buyers have. They can dictate what type of helicopter to operate and the price of the tickets. For airline such as MAS, with multiple segments and without single large customer, the power of the buyer is not too obvious.
* Supplier Power: Some airlines operate using a single type of aircraft, for example Boeing. Then the seller will have greater power over the airline. For that reasons, most airlines will opt for multiple suppliers. It will also have the added advantage of getting a better deal, because the like of Boeing knows that if the deal is not attractive, the airline will go to Airbus(5).
a. Why and how AirAsia stressed to be low cost carrier in airline industry
Datuk Tony Fernandez as CEO of AirAsia Berhad said his philosophy is very clear: ???before a business can grow, it needs to have its costs under control, it must be cost-efficient and profitable, and it must create value???. AirAsia can be growing in the airline business if they can control their cost. The cost that they have to running there must be efficient and reliable.
AirAsia current is a market leader of LCC in Malaysia, Thailand, and Indonesia, will face competition from both existing and new players. In order to sustain its competitive advantage, AirAsia needs to leverage its competency in creating cost advantages across multiple value chains (Kho, et al., 2005). Based on that statement, AirAsia need to make a consideration and more stressed to be lowest cost carrier in the airline industry. The demand for lowest cost carrier is will be growing rapidly; it can be the great opportunity for AirAsia Company to run their business. (The AirAsia Company Strategic Management, 2009) (6).
b. Why and how AirAsia need to consider a strategic management
Nowadays, the competition among airplane industries is very tough. According to Daniel Chan (2000), with just about two years to go to the turn millennium, air wars over Asia are hotting up, with some of the world??™s biggest airlines engaged in intense over Asian skies. Each of Airplanes company in the world trying to conduct some strategies to compete with another competitor in their industry. A lot of airplane companies come out with different strategies to make their company better than their competitors. To compete with their competitor in the business environment, a company needs to make a strategy to achieve their long terms objective and can be successful for doing their business. Now we may discuss about how AirAsia can be a leader in the lowest cost carrier in the airplane industry forcus in the strategic management of this airline.
Why a company needs to consider a strategic management nowadays According to Daniel Chan (2000), since the 1970s, the competition for the Asian air travel market has always been intense. This became more intense in the 1990s as traffic volumes were squeezed. Based on that statement, the competition among airplane industry will become more grow, traffic volume also would be increase, and also the Asian air travel market has always been intense. ? When the competition in the airplane industry becoming though, complex, and rapidly change, AirAsia company as a company that joined in the airplane industry business need to thinking strategically and also must preparing a good strategic management. The AirAsia strategic management needs to effectively and efficiently prepare and implement in the AirAsia company management. Why AirAsia need to consider strategic management The first reason is because the airline industry is a unique and complex industry. Based on the statement, the complexity and unique of the airline industry, AirAsia need to come out with the greatest strategy to compete with their rival in the same industry. Without the right strategic management, its possible AirAsia could not be able be compete with the complex business environment in the airline industry.
AirAsia have a lot of achievement and awards since year 2001 until present and than they have the greatest strategy which is can make AirAsia to be a leader in the world??™s low cost carrier in airline industry. And than, AirAsia is one of the companies with good company strategic management and has a successful story in the airplane industry in the world. AirAsia now becoming the leading low cost carrier airline in the world and the achievement that AirAsia received to ascertain that AirAsia is one of the best airplane companies. The achievement that AirAsia received in 2009 on the last awards and recognition is the best low cost airline in the world (7).
c. AirAsia business strategy to solve the current issues:
* Low cost operation
* Fewer management level, effective, focused and aggressive management
* Simple proven business model that consistently delivers that lowest fares
* Penetrate and stimulate to potential markets
* Multi-skilled staffs means efficient and incentive workforce
* Single type fleet minimize maintenance fee and easy forpilot dispatch
The above are the strength of AirAsia. However, just like any other companies, it has also a lot of weakness, such as:
* Service resource is limited by lower costs
* Limited human resources could not handle irregular situation
* Government interference and regulation on airport deals and passenger compensation
* Non-central location of secondary airports
* Brand is vital for market position and developing it is always a challenge
* Heavy reliance on outsourcing
* New entrants to provide the price-sensitive services
To overcome the weakness and enhance its strength, AirAsia must:
1. Maximized IT and implementing E-commerce in AirAsia business
Nowadays, E-commerce is becoming a business tool. E-commerce also has become a vital strategic management and allows a company to sell products, advertise, purchase supplies, bypass intermediaries, track inventory, eliminate paperwork, and share information. In total, electronic commerce is minimizing the expense and cumbersomeness, improved products, and higher profitability. According to this statement, E-commerce can change the way of doing business nowadays. E-commerce becomes a major success to Airplane Company to make effectively and efficiency in their business.
AirAsia is one of the airplane companies, which is implementing E-commerce and maximized their information technology usage to make the efficiency and effectively in their company and make possible low cost carrier in their business. According to Pultorak (2004), when the business strategy and IT are aligned, the IT infrastructure can continuously sense the changing business needs and respond by provisioning or redeploying resources to match the demands of the business (8).
2. Operation effectiveness and outstanding efficiency
* AirAsia move from the traditional business into modern business by implementing E-commerce and maximize the information technology (IT) in their business.The implementation of E-commerce can reduce the cost of travel agents, and less of ticketing paper cost.
* AirAsia also choose the route by adjusting prices for routes/destinations that have a higher demand when compared to others.
* And than AirAsia also trying to reduce by using better maintenance management.
According to Gloker (2002), by using the better maintenance management, AirAsia can save large proportion of its maintenance cost contributes approximately 9% to the overall cost of an airline (9 – Gloker, et.al. (2002), The Airline Industry More Than Just Transportation).
3. Implemented outsourcing in their business
To make the lowest carrier in airplane industry, AirAsia also face with challenged to make a decision in terms of efficiency in their business how it will acquire the system. AirAsia have two options in this strategy: in house building or outsourcing. In the strategy that AirAsia used and implemented, AirAsia more preferred to used or implemented outsource system in this strategy. The decision in outsourcing has several benefits such as cost, competency, control, and also competitive advantage.
By implemented outsourcing in their business strategy will provide:
* Cost benefits to AirAsia because it can be eliminated in more resource consumption (time financial).
* And than for the competency, AirAsia competency is not in IT. By implemented outsourcing in the IT field, AirAsia also can reduce cost in IT system activities which is can make possible more cost in their business.
* After that, by using outsourcing, AirAsia can easily to control all the system that is outsourced to another vendor or company. The control in this strategy also gives benefits because AirAsia function only to be a controlled a system that is AirAsia used.
* By using outsourcing, AirAsia also can reduce risk, and it can make AirAsia not spend their financial to cover the risk factor in this strategy.
* The implementation of outsourcing also can give competitive advantage in AirAsia because the strategy can be greater rather than created by AirAsia itself.
4- Wong Pui Man, Professional Diploma Program in logistic and supply chain management, March 2009
6- Mas Bambang Baroto, Muhammad Madi Bin Abdullah, THE APPLICATION OF COST, DIFFERENTIATION AND HYBRID STRATEGY IN BUSINESS OPERATIONS: WILL HYBRID STRATEGY BECOME THE NEW COMPETITIVE STRATEGY, 2011)
8- Pultorak, D. (2004, July). Beyond Alignment. Business and IT Sunchronization