A Look At Airasia Management Essay

A Look At Airasia Management Essay The transportation service company that we have selected is AirAsia. AirAsias principal activity is to provide air transportation services. Since 2001, AirAsia has broken the travel norms around the globe and become the worlds best airline. AirAsia has gained an award winning and most low-cost airline in Asia. With a fleet of 72 aircraft, AirAsia flies to over 61 domestic and international destinations with 108 routes, and operates over 400 flights daily from centers in Malaysia, Thailand and Indonesia. AirAsia is a very successful low cost carrier. In a very short time, it became a market leader in the Asia region. AirAsias main base is the Low- Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). Through the corporate philosophy of Now Everyone Can Fly, AirAsia has become more popular and many people choosing Air Asia as their preferred choice of transport. AirAsia believes in the no-frills, hassle-free, low fare business concept can bring the business to very successful and feels that keeping costs low requires high efficiency in every part of the business. Apart from the principal activity of providing airline transportation service, AirAsia also involved in the courier service which consists of Delivery-to-Door (directly to the specific destination) and Airport-to-Airport two parts. The rates of such services are cheaper than other couriers by up to 50 percent lower price. It guarantees your courier with more value and savings. Customers can easily access to the service by just a few clicks in the AirAsias website. It is very convenient, efficient and cost saving. Besides, customers can easily track their consignment using the Google Maps. AA16a History of AirAsia AirAsia was established in 1993. Before 2001, AirAsia fail to sufficiently stimulate the market and attract enough passengers from Malaysia Airlines in order to establish its own niche market. On 2 December 2001, because of the failure of establishment, the airline was up to sale and purchased by Tony Fernandess company Tune Air Sdn Bhd. Tony Fernandes then enrolled some of the lending low-cost airline experts to restructure AirAsias business model. He invited some experts to join the executive team. In late 2001, AirAsia was re-launched in Malaysia as a trendy, no-frills operation with three B737 aircraft as a low-fare, low-cost domestic airline. In 2003, AirAsia has already become more attractive in its market demand, subsequently opened a second hub at Senai International Airport in Johor Bahru and launched its first international flight to Bangkok. After that, AirAsia started a Thai subsidiary, added Singapore itself to the destination list, and commenced flights to Indonesia. Airasia start to commence airline service in many other countries in the subsequent years. In the year 2006, Low Cost Carrier Terminal (LCCT) was established in Kuala Lumpur International Airport which cost the establishment fee of RM108 million which can handle 10 million passengers a year. After that, AirAsia has hedged 100% of its fuel requirements for the next three years, achieves an aircraft turnaround time of 25 minutes, and has a crew productivity level that is triple more than Malaysia Airlines. It achieves an average aircraft utilization rate of 13 hours per day. AirAsia is currently the largest single customer of the Airbus A320. The company has placed an order of 175 units of the same plane to service its routes and at least 50 of these A320 will be operational by 2013. On 27 December 2006, Air Asias CEO Tony Fernandes unveiled a five-year plan to further enhance its presence in Asia. In the plan, AirAsia will strengthen and enhance its route network by connecting all the existing cities in the region and expanding further into Indonesia, Southern China and India. Hence, with increase frequency and addition of new routes, AirAsia expects passenger volume to hit 18 million by the end of 2007. On 27 September 2008, AirAsia has on its list 106 new routes to be added to its current list of 60 over the next few years. The number of old routes discontinued has not been publicly disclosed. On 12 November 2008, AirAsia abolished fuel surcharges. In doing so, it claimed to be the first airline in the world to abolish fuel surcharges. By May 2008, the airline had flown 55 million cumulative passengers. In 2010, it has the worlds lowest costs for an airline, at the rate of below 2 cents per seat per kilometer. AA01a AirAsia SWOT analysis SWOT analysis is the combined analysis which examines the Strengths, Weaknesses, Opportunities and Threats of one company. It is a very important analysis in a company because it can identify the internal (strength and weakness) and external (opportunities and threats) factor for a company in order to achieve their goals and objectives hence to be low cost carrier company in airline industry. To be successful in the company management, a company needs to consider the companys ability and how to integrate it with internal and external factor. Main purpose of the analysis is to identify the internal and external factor that AirAsia need to consider for low cost carrier in airplane industry. Strengths The primary strength of AirAsia is the low cost leader in Asia. The strength of AirAsia is to maintain low cost; whereby they dont have to provide benefits to their workers, but still can maintain the best quality of their fleet. AirAsia has successfully created a low-cost airline mentality among their workforce. The workforce is very flexible and high committed in making AirAsia the lowest cost airline in Asia. AirAsia reduce its cost by attaining efficiency in every part of the business and maintaining simplicity. Therefore every system process must incorporate the best industry practices. The first thing for the low cost apply is the time concept. Time is money. An airline makes money when the aircraft is flying, not when the aircraft is parked.  In order to maintain low cost, AirAsia must consider of high aircraft utilization (which keep the aircraft flying as much as possible) to minimize the time spending on the ground. Secondly, no frills is the factor to achieve low cost. AirAsia only provide those necessities for their customer and reduce the unnecessary cost to be incurred in the fare of airline. For instance, The Company do not provide free food beverages, free seating, ticketless airline are all the activities excluded in order to achieve a more competitive price by wasting money on insignificant services. On the other hand, streamline operations that allow the process making as simple as possible is the key of a successful low cost carrier. The second strength of AirAsia is the excellent utilization of Information Technology (IT). The Low Cost Carrier (LCC) is expected to expand rapidly by attracting more customers to join the market thus increasing the degree of rivalry within the industry. The excellent utilization of IT have directly contributed to their promotional activities, brand building exercise as well keep the cost low by enabling direct purchase of tickets by consumer thus saving on airline agent fees. AirAsia was recognized for being the first airline in the world to introduce SMS and IVR booking solutions to its guests to expand its booking system. AirAsia widely utilizes the internet as a booking and payment channel has kept them to be the leading airline company in Asia. Its comprehensive website at (www. airasia.com), allows guest to book and pay for seats, check flight schedules, and acquire information about the airline. The website is so popular, that approximately 45% of AirAsias business is done th rough internet sales. AirAsia became the first airline in the world to offer a multi-lingual website that comes in 6 languages English, Bahasa Malaysia, Mandarin, Tamil, Thai, and now Bahasa Indonesia. This is also one of the advantages of the company as the website is user friendly as well as enabling company to focus on different market segment especially countries in Asia. On the other hand, the management team of AirAsia is also very good in strategy formulation and execution. This is no doubt a crucial strength for Airasia as company strategy is the core element of a business. To be successful in their long terms objective and their business, AirAsia need to identify their strategic management. Company can easily achieve their vision and mission base on the good management. With good management, company is required to be considered of its ability. The ability of the company can be integrated by the SWOT analysis. Airline industry is a unique and complex industry, thus without a good and right management, its possible that AirAsia could not be able to compete with the complex business environment. AirAsia has a strong management team instead of just a general management. The simply general management involved in the major four functions of planning, organizing, leading and controlling may not be sufficient to support the whole organization. It is more concern in the management internally but rather creating competitiveness. The strategy that management team of AirAsia have formulated was a combined of several proven strategies by other low cost airlines. The strategies included Ryanairs Operational Strategy which emphasis on no frill and landing in secondary air port is a good starting point for the organisation. Other strategies like Southwests People Strategy focus mainly on employee while Easyjets Branding strategy is an excellent idea by linking the organization with other service providers like hotels, car rental and etc. Weaknesses The second part of the internal factor of SWOT analysis is the weaknesses. The main weakness of AirAsia is that they do not have their own maintenance, repair and overhaul (MRO) facility. Why AirAsia need maintenance, repair and overhaul facility? It is because since AirAsia is expanding to a huge company and they have huge number of planes need to be serviced in order to ensure the safety of the customer. The lack of own maintenance teams may lead some problems such as renewing contract, misunderstanding of the contact, lack communication, poor quality and delayed services amongst others. On the other hand, they also may not drive the same standards and mission that drives by AirAsia and there is a risk that the confidentiality may be compromised. Thus, without a proper MRO facility, it will affect the productivity and performance of the company causing a hindrance to the road of success of AirAsia. The second weakness of AirAsia is that AirAsia has received a lot of complaint from customers on their service. For examples, flight delays, being charged for more and not able to change flight or get a refund if customers could not make it. Customers are the main source of income for an enterprise especially when it involves services, it is crucial that Airasia set their priority on customers by having the concept of customer first. To maintain a good customer service is essential when competition is getting intense nowadays. When a customer feel unhappy with the services provided to them, it may distort company brand name besides presenting a negative and undesirable image to not only a single customer but a number of them when they are being acknowledge and influent by negative feedbacks through unsatisfied customer. Therefore it is significant for AirAsia to be serious on considering customer complaints and utilized them to improve their services. After reviewing the strengths and weaknesses of AirAsia, we must also consider the external factor of SWOT analysis which is opportunities and threats of Airasia in market place. Opportunities The opportunity of AirAsia is depend on the ever-increasing oil price. The increase of service cost or production cost is the most undesirable result which will decrease the overall return earning of their company. However, the increasing oil price has become another opportunity for AirAsia instead of bringing threat to the company. It is mainly because AirAsia has been emphasized in the low cost strategy and being a low cost leader, although the extra cost of the increase oil price will bring disadvantages to AirAsia, this effect will not be a huge impact to AirAsia, its cost will still be the lowest among all the regional airlines as other airline company also facing the same problem. Thus, AirAsia has a great opportunity to capture some of the existing customers of full service airline and other low cost airlines customers as well. Thus, this opportunity creates a winning position for Airasia when it is a threat for other airline company. Secondly, the ASEAN Open Skies agreement that has been reached is another opportunity for AirAsia. Open Skies is an international policy concept which calls for the liberalization of rules and regulations on international aviation industry especially commercial aviation. ASEAN Open Skies allow unlimited flights among ASEANs regional air carriers beginning December 2008; it allows AirAsia adding Singapore routes which has proven to be high yielding and is expected to deliver sustained profit. This will definitely increase the competition among the regional airlines. Moreover, AirAsia stands at the gate of profitable opportunities, their recent developments and intended expansions will give them a global exposition. As they venture into internet booking and ticketless services for their marketing processes, they would be opened to electronic commerce business solutions for their enterprise, such as SCM, ERP, and EDI etc. Furthermore, the use of internet services for their services would open more opportunities for AirAsia in the process of solving network, communication, and information related problems that could be inherent in the organization. The population of Asian middle class is reaching almost 700 million by 2010 can also creates a larger market and a huge opportunity for all low cost airlines in this region including AirAsia. You can imagine that more and more people would be willing to travel by air; it would bring advantages to AirAsia, however, as well as other company. Threats AirAsia take advantages of lower landing fees at low cost terminal, which is also without airport lounges charges. They also provide E-ticket rather than printed ticket to customer which is cheaper. However, due to the certain rates like airport departure, security charges and landing charges are beyond the control of airline operators, this is a threat to all airlines especially low cost airlines that tries to keep their cost as low as possible. For example, Changi airport in Singapore charges SGD21 for every person who departs from Singapore. This is an extra cost that is compulsory to pay. Different airport charges differently and this might lead to extra uncertain cost for AirAsia. Another threat would be security of their networks. As mentioned above, Airasia is highly depending on their information technology and information system used. For example online booking, customer information and details kept in system may be risky when the security of the networks is susceptible. This will put the company at risk to bear the enormous loss when the information system is being destroyed. The internet is a public domain and as such it is vulnerable to be attacked by hackers or viruses, AirAsia ought to be conscious of these threats and have proper plans and control to prevent any of these to happen. Owning to the facts that most organization are struggling for survival, major players may enter targeted market segment which is profitable. Alternatively, Market segments growth could attract major competition. This will create another threat for AirAsia. AirAsias profit margin is about 30% and this has also already attracted many competitors. Some of the full service airlines have or planning to create a low cost subsidiary to compete directly with AirAsia. For example, Singapore Airlines has created a low cost carrier such as Tiger Airways which is one of their business strategies to gain market value and compete with low cost airline. Therefore it is vital for Airasia to maintain competitive among the rival by upgrading their services consistently. Users perception that high budget airlines may compromise their safety, thus to keep costs low is another threat to AirAsia. AirAsia must have high-quality planning in order to provide customers first-class airline service by ensuring their safety and comforts with an affordable price. AirAsia needs to aware of the market demands and policies for local territories, because economic slowdown could reduce demand for AirAsia. Local Airlines would have easy access to certain information that could aid them; therefore, AirAsia needs to be on constant market audit, market researches and control to keep up with such competition. In conclusion, Swot analysis is a very effective way of identifying strengths and weaknesses, and of  examining the opportunities and threats one tends to face. Carrying out an analysis using  the SWOT framework helps AirAsia to focus activities into areas where one is strong and where  the greatest opportunities lie. SWOT analysis from AirAsia is one of the major components to strengthen the business and allow them to be able to compete with the competitor by possessing a firm position in low cost carrier airline industry. Porters Five Forces Model Power of suppliers In every business industry, suppliers always exist. Power of the suppliers is important as it will affect the industry. Suppliers supply inputs in order to produce goods or services to the customers. Inputs can be referred to raw materials, services such as expertise, components, and labor which are essential to run the firm or to power up the company. In the airline industry, the suppliers are quite influential since there are only two major suppliers which are Airbus and Boeing. Hence there are not many choices for airline industry. Nevertheless, the global economic crisis has limited the new entrant and also reducing the upgrade of planes in the immediate future.    However, both suppliers provide almost same standard aircrafts and hence the switching to AirAsia is low. Moreover, AirAsia placed a large amount of order from Airbus in order to accommodate the heavy demand from the public on its reasonable flights. AirAsia have no problem acquiring airplane from their supplier, AirBus because AirAsia is mainly an AirBuss airplanes user. Its rival, MAS whereas is mainly a Boeings airplanes user. Power of buyers. Besides the compulsory existence of suppliers, buyers are also necessary in the business industry. This is because they are the prerequisite for the company to keep running. Buyers who are also recognizes as the stakeholders are people who demand goods and services from the firm. This tells us that buyer tends to hold bargaining power and this pressurizes firms. Price changes can be sensitive in the competitive market and the consequence might cause firms to lose or gain in revenue. In our case, buyers demand reasonable and affordable flight price from AirAsia. Years after this airlines been incorporated, it successfully satisfy the buyers bargaining power for flights at a low fare by introducing campaign such as Mind Blowing Fair, New Year Sale, 500,000 Free Seats and the latest with Fabulous Fly-Day. AirAsia is first to introduce ticket-less traveling, are nearly accomplish. In this industry, buyers have no bargaining power on price of fare like those in a morning market. In fact, they are often offered cheap fare flight on limited period such Every Friday, 11am-4pm. AirAsia adopted an information technology (IT) similarly to other airlines which called Yield Management System (YMS). Even though this system has affected the price of fare, but it is able to achieve fairness in business to the customers and the firms. As an example, a reservation done at a later date will be charged more than the one done earlier for the same seat. This is to provide advantage in term of lower price for the customers who had put efforts in buying fares earlier. Moreover, high demanded routes or destination tends to be more expensive compare to destinations which are less active. By doing so, AirAsia would be able to cope with total seats demanded by the customers. If price of fares are the same overall, AirAsia would unable to earn from flights which are less popular. The intensity of competitive rivalry The word intensity means the pressure or amount of forces being applied. Thus, this Porters force talks about how competitive are the firms or companies in the business market. In this competitive market, many firms often fall due to their incapability to cope with competitive pressure from the rivals. Those firms will end up losing more than their cost of input or eventually strive into other markets. In order to survive in a competitive market, firm must not fall into dilemma when it comes to advertising, invest in research and development(RD), innovate new yet efficient product and up to date with latest technology. This is because those efforts by least can provide the firm competitive advantages in the market. In Malaysia, there are only two main airlines companies which are operating and dominating in the countrys market, apart from other foreign airlines company. They are AirAsia and Malaysia Airlines (MAS). Firefly is actually a wholly owned airline by MAS. Both of these airlines have been rivals for at least a decade. Thus, it can be concluded that AirAsia is receiving high intensity of competitive pressure from MAS. MAS have always strived to provide comfortable and reasonable fare flights to compete with AirAsia. However, AirAsia is still capable to resist their pressure by providing customers with cheap fare tickets without losing the quality of their services. The main competitive advantage of AirAsia is low cost in providing services. For example, meals during flight are not provided which can save up the cost to provide foods and in return, reducing the cost of fare. Spaces in AirAsias airplanes are fully utilized so that the airplane is able to load more passengers in a single f light. This enables the company to earn more and making them capable to provide cheaper fare flight. AirAsia through its designated system provide customers a comfortable service in booking the flights through internet and mobile. Customers can surf mobile.airasia.com to book flight using mobile or http://www.airasia.com using the internet. Their systematic online electronic ticket ordering process enables them to even cope with mass booking by the customers during day and night. The diagram explains how the system works and notify why the errors are kept to the minimum. It is a computer reservation system (CRM) powered by Navitaires Open Skies technology that includes Internet, call center, and airport departure control functionality. This system has greatly assist AirAsia in achieving success. Even Tony Fernandes, CEO, AirAsia agrees: Navitaires Open Skies technology has truly enabled AirAsias growth from 2 million passengers to 7.7 million passengers in less than two years. Open Skies scaled easily to accommodate our growth. However, I would strongly declare that even though AirAsia indeed is receiving competitive pressure from MAS but, the market or industry itself is not competitive as both of them have already dominate their respective market segments. Threat of New Entrants Barriers to entry are designed to block the way of potential and new entrants from entering a market profitably and to compete with the existing firms. Capital requirements, economy of scale, product differentiation, government and legal barriers are some of the examples of barriers for a new entrant. New entrants to a business will bring a brand new capacity and a desire to gain market share this will apply pressure on prices, costs, and the rate of investment. There is always an underlying pressure for response and alteration for the existing players in a business when there is a new entrance. The competition in a business will be high if it is easy for other companies to enter to this business. As we know the biggest barrier for a new player to enter any business especially airline industry is the cost of entry. Airline industry is a business that requires huge and large investment. Thus, AirAsia has a low threat of new entrants because the airline industry is so saturated that there is barely space for a newcomer even to squeeze its way in. Cost of buying and leasing aircrafts, safety and security measures, customer service, research and development, high manpower and technologies causes the airline industry to become one of the most expensive industries in the world. In this world of today, every primary activity is carried on by specific information technologies especially for business like airline industry. It is extremely costly for a business to implement these information technologies systems. So, this is another barrier for the new players to enter to certain business. For instance, Advanced Planning and Scheduling System (APS) are significant in aviation business. It is costly for a company to implement this system but without implementing and employing the system, no airline as well as AirAsia can run their business smoothly. Air Asia requires APS system to maintain their customers loyalty because APS system is competent in optimizing operational planning and scheduling which enable Air Asia to create new source of cost advantages. As a result, this shows that Air Asia has a high threat of new entrants since those systems are costly to implement. Brand name of existing airlines and frequent fliers point are other barriers to entry. It is really difficult to decoy consumers out of their existing favorite brands. Somehow, an airline with a strong recognition can maintains old customers and lures new customers even though its prices are higher. How does Air Asia do it? Information Technologies (IT) is one of the major that enables Air Asia to offer their customers in lowest possible prices. All airlines industry competes on costs. To maintain and to improve in the current market position as well as new market, AirAsia has implemented the Low Cost Carrier System (LCC) in order to continuously searching for cost advantages. AirAsia has successfully positioned their simple but strong slogan Now Everyone Can Fly in their customers mind by offering lowest possible prices. Lowest possible prices lead to increase in their profit. Its net profit for the second quarter ending 31 December 2004 was reported RM44.4 million, a 322% increase over the previous quarter (AirAsia, 2005). This again shows AirAsia has a high threat for new entrants to enter. Threat of New Substitute Threat of new substitute means the availability of a product that the customer can purchased rather than the industrys product. In other words, substitute product is an alternative of products that offers by other firms that have similar benefits or functions. Profitability of an industry will be affected by the availability of substitutes because customers have the choice to choose. A number of factors such as consumer switching costs, prices and quality of substitute products will determine the presence of threat in this aspect. For local airlines, the threat of substitutes face by AirAsia might be a bit higher than international carriers. Substitutes for air travel to the desired location in a local country include train, car or bus yet time, money, personal preferences and convenience will determining ones decision. Although airlines travel maybe a slightly expensive than by bus or car, the time taken is much faster. Since AirAsia has implemented Low Cost Carrier System which can offers customers in lowest possible price has lead to most of the customers switch to AirAsia as the switching costs is low. AirAsia faced a low threat substitutes for international carriers since there is a low threat of new entrants. Besides, most of the customers choose to travel by air since traveling through air save times. However, in the worldwide market, AirAsia still needs to compete with many existing players such as Cathay Pacific and Japan Airlines. Nevertheless, AirAsia builds and maintains its competitive advantage by offering services at a price that is basically lesser than competitors prices. Above and beyond AirAsia has become the first airline that executed ticketless travelling among its competitors by using computer reservations system. Computer reservation system is a programmed and computerized system that used to store and retrieves information and perform transaction associated to air travel. This assisted AirAsia to perform operation effectively and efficiently. ERP, SCM, CRM In todays globalize economy, information technology (IT) has driven fundamental changes in the nature and application of technology in business. Cross-functional system is the third era of information system, coming after calculation system and functional system. What exactly is the purpose of the system? What benefits will organizations obtain after implementing the system? These questions are so frequently asked that some companies even gave up on executing the cross-functional system as it involves coordinating activities across multiple departments and require workers to comprehensively change the way they used to work. However, cross-functional system will be extremely beneficial if it is applied in the correct manner. A successful application of cross-functional systems is dependent on two factors, people issues and technological issues. People issues include corporate culture, work units and individual decision makers. The important factor in corporate cultures and work units is no doubt cooperation, only by working together managers are able to share information through the system. For efficient decision making, useless or incorrect information in cross-functional systems must also be prevented. Technological issues on the other hand, include information system (IS) elements. Management must compare the advantages of using information system elements such as inputs, processors and outputs with the costs involved. There are plenty of examples regarding cross-functional system, but Supply Chain Management (SCM), Enterprise Resource Planning (ERP), and Customer Relationship Management (CRM) are the 3 types of enterprise system going to be discussed. Supply Chain Management (SCM) is the current trend in most of the organization, where SCM is define as a set of synchronized decisions and activities utilized to efficiently integrate suppliers, warehouses, transporters, retailers, and customers so that the right product or services is distributed at the right quantities, to the right location and at the right time in order to satisfy customers high demand and minimize any unnecessary cost occurred. SCM core objective is to improve customer service by eliminating waste from the system in all types of form including wasted time. Being able to eliminated wasted time allows the coordination of business processes to be speeded up. Commonly, supply chain contains three flows that organizations need to take into account. First is the material flow, where all physical products including the end-products, raw material and so forth flow along the chain. Information flow consist of all types of data including demand, supply shipment, orders and all sort of information that are required in the supply chain. Lastly is financial flow, involving all transfer of money, payment and credit related data which is vital in the supply chain. On the other hand, a companys supply chain is complicated because it might involve hundreds and even tho